Fueling Terror: The Dangers of Ransom Payments to Iran

Introduction

This summer marked the one-year anniversary of the announcement of the Joint Comprehensive Plan of Action (JCPOA). This deal is fatally flawed in that it provides the Islamic Republic of Iran with a patient pathway to nuclear weapons capability by placing limited, temporary, and reversible constraints on Iran’s nuclear activities. These nuclear “sunset provisions,” which will begin to expire in seven years and mostly disappear over a period of ten to fifteen years, leave Iran as a threshold nuclear power with an industrial-size uranium enrichment and plutonium program, near-zero nuclear breakout capacity, an advanced centrifuge-powered clandestine sneakout capability, advanced ballistic missile and ICBM programs, access to advanced heavy weaponry, greater regional hegemony, and a more powerful economy that could be immune to Western sanctions. Even as Iran temporarily scales back some of its nuclear activities under the JCPOA, the regime’s illicit efforts to obtain proliferation-related technology continues while its other non-nuclear malign activities are expanding.

The deal – as well as the interim agreement known as the Joint Plan of Action (JPOA) – provided Iran with substantial economic relief that helped the regime avoid a severe economic crisis and return to a modest recovery path. The lifting of restrictions on Iran’s use of frozen overseas assets as part of the interim agreement returned about $11.9 billion to Iran. The final agreement provided Tehran with access to a further $100 billion, including over $50 billion in unencumbered, liquid cash, according to the Obama administration. These funds gave Tehran badly needed hard currency to settle its outstanding debts, begin to repair its economy, build up its diminished foreign exchange reserves, and ease a budgetary crisis, as well as providing the regime greater resources for the financing of terrorism and other illicit activities.

The nuclear deal did nothing to address the full range of Iran’s malign activities, including ballistic missile development, support for terrorism, regional destabilization, and human rights abuses. Iran also still owes American terrorism victims and their families more than $55 billion in unpaid, outstanding damages awarded by American courts. The weakening of missile language in the key UN Security Council Resolution, the lifting of a conventional arms embargo in four years, and lifting the missile embargo in seven years severely undermines international efforts to combat Iran’s illicit activities.

A key driver of these threats remains the Islamic Republic’s ability to bankroll and finance a host of terrorist groups, militias, and proxy forces throughout the Middle East, including Hezbollah, Hamas, Palestinian Islamic Jihad, and designated Iraqi Shiite militias, as well expanding the existing asymmetric military capabilities of the Islamic Revolutionary Guard Corps (IRGC) and its elite Quds Force. Iran remains the world’s largest and most dangerous state sponsor of terrorism, according to President Obama’s State Department.

Iran’s ability to access cash outside the formal banking system is crucial in supporting these activities. Tehran also uses cash for other malign activities that it aggressively supports: WMD procurement, missile and heavy weaponry procurement, as well as aid to the murderous regime of Bashar al-Assad in Syria, designated Shiite militias, the Houthis in Yemen, and other malign actors.

Given existing U.S. financial sanctions, Tehran remains restricted in how it can fund these forces and activities through the formal financial system. The regime needs cash – liquid, untraceable, convertible, and easy to transfer. Cash is critical for Iran to sustain and expand these activities.

The subject of this hearing is the nature and consequences of the $400-million cash payment to Iran in connection with the settlement of an outstanding Iranian claim before the Iran-United States Claims Tribunal (the “Tribunal”). We also know that the subsequent $1.3 billion payment to Iran was made in cash. Instead of only focusing my testimony on the question of whether the $400-million and $1.3-billion cash transfers constituted a ransom, I want to broaden the scope of the inquiry to look at a number of related questions:

1.  Was the Obama administration’s payment of $1.7 billion in three separate cash shipments a unique occurrence or part of a pattern of cash payments as part of Tribunal settlements and/or sanctions relief?
2. If this situation was unique, did the administration agree to a cash payment scheme because it stood to receive a very valuable Iranian concession – the release of hostages, for example?
3. How much has Iran received in cash or in gold and other precious metals, in particular, since January 2014, when the interim nuclear agreement came into effect?
4. Did these cash transfers include billions of dollars sent to Iran between 2014 and 2016 as part of the administration’s push for a nuclear deal?
5. Did the administration approve the transfer of billions of dollars in cash to Iran because no formal financial channels existed, or did U.S. officials concede to Iranian demands for this cash?
6. Which Iranian entities received the cash payments, and who were the ultimate beneficiaries of these payments – the Central Bank of Iran, the Defense Ministry, the IRGC, the Quds Force, the Ministry of Intelligence, or other state or quasi-state entities?
7. Did the Obama administration facilitate a massive and unprecedented cash transfer scheme to the leading state sponsor of terrorism with dangerous illicit finance consequences?

According to U.S. Treasury spokeswoman Dawn Selak, it was necessary to pay the $1.7-billion settlement “in non-U.S. currency, in cash” because of “the effectiveness of U.S. and international sanctions regimes over the last several years in isolating Iran from the international financial system.” If this is true, it raises serious concerns that Iran received billions of dollars in sanctions relief from the nuclear agreement in cash. Alternatively, if Iran was able to receive sanctions relief through the formal financial system, it would seem that the administration is not being transparent about the real reasons that the $1.7 billion was paid to Iran in cash.