Mark Dubowitz, executive director of the think-tank Foundation for Defense of Democracies and an expert on Iran sanctions, says that Iranian banks and companies had accumulated large volumes of euros in overseas bank accounts. While some had assumed they were frozen by previous sanctions, he said, they had realised there was a potential way around the restrictions by exchanging the euros for other local currencies where Iran does business – transactions which at some stage would be likely to use the Target2 system.
"Iranian companies have moved to retake control of their euros and convert them into local currencies, which can be used for trade with Asia," he says. "There is an opportunity to move quickly to deny them access to euro assets."
The initial 2011 US sanctions legislation aimed at squeezing Iran's oil trade from the international financial system was sponsored by Republican senator Mark Kirk and Democrat Robert Menendez and passed by 100-0. The new draft legislation is being led in the Senate by Mr Kirk, congressional aides said.
Last year, Congress introduced legislation that threatened sanctions on Swift, the Belgium-based international messaging network between banks which facilitates payments, before Swift said it would exclude Iranian banks from its system.
Some senators are looking at other measures to put more pressure on the ECB, including raising the issue with Jack Lew, the nominee to be Treasury secretary, who is meeting senators this week, and potentially linking it to forthcoming bilateral trade negotiations with the EU.
Some senators have suggested they would link support for the trade talks to a greater commitment from the ECB to police Iranian use of the Target2 system.