By Ian Talley in Washington and Benoit Faucon in London 

The U.S. plans to block Iran's requested $5 billion emergency loan from the International Monetary Fund for funding Tehran says it needs to fight its coronavirus crisis.

Senior officials in the Trump administration said Iran's government has billion-dollar accounts still at its disposal. If allowed to tap IMF financing, the officials said, Tehran would then be able to divert those or other funds to help its economy, which has been weakened by U.S. sanctions, or finance militants in the Middle East, rather than on containing the pandemic.

Iranian "officials have a long history of diverting funds allocated for humanitarian goods into their own pockets and to their terrorist proxies, " one of the administration officials said.

The IMF, which is facing urgent funding requests from scores of governments, said it is in talks with Tehran to determine its eligibility for an emergency loan.

The pandemic has torn through Iran, one of the worst-affected countries, and jolted an Iranian economy already reeling from the Trump administration sanctions under its "maximum pressure campaign." Despite calls from some humanitarian groups and other nations to ease the sanctions, the administration has instead said it won't relent in putting pressure on Tehran.

Iran's representative at the United Nations didn't respond to a request for comment on the U.S. decision on IMF funding. Iranian officials have called the U.S. sanctions amid the pandemic "medical terrorism" and said U.S. offers of humanitarian assistance to help fight the coronavirus are "deceptions and lies."

As the IMF's largest shareholder, the U.S. largely determines the fate of bailout requests, though technically IMF member countries could amass a majority of votes to approve Iran's loan even with U.S. opposition.

An Iranian official said Tehran would like to entice the U.S. not to block the IMF request. The official cited Michael White, a U.S. Navy veteran who was released from an Iranian prison on medical furlough last month to the Swiss Embassy amid the worsening coronavirus outbreak. He must stay in Iran under his bail conditions.

Instead of exchanging prisoners as in the past, the Iranian official said, this time Iran would prefer access to funds, such as the IMF loan or the release of blocked Iranian funds in the U.S.

The State Department says Tehran has sufficient funds to battle the pandemic, including billions of dollars in its National Development Fund, a sovereign-wealth fund drawn from oil and gas revenues, as well as funds controlled by Iranian Supreme Leader Ali Khamenei.

Brian Hook, the State Department's special representative on Iran, said in an earlier interview that Tehran should redirect funds for military operations in Syria and attacks in Iraq toward fighting the health crisis at home.

Beyond denying an IMF loan, the U.S. is also opposed to Tehran tapping the roughly $5 billion in reserves held in its account at the IMF due to the likelihood the funds would be diverted, one of the officials said.

For the IMF, Iran's request is the first Tehran has made to the fund in over six decades, and many nations have stepped up criticism of U.S. sanctions during the pandemic. Still, the U.S. recently approved a sizable increase in the IMF's lending reserves.

The U.S. government is required by law to vote against IMF aid to countries designated as state sponsors of terror, as Iran is, though some experts believe humanitarian exceptions would allow for abstentions or even approval of bailouts.

As it has tightened sanctions, the Trump administration has also pointed to humanitarian exemptions and to financing channels, like the one set up by the U.S. and Switzerland, to allow for such humanitarian trade.

Brian O'Toole, a former senior Treasury Department official in the Obama administration, said that the U.S. should promise not to veto an Iranian loan from the IMF "to purchase humanitarian goods, assuming sufficient oversight to prevent diversion."

Still, banks and companies, fearful of U.S. penalties for circumventing sanctions, have shunned transactions, even those permitted for humanitarian purposes. Industry officials and analysts have said that is in part because during the Obama administration Iran was caught using false invoices for exempted humanitarian trade to evade sanctions.

Write to Ian Talley at ian.talley@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

(END) Dow Jones Newswires

April 07, 2020 20:01 ET (00:01 GMT)