CNN News - EU steps up banking sanctions against Iran

Banks in Iran will not be able to communicate with banks in Europe after sanctions kick in on Saturday.

(CNN) -- The organization that facilitates bank transactions around the world said Thursday it has been instructed to discontinue its communications services to Iranian financial institutions that are subject to European sanctions, effectively cutting them off from the global financial system.

SWIFT -- the Society for Worldwide Interbank Financial Telecommunications -- said the move followed a decision by the European Council, which represents the 27 members of the European Union.

The new European Council decision prohibits companies such as SWIFT from providing specialized financial messaging services to Iranian banks under EU sanctions. In a statement, SWIFT said that as it was incorporated under Belgian law it had to comply with this decision.

Lázaro Campos, CEO of SWIFT, said that "disconnecting banks is an extraordinary and unprecedented step for SWIFT. It is a direct result of international and multilateral action to intensify financial sanctions against Iran."

An EU statement issued Thursday said the council had "agreed that no specialized financial messaging shall be provided to those persons and entities subject to an asset freeze," which include entities associated with Iran's nuclear activities.

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Banking analysts say the measure will further hinder Iranian businesses from financing imports and exports, especially in the Gulf where thousands of Iranian trading firms have operations. Some thirty Iranian banks will be affected.

The EU-sanctioned Iranian financial institutions and SWIFT customers have been notified of the disconnection, which will become effective on Saturday.

SWIFT -- which is owned by its members -- handles the messaging involved with transactions worth some $6 trillion daily.

On November last year, the U.S. Treasury Department, along with the British and Canadian governments, announced they would no longer do business with Iran's financial institutions, including Iran's Central Bank.

By Tim Lister, CNN