By Rachelle Younglai and Paul Carrel
WASHINGTON/FRANKFURT, Feb 21 (Reuters) - U.S. lawmakers are crafting a bill designed to stop the European Central Bank from handling business from the Iranian government, a congressional aide said on Thursday, an attempt to keep Tehran from using euros to develop its nuclear program.
The bill, in the early stages of drafting, would target the ECB's cross-border payment system and impose U.S. economic penalties on entities that use the European Central Bank to do business with Iran's government, the aide said on condition of anonymity.
The aide disclosed the new sanctions push ahead of fresh talks on Tuesday in which major powers hope to persuade the Iranian government to rein in its nuclear program, which the United States suspects may be a cover to produce weapons.
Iran, which says its program is for peaceful purposes, has so far resisted pressure from U.S., EU and U.N. sanctions - including steps that target its lifeblood oil revenues - designed to force it to accept a diplomatic solution.
In a disclosure likely to raise concerns about the Iranian program - which has raised the possibility of an Israeli or U.S. military strike against it - a U.N. report on Thursday said Iran has begun installing advanced centrifuges at its main uranium enrichment plant.
In a confidential report, the International Atomic Energy Agency (IAEA) said 180 so-called IR-2m centrifuges and empty centrifuge casings had been hooked up at the plant near the central town of Natanz. They were not yet operating.
If launched successfully, such machines could enable Iran to significantly speed its accumulation of material that the West fears could be used to devise a nuclear weapon.
The U.S. State Department said Iran's installing advanced centrifuges would be "yet another provocative step" but said it hoped Iran would embrace a diplomatic solution and come to Tuesday's talks ready to allay international concerns about its nuclear program.
The talks, which will take place in Almaty, Kazakhstan, will be between Iranian negotiators and officials from Germany and the five permanent members of the U.N. Security Council - Britain, China, France, Russia and the United States.
DEMOCRATIC SUPPORT UNCLEAR
U.S. sanctions have cut Iran off from the U.S. financial system and largely prevented it from conducting bank transactions in dollars, which for the most part must clear through U.S. banks. The draft legislation appears designed to make it harder for Iran to use euros as a substitute.
One of the lawmakers working on the proposed legislation is Republican Senator Mark Kirk of Illinois, an advocate of tighter sanctions on Iran. It is unclear how much support in Congress there may be for the idea.
The European Central Bank's so-called Target2 system is used to settle cross-border payments in Europe and processes around 350,000 payments daily, according to the most recent figures made available.
Although the ECB already complies with European Union sanctions against Iran, the proposed bill is aimed at pressing Europe to do more to prevent Iranian firms and banks from using the Target2 system to conduct transactions involving euros.
"The ECB ensures that no illegitimate transactions are cleared in Target2," a spokesman for the euro zone's central bank said. "But any sanctions are EU sanctions and not an ECB competence."
The ECB provision is part of a wider U.S. bill aimed at choking off funds to the Iranian government.
It is unclear when the bill would be introduced or whether there would be support in the U.S. Congress or the Obama administration to enact another set of economic sanctions.
The United States and the European Union have worked mostly in tandem to impose harsh economic sanctions against Iran, which have so far slashed the country's oil revenues, disrupted trade and weakened its currency.
ECB representatives are due in Brussels at the start of March for discussions on various Iran sanctions issues, EU sources said, though the meetings were not specifically to discuss Target2.
Last year, U.S. lawmakers succeeded in pressuring Belgium-based SWIFT electronic payment system to block Iranian transactions. SWIFT, which facilitates the bulk of global cross-border payments, disconnected designated Iranian financial firms from its messaging system after European regulators ordered the company to do so.