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FUELING TERROR: THE DANGERS 

OF RANSOM PAYMENTS TO IRAN 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 8, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–100 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SEAN P. DUFFY, Wisconsin, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

PATRICK T. MCHENRY, North Carolina 

ROBERT HURT, Virginia 

STEPHEN LEE FINCHER, Tennessee 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

ANN WAGNER, Missouri 

SCOTT TIPTON, Colorado 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

AL GREEN, Texas, Ranking Member 

MICHAEL E. CAPUANO, Massachusetts 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

JOHN K. DELANEY, Maryland 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

KYRSTEN SINEMA, Arizona 

JUAN VARGAS, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 8, 2016 ............................................................................................ 1 

Appendix: 

September 8, 2016 ............................................................................................ 73 

WITNESSES 

THURSDAY, SEPTEMBER 8, 2016 

Ahern, Paul, Assistant General Counsel, Enforcement and Intelligence, U.S. 

Department of the Treasury ................................................................................ 11 

Backemeyer, Christopher, Deputy Assistant Secretary for Iran, U.S. Department of State ........................................................................................................ 5 

Dubowitz, Mark, Executive Director, Foundation for Defense of Democracies .. 54 

Grosh, Lisa, Assistant Legal Advisor, Office of International Claims and 

Investment Disputes, U.S. Department of State ............................................... 7 

Lorber, Eric B., Senior Associate, Financial Integrity Network .......................... 57 

Maloney, Suzanne, Deputy Director, Foreign Policy, and Senior Fellow, Center for Middle East Policy, the Brookings Institution ....................................... 59 

McCord, Mary, Principal Deputy Assistant Attorney General for National 

Security, U.S. Department of Justice ................................................................. 10 

Rubin, Michael, Resident Scholar, American Enterprise Institute ..................... 56 

APPENDIX 

Prepared statements: 

Ahern, Paul ....................................................................................................... 74 

Backemeyer, Christopher ................................................................................. 76 

Dubowitz, Mark ................................................................................................ 80 

Grosh, Lisa ........................................................................................................ 98 

Lorber, Eric B. .................................................................................................. 102 

Maloney, Suzanne ............................................................................................ 118 

McCord, Mary ................................................................................................... 124 

Rubin, Michael .................................................................................................. 126 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hill, Hon. French: 

Written responses to questions for the record submitted to Lisa Grosh 

and Chris Backemeyer ................................................................................. 135 

(1) 

FUELING TERROR: THE DANGERS 

OF RANSOM PAYMENTS TO IRAN 

Thursday, September 8, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Sean P. Duffy [chairman of the subcommittee] presiding. 

Members present: Representatives Duffy, Fitzpatrick, Mulvaney, 

Hultgren, Wagner, Tipton, Poliquin, Hill; Green, Capuano, Cleaver, 

Ellison, Delaney, Beatty, Heck, and Vargas. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representatives Royce, Pittenger, Guinta, and Kildee. 

Chairman DUFFY. The Subcommittee on Oversight and Investigations will come to order. 

Today’s hearing is entitled, ‘‘Fueling Terror: The Dangers of Ransom Payments to Iran.’’ 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Also, without objection, members of the full Financial Services 

Committee who are not members of this subcommittee may participate in today’s hearing for the purposes of making an opening 

statement and questioning the witnesses. 

The Chair now recognizes himself for 21⁄2 minutes for an opening 

statement. 

Today’s hearing will examine the Obama Administration’s $1.7 

billion cash payment to Iran to settle longstanding claims predating the Iran revolution. While the settlement was disclosed in 

January, new details about the payments surfaced in August when 

The Wall Street Journal reported that $400 million of that payment was converted into Swiss francs and euros and then flown to 

Iran in cash on the same day that five American detainees were 

released from the Islamic Republic. 

On Tuesday Administration officials were forced to admit that the remaining $1.3 billion it paid to Iran in interest was also handed over in cold, hard cash. Despite vigorous denials that there was 

any link between the payment and the release of American prisoners, the evidence presented by the Administration makes it difficult to believe. 

2 

Iran officials certainly believe that this was a ransom payment. 

A Revolutionary Guard commander said on state media that, ‘‘Taking this much money back was in return for the release of the 

Americans,’’ period, end quote. And one of the prisoners, Pastor 

Saeed Abedini, recalled that while waiting to be freed Iran police 

told him that, ‘‘We are waiting for another plane. So if the plane 

doesn’t come we never let you go.’’ Sounds like ransom to me. 

In an effort to corroborate the Administration’s claims, this committee requested records about the payment from Treasury and the 

Department of Justice more than a month ago. And to date, the 

self-proclaimed most transparent Administration in our history has 

failed to provide any—not one document—to this committee. And 

the witnesses here today only agreed to appear under threat of 

subpoena. 

With jurisdiction over terror financing, this committee has a 

right and a responsibility to understand the facts surrounding this 

peculiar payment. While there is much that we don’t know, we can 

be sure that Iran is committed to its support for terrorist groups 

like Hezbollah, the enemy of Israel and the West, whose leader earlier in the year admitted that he virtually gets all of his funding 

from the Iranian mullahs. 

Iran’s support also goes to Bashar al-Assad, the Syrian dictator 

who uses chemical weapons on his own civilian people. I look forward to an explanation from our witnesses why we would make it 

so easy for Iran to continue to fuel terrorism by U.S. taxpayer expense. 

With that, my time has expired, and I yield to the gentlemen 

from Texas, Mr. Green, the ranking member of the subcommittee, 

for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Mr. Chairman, I appreciate greatly the opportunity to bring some 

clarity to this issue and to a good many other issues. William 

Cullen Bryant is right: ‘‘Truth, crushed to earth, shall rise again.’’ 

So today I would like to take the opportunity to resurrect the 

truth, or resuscitate the truth, if you will. And the truth is this: 

The genesis of this hearing is a meeting that took place at or near 

the time President Obama was being sworn in, when a group of 

very powerful Republicans met and made a conscious decision to do 

everything they could to block any and everything the President attempted to do. 

At that meeting were the top leaders of the House of Representatives to date. At that meeting was a person who sits on this very 

committee, and people from that day forward have been committed 

to blocking everything that the President brings forth. And the 

truth be told, they have done a fairly good job. 

So I don’t agree with the style of the hearing today. I think that 

a better style for this hearing would be, ‘‘Don’t Bother Me with 

Facts; My Mind is Made Up.’’ I think a better style for the hearing 

would be, ‘‘We Kept Our Word.’’ Because that is exactly what is 

happening today. 

We have a circumstance wherein Americans who were being held 

prisoner have been brought home. The exchange was money that 

was owed to the people who were holding the Americans, and we 

are condemning that. You would think that we would have a paVerDate Nov 24 2008 21:22 Mar 08, 2018 Jkt 025944 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\25944.TXT TERI
3 

rade; the President would be saluted; the people who negotiated 

would be applauded. 

But this committee chooses to do what it has consistently done, 

and that is to deny this President any success that they can block. 

Let’s just look at the evidence of what I—of which I speak. 

Dodd-Frank: They fought it tooth and nail and are still fighting 

it and would, if they could, today eliminate the Consumer Financial 

Protection Bureau. 

Obamacare: They have not replaced it. They don’t have a replacement for it. They will repeal it, but they don’t have a replacement. 

And we have voted more than 50 times to repeal Obamacare, the 

Affordable Care Act. 

The Ex-Im Bank, something that has traditionally been agreed 

upon that has been a great benefit to this country: We had to have 

an unusual process to take place to keep the Ex-Im Bank functioning, and still we cannot make loans over $10 million because 

a committee on the Senate side refuses to appoint additional appointees to that Ex-Im Bank board. 

We have refused—not we; the Republicans—to even discuss the 

budget. Usually the budget comes up, there is a hearing, it is discussed, and a decision is made. They have refused to discuss the 

budget. 

And finally, the Supreme Court: Who would have thought that 

we would hold up the Supreme Court’s nomination simply because 

of an agenda that has been set to make sure that this President 

does not have a record of success, a track record of success. 

So here is where we are, and I am going to keep bringing it up. 

This won’t be the last time today. Here is where we are: We have 

people on this committee who were at that hearing—at least one 

person—that meeting that took place. We have two members of the 

senior leadership in the House who were there and they are honoring their commitment. 

That is what this hearing is about today—keeping their word, 

making sure that they do everything that they can to stop this 

President. 

As a matter of fact, what started out as a simple stop-the-President has gone on steroids now and it is literally an effort to destroy 

the presidency, it seems to some—not all. This is disgraceful, if you 

want to know the truth. 

I do not believe that this is the conduct in which a committee of 

the stature of the Financial Services Committee should be engaged. 

We will become the ‘‘Kerfuffle Committee’’ if we are not careful. 

I yield back the balance of my time. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the chairman of the full Financial 

Services Committee, the gentleman from Texas, Mr. Hensarling, 

for 21⁄2 minutes. 

Chairman HENSARLING. Thank you, Mr. Chairman, for convening 

an incredibly important hearing today. 

Any person here today can take out their iPhone or electronic device and Google Merriam Webster’s definition of ‘‘ransom.’’ Quote, 

‘‘Money that is paid in order to free someone who has been captured or kidnapped.’’ 

4 

The American people want to know, did this Administration pay 

ransom? Does it meet the legal definition? And if it doesn’t, did the 

actions of this Administration tragically achieve the same end, 

which is to incent terrorists to kidnap American citizens, and to 

put a price on the head of every tourist, soldier, sailor, airman, and 

Marine who serves or visits overseas? 

Was the cash transaction legal? My guess is if any private citizen 

had done what this Administration had done, they would be indicted on money laundering. Instead, the Administration calls it 

‘‘diplomacy.’’ 

Was the cash transaction legal? If so, should it be legal? And if 

perfectly legal, why did the Administration go to such great lengths 

to hide it from the American people? Why did it take a Wall Street 

Journal expose to bring the true nature of this transaction to our 

attention? 

Why did I have to threaten subpoenas to get the Administration 

to show up in the first place? Did the Iranians demand that this 

payment be made in cash? We have a Terrorism Financing Task 

Force here that knows it is cash transactions that fuel terrorism. 

And it is the Obama State Department which has labeled Iran, 

‘‘the world’s foremost state sponsor of terrorism.’’ It is the President’s Treasury Department that has classified it as, ‘‘A jurisdiction of primary money laundering concern.’’ Then why, Mr. Chairman, why were they given $1.7 billion, $1.3 

billion of which was taxpayer money that could have gone to the 

United States Army but instead apparently is going to the Iranian 

Revolutionary Guard? The American people deserve answers. 

Mr. Chairman, thank you for demanding the answers and calling 

this hearing. I yield back. 

Chairman DUFFY. The chairman yields back. 

I now want to welcome our panel and witnesses today. 

I will now introduce our first panel. Mr. Backemeyer is the State 

Department’s Deputy Assistant Secretary for Iran Affairs, and the 

former Deputy Coordinator for Sanction Policy. 

Ms. Grosh is the State Department’s Assistant Legal Advisor in 

the Office of Internal Claims and Investigative Disputes. 

Ms. McCord is the Principal Deputy Assistant Attorney General 

in the National Security Division of the Justice Department. 

And Mr. Ahern is the Assistant General Counsel for Enforcement 

and Intelligence at the Treasury Department. 

Welcome, all of you. 

In a moment, the witnesses will be recognized for 5 minutes to 

give an oral presentation of their testimony. And without objection, 

the witnesses’ written statements will be made a part of the record. 

I would note that I don’t believe you have provided written statements, but I anticipate those statements will be coming. And so, 

the Chair intends to submit any witness statements pursuant to 

general leave for inclusion in the hearing record. 

Once witnesses have finished presenting their testimony, each 

member of the subcommittee will have 5 minutes within which to 

ask the panel questions. 

On your table I would just note there are three lights: green 

means go; yellow means you have 1 minute left; and red means 

your time is up. 

5 

And with that, Mr. Backemeyer, you are now recognized for 5 

minutes for your opening statement. 

