Aug. 15 (Bloomberg) -- The U.S. is preparing to designate Iran's Revolutionary Guard Corps, an arm of the country's security forces, as a terrorist group to block financing and prevent others from doing business with it, an official said.

The U.S. official, speaking on condition of anonymity because an announcement hasn't been made, confirmed a Washington Post report today on the planned designation. The corps, which would be named a ``specially designated global terrorist,'' operates its own companies and provides investment capital for others, terrorism-finance experts said.

State Department spokesman Sean McCormack declined to discuss ``anything that might be under active consideration,'' when asked about the move by reporters in Washington today.

Inclusion on the list, which is compiled with and maintained by the U.S. Treasury Department, blocks assets of a group and anyone who supports it. The U.S. is seeking to stop what it says is Iranian help to insurgents in Iraq and Afghanistan while pressing the United Nations Security Council for tougher measures against the country's suspected nuclear arms program.

While McCormack said regulatory restrictions prevent him from discussing the matter, he said the U.S. strategy is to ``raise the cost to the Iranian government'' for behavior hostile to American interests. Treasury spokeswoman Molly Millerwise declined to comment.

Iran called media reports of the potential designation ``propaganda,'' according to the state-run Islamic Republic News Agency, which cited an unidentified Foreign Ministry official.

Financial Pressure

The new designation would be separate from Iran's status since 1984 on the State Department's list of ``state sponsors of terrorism,'' which includes sanctions such as limits on U.S. foreign assistance and defense exports and sales.

The Bush administration already has imposed sanctions on some Iranian banks in an attempt to narrow the country's access to the international financial system. In a related effort, American diplomats have been trying to persuade European companies to curtail energy investments in Iran, the second- largest oil producer in the Middle East.

The Revolutionary Guard's commercial activities are worth ``hundreds of millions, if not billions of dollars,'' said Victor Comras, a consultant on U.S. sanctions who ran the State Department's sanctions programs during the Clinton administration.

``They have control over certain oil and engineering activities, they build airports, they have construction companies and retail outlets, and they have large investment companies,'' Comras said.

Risk of Doing Business

Still, the designation might be mostly symbolic because of the previous U.S. sanctions on Iran.

``There's already a reputational risk in doing business with Iran,'' said Roger Robinson, chief executive officer of the Conflict Securities Advisory Group, which tracks publicly traded companies that conduct business in nations listed as sponsors of terrorism. ``The designation could stigmatize foreign publicly traded companies doing business with such an entity and present a further reputational risk.''

Inclusion on the U.S. list would be more effective should European countries follow with similar moves, Comras said.

`Sending a Signal'

``They are sending a signal that, if you deal with these people, then you're dealing with terrorists, and that could have an impact on your dealings with us,'' Comras said. The action also may fuel a movement among states and public pension funds to sell their shares in companies that do business in Iran, he said.

U.S. officials have accused the Revolutionary Guard of supplying technology and training to insurgents. The U.S. previously said five Iranian officials detained after a raid on the Iranian consulate in Arbil, Iraq, on Jan. 11 may be members of the Revolutionary Guard.

The five might belong to a unit of the Guard known for providing money, weapons and training to groups trying to destabilize Iraq and attack U.S. and allied forces, the American military said in a statement at the time.

Iran shares a 906-mile (1,458-kilometer) border with Iraq to the west and both have Shiite Muslim majorities.

President George W. Bush said Aug. 9 that Iran is being told ``there will be consequences'' for people sending deadly explosives to Iraq to be used against U.S. soldiers.

Diplomatic talks with Iran have failed to curb the insurgency, and Iranian-linked bomb attacks on troops are increasing, the State Department said last week. U.S. Ambassador Ryan Crocker has held two rounds of talks with his Iranian counterpart in Baghdad in addition to lower-level negotiations between the two sides.

To contact the reporter on this story: Viola Gienger in Washington at vgienger@bloomberg.net; Alison Fitzgerald in Washington at Afitzgerald2@bloomberg.net.

Last Updated: August 15, 2007 15:27 EDT