Fueling Terror: The Dangers of Ransom Payments to Iran

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Chairman Duffy, Vice Chairman Fitzpatrick, Ranking Member Green, and distinguished members of the Committee on Financial Services, Subcommittee on Oversight and Investigations, I am honored to appear before you today to discuss the dangers of ransom payments to Iran.

In particular, I would like to focus my testimony on what we know about the $1.7 billion payment to Iran, including the $400 million cash payment that was tied to the release of U.S. hostages, the legality of such a payment, and most importantly, why such a payment was a missed opportunity by the Administration to limit Iran’s ability to use these funds to support terrorism, weapons proliferation, and human rights abuses.

With the recent one-year anniversary of the signing of the Joint Comprehensive Plan of Action (“JCPOA”) between Iran and the P5+1, it is as important as ever to carefully examine the consequences of that agreement and Iran’s continued destabilizing activities in the region, and to remain vigilant in ensuring that Iran is limited in its ability to support terrorist forces and corrupt the international financial system.

While the JCPOA has arguably curbed Iran’s nuclear activities in the short run, the Islamic Republic continues to send fighters to Syria, develop ballistic missiles in violation of United Nations Security Council Resolutions, and openly support Hezbollah, which is well known to have killed Americans and remains designated as a Specially Designated Global Terrorist, as well as other terrorist groups and militant proxies. Iran has also continued to take American citizens hostage, in particular dual-citizens who have traveled to the country following the partial relaxation of U.S., EU, and UN sanctions on Implementation Day of the JCPOA.  In short, Iran remains a threat to American citizens, our key allies such as Israel, and regional stability in the Middle East.

In addition—and of particular importance to this Committee—Iran poses a special threat to the global financial system.  Beginning in the early 2000s, the United States and the international community more broadly recognized this threat and began actively cutting Iranian banks out of global financial markets and limiting Iran’s ability to use the international financial system to finance its proliferation and terrorist activities.

Make no mistake:  while Iran has signed the JCPOA and begun implementing it, Iran has not changed the underlying criminal activity that has led respectable financial institutions across the world to refuse to do business in Iran or with clients doing substantial business there.  Indeed, one marked development in the past year has been the international financial community’s unwillingness to re-enter the Iranian market, even if legally permitted to do so.

Iran’s unwillingness to change its destabilizing conduct is one of the reasons the payment of the $1.7 billion to the Islamic Republic raises serious concerns that this money will be—or already has been—used to support the Islamic Revolutionary Guard Corps (“IRGC”), the Iranian military, and its proxy terrorist forces throughout the region—and that any future payments will similarly go towards such activities.  While those on both sides of the aisle will debate whether the $400 million, paid upon the successful release of American hostages immediately following Implementation Day, amounted to a ransom, one thing is certain:  The way in which the money was paid—in cash, in the middle-of-the-night, delivered to Iran Air (an entity formerly designated by the Office of Foreign Assets Control (“OFAC”) at the United States Department of the Treasury for supporting the IRGC and supplying goods and services to Hezbollah and Syrian President Bashar al-Assad)—was both troubling and a missed opportunity.

The $1.7 billion payment was troubling in large part because, in providing funds to Iran—including cash—without controls on how Iran would use that money, we allowed the country to disburse these funds to the Iranian military and other nefarious actors.  In addition, the very nature of the payment led Iranian officials to conclude that it amounted to a ransom payment; for example, on January 20, 2016, the commander of the IRGC paramilitary Basij unit reportedly said the reclaiming of $1.7 billion in blocked Iranian assets “had nothing to do the [nuclear] negotiations and was the . . . price that America paid to free its spies.” While the payment itself may not have been a ransom under U.S. law, Iran’s perception of the payment matters; a principle purpose of the United States’ no ransom policy is to deter hostage takers from compromising the safety of American citizens abroad—if terrorist groups and rogue countries do not think the U.S. will pay for hostages, those bad actors will be less likely to take hostages. Because of the particular nature of this payment, Iran believed this to be a ransom and consequently may be more inclined to seize Americans in the future.

The payment is also a missed opportunity because the United States could have set up payments stemming from the settlement agreement struck between Iran and the United States related to outstanding legal issues in a way that conditioned providing the funds on ensuring they would not be used to support terrorism or be given to the Iranian military or other sanctioned parties.  By releasing these funds in a way that limited Iran’s ability to use them to support its destabilizing activities, the Administration could have out-maneuvered the Islamic Republic.

I will focus my comments today on four main areas.  First, I discuss the $400 million and subsequent $1.3 billion payments, including a factual narrative of what we know about the payments.  Second, I assess the legal case concerning whether the Administration’s actions violated any relevant sanctions regulations or underlying U.S. laws.  Third, I detail why—while the Administration was on solid legal footing in facilitating these payments—the way these payments were sent to Iran raises serious concerns.  Fourth and finally, I discuss why the Administration’s approach was a missed opportunity and identify ways that this Committee can help ensure that, in the case of any future payments made to Iran—either by the United States or the private sector—we are able to reduce the risks that Iran uses the funds to support terrorism and other destabilizing activities.