STATEMENT OF CHRISTOPHER BACKEMEYER, DEPUTY ASSISTANT SECRETARY FOR IRAN, U.S. DEPARTMENT OF 

STATE 

Mr. BACKEMEYER. Thank you, Mr. Chairman. As you said, my 

name is Chris Backemeyer and I am the Deputy Assistant Secretary of State for Iranian affairs. I am a career State Department 

official and I have worked on Iran for the better part of the last 

decade. 

I welcome the opportunity to come before the committee as well 

as the American people and describe and correct some of the misunderstandings about the about The Hague Claims Tribunal settlement that was reached in January of this year. 

As you know, President Obama and Secretary Kerry announced 

the settlement on January 17th. When it was concluded it specifically noted that the settlement involved $400 million for the FMS 

Trust Fund that had been established with Iranian funds, as well 

as $1.3 billion as a compromise on interest on this sum. This was 

also posted on the State Department website. 

After the announcement we received inquiries from Congress, 

and in each case we offered to provide closed briefings to members 

and staff. And one member requested such a briefing, which we did 

provide. 

The Hague Claims Settlement resurfaced in the press again recently, as you have noted. And again we received questions, and 

again we offered to provide a closed briefing. Two days ago, we provided two such briefings to House staff and to Senate staff. 

And we are happy to be here today to continue discussing this 

issue and all of the things that we have accomplished for the American people through our diplomatic efforts toward Iran. 

I should note at the outset that there will be limitations to what 

I and my colleagues can say in an open setting. As I mentioned 

earlier, we have previously offered closed briefings because there 

are a number of litigation and diplomatic sensitivities that could 

jeopardize U.S. interests if we were to go into too much detail. 

Specifically, as my colleague will explain in a minute, the settlement in January addressed a significant part but only one part of 

a much larger multibillion-dollar claim which is being actively litigated. Iran has a long history of mining the U.S. public record for 

ammunition to use us against—use against us in claims litigation. 

This includes statements that have been made in congressional 

briefings. 

As a result, it is important—it is extremely important that we 

not say anything in a public setting that would jeopardize our defenses to Iran’s remaining claims of the tribunal. 

With those limitations, though, I will proceed to provide you with 

as much information as I can. I think the best way to start is to 

take a moment to summarize the series of events that occurred on 

the weekend of January 16th and 17th, a weekend where we finalized a number of diplomatic efforts that advanced U.S. interests in 

significant ways. 

6 

As you may be aware, at this time the United States was pursuing multiple lines of effort that we sought to finalize on or 

around the same time in mid-January. First, we were on the verge 

of implementing the nuclear deal and the International Atomic Energy Agency, or IAEA, was in the process of verifying that Iran had 

met all of its commitments under the deal. 

On that weekend Iran’s breakout timeline went from less than 

90 days to over a year and 98 percent its enriched uranium stockpile was removed and extensive transparency measures were implemented. 

At the same time, we were pushing to finalize an arrangement 

to get several wrongly detained American citizens, including Post— 

Washington Post reporter Jason Rezaian, Christian Pastor Saeed 

Abedini, and former Marine Amir Hekmati safely out of Tehran, 

which was a top priority for us and one that I know Congress 

shared. 

We had been pressing the Iranians to release these Americans at 

every opportunity throughout the negotiations of the nuclear deal 

and continued our efforts to secure the release over 14 months at 

separate discussions. These individuals were facing lengthy prison 

terms if not potentially worse sentences on trumped-up national security and espionage charges. 

And lastly, our lawyers were working to finalize the settlement 

of a longstanding claim that the Iranians had filed at the Iran-U.S. 

Claims Tribunal regarding the Foreign Military Sales Trust Fund. 

The issue of settling the large remaining claim a number of 

times—sorry—the issue of settling the large remaining claims of 

The Hague, including the trust fund, had been raised by Iran a 

number of times over the years. The Iranians have been making 

a push at the tribunal to have a hearing on this case and we knew 

they were eager to settle the case so that they could address critical economic needs. 

As my colleague will describe in a moment, we realized that we 

could take advantage of the importance that Iran attached to recovering the principle from the FMS Trust Fund in order to drive a 

bargain on the 37 years of interest. 

Now, there has been much—recently much attention paid to the 

timing of these various issues. So I think it is worth clarifying here 

today—I think it is worth clarifying some of the 

mischaracterizations here today. 

It is important to remember that for more than 3 decades, we 

have had no diplomatic relations with Iran and minimal diplomatic 

contact. As a result, there was significant risk that any one of 

these efforts could unravel at any time. 

The one we were most worried about was the consular dialogue, 

where we feared that our American citizens would not be freed. We 

therefore had some pretty—or this process had gone in fits and 

starts and there were elements inside of Iran extremely opposed to 

any sort of arrangement in which our citizens would be freed, and 

we had some pretty significant concerns that it would unravel. 

On January 16th and 17th, when after the terms of the consular 

arrangement had been finalized and the Swiss were just about 

ready to fly our people out of Tehran, our fears were realized when 

we were unable to locate the wife and mother of Jason Rezaian. It 

7 

was agreed that Jason’s wife and mother would also be allowed to 

leave Iran as part of this deal, so their disappearance was highly 

concerning. 

At this point the IAEA had verified Iran’s commitments on the 

JCPOA and the nuclear deal had begun, and my colleagues at the 

Treasury Department had begun the necessary arrangements to refund the principal in the FMS Trust Fund, but the payment had 

not yet occurred. When this uncertainty presented itself we became 

very concerned and decided to take a pause before finalizing this 

other line of effort—specifically, the finalization of the payment for 

settlement of the FMS Trust Fund. 

After a stressful night of uncertainty and after several high-level 

phone calls, including by Secretary Kerry, we were able to confirm 

the location of Jason’s wife and mother, and get them on an airplane so that they could leave Iran. With that resolved we moved 

forward with the reciprocal humanitarian gesture in which we provided the relief to certain Iranian nationals, including several dual 

U.S.-Iranian nationals that had primarily been charged with sanctions-related crimes, and we reinitiated our efforts to finalize the 

outstanding actions that we had agreed to on The Hague Claims 

Tribunal, including the refund of Iran’s FMS Trust Fund principal. 

This decision was made out of prudence when the success of our 

diplomatic efforts was in serious doubt. So we took the prudent 

step to pause, assess the situation, and resolve our concerns before 

moving forward. 

Through these negotiating tracks we were able to conclude these 

issues in a manner that advanced our core interests—again, ensuring Iran can never have a nuclear weapon, potentially saving taxpayers billions of dollars on this claim, and freeing wrongfully detained Americans as well as their family members. Again, each of 

these arrangements was analyzed on its own merits and determined to be in U.S. interests. 

The release of several U.S. citizens along with Jason Rezaian’s 

mother and wife by Iran was based on reciprocal humanitarian gesture in which we provided relief to certain Iranian nationals, including several dual U.S.-Iranian nationals. And the release of the 

FMS Trust Fund monies was based on a settlement of Iran’s claim 

for those monies and for 37 years of interest—a settlement that 

was highly favorable to the United States. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Backemeyer can be found on 

page 76 of the appendix.] 

Chairman DUFFY. Thank you. 

I now recognize Ms. Grosh for 5 minutes. 

STATEMENT OF LISA GROSH, ASSISTANT LEGAL ADVISOR, OFFICE OF INTERNATIONAL CLAIMS AND INVESTMENT DISPUTES, U.S. DEPARTMENT OF STATE 

Ms. GROSH. Thank you, Mr. Chairman. 

I am the Assistant Legal Advisor for International Claims and 

Investment Disputes of the Department of State, where I have 

worked to defend the United States against Iran at The Hague Tribunal for nearly 30 years. Over that time we have won some cases, 

we have lost some, and sometimes we have decided to settle. And 

8 

I am here today to explain as best as I can in this setting the settlement that was announced in January. 

As my colleague, Mr. Backemeyer, explained, this was only a 

partial settlement of a very large case. The rest of that case is ongoing at The Hague Tribunal today. Because of that, I am limited 

in what I can discuss in this public setting. 

As he explained, Iran and its lawyers are vigilant in scouring the 

public record for statements or information that they can use 

against us in these arbitrations. In fact, I can recall being The 

Hague Tribunal many times and hearing Iran quote extensively 

from things that witnesses and Members of Congress said in hearings, trying to use that to their advantage. 

These are multibillion-dollar claims against the United States, so 

for some of your questions I may need to defer the question to a 

closed setting like the one that we did for House and Senate staff 

earlier this week. 

Now to provide some background, the United States and Iran entered into the Algiers Accords in 1981, which created The 

Hague’s—The Hague Tribunal. And it was primarily created to address claims of U.S. nationals, but also claims between the two governments. 

The agreement was entered into by the Carter Administration, 

it was endorsed by the Reagan Administration, and was debated by 

both Houses of Congress. And in the end it was determined that 

the Algiers Accords and the Tribunal process were of great benefit 

to the United States and U.S. nationals. 

In the first 20 years of the tribunal process it focused primarily 

on resolving claims of U.S. nationals for debt, contract, expropriation, and other measures affecting property rights. U.S. citizens 

and companies received over $2.5 billion in awards and settlements 

from that process. 

And there were significant government-to-government claims 

that were also filed at the tribunal. The majority and certainly the 

largest were by Iran against the United States, including Iran’s 

large contract claims arriving—arising out of its former—foreign 

military sales program. 

Like of FMS customers, Iran paid money into a trust fund that 

was used to facilitate prompt payment to the U.S. contractors 

working on Iranian contracts. But by January 1979 Iran had already been struggling to make the necessary payments on its more 

than 1,000 outstanding FMS contracts. 

In February 1979 Iran and the United States concluded a memorandum of understanding providing for the cancellation of many of 

the remaining purchases. The two sides worked on implementing 

the MOU and to wind down Iran’s FMS program over the ensuing 

months. 

But as we all know, in November 1979 the hostages were taken 

and those efforts became to an end. The dispute over the FMS 

Trust Fund and interest which resulted in the settlement in January of this year was part of Iran’s FMS claims that it filed with 

the tribunal in 1982. So you can imagine the scale of it and the 

money involved. It is a giant breach-of-contract case covering 1,126 

huge FMS contracts. 

9 

Before the settlement in January other parts of the FMS claims 

were decided or settled some time ago. Indeed, settlement discussions over technical legal matters have been held in this channel 

for decades, typically led by the State Department legal advisor 

and the Iranian presidential legal advisor. 

My estimate is that since the early 1980s, through the Reagan, 

Bush, and Clinton Administrations, some 40 rounds of claims meetings have occurred at this level. Indeed, the prior settlements with 

Iran of other portions of the FMS claims occurred during the first 

Bush Administration. 

In 1989, for example, the United States and Iran settled a claim for $7.5 million for spare parts. It was paid from the Judgment 

Fund. In 1990 the parties entered into a partial settlement for 

$200 million from the trust fund, and this is the same trust fund 

that was the subject of the final settlement in January. 

And in 1991 the parties also settled Iran’s claim for titled FMS assets for $278 million, and this was paid from the Judgment 

Fund. Apart from the FMS claims there were other significant settlements between the parties, including in 1990, when Iran paid 

the United States $105 million from—in settlement of certain U.S. 

national claims and U.S. Government claims. 

These settlements, and in particular the FMS settlements, were 

reached at key moments in the cases, such as before key hearings 

or when they were on the verge of going to decision. In the past 

2 years, as proceedings of the tribunal have been advancing, we revisited the possibility of settlement of tribunal claims through 2014 

and 2015. 

These discussions led to settlement of small claims that were the 

subject of ongoing hearings. They involved architectural drawing 

and were—that were transferred to the Tehran Museum of Contemporary Art, and for fossils that were transferred to the Ministry 

of the Environment. 

In the spring of 2015, after years of extensive briefing, Iran 

pressed the tribunal to schedule comprehensive hearings in these 

remaining FMS claims. The tribunal ordered both parties to file 

their respective proposals for the structure of hearings, and Iran 

filed its proposal on November 11, 2015. 

