By Lesley Wroughton
WASHINGTON (Reuters) - The United States on Tuesday imposed sanctions on Iran's central bank governor and an Iraq-based bank for "moving millions of dollars" for Iran's elite Revolutionary Guard, as Washington seeks to cut off funding it says Tehran is using to fund militant activities overseas.
U.S. Treasury Secretary Steven Mnuchin accused bank chief Valiollah Seif of covertly funneling money on behalf of the revolutionary guard's external arm, Quds Force (IRGC-QF), through Al-Bilad Islamic Bank "to enrich and support the violent and radical agenda of Hezbollah."
The move cuts off Iran's use of a critical banking network, he said. The United States classifies Lebanon's Shi'ite Muslim movement Hezbollah, which is backed by Iran, as a terrorist organization.
"It is appalling, but not surprising, that Iran's senior-most banking official would conspire with the IRGC-QF to facilitate funding of terror groups like Hezbollah, and it undermines any credibility he could claim in protecting the integrity of the institution as a central bank governor," Mnuchin said in a statement.
Speaking in Brussels, Iran's Foreign Minister Javad Zarif called the sanctions against Seif illegal.
The U.S. Treasury also blacklisted Ali Tarzali, assistant director of the international department of Iran's central bank, and the chairman of Al-Bilad Islamic Bank, Aras Habib.
It said Habib had a history of smuggling money to Iranian-backed Iraqi groups and "enabled the IRGC-QF's exploitation of Iraq's banking sector to move funds from Tehran to Hezbollah, jeopardizing the integrity of the Iraqi financial system."
The department said the sanctions would not immediately affect central bank transactions. It said, however, that sanctions being reimposed after the withdrawal of the United States from the Iran nuclear deal would affect certain U.S. dollar transactions by the central bank starting from Aug. 7, 2018.
Last week, two days after U.S. President Donald Trump withdrew from the 2015 Iran nuclear deal, the U.S. Treasury imposed sanctions against six individuals and three companies it said were funneling millions of dollars to the IRGC-QF.
British, French and German foreign ministers met in Brussels on Tuesday to try to find a way to save the nuclear deal without the United States, but appeared hard-pressed over how their companies could continue doing business with Iran once Washington begins to reimpose sanctions.
The IRGC is by far Iran's most powerful security organization and has control over large stakes in Iran's economy and huge influence in its political system. The Quds Force is an elite unit in charge of the IRGC overseas operations.
(Reporting by Lesley Wroughton, additional reporting by Parisa Hafezi in Brussels; editing by Dan Grebler and Rosalba O'Brien)