updated 8/28/2006 5:46:21 PM ET 2006-08-28T21:46:21

Terrorism has become a major industry around the world and its central banker is Iran, according to a top U.S. official.

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Iran has been bankrolling Hezbollah, Hamas and other groups, giving them an important source of financial firepower to carry out terrorist activities, the official said.

"Iran is like the elephant in the room, if you will. ... They are the central banker of terror. It is a country that has terrorism as a line item in its budget," Stuart Levey, the Treasury Department's undersecretary for terrorism and financial intelligence, said in an interview Monday with The Associated Press.

Iran nuclear deadline approaches
Levey's comments came as the United States repeated its resolve to pursue U.N. sanctions against Iran unless the country stops enriching uranium, a key step in making nuclear weapons.

Tehran faces a Thursday deadline imposed by the U.N. Security Council to halt its uranium-enrichment program or face political and economic sanctions. Levey didn't talk about what form those sanctions could take.

Iran says its nuclear program is intended solely to generate electricity, while the United States and Europe contend it secretly aims to develop nuclear weapons.

Levey said the United States is working not only to halt Iran's nuclear ambitions but to clamp down on its funding of Hezbollah and its role in the recent bloodshed in Lebanon.

Hezbollah financing
He estimated that Iran was providing Hezbollah hundreds of millions of dollars a year in financial support, in addition to military equipment. Levey said money flowing from Iran also helps finance other terrorist groups, including Hamas and the Palestinian Islamic Jihad.

The Treasury Department, which is working to shut down avenues for terrorists to raise money, is spending more and more time analyzing the financial connections between Iran and Hezbollah, Levey said.

The United States has had economic sanctions against Iran for years and recently has been pressing allies in Europe and Japan to crack down financially on Iran as well.

Institutional reconsideration
Against that backdrop, financial institutions in other countries are starting to question whether they should keep doing business with Iran, Levey said.

"We are starting to see responsible financial institutions look at Iran. They see a government that is pursuing terrorism. They see a government that is pursuing a nuclear program in defiance of international norms. ... These are things that are getting the attention of bankers from around the world," he added. "They are starting to ask themselves ... do I really want to be Iran's banker?"

Still, it is a difficult decision for such banks to make, he acknowledged, given Iran's standing in the global economy, including its position as a major oil supplier.

As a fragile cease-fire in Lebanon still holds, the Lebanese people recently have turned out to sign up for rebuilding aid from Hezbollah _ a development that also concerns the administration, Levey said. The fear is that some of this money will get diverted for terrorism. The U.S. government is monitoring the situation closely, Levey said.

Korea concerns
The United States, meanwhile, is considering tightening economic sanctions against North Korea.

Last month the reclusive, communist-led nation ignored warnings from the United States and other countries and test-fired seven missiles.

Levey shunned specifics about further sanctions against North Korea. However, he observed that banks in Singapore, Vietnam, China, Hong Kong and Mongolia are opting on their own to not do business with North Korea.

"There is sort of a voluntary coalition of financial institutions saying that they don't want to handle this business anymore and that is causing financial isolation for the government of North Korea," Levey said.

Last year, the Treasury department took action against a bank _ Banco Delta Asia SARL _ in Macau, a special administrative district of China, for what it said were lax money-laundering controls, alleging the bank helped North Korea distribute counterfeit currency and engage in other illicit activities.

Given this and other financial action, North Korea has refused to resume six-nation talks meant to persuade North Korea to abandon its nuclear weapons program.

Evil, but smart
In other matters, Levey said he would not provide details about the how the airline terror plot, which was foiled earlier this month, was bankrolled.

He also defended the usefulness of a once-secret program that gives the U.S. government access to a massive international database of financial information to catch suspected terrorists. The existence of the program, which started shortly after the 2001 terror attacks, was made public by news organizations in June.

The department intends to keep the tracking program, said Levey. He said it will take time to assess whether disclosure of the secret program has led terrorist financiers to change their behavior.

"We have got an adversary out there that we are trying to do everything to stop. They may be evil, but they are very smart," Levey said.

The threat to the United States is real. "This is not some made-for-TV movie," he said.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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