Iran was also pressing for a preliminary ruling on issues including the outstanding balance of the FMS Trust Fund and interest 

since 1979. They sought interest based on a provision in the 1979 

memorandum of understanding calling for unexpended FMS funds 

associated with Iran’s FMS program to be placed in an interestbearing account. 

With the settlements over the smaller claims concluded in December 2015 and with the hearings on the FMS claims on the horizon we were able to achieve this most recent settlement, which finally and fully resolved Iran’s claim for funds in the FMS Trust 

Fund as well as interest since 1979. 

As we publicly announced in January, pursuant to the settlement, Iran received the balance of $400 million in the FMS Trust 

Fund as well as roughly $1.3 billion, representing a compromise on 

the interest. The trust fund balance of $400 million was paid from 

Iranian funds that were deposited in the FMS Trust Fund itself in 

connection with the program. The payment for the compromise on 

10 

interest was provided out of the Judgment Fund, as was the case 

for the largest prior settlement of the FMS claims during the Bush 

Administration. 

If Iran’s claims for the trust fund balance and interest had gone 

to decision in The Hague Tribunal the United States could well 

have faced significant exposure in the billions of dollars. Iran, of 

course, was seeking very high rates of interest for a period of over 

3 decades. We were able to secure a favorable resolution on the interest and avoid the potential for a much larger award against us. 

The details of why we settled for this amount is litigation-sensitive and getting into that explanation would get at other issues 

still pending at the tribunal. Iran’s lawyers would try to use my 

words, or maybe even your words, against us to help their position 

at the tribunal. 

But what I can say here today is that I believe that this settlement was the best thing for the United States. It was the best way 

to avoid a possible decision from the tribunal ordering us to pay a 

lot more. 

Thank you. 

[The prepared statement of Ms. Grosh can be found on page 98 

of the appendix.] 

Chairman DUFFY. Thank you. 

The Chair now recognizes Ms. McCord for 5 minutes. 

STATEMENT OF MARY MCCORD, PRINCIPAL DEPUTY ASSISTANT ATTORNEY GENERAL FOR NATIONAL SECURITY, U.S. 

DEPARTMENT OF JUSTICE 

Ms. MCCORD. Good morning, Chairman Duffy, Ranking Member 

Green, and members of the subcommittee. Thank you for the opportunity to appear before you today to discuss the Department of 

Justice’s role in the settlement of Iran’s claim before the Iran-U.S. 

Claims Tribunal at The Hague for the funds in the foreign military 

sales or FMS Trust Fund, as well as Iran’s associated claim for interest on those funds. 

As the attorney general has made clear when the deal was first 

announced in January, the Department of Justice fully supported 

the Administration’s resolution of several issues with Iran, including the settlement of The Hague Tribunal Claim involving the FMS 

fund as well as the arrangements that led to the return of U.S. citizens detained in Iran. 

With respect to The Hague settlement, when there is a settlement of litigation that is pending against the United States it is 

generally paid from the Judgment Fund unless there is a separate 

source of funding for the settlement. 

For a payment of a settlement to be made from the Judgment 

Fund, the attorney general must certify to the Treasury that the 

payment of the settlement is in the best interests of the United 

States. 

Here, the attorney general approved the settlement and certified 

payment from the Judgment Fund of the portion of the settlement 

that resolved the interest dispute. The certification was based on 

the Department of Justice’s typical assessment for a Judgment 

Fund payment. 

11 

Assessment of a settlement payment from the Judgment Fund 

includes consideration of the exposure that the United States faces 

from the claim proposed for settlement. It also considers the likelihood of an adverse ruling against the United States, the likely size 

of such an award, the background of the litigation, the tribunal, 

relevant legal arguments, relevant facts, and governing legal doctrines. 

The Department’s certification of this settlement payment from 

the Judgment Fund was based on the assessment that it was in 

the best interest of the United States, that the payment was significantly less than the United States’ exposure under the claims 

for the balance in the FMS account and the interest on those funds. 

The Department of Justice was also involved in the consular negotiations with Iran and in effectuating the ultimate arrangements 

that led to the release of the detained American citizens. In this 

regard, the Department identified certain criminal cases involving 

Iranian and Iranian-American defendants for which relief could be 

provided as a reciprocal humanitarian gesture. The defendants in 

these cases had been charged primarily with violating the U.S. 

trade embargo. None were charged with terrorist activity of other 

violent crimes. 

As has been noted previously, the ultimate arrangement involved 

the pardon or commutation of seven defendants who had been convicted or were awaiting trial in the United States and the dismissal 

of criminal charges against 14 others, all of whom were located outside the United States and for whom our attempts to obtain custody through extradition had failed or were assessed to be likely to 

fail. 

The Department was also responsible for preparing and filing the 

paperwork related to the pardons, commutations, and dismissals. 

Thank you for the opportunity to testify, and I am happy to answer any questions you may have. 

[The prepared statement of Ms. McCord can be found on page 

124 of the appendix.] 

Chairman DUFFY. Thank you, Ms. McCord. 

And Mr. Ahern, you are now recognized for 5 minutes. 

STATEMENT OF PAUL AHERN, ASSISTANT GENERAL COUNSEL, 

ENFORCEMENT AND INTELLIGENCE, U.S. DEPARTMENT OF 

THE TREASURY 

Mr. AHERN. Chairman Duffy, Ranking Member Green, thank you 

for inviting me to testify this morning. 

I am very pleased to be here with my colleagues from the State 

Department and the Justice Department. My name is Paul Ahern 

and I am the assistant general counsel for enforcement and intelligence at the Treasury Department. 

I am here today to discuss with you the Treasury’s role in effectuating the payments related to the January 2016 settlement of the 

long-outstanding claim at the Iran-United States Claims Tribunal 

at The Hague. The settlement involved two payments by the 

United States regarding an account established decades ago with 

Iranian funds as well as the compromise of its claim for interest 

on that account. 

12 

The Administration publicly announced the $1.7 billion settlement on January 17th, 2016, and that announcement is publicly 

available at the State Department’s website. 

Now, for the first settlement payment Treasury assisted the Defense Finance and Accounting Service, or DFAS, in crafting a wire 

instruction to transfer $400 million on January 14th, 2016. The 

$400 million came out of what is typically referred to as the Foreign Military Sales Trust Fund, or the FMS account. It had amounted to about $600 million until 1990, when the 

Bush Administration entered into a settlement returning $200 million to Iran, and since that time the fund has amounted to about 

$400 million. Treasury worked with DFAS and the Federal Reserve 

Bank of New York so that the funds transferred from DFAS to a 

European bank. The funds were then converted to a foreign currency, were withdrawn as foreign currency bank notes, and physically transported to Geneva. 

On January 17th Treasury dispersed the payment to an official 

from the Central Bank of Iran for transfer to Tehran. The funds 

were under U.S. Government control until their disbursement, pursuant to the settlement. 

The second payment, involving settlement over the dispute over 

accrued interest, was dispersed out of the Judgment Fund. The 

Judgment Fund is the source of funding Congress is provided for 

use generally in paying judgments and settlements of claims 

against the United States when there is no other source of funding. 

Awards and settlements of tribunal claims have been paid from the Judgment Fund in the past, including the $278 million settlement reached in 1991. Though the payment to settle the dispute 

over accrued interest was one payment, the Judgment Fund system 

has a technical limitation that prevents it from processing individual claims in amounts over 10 digits in length. Therefore, the 

single claim of $1.3 billion was broken into 13 claims of 

$99,999,999.99 and the remainder of $10,390,236.28. 

As in similar prior instances, the system’s technical limitation required a claim to be divided into these smaller amounts. These are 

amounts are displayed on Treasury’s Judgment Fund website, as 

is additional information about claims processing through the 

Judgment Fund. 

Treasury dispersed the payment after receiving the appropriate 

approvals from the Department of Justice. The payment from the 

Judgment Fund was initiated through a transfer to a European 

bank. In this circumstance it was held available for disbursement 

to Iran. 

Pursuant to an arrangement between Iran, the home country of 

the European bank, and the United States, the European bank converted the $1.3 billion into a foreign currency, withdrew the foreign 

currency in foreign currency bank notes, and then dispersed the 

funds as bank notes to an official from the Central Bank of Iran. 

This process occurred in two installments—one on January 22nd 

and one on February 5th. 

And I would note that the sanctions regime we built with our 

international partners had effectively cut off Iran from the international financial system. Iran was very aware of the difficulties it 

would face in accessing and using the funds if they were in any 

13 

other form than cash even if—after the lifting of sanctions under 

the Joint Comprehensive Plan of Action, or JCPOA. 

Therefore, effectuating the payment of the funds in the FMS account and the subsequent interest payments in cash was the most 

reliable way to ensure that they received the funds in a timely 

manner, and it was the method preferred by the relevant foreign 

banks. 

For both the payments to settle the dispute over principal and 

the interest, no direct transfer was made from any U.S. account to 

Iran. In addition, these transactions complied with U.S. sanctions 

law and did not require a unique license, waiver, or other form of 

authorization. 

Treasury’s regulations at Title 31 of the Code of Federal Regulations Section 560.510 explicitly authorize all transactions necessary 

to payments pursuant to settlement agreements entered into by the 

United States Government in a legal proceeding in which the 

United States is a party, such as a settlement of claims before the 

tribunal. 

Thank you again for the opportunity to testify about these issues, 

and I look forward to your questions. 

[The prepared statement of Mr. Ahern can be found on page 74 

of the appendix.] 

Chairman DUFFY. Thank you, panel. 

The Chair now recognizes himself for 5 minutes. 

The panel has made a point of noting that you don’t want any 

information coming from this hearing that could jeopardize your 

negotiations for future settlements—duly noted. But to the panel, 

any of the $1.7 billion that has been provided in cash to Iran, is 

any of that going to be used for terrorism and can you guarantee 

me that that money won’t be used to harm any Americans? 

Mr. Backemeyer? 

Mr. BACKEMEYER. Congressman, thank you for your question. It 

is our assessment that the vast majority of the money that Iran 

has gotten from both this settlement as well as other— 

Chairman DUFFY. Can you guarantee me that, though? That is 

my question? Can you guarantee this money won’t be used for terrorism or to hurt Americans? 

Mr. BACKEMEYER. As I said, it is our assessment the vast majority has gone to the economic—the critical economic needs that Iran 

has had. Now, I can’t speak to every dollar that is going to go in 

and out of Iran, as you know. But what I can tell you is that we 

have a variety of tools that we use— 

Chairman DUFFY. But I am looking for a guarantee. And so I just 

want to note that there is a risk that you have taken in providing 

$1.7 billion to the lead sponsor of terrorism in the world. 

I don’t want to be chastised on this committee about information 

that could hurt your negotiations when I think this deal has endangered the security in the region and for U.S. citizens. But let’s 

set that aside for a moment. 

I want to quickly talk on the issue of ransom. On the day of the 

prisoner-for-cash deal, would the prisoners have been released, in 

your assessment, if the cash was not sent—the $400 million? 

14 

Mr. BACKEMEYER. Congressman, I cannot speak to that hypothetical situation. And I would make a point, that this was not a 

prisoner-for-cash deal. These two issues— 

Chairman DUFFY. So you don’t know. They might not have been 

released had you not sent the cash. Is that a fair assessment? 

Mr. BACKEMEYER. These two issues were settled based on their 

own merits— 

Chairman DUFFY. I am trying to get to the heart of this. You 

can’t tell me that you are guaranteed that our prisoners would 

have been released had your money not been sent, right? And 

maybe to put it another way, if the prisoners hadn’t been released 

would have we sent the money? 

Mr. BACKEMEYER. As I noted in my statement, Congressman, 

specifically after we learned that we could not locate the wife and 

mother of Jason Rezaian we put a pause on making this payment— 

not because it was linked to that particular transaction, but because it was a prudent step. 

Chairman DUFFY. So, prudent step—but you are telling me that 

you wouldn’t have sent the money but for the release of our prisoners, yes? Is that a fair assessment? 

