Elizabeth Colman British banks have issued a strong protest against fines imposed on them by the United States over dealings with countries such as Iran.

The US Treasury has fined a number of British institutions with operations in America for doing business with countries it disapproves of.

Next month the House of Lords will begin an investigation into the impact of American sanctions on UK firms.The British Bankers’ Association has made a submission to the House of Lords Economic Affairs Select Committee complaining that the US Treasury appeared to be discriminating against foreign banks.

The BBA’s strongly worded statement, obtained by The Times, states that the US policy on prosecutions is interfering with international commerce and clashes with European policy.

“In effect, British banks end up becoming an arm of US foreign policy, in the case of Iran at variance with the UK Government’s policy of legitimate commercial engagement,” the association says.

“Ofac [the US Office of Foreign Policy] would maintain that it has improved its dialogue with the financial section . . . There is a real fear that Ofac’s perceived hard line is beginning to affect the way in which US regulators treat the US branches or subsidiaries of foreign banks.”

The BBA called on the EU and the United Nations to intervene. It gave warning that any “ratcheting up of unilateral US pressure on those facilitating business with Iran or Iranians” would not be “easily absorbed” by financial institutions.

Relations between the US and British authorities have been strained since the extradition of three NatWest employees on fraud charges related to the Enron scandal. The BBA also pointed to a decision by US authorities to fine the Dutch bank ABN Amro $80 million in 2005 over transactions between New York and Iran and Libyan clients.

The House of Lords sought public submissions on possible “problems connected with the use of targeted economic and financial sanctions” and “any evidence to suggest that [sanctions] generate adverse consequences for individuals or businesses that were not intended to be targets”. It is expected to report next month.

Lord Wakeham, the committee chairman, said: “This is to see whether or not we think [sanctions] are working as a means of diplomacy.”

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