U.S. froze $2 billion held for Iran in Citibank: report

People walk beneath a Citibank branch logo in the financial district of San Francisco, California July 17, 2009.

WASHINGTON (Reuters) - A U.S. court last year secretly froze more than $2 billion allegedly held for Iran in Citigroup Inc accounts, the Wall Street Journal reported on Saturday, citing legal documents.

The U.S. District Court for the Southern District of New York, acting in part on information provided by the U.S. Treasury Department, ordered Citibank to freeze the money in June 2008, the newspaper said.

The money is in accounts held by Luxembourg's Clearstream Banking AG , a subsidiary of Germany's Deutsche Boerse AG, the newspaper said.

Citibank, Clearstream and the Iranian government declined to comment, the Journal said.

Clearstream has denied holding funds for Iran according to court documents cited by the newspaper, and is fighting to get the funds released.

U.S. firms are forbidden from doing business with Iran. There is no indication Citibank knew the funds could have belonged to Iran, the newspaper said.

The money is part of a battle between the families of U.S. Marines killed or injured in a 1983 bombing in Beirut, Lebanon, that a U.S. court ruled was organized by Iran.

In 2007, a judge ordered Tehran to pay the victims' families $2.7 billion in compensation.

Lawyers for the families seeking compensation subpoenaed the Treasury Department to find information about Iranian assets held in the United States, which led to a secret court order to freeze Clearstream's accounts at Citibank, the newspaper said.

"I was stunned when this money popped up in New York," Steven Perles, a lawyer representing the victims' families, told the Journal.

The case comes as Obama administration weighs whether to pursue more sanctions against Iran over its nuclear program.