Mr. BACKEMEYER. I cannot speak to what we would—had this 

deal not come together at all in the following week, I cannot tell 

you that we would not have gone down that path. 

Chairman DUFFY. Exactly, which is— 

Mr. BACKEMEYER. What I can tell you— 

Chairman DUFFY. —which is the point that is—most commonsense Americans look at this and they say, ‘‘Hey, this was a payment of $400 million for the release of five prisoners,’’ which in everyone’s assessment leads us to believe that, as the chairman 

noted, per Webster’s Dictionary, is a ransom payment. 

Let’s leave that aside. I am sure my colleagues will get to that 

a little bit later. 

Out of the tribunal there have been settlements in the past. And 

have those settlements all been made in cash? 

Ms. Grosh? 

Ms. GROSH. Yes, Mr. Chairman, my— 

Chairman DUFFY. So every single settlement— 

Ms. GROSH. My experience has been that every single one of 

these settlements has been sui generis. Most of the settlements 

that were made in the past were before sanctions. And in fact, before— 

Chairman DUFFY. I only have 2 minutes. To be clear, when we 

have had settlements the payments to Iran have been made in cash 

payments, not wire transfers, not checks, not any other form? It is 

a cash payment, like what we did with the $1.7 billion. Is that fair? 

Ms. GROSH. I am not aware that they ever have, but they have 

all been different and been done on their own merits. Some were 

done by check; some were done by wire transfers. 

Chairman DUFFY. Right. That is my point. So this payment did 

not have to be made in cash. The payment could have been made 

in the form that others were made, whether it was a check or a 

wire transfer. 

You were not prohibited from using a wire transfer or a check. 

You didn’t have to send cash, is my point. Is that correct? 

15 

Ms. GROSH. I can’t really, you know, speak to that. I do know 

that Iran was having very serious banking problems because of 

sanctions, and I think my colleagues can speak more to that. 

Chairman DUFFY. You have used wire transfers and checks in 

the past, yes? 

Ms. GROSH. Well, we have used checks in the past, but to my 

knowledge Treasury doesn’t cut checks anymore. 

Chairman DUFFY. So if the President says due to international 

sanctions against Iran the payment made in euro and Swiss francs 

and other currencies had to be made in cash, you are telling me 

that no, that iss not true. We have actually made other forms of 

payment through the tribunal. 

Mr. BACKEMEYER. Congressman, I can speak to that. 

Chairman DUFFY. Sure. 

Mr. BACKEMEYER. These other payments were before the period 

of the intense international sanctions that we had on Iran, those 

sanctions that we worked closely with this Congress to implement. 

Chairman DUFFY. So you put the handcuffs on yourself at the— 

I want to make a couple of quick questions. 

Did Iran request the money come in cash payment? 

Mr. BACKEMEYER. The terms of this deal for Iran were that they 

would get an immediate refund of the principal. For them the critical need was that they got immediate access so that they could address the critical economic needs that they had. And at the time 

our people that were facilitating these transactions felt that the 

only way to provide that immediate payment— 

Chairman DUFFY. They didn’t ask for cash, but you made sure that they got this money, the $400 million and the $1.3 billion. 

They get immediate access to it. It is untraceable. And per media 

reports, this money has gone to the military, not for the benefit of 

the Iranian people. 

My time is up. 

And I now recognize the ranking member of the full Financial 

Services Committee, the gentlelady from California, Ms. Waters, 

for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

And I would like to thank our witnesses for being here today. 

But the first thing I want to say to our State Department witnesses is this: Much of what happened around this payment is classified information, and I know that holding this hearing puts you 

in a position where you have to be very careful. And I don’t wish 

you to be intimidated or wish you to make a mistake in trying to 

answer some of these questions because, as I understand it, every 

member of Congress has been offered to have classified briefings by 

the Administration and they could have had any of their questions 

answered. 

So feel free to resist any questions that will carry you into classified information. Be very, very careful. 

In addition to that, I simply want to say to our Administration 

witnesses that I am concerned that this may be a part of the strategy that is being employed by my colleagues on the opposite side 

of the aisle to discredit the President of the United States of America. I am reminded that on the night of Barack Obama’s inauguration a group of top GOP luminaries quietly gathered in a WashVerDate Nov 24 2008 21:22 Mar 08, 2018 Jkt 025944 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\25944.TXT TERI
16 

ington steakhouse to lick their wounds and ultimately create the 

outline of a plan for how to deal with the incoming Administration. 

And that is a quote. 

And so, it appears that this has been a continuing strategy that 

has been employed by members on the opposite side of the aisle, 

again, in this attempt to discredit the President. 

I could ask you a lot of questions here today, and I suppose a 

lot of questions will be asked of you about why pay them in cash, 

wasn’t this basically ransom, et cetera, et cetera. But I am not 

going to do that because any questions that I have I am going to 

take advantage of the classified hearings—briefings, rather—that 

are being offered to all of us to answer any of the questions that 

we may have. 

With that, if there is anything you would like to share with us, 

having been—please do that at this time. I have no questions for 

you. Would you like to share anything with us? Please do it at this 

time. That is both of our State Department representatives here. 

Mr. BACKEMEYER. Thank you, Congresswoman. 

I think we have laid out our remarks in our opening statements, 

but thank you. 

Ms. WATERS. You are certainly welcome. Well, can you help to 

clarify whether or not the Members of Congress have been offered 

classified briefings? Do you know about that? 

Mr. BACKEMEYER. Yes, I would be happy to clarify that. We have 

offered since January, when this—when these three lines of effort 

were concluded, we have offered—with respect to this particular 

piece we have offered classified briefings to all members in—of 

Congress. We did have one such offer accepted and we provided 

that briefing. 

We also offered, when this resurfaced recently, to have closed 

member and staff briefings, and we did have 2 days ago staff briefings in both the House and Senate in a classified setting. 

Ms. WATERS. Would you please clarify how many members of 

this committee have taken advantage of that offer? 

Mr. BACKEMEYER. Congresswoman, I am afraid I am not familiar 

with the one offer that was accepted, so it would be hard for me 

to say. But as I mentioned, there was one offer—one briefing provided or one briefing accepted, and we provided it. 

Ms. WATERS. Are you saying there was a briefing where maybe 

several members of the committee came or one member was 

briefed? 

Mr. BACKEMEYER. It is my understanding that it was one member. 

Ms. WATERS. Only one member. Was that member a member of 

this committee? 

Mr. BACKEMEYER. No, he was not. 

Ms. WATERS. So basically, it is correct if I conclude that the offer 

was made, the staff have been briefed, but not one member of the 

committee, including myself, have taken advantage of that offer? 

So all of what will be asked here today could have been asked and 

they could have had access to classified information in that briefing. Is that correct? 

17 

Mr. BACKEMEYER. That is correct. And the full details of this 

process are best described in a classified setting, given the various 

diplomatic and— 

Ms. WATERS. Is that offer still available to every member of this 

committee? 

Mr. BACKEMEYER. Absolutely. 

Ms. WATERS. So today they can only get information that is not 

classified. But if they are truly interested they can get a classified 

briefing and get every question that they have answered. Is that 

correct? 

Mr. BACKEMEYER. That is correct. 

Ms. WATERS. Thank you very much. I have no other questions. 

Chairman DUFFY. The gentlelady’s time has expired. 

The Chair now recognizes the former Chair of the Terrorism Financing Task Force, and the vice Chair of this committee, Mr. 

Fitzpatrick from Pennsylvania, for 5 minutes. 

Mr. FITZPATRICK. Thank you, Chairman Duffy, for calling this 

really critical hearing today. 

Mr. Backemeyer, my first question is if Saeed Abedini had not 

disclosed the existence of the second plane which contained the pallet of cash, would either Congress or the American people have 

ever learned of the existence? And the reason I ask is because I 

found out about that fact probably the way most of my colleagues 

did, because he spoke about it when he returned and we saw it on 

the news. 

So how was Congress ever going to find out about how that cash 

was delivered and why? 

Mr. BACKEMEYER. Congressman, thank you for that question. I 

am glad you raised it. 

We have said publicly and we continue to say that—what Mr. 

Abedini was told was incorrect. The delay in the departure of his 

flight was due to a variety of complications related to the prisoner 

release deal, including— 

Mr. FITZPATRICK. But it so happened that they all—they occurred 

simultaneously in the end, did they not? 

Mr. BACKEMEYER. The prisoner release deal was held up because 

we could not locate Jason Rezaian’s wife and mother. There were 

also some complications with respect to some of the Iranian nationals in the United States. 

Mr. FITZPATRICK. It was just ironic it all happened the same 

night? Is that what you are saying? 

Mr. BACKEMEYER. As I mentioned in my opening statement, we 

had a desire to conclude all of our lines of effort—the Iran nuclear 

deal, the consular deal, and this Hague Tribunal deal, all around— 

on or around the same time because we believed there was significant diplomatic momentum that allowed us to advance U.S. interests all at the same time, and we believed that there was significant risk that if we allowed one or two of those to lag that we 

would not be able to achieve all of our core— 

Mr. FITZPATRICK. Leaving aside for a moment the issue of the 

timing of the payment and the release of the hostages—and this is 

a follow-up on Mr. Duffy’s question—who specifically made the decision to make this payment in cash? Who at the State Department? Who at the Department of Justice? Who made that decision? 

18 

Mr. BACKEMEYER. I cannot speak to who made the decision to 

make it in cash. What I can tell you is that it was the determination of the people that had to facilitate this payment that the way 

to provide— 

Mr. FITZPATRICK. Who could tell us who made that decision? If 

you can’t—you are here to testify this subcommittee or this committee—who can tell us? Was it a condition of the Iranian government? Or was it a decision of the United States Department of 

State? 

Mr. BACKEMEYER. The condition of the deal was that there would 

be immediate payment. We knew that Iran had critical economic 

needs that it had to address immediately and that would not be addressed by the removal of the broader Iran sanctions— 

Mr. FITZPATRICK. Certainly there are other ways to make an immediate payment other than a middle-of-the-night what appears to 

be a drug drop. 

Mr. BACKEMEYER. Congressman, the— 

Mr. FITZPATRICK. What are the other ways we could have made 

an immediate payment? 

Mr. BACKEMEYER. Congressman, I understand your concerns 

about this. But what I will tell you is that the power of the sanctions that we had in place in Iran, and that we still have in place— 

I will remind that we have a full U.S. embargo on Iran that prohibits transfers of funds through the United States, and there is a 

great reluctance by global financial institutions, sanctions aside, 

about doing these sorts of business. 

And so we have seen difficulties with global banks being willing 

to engage in these particular transactions, and this was the way— 

this was the mechanism that we felt we could guarantee immediate 

payment. And that immediate payment was critical to getting the 

favorable settlement that we did. Had we not been able to perform 

on that obligation we would have likely not gotten such a favorable 

settlement for the American people. 

Mr. FITZPATRICK. Speaking of the favorable settlement, Mr. 

Backemeyer, I think you mentioned in your opening statement that 

you don’t want to say anything here today that might compromise 

United States defenses to other remaining claim to the Islamic Republic of Iran. Was that your opening statement? 

Mr. BACKEMEYER. That is correct. 

Mr. FITZPATRICK. If this is a Joint Comprehensive Plan of Action, 

if this was a comprehensive settlement, what are the other possible 

claims that Iran still has? We have made a payment of $1.7 billion 

in cash. 

Mr. BACKEMEYER. Well— 

Mr. FITZPATRICK. What are the other claims that they have that 

we did not settle as part of this Joint Comprehensive Plan of Action? 

Mr. BACKEMEYER. I will let my colleague respond to that, but let 

me just point out that the Joint Comprehensive Plan of Action is 

a reference to the nuclear deal. It does not reference all of these 

lines of efforts. So the JCPOA, the Joint Comprehensive Plan of Action, is the deal that we resolved comprehensively the threat posed 

by— 

19 

Mr. FITZPATRICK. You said in your opening statement there were 

other claims. Do you know what they are? It was your opening 

statement, sir. Do you know what those other claims are? 

