US moves to restrict Iran financing oil exports through banks

Oil tankers in the strait of Hormuz. The new law would also make US companies liable for business done by their foreign subsidiaries with Iran. Photograph: Ali Haider/EPA

Banking transactions with Iran and financing for its oil shipments could come under tougher scrutiny after a sanctions bill passed a key US Senate committee.

The bill, if it becomes law, would direct the White House to press the Society for Worldwide Interbank Financial Telecommunication (Swift) to shut out Iran's central bank and the country's other financial institutions from the system used to move money between banks across the world.

"It is inconsistent and troubling that financial communications services providers continue to service those financial institutions" in Iran that are otherwise subject to sanctions, said the provision passed on Thursday and proposed by the Democratic Senator Robert Menendez.

The measure would authorise the US treasury to sanction Belgium-based Swift and the financial institutions that own it, should it not drop Iranian banks. The final decision on sanctions would be left to the White House.

In a response posted on its website, Swift said it was transparent, complied with all sanctions laws and would "continue to do so".

Cutting Iranian banks out of Swift would have a "very disruptive impact" on the banks' ability to do business, said Jeanne Archibald, a partner with the Washington-based law firm Hogan Lovells. "Swift messages are kind of the glue for the worldwide banking system."

For the first time, the bill also extends the reach of sanctions to foreign subsidiaries of US companies. Under current sanctions laws, US firms cannot do business with Iran, but their foreign subsidiaries can and do. One provision in the new law would make US parent companies liable for business done by their foreign subsidiaries.

The bill could have a significant impact on trade of innocuous goods, because many foreign affiliates of US companies lawfully sell consumer products to Iran.

Before the measures could take effect, the bill would need to be passed by the full Senate, squared with existing legislation from the House of Representatives and signed by Barack Obama.

Iran's currency has fallen sharply in recent weeks because of US and western sanctions, many of which target its ability to sell oil.

A further section of the bill attempts to make it easier for families of US citizens killed in bomb attacks in 1983 in Beirut and in Saudi Arabia in 1996 to access frozen Iranian assets.

"We are one step farther down the road to justice," said Lynn Smith Derbyshire, whose brother Vincent, a US Marines captain, was killed at the age 30 in the Beirut bombing. "They destroyed our family," she told Reuters. "Honestly, I just don't want [the money] to go back to Iran."