The US Treasury is close to a decision on blacklisting several foreign banks for defying sanctions against Iran, a senior Treasury official said on Tuesday as lawmakers voiced concerns about weak enforcement of an Iran sanctions law passed last year.

David Cohen, nominated to be Treasury's undersecretary for terrorism and financial crimes, told US senators that he will will vigorously enforce the new law. So far, no banks outside of Iran have been sanctioned under it.

The law, which implements UN-mandated sanctions and aims to cut off funds that could support Iran's nuclear program, effectively requires banks to choose between dealing with the US-led financial system or doing business with Iran.

Cohen said the law has deterred many foreign banks from dealing with blacklisted Iranian institutions, but some are continuing to do so and Treasury is focused on finding them.

'Our first option is to get them to stop,' Cohen told a Senate Banking Committee hearing on his nomination. 'Our second best option is to apply sanctions. Without getting into the details of any particular investigation, we are getting close to a decision point on several institutions.'    

Senator Robert Menendez, a Democrat from New Jersey, said he was concerned that Treasury is not adequately enforcing the new law, including among banks in Turkey, where business ties to Iran run deep.

'I understand that there are Turkish financial institutions that are currently doing business with a designated Iranian bank. Are we ready to sanction them?,' Menendez asked.

Cohen declined to comment on any specific action under consideration but said: 'We are committed to enforcing the law. And (if) just as you say, generically, we have a financial institution that is not responsive to our overtures and it is engaged in activity that is sanctionable under (the law), we will pursue that very vigorously.'    

Cohen traveled to Istanbul last week to prod Turkish financial institutions and government officials to apply the UN sanctions, and urged them to cut ties to Iran's Bank Mellat, one of several state-owned banks that were previously blacklisted by the Treasury.

He noted that the sanctions law had made banks in Turkey more cautious, but said calls by the Turkish government for increased trade and financial ties to Iran were at odds with UN sanctions obligations.   

Menendez said he wanted a sense that Cohen would vigorously enforce the new law before supporting his nomination.

'A sanctions regime that ultimately goes largely unenforced or to low-level players, sends the message of a toothless tiger,' he said. - Reuters