Mr. BACKEMEYER. If you would like more detail my colleague can 

provide it, but there are a variety of other claims related to foreign 

military sales— 

Mr. FITZPATRICK. Let me move back to the previous question 

about other ways that you could have made payment other than 

pallets of cash in the middle of the night. How have we conducted 

payments with other actors, such as North Korea, who are also cut 

off from the international financial system? We don’t deliver cash. 

Mr. BACKEMEYER. Congressman, I am not familiar with any payments of that kind. I couldn’t speak to that. 

Mr. FITZPATRICK. I have nothing further. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Capuano, for 5 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

I would like to thank the panel. 

I don’t really speak diplomatic. I have trouble whenever I listen 

to people that are doing it, so I I have to kind of clarify what I 

think I heard and what I think I know. I am not really sure. 

Is there a difference between cash and a check? I guess people 

in the Treasury would know that. If somebody owes me money and 

they pay me cash or a check, does it matter? 

Mr. AHERN. Sir, there are a variety of ways to effectuate a payment. Cash, check— 

Mr. CAPUANO. It doesn’t matter. Somebody owes me money, they 

pay me cash, they pay me check, they pay me transfer, they pay 

me in S&H Green Stamps if they still have them. It all counts, 

right? 

Mr. AHERN. There are a variety of ways of making payment. 

Mr. CAPUANO. I would like to ask—I guess it would be the State 

Department people—regardless, if there was no hostages, no U.S. 

hostages, no Iranian prisoners—by the way nobody wants to talk 

about the fact that we gave up Iranian prisoners, as well. This is 

a prisoner swap in some ways. But if there weren’t any, forget 

them, would we have still had to pay this money? 

Ms. GROSH. Congressman, the State Department has been attempting, as I mentioned, for decades been discussing the FMS 

claims— 

Mr. CAPUANO. No, I am not questioning your judgment on the 

settlement. 

Ms. GROSH. Yes. 

Mr. CAPUANO. I think the judgment—the questioning of judgment on any settlement is a fair question. 

Ms. GROSH. What I— 

Mr. CAPUANO. Questioning the Iran nuclear deal is a fair question. The question I have: Once you made the decision to have a 

settlement, would we have paid this money whether there were 

hostages or not? Would we have paid this money to Iran at some 

point? 

Ms. GROSH. It is clear to me that we reached a time when we 

were able to achieve a settlement, and it is— 

20 

Mr. CAPUANO. You are not answering—look, I am trying to help. 

You don’t want me to help? Don’t let me. Go ahead, keep speaking. 

Very clear question. Forget the hostages. You made a deal at The 

Hague, which is in the Netherlands, not in Iran. I am not questioning the deal. 

I am saying, okay, you made a deal. Once the deal was made 

would you have had to pay Iran the amount that you agreed to 

pay? Yes or no? Kind of simple. 

Ms. GROSH. Yes, once the deal was made we would have had to. 

Mr. CAPUANO. That is what I thought. 

So the payment would have been made with or without hostages. 

And the hostages were a separate item agreed simultaneously. 

So it sounds to me like my friends on the other side who are all 

upset about this would rather we paid Iran the money and not gotten our people back. They would have been happy. Yay. Yippee. 

I wouldn’t have been. 

And by the way, had you done that you would still be here being 

criticized for not getting Americans home. So you can’t win this. 

I hope you understand this is a political game to try once again 

to, number one, trash the Obama Administration; number two, 

trash the Iran nuclear deal; and number three, somehow make 

them look like criminals dropping bags of cash in the middle of the 

night like a drug dealer. This is ridiculous. 

And again, I think there are fair and reasonable and thoughtful 

and tough questions to ask about the Iran nuclear deal. I voted for 

it. But I think there are questions that are reasonable. 

Any legal settlement with the risk of litigation—I was a lawyer 

back in my previous life when I was actually had some useful function to have. Any legal settlement is a question of negotiations, a 

question of judgment. It is a judgment call. You are going to save 

money, or make money, lose money. Fair question. Those are fair 

questions to say whether your judgment was right or wrong on this 

one. 

It is not fair to say we should have left four Americans in Iran. 

And if you had done that—let’s assume you had paid the money. 

Do you trust Iran to have lived up to their separate deal to let four 

Americans go? 

Mr. BACKEMEYER. No, Congressman. In fact, as I mentioned, our 

biggest concern was this particular piece, that they would not follow through on that. 

Mr. CAPUANO. I don’t trust them either. And actually, it sounds 

like my friends on the other side trust them more than I do. 

It is awfully nice that you trust the Iranians. Good job. Great 

leadership. Great judgment. 

Of course we don’t trust them. That is why the nuclear deal had 

the most invasive, aggressive inspection regime of any deal ever 

made in the history of this world. Again, I don’t trust them. 

I am glad the Americans are home. If this was a separate deal, 

cash-for-Americans, I would be agreeing with my colleagues on the 

other side. Ransom is unacceptable. But payment—by the way, 

whose money was this? 

Am I wrong to think that this was the money that we grabbed 

from Iran in 1980 to say, ‘‘Everything is on hold. This is money you 

paid for a contract. We are not giving it back until we negotiate 

21 

and we will see you in The Hague?’’ Is that right? It was their 

money. 

Ms. GROSH. That is exactly right. 

Mr. CAPUANO. So we gave them back their money in a form of 

legal tender that is now very public, and yet people are criticizing 

it because we got four Americans. Mother of God, thank you. Good 

job. 

Chairman DUFFY. The gentlemen’s time has expired. 

The Chair now recognizes the chairman of the full Financial 

Services Committee, the gentleman from Texas, Mr. Hensarling, 

for 5 minutes. 

Chairman HENSARLING. Thank you, Mr. Chairman. 

It is clear that perhaps the Administration and certain Democratic Members of the House are the only people in America who 

believe that ransom was not paid. It is also clear that many believe 

this is a good U.S. policy. I believe it not to be a good U.S. policy. 

Otherwise, 4 hostages may lead to 40 hostages, and that may lead 

to 400 hostages. And that is why I believe in the history of our republic, it has not been the policy of the United States of America 

to pay ransom for hostages. 

The question I have, though, is, again, it is most curious that 

this payment was made in cash. 

Now, some believe this is not a particularly relevant issue. According to the Financial Action Task Force, ‘‘The physical cross-border transportation of currency is one of the main methods used to 

move illicit funds, launder money, and finance terrorism.’’ 

Cash is the currency of terrorism. We paid cash to the world’s 

foremost state sponsor of terrorism. And the question is, again, 

why was that done? Was there a legal obligation? 

We have heard that some of these payments have been made in 

other methods that could be more transparent through the normal 

financial channels. And the tribunal itself states that it has finalized more than 3,900 cases. 

So I think one of our witnesses—Ms. Grosh, did you not say that 

at least some of these were not made in cash? Is that correct? 

Ms. GROSH. Congressman, yes. There have been more than 39 

cases resolved at the tribunal. The bulk of those payments came 

from a security account that Iran is obligated to ensure payment 

of all awards in favor of U.S. nationals and U.S. companies, and 

that is what resulted in $2.5 billion being paid to— 

Chairman HENSARLING. Let me ask you this question. Again, I 

am having a little trouble figuring out why this was a cash payment. Isn’t it true that under the Iranian Transactions and Sanctions Regulations there are exceptions to financial dealings that license payments between the American and Iranian financial systems in order to receive, pay, or settle claims pursuant to the 

United States Claims Tribunal, specifically 31 CFR Section 

560.510? 

Mr. BACKEMEYER. Yes sir. That is the general license I mentioned in my opening statement. 

Chairman HENSARLING. Okay, so you didn’t have to pay it in 

cash, but you did pay it in cash. It is, again, still unclear. The question has been asked but it hasn’t been answered. Specifically, did 

someone in the Iranian government ask for the cash payment? 

22 

Can anybody on the panel answer the question besides a macro 

view that Iranians wanted money? 

Mr. BACKEMEYER. Congressman, I am trying to be specific. The 

term of the deal was that they got immediate payment. The reason 

for cash was not— 

Chairman HENSARLING. Are you aware of anybody specifically in 

the Iranian government asking for a cash payment? 

Mr. BACKEMEYER. I am not aware, nor am I aware of all the conversations that took place. 

Chairman HENSARLING. Who would be aware? Who could this 

panel go to to get an answer to that simple question? 

Mr. BACKEMEYER. We would be happy to follow up with you on 

further details in a closed session and we would be happy to discuss that with you in that setting. 

Chairman HENSARLING. Are you aware that according to press 

reports these funds have ended up in the hands of the Iranian military, the Iranian Revolutionary Guard? 

Mr. BACKEMEYER. Congressman, I have seen those press reports. 

As I mentioned, we—it is our assessment that the vast majority of 

funds that Iran has had access to, whether through the JCPOA or 

this, continue to be used for its economic needs. 

We have seen some press reports of an Iranian budget line item. 

Our translators and those in the intelligence community have— 

Chairman HENSARLING. That item is roughly 10 percent of the 

entire annual defense budget, the military budget, of Iran. Does 

this Administration not believe that giving the leading state sponsor of terrorism $400 million in cash followed by $1.3 billion—does 

that not present any serious terrorist financing concerns to you at 

all? 

Mr. BACKEMEYER. Congressman, we have made clear from the 

very beginning that the deals that we struck on this day do not resolve all of our concerns with Iran and those concerns remain significant. What we resolved was the most imminent and critical, 

which was the nuclear program. And we were able to resolve two 

additional pieces of business at the same time. 

But we still oppose and object to Iran’s destabilizing activities in 

the region, its support for terrorism— 

Chairman HENSARLING. My time has expired. 

Thank you, Mr. Chairman. 

Mr. BACKEMEYER. —and we continue to counter those activities 

through the very vigorous tools that we have. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

In January I will have been on this committee for 12 years, assuming I am reelected. And so I am always careful—not just here; 

I am careful everywhere, because I do think words matter, which 

is why I would not allow my 3-year-old granddaughter to watch the 

news. 

And so I can’t tell you how disturbed I am. I am often disturbed, 

but I am going to start saying things when this happens on both 

sides. But I think one of my—my colleague, who is a good guy— 

I know him; I have been to his home and met his family. But when 

23 

you drop a word like—words like, you know, a ‘‘drug drop’’ that creates some discomfort. 

And I know that the gentleman didn’t mean what could be interpreted to be really awful. And it would be my hope that, you know, 

that it was, you know, a misstatement and—or sometimes we all 

say things we would rather pull back. I am assuming that he 

would rather pull that back. 

Because there are a lot of people—I mean, this could mushroom 

into something that I think would be an embarrassment to the entire committee. We are talking about this 3-hour strategizing meeting; fast forward to this hearing and we are saying, you know, it 

was like a drug drop. 

That is not good. That is a little scary. 

And my partisanship doesn’t—or my ideological leanings have to 

stop at some point. You know, which is—I mean, I wouldn’t say 

that George Bush, you know, had a drug drop, or hopefully anybody. 

So you know, this is maybe a political gathering and we are supposed to do some of this stuff. I can’t do it because I just—I think 

we are—the whole country is looking at this political process and 

saying, ‘‘You know, Washington stinks.’’ And we are creating a 

higher level of stinktivity—yes, it is a word; I made it up—when 

we do this kind of thing. We are stinking up the political process. 

You know, I have some questions but, you know, after that I just 

decided I got good questions. As Mr. Trump would say, these are 

very good questions, big questions. 

But after that I don’t want to engage in this. So I would like to 

just yield back the rest of my time. 

Mr. GREEN. Would you yield to me, Mr. Cleaver? Mr. Cleaver, 

would you yield to me? 

Mr. CLEAVER. Yes, I would. 

Mr. GREEN. Thank you, Mr. Cleaver, and thank you for your 

thoughtfulness. 

A couple of points to be made. We hear people bemoaning the 

money that was accorded the Iranians. But there have been settlements that inured to the benefit of Americans totaling about $2.5 

billion. 

