A risky bid on tough Iran sanctions

WASHINGTON - The United States and Europe are considering unprecedented punishment against Iran that could immediately cripple the country's financial lifeline. But that extreme option in the banking world would come with costs.

The Obama administration wants Iran evicted from SWIFT, an independent financial clearinghouse that is crucial to the country's overseas oil sales. That would leapfrog the current slow-pressure campaign of sanctions aimed at persuading Iran to drop what the United States and its allies contend is a drive toward developing and building nuclear weapons. It also might buy time for the United States to persuade Israel not to launch a preemptive military strike on Iran this spring.

The last-resort financial effort suggests the United States and Europe are grasping for ways to show immediate results because economic sanctions have failed to force Iran back to nuclear talks.

But such a penalty could send oil prices soaring when many of the world's economies are still frail. It also could hurt ordinary Iranians and undercut the reputation of SWIFT, a banking hub used by virtually every nation and corporation around the world. The organization's full name is the Society for Worldwide Interbank Financial Telecommunications.

The United States cannot order SWIFT to kick Iran out. But it can punish the Brussels, Belgium-based organization's board of directors. Talks are focused now on having Europe make the first move.

Short of expulsion, Washington and representatives of several European nations are in talks over ways to restrict Iran's use of SWIFT to collect oil profits.

The Obama administration is divided over whether the possible gain is worth the risk in trying to force SWIFT to kick out a member country, in part because of concern that it would set back the global financial recovery. Iran remains a global financial player despite years of banking sanctions; blocking it from using the respected transfer system would be a black mark like no other.

More than 40 Iranian banks and institutions use SWIFT to process financial transactions. Losing access to that flow of international funds could badly damage Iran's economy. It would also probably hurt average Iranians more than current banking sanctions do because prices for household goods would rise while the value of Iranian currency would drop.

Lawyers for SWIFT are holding meetings in Washington. People familiar with the talks say a compromise is possible in which SWIFT would voluntarily bar or restrict Iranian transfers. But if SWIFT fails to act on its own, the United States expects Europe to require it to terminate services for Iranian banks, one Obama administration official said.

David Cohen, the Treasury Department's undersecretary for terrorism and financial intelligence, delivered that message to European Union officials in Brussels this month, said the official, who was not authorized to speak publicly and thus spoke on condition of anonymity.

Mark Dubowitz, a sanctions expert advising the White House on Iran, said the Obama administration was discussing the merits and consequences of forcing SWIFT to block Iranian transactions.

Some in the administration prefer to give time for new sanctions on Iran's Central Bank to take hold before adding even more Draconian penalties.

SWIFT handles cross-border payments for more than 10,000 financial institutions and corporations in 210 countries. It lets users exchange financial information securely and reliably, thereby lowering costs and reducing risk. It operates on trust and neutrality: SWIFT accepts nearly all comers and does not judge the merits of the transactions passing through its secure message system. Its managers generally brush off investigators and enforcement agencies, telling them to take up suspected wrongdoing directly with nations or corporations.

Lawyers familiar with SWIFT's operations said it could bar processing actions with any Iranian party or third parties representing Iran, though that would open the consortium to complaints of favoritism or political influence. It could permit the processing but quarantine Iranian transactions, or require warnings to those doing business with Iran.

Penalties on Iran short of expulsion could allow SWIFT to preserve a greater appearance of neutrality but make business partners think twice, lawyers said.