FPI Bulletin: Defense of Cash Payment to Iran Falls Short

September 20, 2016

In recent weeks, the Obama administration has repeatedly argued that legal and pragmatic concerns accounted for its decision to use cash for a $1.7 billion payment to Iran. This claim lacks credibility: U.S. law expressly permits direct transactions between the American and Iranian financial systems to resolve outstanding claims before the Iran-United States Claims Tribunal, thereby enabling Washington to track whether Tehran uses the funds for illicit ends. In fact, the circumstances surrounding the payment suggest that the Iranian regime likely demanded a cash payment — and that the administration, eager to secure the release of hostages in time for the nuclear deal’s Implementation Day, hurriedly consented to its demands.

The Administration’s Case

Last month, The Wall Street Journal reported that the United States in January airlifted $400 million in foreign currencies to Iran on the same day that the regime released several U.S. hostages. The money amounted to the first installment of a $1.7 billion settlement aimed at resolving a decades-old financial dispute pending at The Hague that stemmed from a U.S. move to freeze a $400 million trust fund previously used by the shah to buy military equipment from America. The Obama administration sent the remaining $1.3 billion, which constituted interest on the original $400 million, in two separate cash shipments in the ensuing weeks.

The Obama administration has contended that U.S. sanctions law prevented it from engaging in non-cash transactions with Iran. “The reason that we had to give them cash,” said President Obama on August 4, “is precisely because we are so strict in maintaining sanctions and we do not have a banking relationship with Iran that we couldn’t send them a check and we could not wire the money.” In a September 8 hearing before the House Financial Services Subcommittee on Oversight and Investigations, a State Department official raised an additional concern. Tehran required “immediate access so that they could address the critical economic needs that they had,” said Deputy Assistant Secretary Christopher R. Backemeyer, “and at the time our people that were facilitating these transactions felt that the only way to provide that immediate payment was through this mechanism.”

At the same time, the administration has disputed claims that the $1.7 billion constitutes a ransom. Rather, as State Department spokesman John Kirby noted on August 18, it merely amounted to “leverage” that Washington wielded to ensure the release of the hostages. The timing of the payment, according to the administration, stemmed from the improved diplomatic ties between Washington and Tehran that resulted organically from the nuclear agreement. The administration, said Backemeyer, thought it had “a unique opportunity and diplomatic momentum” resulting from the deal to “achieve multiple U.S. objectives” simultaneously.

A Flawed Narrative

The administration’s narrative is not persuasive, both factually and analytically. In fact, the available evidence appears to validate the Iranian version of events, which has explicitly portrayed the payment as a ransom.

In the September 8 hearing, Mark Dubowitz of the Foundation for Defense of Democracies and Eric Lorber of the Financial Integrity Network noted that Washington maintains legal avenues to transmit funds to Iran without using cash. For example, while U.S. law normally prohibits the export of goods or services to Iran, it does allow for exceptions pertaining to legal proceedings between the two countries. To avoid offering Iran access to the U.S. financial system pursuant to the administration’s pledge last year, the Obama administration could simply have transferred the money through a foreign bank.

On Saturday, a Treasury Department spokesman effectively conceded that it retained other options, telling Politico that the administration, on at least two prior occasions, wire-transferred money to Tehran. In the first instance, in July 2015, Washington sent Tehran $848,000 to settle a claim over Iranian architectural drawings and fossils. The second case, in April 2016, entailed a $9 million payment to Iran for the removal of its excess heavy water, a key material for the production of a plutonium bomb.

In this context, Backemeyer neglected to explain why Tehran required an “immediate payment” in the first place — or, for that matter, why a U.S. failure to grant such a demand would have precluded an agreement. Backemeyer’s corresponding claim that Tehran needed the money promptly in order to repair its economy also falls short: The regime actually transferred the total $1.7 billion sum to its military, thereby enabling Iran to continue advancing its hegemonic ambitions. Perhaps more crucially, Backemeyer said he was not “aware” of any member of the Iranian government who specifically requested the payment in cash, but then added that he and other administration officials would be willing to discuss the matter further in a classified setting.

U.S. officials have also failed to articulate a meaningful distinction between “leverage” and “ransom,” and implicitly acknowledged that the hostages’ release would not have proceeded without the payment. As Kirby noted, “it would have been foolish, imprudent, irresponsible, for us not to try to maintain maximum leverage. So if you’re asking me was there a connection in that regard at the endgame, I’m not going to deny that.” Asked by Rep. Sean Duffy (R-WI) during the September 8 hearing whether Iran would have released the hostages had it not received the $400 million, Backemeyer declined to answer, saying, “I cannot speak to that hypothetical situation.” Further complicating the administration’s narrative, one of the hostages, Saeed Abedini, has reported that Iranian officials refused to release him until another plane — presumably the cargo plane with cash — had landed.

Finally, regardless of the validity of these arguments, the administration has ignored the reality that Tehran perceived the payment as a ransom, thereby incentivizing the regime to capture more hostages. As Iranian General Mohammad Reza Naghdi, commander of the Basij militia, said days after the prisoners returned home, “Taking this much money back was in return for release of the American spies.” The Wall Street Journal reported that Justice Department officials opposed the timing of the settlement precisely for this reason, but the administration disregarded their counsel. Thus, in the months that followed, Tehran has in fact incarcerated more Westerners, and may be demanding further cash payments in exchange for their release.

Conclusion

Tomorrow, Congress will continue to investigate the administration’s ransom payment in a hearing before the Senate Banking, Housing, and Urban Affairs Subcommittee on National Security and International Trade and Finance. Lawmakers in the House and Senate are also considering legislation — introduced earlier this month by Sen. Marco Rubio (R-FL) and Rep. Mike Pompeo (R-KS) — that would prohibit future ransom payments (H.R. 5940 and S. 3285). On September 14, the House Foreign Affairs Committee passed a similar bill (H.R. 5931), introduced by Rep. Ed Royce (R-CA), by voice vote.

The Obama administration must provide a public accounting of the circumstances surrounding the ransom that fully explains the legal and strategic options at its disposal as well as Iran’s potential demand for cash. At the same time, the White House should pledge to refrain from providing future cash payments to Tehran for any reason, and condition any future settlement of financial disputes on tangible Iranian steps to halt its regional aggression, human rights abuses, and illicit ballistic missile tests. In the meantime, Congress should work to pass new economic sanctions on Iran — and keep up the pressure on the administration.

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