So would we give back the $2.5 billion that have been accorded 

Americans in settlements? Not a lot of emphasis is being placed on 

the fact that people came home. 

Thank you, Mr. Capuano. 

People came home. Americans were freed. Would you send them 

back? Would you put them back into harm’s way, incarcerated in 

Iran? Is that what you are pushing today? 

This hearing is about headlines, not headway. Headway could be 

made by doing—as the honorable Maxine Waters has indicated, 

classified briefings are available to all of us and we could make 

headway. Today is about headlines. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from South Carolina, 

Mr. Mulvaney for 5 minutes. 

Mr. MULVANEY. Thank you. 

A couple of random questions. First of all, I want to follow up 

on something. 

24 

I think Mr. Hensarling started to ask—I don’t know if he asked 

it this way—a cash payment is in violation of law, isn’t it? Cash 

payment violates 31 CFR 208.3. Is that true? 

Mr. AHERN. Sir, the payment was done consistent with all of the 

appropriate Treasury regulations. 

Mr. MULVANEY. Okay. I am reading 208.3 Payment by Electronics Fund Transfer. Subject to 208.4, which is a waiver, which 

I don’t think is relevant here because it deals with checks, and not 

withstanding any other provision of law, effective January 2, 1999 

all Federal payments made by any agency shall be made by electronic funds transfer. 

Didn’t this transfer of cash, at least the $400 million in cash— 

hard currency—doesn’t that violate 208.3? 

Mr. AHERN. Sir, if could just for a moment walk through the flow 

of these transaction, they generally flowed in the same manner. So 

we will take the $400 million principal payment. 

Mr. MULVANEY. Do it quickly please. I only have 5 minutes. 

Mr. AHERN. Generally speaking, that payment was transferred 

by a wire transfer. It was transferred to the account of a foreign 

central bank. That foreign central bank then converted it into foreign currency bank notes and dispersed it to the government of 

Iran. Treasury’s regulations speak to that payment to the payee of 

the claim, not necessarily to the ultimate payment of the claimant, 

which in this case was the government— 

Mr. MULVANEY. So I guess the shorter answer is since the wire 

transfer went to an escrow agent, the escrow agent paid out the 

cash, you didn’t violate 208.3. Is that the basic argument? 

Mr. AHERN. This was consistent with Treasury’s regulations, sir. 

Mr. MULVANEY. Okay. Why do we pay interest? My understanding is that the FMS Trust Fund does not bear interest. 

Ms. GROSH. Congressman, yes that is correct. In the typical situation customers pay their funds into the trust fund and by law that 

trust fund does not accrue interest. 

As I mentioned in the top of my remarks, the United States and 

Iran entered into a memorandum of understanding in February of 

1979 that has express provision for unexpended funds to be placed 

in an interest-bearing account, and it is on that—based on that 

language that Iran has brought its claim for interest. 

Mr. MULVANEY. Did we put it in an interest-bearing account? 

Ms. GROSH. The funds were not placed in an interest bearing account. 

Mr. MULVANEY. So we had an agreement with Iran that required 

us to put that money into an interest-bearing account but we didn’t 

do that? 

Ms. GROSH. As a factual matter that is correct. I could have a 

lot more to say about that but these—some of these matters are 

still—other issues related to that memorandum of understanding 

are currently being litigated between the parties. 

Mr. MULVANEY. So I guess— 

Ms. GROSH. I would be happy to discuss that further in a closed 

setting. 

Mr. MULVANEY. So if either the Carter Administration or the 

Reagan Administration or both had followed the MOU the interest 

25 

would have been paid by the bank into which we put the escrow 

account—the escrow monies. 

Ms. GROSH. All Administrations since the memorandum of understanding in 1979 acted consistently with respect to these funds. 

Mr. MULVANEY. No. You just told me they didn’t. It said the 

MOU required us to put it in an interest-bearing and then you, in 

the next sentence, said that we didn’t do that. 

Ms. GROSH. That is correct. But what I was saying was that each 

Administration treated those funds consistently, notwithstanding 

the language of the MOU. There are legal arguments at stake here 

that continue to be before the tribunal, and again, I would be 

happy to discuss that further in a closed setting. 

Mr. MULVANEY. All right. We may get that opportunity. 

Last question to Mr. Capuano. I think he stepped out. 

My understanding of the flow of the funds is that the original 

$400 million, which was in the FMS, was indeed a payment by the 

government of Iran under the FMS program. I get that, okay? 

Their money, for lack of a better word. 

But there was a legal lien against that money, wasn’t there, that 

the 2000—Victims of Trafficking and Violence Protection Act of 

2000 specifically placed a lien against that exact amount of money. 

Is that not true? 

Ms. GROSH. Well, if you are talking about a judicial lien that is 

not true. 

Mr. MULVANEY. No, I am talking about a public law, 106—I don’t 

have the U.S. Code in front of me. I have 106-386, and it says that 

judgments against Iran for purposes of funding payments under 

section A—we were trying to make sure that victims of terrorism 

got paid. 

In case of the judgments against Iran the secretary of Treasury 

shall make such payments for amounts paid and liquidated from, 

and there is a list of things. One of the list includes funds not otherwise made available in an amount not to exceed the total of the 

amount in the Iran Foreign Military Sales program account. This 

money was liened by law in 2000. 

Ms. GROSH. Yes. I am familiar with that, Congressman. What— 

Mr. MULVANEY. Did we repeal this law, or how did we get 

around this? 

Ms. GROSH. What happened was that the judgments were paid from appropriated funds to the extent of $400 million, which was 

the balance of the FMS Trust Fund at that time, at the time of enactment— 

Mr. MULVANEY. Whoa, whoa, whoa.. So the taxpayers paid $400 

million in claims when we could have taken it out of this fund? 

Ms. GROSH. Yes, that is correct. Congress passed legislation that 

appropriated funds to be paid to those victims to the level of what 

was in the balance of the trust fund. 

Mr. MULVANEY. When did we do that? 

Ms. GROSH. Through the very act that you are discussing. 

Mr. MULVANEY. Okay. The very act that I am discussing doesn’t 

say that, though. The very act says that for purposes of funding 

payments we go to the FMS Trust Fund. 

Ms. GROSH. Yes, and if you— 

Mr. MULVANEY. I am in section 2002, subsection (2)(b). 

26 

Ms. GROSH. Right. And if you look at that act, it also provides 

that the United States shall be fully subrogated to the extent of the 

payments. Subrogation means that the United States made those 

payments— 

Mr. MULVANEY. I am aware of what subrogation means. 

Ms. GROSH. Yes. so the United States was subrogated to those 

claims. What that means is those claims then become the U.S. Government claims. 

Mr. MULVANEY. To Mr. Capuano’s piece, at the end of that, after 

the subrogation they are not Iran’s funds anymore. They are the 

United States Government’s funds, aren’t they? 

Ms. GROSH. No. The funds remained in the trust fund as Iranian 

monies in the trust fund. The United States Congress appropriated 

$400 million to be paid to these individuals— 

Mr. MULVANEY. Instead of taking the money out of the FMS 

Trust Fund. 

Ms. GROSH. That is correct. 

Mr. MULVANEY. But by doing so we thus own the $400 million. 

Ms. GROSH. No, that is incorrect. I am sorry. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Maryland, Mr. 

Delaney, for 5 minutes. 

Mr. DELANEY. Thank you, Mr. Chairman. 

Did the $400 million actually sit in an account segregated at a 

separate financial institution or was it just held by the United 

States Government? 

Ms. GROSH. The $400 million was in what is called the FMS 

Trust Fund. It sits in the Treasury. All FMS customers pay funds 

in there and then they are separated through separate holding accounts for each customer. 

Mr. DELANEY. But is it kind of fungible cash or is it actually segregated in a separate account? I mean, when you say it is held at 

the Treasury does that mean it is effectively fungible with all the 

cash of the United States and it is just tracked as a separate account or is there actually somewhere, the equivalent of a bank account at a large financial institution, where there is a statement 

that says there is $400 million in cash sitting in there? 

Ms. GROSH. I believe my colleagues at the Treasury could maybe 

speak to this more but my understanding is that it is an account 

within the U.S. Treasury. 

Mr. DELANEY. Got it. Okay. 

So it seems like what effectively happened in the middle of 2015 

is three things came together simultaneously: the Iran nuclear 

agreement, the prisoner exchange swap and then the settlement of 

this claim. Is that the right way of thinking about it? Three separate transaction or three separate agreements were reached by 

three separate teams? 

Mr. BACKEMEYER. Congressman, that is correct. We thought to finalize all of those issues on the same, or on around the same time 

to take advantage of the diplomatic moment we had. 

Mr. DELANEY. So as it relates to this claim, is it fair to say that 

a legal obligation of the United States of America was created in 

mid-2015 to pay $1.7 billion? 

27 

Ms. GROSH. I wouldn’t put it exactly that way. These are matters 

that were under litigation for many years and members of the legal 

advisors office at the State Department had been looking—had 

been litigating these FMS claims for a long time. 

Mr. DELANEY. Right, but I am talking about—fast—forget about 

all the history. In the middle of 2015 you said this was settled. 

Ms. GROSH. It wasn’t settled. What we were facing was we were 

approaching a hearing date. 

Mr. DELANEY. Right. 

Ms. GROSH. And Iran wanted to move to—it is like going to trial 

and they wanted to have this decision not only go to hearing and 

heard by the tribunal but decided in a preliminary manner. 

Mr. DELANEY. And what interest rate were they claiming was 

owed across the period of time? 

Ms. GROSH. Iran was claiming very, very high interest rates. 

Mr. DELANEY. What rate? 

Ms. GROSH. This is an area that I would prefer not to get into 

in this— 

Mr. DELANEY. It looks like we settled at a slightly higher than 

4 percent interest rate. Is that right? 

Ms. GROSH. I don’t know exactly what that translates into. There 

was certainly a methodology behind that and I would be happy to 

go through that in a closed setting. 

Mr. DELANEY. Do you know what the average interest rate— 

Treasury rate across the period of time was? 

Ms. GROSH. I do know that in the early 1970s and 1980s the interest rates were around 18, 19, 20 percent. 

Mr. DELANEY. Right, they were high. And I haven’t done the 

exact math, but just looking at the chart it looks like the average 

fed rate across the period of time was about 8 percent and you settled for about 4, and the power of compounding is such that at 8 

percent it would have been $8 or $9 billion and at 4 percent it was 

$1.3 billion. So that is the bargain you thought you negotiated. Is 

that correct? 

Ms. GROSH. We agreed to the disposition and a compromise on 

interest. 

Mr. DELANEY. That is right. And so was it actually a legal obligation, would you say? I mean, you say you agreed and you settled, 

but was there any kind of formal agreement that was reached 

where somewhere in the books of the United States of America we 

entered a $1.7 billion liability? 

Ms. GROSH. I am not sure I understand the question, but we certainly— 

Mr. DELANEY. So if someone would have asked the government 

in the fall of 2015, ‘‘How much do we owe Iran,’’ would they have 

said $1.7 billion or would they have said $400 million? 

Ms. GROSH. Again, this is, as was referred to by one of your colleagues, this is a matter of litigation risk and these are the kinds 

of issues we look at like any litigating parties when you are actively litigating claims. We could discuss that—some of that litigation risk in a closed setting. 

Mr. DELANEY. So I guess the question, was this settled in mid2015 or was it still open-ended? 

28 

Ms. GROSH. In mid-2015 we were discussing this with Iran and 

we were—we—there was some urgency because we felt that this 

was going to go to hearing and then a decision by the tribunal. 

Mr. DELANEY. Were you still discussing it in September of 2015? 

Ms. GROSH. Yes. 

Mr. DELANEY. And December of 2015? 

Ms. GROSH. Yes. Iran filed its hearing proposal in November of 

2015. 

Mr. DELANEY. What day do we think that we actually agreed to the $1.7 billion—like that number? 

Ms. GROSH. Are you speaking to the United States— 

Mr. DELANEY. Yes. 

