On September 8, the Treasury Department froze Bank Saderat, one of Iran's largest lenders with some 3,400 branches, from doing any business with US-owned banks on the grounds that it supports terrorism.

Treasury officials accused Saderat and Iran's central bank of channelling hundreds of millions of dollars -- often through unwitting, "blue-chip" Western banks -- to extremist groups and to the country's missile programme.

They said the outfits include the Lebanese Shiite militia Hezbollah and the Palestinian groups Hamas, Islamic Jihad and the Popular Front for the Liberation of Palestine-General Command.

Iran's central bank chief Ibrahim Sheibany has reportedly vowed to take legal action to challenge the US sanctions on Bank Saderat, and threatened to shift some of Iran's currency reserves out of the dollar.

But Treasury officials have been fanning out around the world to ram home the message, especially in Europe and Gulf nations such as the United Arab Emirates and Saudi Arabia.

Treasury Secretary Henry Paulson was briefed on the issue after he took office in July. The former boss of Goldman Sachs was said by aides to be shocked at "extensive intelligence" allegedly revealing that Iran was using dozens of front companies to abuse the banking system.

"Protecting the financial system from abuse by terrorists and illicit financiers is integral to international financial stability and global security," he told an International Monetary Fund meeting here Sunday.

After the latest Group of Seven gathering Saturday, Paulson announced an "educational" campaign so that multinational banks can be "vigilant and identify risks".

"We discussed the need to take action to disrupt terrorist and illicit finance related to specific threats from North Korea and Iran," he said.

The US government accuses Stalinist North Korea of bankrolling its crippled economy through money-laundering and sophisticated forgeries of US dollars.

However, the G7 nations mentioned neither North Korea nor Iran in their post-meeting communique Saturday, speaking more generally of the need for cooperation against illicit financing.

Meanwhile, the United States has acknowledged that it faces tough resistance as it presses for UN sanctions against Iran over the nuclear issue.

Britain, France and Germany are optimistic that their talks with Iran are making progress towards defusing the standoff.

But on Friday, President George W. Bush sternly warned US partners not to take pressure off Iran.

Ahead of his address to the UN General Assembly in New York on Tuesday, Bush said US allies should not permit Iran to "stall" for time.

In line with the US sanctions on Iran, three major Japanese banks will refrain from doing business with Bank Saderat, reports in Tokyo said.

But Japanese Finance Minister Sadakazu Tanigaki said the G7 statement did not necessarily target Iran, which supplies much of Japan's oil. And top European Union officials have made no mention of the Iran issue in public here.

One Gulf delegate at the Singapore meetings said Dubai and other regional financial hubs had shown no reaction to the US clampdown.

"They see it as more of a US-generated fuss, as the Europeans aren't getting excited," he said on condition of anonymity.

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