U.S. urges EU action to overcome Iran sanctions court appeals

(Reuters) - The United States is concerned Iranian appeals to European courts could loosen sanctions against Tehran, said a State Department official on Monday who urged the EU to urgently find a way to allow judges to examine secret intelligence evidence.

Europe's General Court told EU governments in January to lift asset freezes against Bank Mellat and Bank Saderat, two of more than a dozen Iranian banks which the European Union says are helping finance Tehran's nuclear program.

Both the European Union and the United States view sanctions against the Iranian banking sector as a crucial component of economic pressure designed to force Tehran to scale back the nuclear work, which they suspect has covert military goals.

Iran denies it seeks a nuclear weapons capability and says its work is for medical research and generating electricity.

The court argued the EU has failed to provide sufficient evidence the banks are involved in financing the nuclear program, potentially eroding Europe's sanctions efforts.

"We are well aware of this problem," a U.S. State Department official told Reuters during a trip to Brussels. "We are looking at it with some concern."

At the center of the disagreement between EU governments and the court is classified information which the capitals say should not be provided to judges because that could compromise intelligence sources.

The U.S. official said policymakers from Washington had discussed the issue with European governments and institutions, and urged them to explore regulatory solutions that would allow, for example, for judges to review information in a secure way.

"We hope that the European Union is looking at its regulation to see if there are any changes it can make to make these (sanctions) regulations more robust when challenged in court," he said.

"The most difficult question is whether the European Union can find a way to have courts handle classified information in a way that gives member states ... confidence it will be held in secret."

"We will do our part as best as we can and we think the European Union needs to focus on this with some urgency," the official said.

MORE IRAN APPEALS PENDING

EU governments are likely to decide to appeal the rulings regarding Bank Mellat and Bank Saderat later this week.

Bank Mellat was formed through the merger of 10 banks in 1980 and boasts 1,800 branches in Iran as well as branches in Turkey, South Korea, London and Dubai. It has also appealed to the British Supreme Court to overturn a ban on its operations.

More than 30 cases are still pending at the General Court, including ones filed by the Central Bank of Iran and the National Iranian Oil Company (NIOC). Those sanctions severely affected Iran's ability to export oil and carry out international financial transactions.

U.S. senators have also urged European Union leaders to do more to stop the Iranian government from using the European Central Bank, saying the bank's payment system may inadvertently be aiding Tehran in financing its nuclear program.

But EU diplomats say any major work on Iranian sanctions can only be considered after the next round of negotiations between Tehran and six powers. The six - the United States, Russia, China, France, Britain and Germany - are due to meet Iran in the Kazakh city of Almaty on April 5 and 6.