Ms. GROSH. —or to Iran? 

Mr. DELANEY. Yes. When do we feel like we had an agreement 

with them as to $1.7 billion? 

Ms. GROSH. Again, I think it would be better to discuss those details in a closed setting. 

Mr. DELANEY. Because that date is relevant as to whether this 

was an obligation of the government or something else. But I assume what you are saying here today is that that agreement for 

$1.7 billion was reached before the payment was made. 

Ms. GROSH. That is correct. 

Mr. DELANEY. How much in advance of the payment would you 

say? 

Ms. GROSH. Again, on issues of timing we certainly had agreed 

with Iran sometime before the payment was made. I wasn’t involved in all the— 

Mr. DELANEY. Does ‘‘sometime’’ mean more than 30 days, or 

more than 60 days, or more than 90 days? 

Ms. GROSH. It was less than 30 days. 

Mr. DELANEY. Okay. Thank you. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentlelady from Missouri, Mrs. 

Wagner, for 5 minutes. 

Mrs. WAGNER. Thank you, Mr. Chairman. 

And thank you, to our panel, for appearing today to answer questions for us, but more importantly, to answer questions for the 

American people and shed some light, some transparency, on what 

actually happened with this money transfer to Iran—unmarked 

cash in foreign currencies strapped on wooden pallets and loaded 

onto a cargo airplane to be sent to a recognized state sponsor of terror. 

It seems more like a scene out of a made-for-TV movie than actual real-life U.S. policy. And as an Army mom whose son is an active duty infantry officer, and as a former United States ambassador, I just have to say I am very concerned with the appearance 

of our government paying ransoms for captured prisoners and further, in future, endangering our other soldiers and diplomats 

abroad. 

I would like to reference a quote from White House Press Secretary Josh Earnest from earlier August as to why the United 

States made this settlement payment so quickly, to which he said 

the Iranians ‘‘were eager to try to address the legitimate concerns 

of the Iranian people about the state of the Iranian economy.’’ 

29 

Is it the opinion of the State Department or the Treasury Department that this money transfer would be used for the Iranian economy? 

Mr. Backemeyer? 

Mr. BACKEMEYER. Congresswoman, first let me say thank you for 

the service of your son and thank you for your service. We spend 

our days at the State Department, I know, as well as the Treasury 

and the Justice Department, doing our best to advance the U.S. interests and doing our best to protect our men and women overseas, 

and we are grateful for their service. 

With respect to your question, this was a situation, as I said, 

where the timing was related to the various pieces of business that 

we were trying to get done. All— 

Mrs. WAGNER. Did you believe that it was going to help the Iranian economy? 

Either State or Treasury? 

Mr. BACKEMEYER. As I said, it is our assessment that the vast 

majority of the funds that they have received have— 

Mrs. WAGNER. What assurances were you given, sir? 

Mr. BACKEMEYER. Even if I had gotten assurances from the Iranians, you would not believe those assurances nor would I. And 

that is why, as I said— 

Mrs. WAGNER. Precisely. Let me move on. Reclaiming my time, 

I have a short—a lot of questions and a short amount of time. 

We have since seen that Iran’s latest year budget provides for an additional, guess what, $1.7 billion—the same amount transferred 

by this Administration to the military establishment to spend as it 

wishes in Iran. 

Ms. Grosh, why did the White House think that this money 

would be used for the economy when Iran ended up using it for 

their military? 

Ms. GROSH. Congresswoman, I am sorry, that is way out of my 

league and I am not in a position to decide that. My expertise really involves litigation of these claims at the tribunal and determining the settlement— 

Mrs. WAGNER. Let me ask a more relevant question. How do we know that this $1.7 billion increase did not come as a direct result 

as the cash transfer from the United States? 

Mr. BACKEMEYER. Congresswoman, the press report that you are 

referring to is one that we have reviewed and had our Persian 

translators review and we believe that it is inaccurate. 

Mrs. WAGNER. National Security Advisor Susan Rice recently admitted that some of the $150 billion that Iran will receive in sanctions relief from the Iran nuclear agreement would, ‘‘support international terrorism.’’ 

Mr. Backemeyer, what assurances do we have that this settlement money will not end up funding terror proxies—units like 

Hezbollah, considering that they receive support from the Islamic 

Revolutionary Guard Corps? 

Mr. BACKEMEYER. As I have mentioned, Congresswoman, we 

have serious concerns with Iran’s problematic behaviors, including 

those that you have just referenced—their support for terrorism, 

their support for proxy groups. We have a variety of tools that we 

use to counter those activities— 

30 

Mrs. WAGNER. Let’s talk about those. Does paying Iran in all 

cash make it more riskier that the money could end up in supporting terrorism? 

Mr. BACKEMEYER. Congresswoman, I can’t speak to the risk on 

that but what I can say is that this settlement was made based on 

its own merits. 

Mrs. WAGNER. If this settlement, let’s say funding, does in fact 

end up promoting terrorism, what actions could the United States 

take to punish Iran for its behavior? 

Mr. BACKEMEYER. We have a variety of tools—through sanctions, 

through other means—that we can use to enforce our sanctions 

against Iran. These include authorities that go against individuals 

and entities like the IRGC, the Quds Force, and those that are involved in terrorism. That includes activities that are operational in 

nature that we use— 

Mrs. WAGNER. I am running out of time. 

Ms. Grosh, what incentive or gain did the United States receive 

in return for structuring the payments so favorably in cash to Iran? 

Ms. GROSH. I am not aware. I know that this settlement was in 

the interest of the United States— 

Mrs. WAGNER. Mr. Ahern, did Iran insist that the settlement 

money be delivered in cash? We are going to try one more time at 

this. 

Mr. AHERN. Ma’am, I wasn’t part of the negotiations. I can’t 

speak to that. What I can say is that my understanding is that settling this claim at this time in this manner— 

Mrs. WAGNER. When was it agreed upon that it would be cash? 

Mr. AHERN. —saved the United States Government potentially 

from paying billions of dollars more to Iran. 

Mrs. WAGNER. My time has expired. 

I appreciate the indulgence of the chair. I have many more questions and I will submit them for the record. Thank you, Mr. Chairman. 

Chairman DUFFY. The gentlelady’s time has expired. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty, 

for 5 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman. 

And thank you, to our ranking member. 

And a big thank you to our witnesses who are here today. 

Mr. Chairman, I just have a few brief statements, and more so 

for clarification for me and for all of those who are watching this. 

So let me start by thanking you for advising us to get the real 

answers that we need. If we want it to move forward then our leadership and others, including myself, had I known about it, would 

be doing this in a classified briefing. That is number one. 

We are often chastised on this side of the aisle if we are a little 

late for complying with some rules. And so I am going to assume, 

since it is my understanding that the title of today’s hearing is 

picked by the Majority and the title is, ‘‘Fueling Terror: The Dangers of Ransom Payments to Iran.’’ So if they really thought that 

this was a problem, seems like you would want to be more armed 

by being in a classified setting where you could get real information. 

31 

If you don’t want real information and you just want to showboat 

then you do—or you get what we are seeing here today. 

There has been a lot of opening statements in your opening 

statements. Let’s go back to the opening statement that our chairman made of the Financial Services—the chairman mentioned— 

when he said it was the Iranian officials who said this was really 

a ransom. 

Now, our President—I am not saying my President, let’s get 

something clear. The President of the United States is our President. So our President is telling us that it was not. He was trying 

to save lives and bring them back home. 

So let’s figure out who the real enemy is here. If I am sitting 

here listening to this, as many Americans are, it almost seems like 

my colleagues are pitting our President against the individuals 

that they are now chastising us for for bringing our individuals 

home. 

So we have been intense in here. We have been somewhat humorous in here. So let me be very abstract in here. 

Since this has been a lot about money, let’s just say I wanted to 

say, since they are expecting you after you have actually said in 

one of your statements that you thought the money went for economic needs, but yet you keep being badgered over the cash and 

badgered over where the dollars are going, and more specifically 

that they are going to fund terrorism. 

So what if I would say to my colleagues: There is something 

called the RNC, and monies that they give go into the RNC. So 

would they remember or know if their monies to the RNC that 

went to the presidential candidate Donald Trump, who I believe excites terrorism—would they be able to then say back to me why 

they did? 

Let’s assume most of them didn’t give to him. Interesting, isn’t 

it? But we know their dollars will go in to fund a presidential candidate who excites terrorism, a presidential candidate who is not 

about saving lives, who makes fun of those who are disabled, who 

degrades women. 

And yet, they stand here wanting to question our President for 

going back and giving the money that belonged to them already. It 

was their money he gave them back. 

Now, I also think you would use words like, ‘‘It was incredibly 

brilliant that our President cared so much about those individuals 

who were being held there that he wanted to do one thing. And if 

he is guilty of something it was to make sure that the timing of 

the transaction’’—it was already done that he was giving the 

money. That wasn’t a secret. 

We knew he was giving it. We even know how they lined up the 

foreign currency to be put on the pallets to give to them. So that 

is not a secret. 

If you are trying to do something that is not legal or fair, you 

don’t publicize and describe it and you say it. So it was the timing 

that he wanted to do to make sure that people were returned safely. 

So I want to thank you for trying to be helpful. I want to thank 

you for your answers. But I think you said it best when you said 

32 

you are not there knowing how the dollars are transferred or what 

we did, but you do believe that it went for economic needs. 

Thank you, and I yield back. 

Chairman DUFFY. The gentlelady yields back. 

The Chair now recognizes the gentleman from California, the 

Chair of the House Foreign Affairs Committee, Mr. Royce, for 5 

minutes. 

Mr. ROYCE. Well, thank you, Mr. Chairman. 

The reason we are concerned with cash going to Iran, especially $1.7 billion in cash, is because Iran is in the process, with the Iranian Revolutionary Guards Corps, of funding terrorism in the region. And specifically what they are trying to do is get their hands 

on hard currency. 

So when they are trying to develop, for example, for Hezbollah 

the capability to use GPS in order to be able to equip the missiles 

and rockets in the inventory with this special capability to be able 

to hit the tallest buildings in Tel Aviv or be able to get around the 

Iron Dome, this needs two things: the transfer of the missiles from 

Iran to Hezbollah—they already have transferred 100,000 of these 

rockets and missiles; and second, it needs the capability of being 

able to switch this over to this GPS capability. 

For that kind of terrorism they need hard currency. That is why we are interested in the $1.7 billion cash payment, because by insisting that it was the only way to get the money to Iran we are 

strict in maintaining banking sanctions. This is hugely misleading, 

and let me explain why. 

The sanction system was designed with tribunal payments in 

mind. The Iran transaction sanctions regime contains a number of 

exemptions from the rule so that certain transactions can go forward. And in this case, transactions for tribunal settlements are 

explicitly authorized and would shield any entity involved in such 

a transaction from liability under U.S. law if this had been done 

the proper way without use of cash. 

No. It was the Iranians that wanted the cash. They wanted the 

cash because they are trying to fund terror. 

That is what the IRGC does. It is the number one state sponsor 

of terrorism in the world today. 

So the Administration chose not to license a transaction within 

the international financial system. They chose to deliver $1.7 billion in untraceable assets, which was the demand on the part of 

Iran. And if everything was on the up and up and there is no connection to hostages, why not go through the process laid out in 

law? 

This is a state sponsor of terrorism. So you are right that banks 

don’t want to do business with a country that is backing the 

slaughter of hundreds of thousands of innocents and those in Syria, 

and developing missiles—ballistic missiles, by the way, aimed at us 

because they are intercontinental ballistic missiles. But the truth 

of the matter of is that if you wanted to pay through a bank you 

could have. 

The primary example here is North Korea and Banco Delta Asia. 

No one was more toxic than North Korea and the BDA, not even 

Iran today. But when the last Administration wanted to get North 

Korea—wanted to give the funds back to North Korea it found a 

33 

way using the New York Fed and the Russian Central Bank. It 

found a way through legitimate financial channels, which you certainly could have done. 

