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By J.E. Dyer

Americans were startled to discover, at the beginning of August, that the release of frozen funds to Iran in January 2016, at the same time as a prisoner exchange, had been accomplished by money-laundering cash.

At the time, the public was told that $400 million of the $1.7 billion frozen-funds settlement had been paid out with pallets of cash, converted into foreign currencies and literally flown into Iran on an unmarked Iranian plane from Switzerland.

That was unsavory enough: running a “prisoner exchange” with Iran like a cartel drug deal.

Obama, naturally, mocked his critics for being upset about it:

Obama explained that pallets of cash were used in the exchange because the United States doesn’t have a banking relationship with Iran.

“[W]e couldn’t send them a check, and we could not wire the money,” he said during a press conference at the Pentagon today.

He insisted that the administration was transparent about the payments to Iran, even though the knowledge about the manner of the payment was not previously disclosed. But Obama mocked the notion that the new details made any difference.

“It is not at all clear to me why it is that cash, as opposed to a check or a wire transfer has made this into a new story,” he said. “Maybe because it kind of feels like some kind of spy novel or you know, some you know, crime novel because cash was exchanged.”

Earlier this week, the public learned that the entire $1.7 billion had been transferred to Iran by the same method, on 17 and 22 January and 5 February.  Instead of one cartel drug-deal drop, there were three.

A Treasury Department official offered this delightfully spun perspective:

The Treasury Department confirmed late Tuesday that the subsequent payments were also made in cash.

“The form of those principal and interest payments—made in non-U.S. currency, in cash—was necessitated by the effectiveness of U.S. and international sanctions regimes over the last several years in isolating Iran from the international financial system,” Treasury spokeswoman Dawn Selak said.

So, basically, we had isolated Iran so effectively that the only way for the U.S. government to do business with Iran was to make like “El Chapo” Guzman.

Reportedly, the cash deliveries to Iran were accomplished with the collusion of the central banks of Switzerland and the Netherlands.  Those banks would most likely have obtained at least some of the cash from big commercial banks.

If the foreign countries and/or banks did this on their own, they’d be in violation of the remaining, unlifted U.S. sanctions on Iran for terrorism sponsorship.  Our terrorism sanctions on Iran are separate from the nuclear-related sanctions.  And cash is untraceable, in terms of how Iran goes on to spend it.  The Iranians could well use any euro or other foreign note they get to buy more terrorism.  (They could use it for other dangerous things too, but it would very specifically violate the sanctions we are still supposedly enforcing, if the cash were used to pay for terror-related activities.)

The U.S. government could thus, under our law, go after the financial interests these foreign entities have in the United States, prosecuting them and potentially imposing fines or even jail time, especially for any Americans involved.  We could prohibit our businesses from doing business with them, as we have done numerous times in recent decades.

But the implication here is that, since it’s the U.S. government doing the cash-laundering, everything’s OK.

That does raise the question why – if it was so OK – Obama didn’t just explain to Congress and the American people that things were being done this way.  If this is all just fine because the government is doing it (and there are times it could be; see below), why all the coy secrecy?

But when did this start?

It now appears that that question will be overshadowed by the next one.  How long has the Obama administration been laundering cash to deliver to Iran, and how much has been processed that way?

The question has been raised in Congress this week, after the revelation that the entire $1.7 billion was paid to Iran in laundered cash.  Since January 2014, Iran has been allowed to receive $700 million per month in payment settlements for foreign oil and gas sales, under the terms of the initial “Joint Plan of Action” (JPA) agreed to in November 2013, as an interim step in the nuclear negotiations.  (The cash deliveries in January 2016 came with implementation of the more recent JCPOA, concluded in July 2015.)

Throughout that time, the terrorism sanctions on Iran have remained in place.  That means it has been illegal to transfer cash by any means to prohibited entities in Iran, including the banks.  It still is illegal, even though Obama has done it on three known occasions now.

Since transferring that $700 million a month in cash to Iranian banks would have been illegal under U.S. law, Congress wants to know how it was done.  And keep in mind, the Obama administration (a) hasn’t explained that, and (b) has so far demonstrated only the model of laundered-cash deliveries as a method.

Mark Dubowitz of the Foundation for Defense of Democracies framed the question for Congress in testimony to the House Financial Services Committee this week.  (His formal statement is here.)

Lawmakers and others are now pressing the administration to disclose how a slew of other payments to Iran were made in the years leading up to the final nuclear accord.

“In July, the Associated Press cited U.S. officials who estimated that Iran ‘brought home less than $20 billion.’ [I.e., from the earlier monthly payments allowed under the JPA, along with access to some other funds authorized by the 2013 agreement. – J.E.] Were these funds repatriated to Tehran in cash or in gold and precious metals? Through the formal financial system? Or through some combination?” Dubowitz asked in his testimony before the House Financial Services Committee.

“The administration should also clarify if the $20 billion dollars is inclusive of the $11.9 billion in [Joint Plan of Action] funds, or if the $20 billion was in addition to the $11.9 billion,” he said. “Either way, it is important to understand how funds were sent. The worst-case scenario here is that Iran may have received as much as $33.6 billion in cash or in gold and other precious metals.”

