Frustrated over languishing diplomatic campaigns against Iran and North Korea, U.S. officials are finding their backup strategy of financial sanctions has been surprisingly effective against those remaining members of President Bush's "axis of evil."

Over the past year, the Bush administration has persuaded bankers across Europe and Asia to choke off some Iranian and North Korean access to the world financial system, using the taint of terrorism and corruption as leverage.

Treasury Secretary Henry Paulson and others have made the case directly to bankers and government officials around the world in low-profile but remarkable presentations.

Their success so far owes more to the self-interest of banks than to the foreign policy goals of Washington, which accuses both nations of rogue behavior from counterfeiting U.S. money in Pyongyang to hiding a nuclear weapons program in Tehran. U.S. officials say banks have more to lose from rubbing shoulders with foreign banks, trading companies or governments linked to criminal behavior or terrorism.

"What we're trying to do is think of how to use the private sector's natural inclinations to want to ... avoid bad conduct and make sure their reputations are clean," said Treasury Undersecretary Stuart Levey. "We want to figure out how to work with the private sector so they amplify what we want to have happen."

The United States alone can't prevent a foreign entity from doing business with alleged bad guys. But by taking relatively small steps to blacklist two banks that do business with North Korea and Iran, the Bush administration has introduced a whiff of scandal to transactions with those banks or governments.

There is a powerful unspoken message in the U.S. presentations, too. In effect, foreign banks have been warned that their access to the vast U.S. banking system may be at risk if the administration eventually bars all U.S. transactions with overseas institutions that do business with groups tied to terrorism.

The financial moves have gained in appeal because the United Nations has a spotty record of applying meaningful sanctions, and because U.N. action is often laborious and slow. Although the Security Council acted swiftly to retaliate after North Korea tested a nuclear device in October, it has taken nearly a year to produce a weak sanctions resolution on Iran.

The solo U.S. financial strategy is more flexible than international diplomacy, requiring no approval from Congress or other countries. And though there are risks, particularly in the case of Iran, the strategy has worked better than its designers had hoped.

Some two dozen financial institutions have voluntarily cut back or cut off dealings with North Korea since the United States went after a Macao-based bank in late 2005. The Treasury Department claims that Banco Delta Asia was a willing partner in crime or corruption, helping North Korean officials collect surreptitious multimillion dollar cash deposits.

North Korea cried foul, pulled out of international disarmament negotiations and scrambled to find other avenues to hard currency for its isolated, backward economy.

North Korea returned to talks this month conditioned in part on a U.S. pledge to discuss the bank action, but those sessions ended Dec. 22 after five days with no signs of progress. Delegates said the North Koreans refused to even talk about nuclear weapons, instead demanding that Washington lift its blacklisting of Banco Delta Asia.

In the case of Iran, the United States banned U.S. banks from performing an indirect electronic maneuver that allowed a large state-owned bank to broker the sale of oil or other exports overseas in dollars. Oil is traditionally traded in dollars, although U.S. firms are generally barred from doing any business in Iran because of long-standing U.S. sanctions.

Following the North Korean example, the United States targeted only Tehran-based Bank Saderat. Making the announcement in September, Levey listed four Mideast terror groups the bank is accused of serving.

Iran denied the allegations but it hardly mattered. For months, U.S. officials had been showing bankers across Europe what they claim is evidence that Iran's central bank used the international financial system to funnel money to terrorists elsewhere.

Even before the Saderat move, the Swiss bank UBS cut off all dealings with Iran, and European banks HSBC and Credit Suisse scaled back their business there.

Levey said he and others have briefed about a dozen major European financial institutions and all have agreed to trim or cancel their Iranian business. He said he would not name the others that are cutting all business at the banks' requests.

Levey also would not comment on whether the United States plans to go after any of Iran's other five state-owned banks. Bankers assume that is likely if Iran refuses to roll back its nuclear program.

The strategy could fall apart if banks reconsider, perhaps under heavy Iranian lobbying backed by lucrative business prospects.

Columbia Business School banking and economics professor Charles Calomiris thinks the trend is still moving the other way.

"I don't think too many banks want to be known as the bank that decided to do business with Iran while it was pursuing nuclear weapons" and competing banks were pulling out, Calomiris said.