Financial sanctions "painful" for Iran: U.S. official

WASHINGTON (Reuters) - Targeted financial sanctions have been effective in isolating Iran, causing a "painful" situation for Tehran's leaders and raising questions about the Iranian administration, a U.S. Treasury official said on Thursday.

"Iran has found itself increasingly isolated from the international financial system as banks around the world decide that maintaining their Iranian clientele is not worth the risk of unwittingly facilitating (weapons) proliferation or terrorism," Treasury Under Secretary Stuart Levey said in remarks prepared for delivery to an American Bar Association conference in Miami.

"That self-imposed isolation combined with the Iranian regime's mismanagement of their country's economy is beginning to generate a debate about the wisdom of the current regime's policies," he added.

Recent U.S. financial measures targeting specific financial institutions have been more effective in applying pressure than sanctions aimed at an entire state, Levey said.

"Rather than grudgingly complying with, or even trying to evade these measures, we have seen many members of the banking industry in particular voluntarily go above and beyond their legal requirements because they do not want to handle illicit business," he said.

U.S. actions designating Iranian banks as off-limits for business with U.S. firms and individuals have led banks to cut ties with Iranian clients and reinforced U.S. and international diplomatic pressure against Tehran, Levey said.

"The world's leading financial institutions have essentially stopped dealing with Iran, and especially Iranian banks, in any currency, a situation that many in Iran's elite are finding very painful," he said.

(Reporting by Mark Felsenthal; editing by Gary Crosse)