Dubowitz’s points alone highlight how vague the Obama administration has been about the whole situation.  We literally don’t know if the total amount was $20 billion, or if it was over 50% more than that.  We don’t know how much was in readily spendable cash, and could have gone into things like arming Hamas to attack Israel in 2014, arming the Houthi insurgency in Yemen, attacking U.S.-backed forces in Syria, and funding the S-300 air defense system and Iran’s own weapons development efforts.

Plus – bonus! – we don’t know if the administration has been complicit in laundering the monthly payments in a manner similar to the drug-deal drops in 2016.  From Adam Kredo at WFB again:

The cash payment of $1.7 billion earlier this year was the easiest way to ensure Iran got immediate access to the money, according to [Obama administration] officials.

“Iran had to have it in cash,” Paul Ahern, assistant general counsel for enforcement and intelligence at the Treasury Department, told lawmakers. “Iran was very aware of the difficulties it would face in accessing and using the funds if they were in any other form than cash, even after the lifting of sanctions.”

A cash delivery “was the most reliable way that they received the funds in a timely manner and it was the manner preferred by the relative foreign banks,” Ahren said.

Given the situation, it is likely that the multiple past payments to Iran were conducted in a similar fashion, according to Dubowitz.

The alternatives we had

(1) In political, or policy, terms, the obvious alternative to just paying out $700 million a month to the Iranians starting in January 2014 was to make payments contingent on performance.  The same applies to the $1.7 billion laundered separately in 2016.  The terrorism sanctions have never been lifted.  If we weren’t going to lift them, then compliance with their terms should have been demanded before those funds transfers were made to Iran.

Yes, that almost certainly would have meant either a substantially different agreement in November 2013, or no agreement at all.   But since Iran basically ignored the 2013 JPA and continued to advance her nuclear weapons capability throughout the period November 2013-July 2015, it would be highly misleading to suggest that we’d have lost much that way.  (See here, here,here, and here for starters.)

(2) In terms of mere instrumentality, Mark Dubowitz points out, meanwhile – and several congressmen noted they were fully aware – that a mechanism exists already under U.S. law for transferring funds to Iran for limited purposes, including, specifically, the payment of claims under the Iran-U.S. Claims Tribunal.  The $1.7 billion was paid under those auspices, since it related to a longstanding Iranian claim from before 1979.

The Obama administration has argued that it had no means other than pallets of cash to make the $1.7 billion in payments.  But Dubowitz believes otherwise (FDD research memo, Sep 2016, p. 5):

The administration’s argument is undercut by the sanctions regulations it supposedly relies upon. Individuals and entities (including U.S. and foreign banks) involved in facilitating these transfers are likely not exposed to sanctions-violation risks because all transactions necessary for settling claims under the Iran-United States Claims Tribunal are permitted according to the Iranian Transactions and Sanctions Regulations.  In fact, this license allows direct transactions between the U.S. and Iranian financial systems for the purposes of Claims Tribunal settlements. Under this provision, Washington did not need to transfer the funds to Iran via a foreign bank, nor did the funds need to be transferred in cash. Washington can legally execute the payment without needing to circumvent the sanctions architecture, as administration officials implied was necessary.

And there’s more, directly from Dubowitz’s testimony (p. 4).

Even in the absence of this explicit license in the Iranian Transactions and Sanctions Regulations, the president has authority under the International Emergency Economic Powers Act to authorize banks to facilitate these transactions. Indeed, nearly 3,000 special licenses are granted every year for sales of food, medicine, and other humanitarian-related goods into Iran. Thus, the transfer of funds in cash on pallets to Iran was legally unnecessary. In fact, as the Associated Press reports, there is no precedent for the transfer of such a large quantity of cash in modern American history.

Using this authority openly could actually have been an exact fit for waiving the $700 million monthly settlements under the JPA.  Foreign banks could have handled the transactions without fear of triggering a U.S. Treasury response.

And yet still there’s more, on page 5.

There is, however, a clear precedent for using the formal financial system to transfer money pursuant to claims after the 1979 Iranian revolution. One example is the resolution of the case surrounding the accidentally downed Iran Air Flight 655 in July 1988.  According to the Associated Press, although it ultimately took until 1996 for the U.S. to reach a settlement with Iran, “$61 million was deposited in a Swiss bank account that was jointly held by the New York Federal Reserve and the Iranian Central Bank.” Why was the $1.7-billion settlement different from previous Tribunal-related payments?

Why didn’t Obama use one of these above-board approaches to handling funds transfers to Iran?

What a question that is.

At this point, it’s worth mentioning the additional revelation from last week that a series of secret exemptions given to Iran has basically nullified much of her compliance with the JCPOA.  For nearly three years now, the U.S.-led West has been acting as an ATM for cash withdrawals by Iran.  Yet the goal Obama touted in his political sale of the JCPOA to America in 2015 – that his “deal” would lengthen Iran’s breakout time to a year, throughout the life of the agreement – has been invalidated by those secret exemptions.  At the most conservative estimate, the breakout time at this point would be as little as five months, if Iran pulled out of the “deal” today.  (Iran frequently threatens to do that.)

It could be less.  The longer this goes on, the less sense it makes to treat this whole sequence of events as “a deal on Iran’s nuclear program.”  That’s just not really what it is.

Setting a whole new standard.
Setting a whole new standard.

Crossposted on Liberty Unyielding 

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