Western sanctions draft targets Iran's banks abroad

A vendor counts money in a shop in Tehran's Grand Bazaar January 19, 2009.

UNITED NATIONS (Reuters) - A Western proposal for fresh U.N. sanctions on Iran includes a call for restricting new Iranian banks abroad and urges "vigilance" against the Islamic Republic's central bank, diplomats said on Friday.

Speaking on condition of anonymity, Western diplomats familiar with negotiations on the draft proposal -- which Washington worked on with Britain, France and Germany and then shared with Russia and China -- said they were no longer pushing for an official U.N. blacklisting of the central bank.

The draft also calls for restrictions on new Iranian banks abroad, which would make it difficult for Tehran to skirt a global crackdown on transactions with existing Iranian financial institutions by setting up new ones.

"We will be looking for a tightening of restrictions of new Iranian bank activity overseas," a diplomat told Reuters.

The U.N. Security Council has imposed three rounds of sanctions on Iran for defying U.N. demands it halt nuclear enrichment. Tehran rejects Western charges that its nuclear program is aimed at developing bombs and says it will only be used to generate electricity.

Another diplomat said urging vigilance about Iran's central bank in the U.S.-drafted proposal should be more acceptable to Russia and China than blacklisting it, which would have made it difficult for anyone to invest in Iran.

"The idea is to call for strengthened vigilance regarding transactions linked to the Iranian central bank, which the European Union and United States and others can then use as the basis for implementing their own tougher restrictions on (such) transactions," a second diplomat said.

Only one Iranian bank -- Bank Sepah -- is blacklisted under an array of U.N. sanctions spelled out in three resolutions adopted by the Security Council in 2006, 2007 and 2008.

The council has issued warnings about two others -- Bank Melli and Bank Saderat -- but has not blacklisted them.

The draft does not call for sanctions against Iran's oil and gas industries as an earlier French draft had proposed.

NO REACTION FROM CHINA

The new draft also targets Iranian shipping firms and the Islamic Revolutionary Guard Corps and firms linked to it. The measures would restrict insurance and reinsurance coverage of cargo shipments in and out of Iran, diplomats said.

It would also expand the restrictions on arms trade with Iran into a full arms embargo, including a global inspection regime similar to one in place against North Korea.

The diplomats said Russia's initial reaction was negative.

"Russia says the draft does not correspond to their idea of what the sanctions should be and they reject many of the measures in the latest draft," a diplomat said.

China has not reacted and has so far refused to engage in "substantive negotiations" on a fourth round of U.N. sanctions against Tehran. The four Western powers hope to organize a conference call with officials from all six countries to discuss the draft but have been unable to do so due to China.

Both Russia and China have lucrative trade ties to Tehran, though Moscow has indicated it could support new punitive steps against Iran provided they are not too severe. China has not ruled out backing new sanctions but has repeatedly said the issue should be resolved through dialogue, not punishment.

Moscow and Beijing reluctantly supported the three previous rounds of travel bans and frozen assets targeting individuals and firms tied to Iran's nuclear and missile industries. Russia and China, like the United States, Britain and France, have veto powers on the U.N. Security Council.

Western diplomats hope to present a formal draft resolution to the full 15-nation Security Council in the coming weeks so it can be adopted some time next month at the latest.

(Additional reporting by Arshad Mohammed in Washington; editing by Todd Eastham)