"If you've ever conducted a transaction in euros, you've probably used Target2—unless, of course, you're doing cash deals out of the back of your car," Jonathan Schanzer and Mark Dubowitz, sanctions experts at the Foundation for Defense of Democracies, wrote in a recent article highlighting the sanctions loophole.
"It also can be used unwittingly to aid Iranian sanctions-busting schemes," Schanzer and Dubowitz explained. "If an Iranian trader, for example, wants to convert euros from his Chinese bank account into yuan and then transfer those yuan to an account held by a Chinese producer of maraging steel (useful for building advanced centrifuges), the Iranian trader's bank will likely use the Target2 system."
An ECB spokesman told the Free Beacon that it is "fully complying" with the E.U.'s sanctions regime.
"The European Central Bank is fully complying with European Union (EU) sanctions against Iran, said Niels Bünemann, the ECB's principal press officer. "The ECB ensures that no illegitimate transactions are cleared in Target2."
"Please note that such sanctions are adopted by the E.U. and do not fall within the ECB's competencies," the spokesperson added.
Congress is readying legislation to target European banks should the E.U. fail to agree on a plan to close the loophole, congressional sources told the Free Beacon.