$1.3 Billion of the Cash to Iran was Taxpayer Money

A rancorous partisan debate is raging in Washington over the transfer of $1.7 billion in cash to Iran. The settlement was the balance of a Foreign Military Sales (FMS) trust fund, where Iran deposited $400 million to purchase U.S. military goods before the 1979 revolution. Three decades of interest amounted to roughly $1.3 billion, according to the terms of the settlement.

Numerous U.S. officials have defended the total payment of $1.7 billion to Iran, claiming that it was “their money.” This is not entirely true.

It is certainly fair to argue that the United States owed Iran $400 million. The pre-revolutionary government deposited billions of dollars in an American FMS account in anticipation of purchasing U.S. military goods, and those goods were never delivered. The $400 million was the balance on the account after Iran and the U.S. settled other contract claims and Washington used funds to pay cancelation charges and other fees owed to American companies.

Obama administration officials have gone to great lengths to explain that the $1.3 billion (remitted to Iran in two separate cash payments) was the settlement of a pending case before the Iran-United States Claims Tribunal. These officials have explained that Iran was demanding a much higher amount in interest, and that if a settlement was not paid out, the Tribunal may have ruled in terms more favorable to Iran. State Assistant Legal Advisor Lisa Grosh argued as much before the House Financial Services Oversight and Investigations Subcommittee on Thursday. The Tribunal usually awards interest, although we do not know how the Tribunal would have calculated that interest.

What the Obama administration has neglected to note, however, is that FMS accounts are non-interest bearing. In other words, agreeing to pay $1.3 billion in interest may have been the right move to ensure that the United States did not owe Iran more money, but the $1.3 billion was not Iranian money. It was American.

The $1.3-billion payment was made from the Treasury-administered Judgment Fund, according to administration statements to the press back in January. This was reiterated in a Treasury official’s testimony on Thursday. The Judgment Fund is used to pay claims against the United States that are not otherwise covered by a specific appropriation. But these are still U.S. taxpayer funds.

The debate over these funds is not likely to subside soon. It does not help that the Iranian parliament announced that these funds will be allocated to the defense budget. An argument can certainly be made that the $400 million originally came from Iran’s military, and therefore Tehran is reimbursing itself. But American taxpayers have a right to know that while their government may have been legally obligated to pay Iran, it is their money that was converted to cash and sent to Iran to support its expansionist and often violent agenda in the Middle East.

Annie Fixler is a policy analyst at Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance. Find her on Twitter: @afixler