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Senators urge EU to plug ECB loophole in Iran sanctions

U.S. Senator Jeanne Shaheen (D-NH) takes her seat for the Reuters Washington Summit in Washington June 26, 2012. REUTERS/Jonathan Ernst
U.S. Senator Jeanne Shaheen (D-NH) takes her seat for the Reuters Washington Summit in Washington June 26, 2012. REUTERS/Jonathan Ernst

By Rachelle Younglai

WASHINGTON (Reuters) - Senators on Monday urged European Union leaders to do more to stop the Iranian government from using the European Central Bank, saying the bank's payment system may inadvertently be aiding Tehran in financing its nuclear program.

On the eve of talks between Western powers and Iran, lawmakers told the EU's leadership in a letter that Iran may be circumventing American and European sanctions by using the central bank to convert euros into local currency and conduct trade.

"We are concerned that these euro conversions in turn free up significant funds to finance Iranian imports, stabilize Iran's monthly budget and allows the regime to continue to engage in sanctionable and illicit activities," said the letter to Herman Van Rompuy, the president of the European Council.

U.S. lawmakers have been successful in pushing the Obama administration to enact tougher sanctions against Iran. Lawmakers also were instrumental in getting the Belgium-based SWIFT electronic payment system to block Iranian transactions.

The Senate letter, which was copied to ECB President Mario Draghi, was endorsed by Democrat Jeanne Shaheen and Republican Mark Kirk and signed by 34 other senators with an interest in Iran sanctions and EU relations.

It comes the day before talks between Iran and six world powers in Almaty, Kazakhstan, about Tehran's nuclear program, which the West says is being developed to make nuclear weapons. Iran denies those charges.

The United States, Russia, China, Germany, Britain and France are trying to persuade Iran to halt its higher-grade enrichment activities, which is a step away from producing potential material for a nuclear device.

In the meantime, U.S. lawmakers are trying to ensure that Iran cannot skirt Western sanctions, which have so far slashed Iran's oil revenue and led to the devaluation of the country's currency.

"While we understand officials at the ECB want to take action to render Iran's foreign-held euros non-functional, they are waiting for an order from the EU Council to proceed," said the Senate letter.

A number of lawmakers are working on a bill that would impose economic sanctions on entities that use the ECB to do business with Iran's government. The bill zeroes in on the ECB's cross-border payment system known as Target2, which processes around 350,000 payments daily.

It is unclear when lawmakers will introduce the bill and whether the Obama administration would enact another round of sanctions against Iran.

"We strongly urge you to take all necessary measures to immediately cut off Iran's ability to use its foreign-held euros by prohibiting ... access to Target2 services by or on behalf of accounts owned or controlled by the government of Iran or its affiliates," the letter said.

(Reporting By Rachelle Younglai; Editing by Fred Barbash, Martin Howell and Bill Trott)

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