Likewise, you found a way during the interim agreement to fa- cilitate $700 million back to Iran each month through international 

banking relationships. Yes, it would have taken longer, but the dispute this payment was supposed to settle was over 35 years old. 

What is a couple more months? 

The only way that I see timing coming into play if this was a 

ransom for the release of Americans and if this didn’t drive the 

capture of three more Americans—and remember, that is what the 

Department of Justice said at the time: Don’t do this; it will be perceived as ransom and we will have more Americans captured. The heavy water payment, another $10 million. Now that is not much compared to the $1.7 billion, but was this paid in cash, too? 

I would certainly like to know, because the danger I see here is 

that cash is going to become the new normal for the Iranians. 

And lastly, I just bring up pursuant to the Victims of Trafficking and Violence Protection Act of 2000, $400 million in taxpayer dollars was supposed to go to U.S. citizens to settle judgments against 

Iran for terrorist attacks. It looks to me like part of this understanding is letting Iran off the hook for those terrorism claims that 

was part of that settlement. Is that correct? 

Ms. GROSH. With respect to the victims of terrorism claims, as 

I was speaking—as I answered one of your colleagues’ questions, 

those judgments were paid in 2000; with the Victims of Trafficking 

Act Congress appropriated $400 million to pay them. So their judgments were paid. 

Mr. ROYCE. But what about the interest on that that should have 

come out of this account?. 

Ms. GROSH. Those claims were then subrogated to the United 

States, so they became U.S. Government claims and they were 

factored into the overall settlement. 

Mr. ROYCE. And in terms of my question on the situation of how 

this was handled with North Korea, why was it not handled the 

same way with respect to Iran? 

Mr. BACKEMEYER. Congressman, I am not familiar with North 

Korea, but what I can tell you is this: We share your concerns with 

respect to Iran’s troubling activities. We have a variety of tools that 

we use to counter those activities including robust sanctions, including sanctions that continue with respect to Hezbollah in legislation that was passed in this body. We continue to use those and 

intend to aggressively enforce those as we go forward. 

With respect to the mechanism of the payment, all I can say is 

that Iran did not—regardless of the legal prohibitions, Iran did not 

have the international relationships, did not have the accounts because of the sanctions that were so strongly imposed by this Congress. Accounts were not allowed during the sanction period, and 

as a result Iran did not have those relationships. 

So it was difficult to do anything else in an immediate way. And 

the immediate payment of these funds is what allowed us to get 

favorable terms that were in the interest of the United States. 

Mr. ROYCE. The immediate payment is what managed to coincide 

with the exact exchange for all four hostages. 

34 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck, for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

And this question is for either Mr. Backemeyer or Ms. Grosh. My 

understanding is that the most recent settlement at The Hague 

Tribunal before January 2016 was in 1991, when Washington and 

Tehran agreed to a $278 million payment as compensation for military equipment that the shah paid for but was undelivered at the 

time of the revolution. 

The final negotiations on that settlement coincided with the release, as you will recall, of two Western hostages, including one 

American, by Iranian-backed Shiite Muslim militants over in Lebanon. According to a New York Times article dated November 28th, 

1991, Bush Administration officials at the time denied that the 

deal was linked in any way to the fate of the hostages in Lebanon. 

The State Department’s legal advisor then, as now, under President Bush said in the Times that, with respect to the arms deal, 

‘‘It is pure coincidence that it is coming together at the same time 

the hostages are being released.’’ 

In your view, is there any reason to doubt the Bush Administration’s claim that the hostages’ release had anything to do with the 

arms deal settlement, which they claim had been under discussion 

for a long time? 

Ms. GROSH. Congressman, I am familiar with those. I recall 

those reports at the time. I wasn’t involved in that particular settlement, but our practices that we—in looking at all of these cases 

we assess litigation risk and we decide these settlements on their 

own merit. 

Mr. HECK. I will take that as there is no reason to have doubted 

the Bush Administration’s claim. 

I would ask you if you recall any public outcry at the time over 

that. Fact was, there was none from Congress. I will save you the 

time. 

I would ask you if you recall any hearings being held by any relevant committee of jurisdiction regarding that issue, as we are 

today? I will save you the time. There were none. 

And I will also remind you that in the wake of the original Iranian hostage crisis back in 1981 we, in fact, signed a deal to transfer nearly $8 billion—a transfer which was authorized by incoming 

President Reagan. And once again there were no Congressional 

hearings on the legality of those nor an indication from the members of the then-majority party, as now, that it constituted a ransom. 

So one of my favorite expressions is ‘‘consistency is the hobgoblin 

of small minds.’’ Congratulations. Evidently there are no small 

minds here today because there certainly isn’t a lot of consistency. 

You know, ordinarily we have hearings often on subjects which 

I don’t agree with or with such incendiary titles as is today’s hearing. But I almost always find a way to thank the Chair because I 

think it at least unlocks the door or opens the door for a constructive dialogue and questions and answers that can help illuminate. 

35 

That is not the case today. There is no legitimate reason to be 

holding this discussion other than to dissemble the facts and to engage in propaganda. None whatsoever. 

Indeed the only thing I want to say, and not further legitimize 

this hearing, is that for the four of you and your colleagues, however directly or indirectly you were involved in the return of those 

four Americans, you have our thanks. 

I yield back the balance of my time, Mr. Chair. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton, for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

Ms. Grosh, what is the policy of the United States when it comes 

to ransom for putting out payment for hostages? 

Ms. GROSH. Congressman, my understanding, as stated by the 

President, that it is the United States Government’s policy not to 

pay ransom. 

Mr. TIPTON. We don’t pay ransom. 

Mr. Backemeyer, you made the comment that there was desire 

to be able to conclude all of our lines of effort when payments were 

made of ultimately $1.7 billion cash sitting on pallets going in the 

middle of the night to Iran. Were the hostages part of that line of 

efforts that you were talking about? 

Mr. BACKEMEYER. Congressman, as I described, there were multiple lines of effort. There was the implementation of the nuclear 

deal that we— 

Mr. TIPTON. Was there a tie between the cash and the hostage 

release? 

Mr. BACKEMEYER. There was not a tie between the cash and the 

hostage release. The tie— 

Mr. TIPTON. How does that go back to your comment that it was 

all of the lines being tied together to be able to achieve the end? 

Mr. BACKEMEYER. I don’t believe I said the lines tied together, 

sir. I believe what I was trying to convey was that we thought we 

had a unique opportunity and diplomatic momentum where we 

could achieve multiple U.S. objectives, including implementing the 

nuclear deal that extended Iran’s breakout timeline from less than 

90 days to over a year, including bringing home American citizens 

that had been unjustly detained and arrested on bogus and 

trumped-up charges— 

Mr. TIPTON. So there was tie. 

Mr. BACKEMEYER. —and settling a longtime outstanding claim 

that we would have paid one way or another. 

So this was not a question with respect to The Hague claim tribunal—or Hague Tribunal claim of whether to pay $1.7 billion or 

zero; it was a question of whether to pay $1.7 billion or much more. 

Mr. TIPTON. So there was a tie with no connection. I would like 

to be able to get into the terrorism end of this, in terms of the 

agreements that were put forward 

Ms. Grosh, during the negotiations for the settlement purposes 

of the agreement with Iran in payments, did anyone in the Administration ever bring up the issue could these funds be used for terrorism? Was that raised as a concern? 

36 

Ms. GROSH. Again, my expertise in all of this is very narrow. It 

really is to litigating claims, assessing litigation risks, and in any 

of these settlements, whether it is this one or the ones that we 

have entered into prior, to give advice about what is a good settlement for the United States Government. 

Mr. TIPTON. Mr. Backemeyer, can you maybe answer that? Were 

any concerns raised by the Administration? 

Mr. BACKEMEYER. Congressman, as I said, we have multiple concerns with the Iranian government and multiple concerns with 

their activity— 

Mr. TIPTON. What overrode those concerns? 

Mr. BACKEMEYER. Congressman, as I have noted, we have tried 

to take step-by-step on multiple lines of effort areas where we 

think we can advance U.S. interests. 

We do so in a concerted and thoughtful way and we have done 

that with respect to the most immediate threat, which is the Iranian nuclear program. We have done that with respect to one of 

our top priorities of bringing home our American citizens. And with 

respect to this claim, we did so in a way that saved taxpayer dollars. 

We are obviously concerned about any potential— 

Mr. TIPTON. Okay. You are talking about saving the taxpayer 

dollars. You know, if we look at National Security Advisor Susan 

Rice, she admitted that some of the Iranian money could be used 

for terrorism. Is that a concern that you took into consideration? 

Mr. BACKEMEYER. We are constantly concerned with what Iran 

might do with respect to its support for terrorism and we have a 

variety of tools that we use to counter that. That includes robust 

sanctions that were passed in this very House; that includes designations of individual entities like the IRGC, the Quds force, other 

entities in Iran that support terrorism. We have a robust intelligence effort to— 

Mr. TIPTON. Mr. Backemeyer, maybe you could give me a little bit of clarity on this. The $1.7 billion settlement where you sent 

over cash in the middle of the night on pallets to Iran that went 

into their possession, you have said that the majority of this has 

gone to infrastructure programs so we are left assuming that they 

are filling potholes over there. 

Since you are able to track that money, what happened to the 

rest of it? Did a little bit of it go to terrorism funding? You were 

able to track the infrastructure program. 

Mr. BACKEMEYER. Sir, what I am speaking to is our assessment 

of the vast majority of funds Iran has gotten access to with respect 

to the multiple lines of effort that we have. I cannot get into specific details about where any those are going as I can speak in a 

general matter. 

But it does not change the fact that we have serious concerns 

about what Iran does do with its money, and we have— 

Mr. TIPTON. We are talking about in a general matter it is going 

to infrastructure. Where did the other money go to? 

Mr. BACKEMEYER. Congressman, I don’t think I said infrastructure. I believe I— 

Mr. TIPTON. No, I think you did. You said infrastructure programs. 

37 

Mr. BACKEMEYER. If I did I—what I recalled saying was it was 

going to domestic economic needs. But I have made the point again 

and again that we have concerns about where Iran does send its 

money and its support and we have a variety of tools that are in 

place in order to try to counter that. That is an ongoing effort of 

our government— 

Mr. TIPTON. Did they give you any guarantees that the money 

wouldn’t be used for terrorism? 

Mr. BACKEMEYER. I am not aware of any guarantees, but our— 

the way we approached this is from what the U.S. Government can 

do with respect to our intelligence capabilities, with respect to our 

operational capabilities, and respect to our diplomatic capabilities 

to try to track and deter those sorts of activities. 

We have a vigorous effort to both deter and disrupt shipments 

to Hezbollah, other proxies in the region. That is an active effort 

that is ongoing. We have active efforts with respect to our sanctions, which is intended to degrade the potential for those actors. 

And we have, as you know, ultimately other diplomatic lines of 

effort where we are trying to resolve other issues of concern and 

other threats to the United States. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. Kildee, for 5 minutes. 

Mr. KILDEE. Thank you, Mr. Chairman. And to you and the 

ranking member, thank you for agreeing to my participation. 

I am not on the subcommittee but I am here because there is 

probably not a subject since I have been in Congress for the last 

4 years that I have spent more time on than the issue of the U.S. 

relationship with Iran, specifically because one of those Americans 

that people continue to refer to is a young man who lives about a 

mile from me now, a young man named Amir Hekmati, from Flint, 

Michigan, my hometown, who, gratefully, thankfully, as a result of 

the great work of the agencies represented here, our secretary of 

state, President of the United States, is now a free man at home 

pursuing the rest of his life. 

The reason I make that point is that there were very many Members of Congress, including some Members who have expressed 

their outrage today in this hearing based on their assumption that 

there was some connection between these three distinct negotiations that took place, that one was a quid pro quo for the other. 

There were many members of the House of Representatives who 

took time at the point that the JCPOA was enacted, agreed to, that 

the release of these Americans should have been a part of that 

transaction and that it wasn’t. 

So I have a bit of concern with what I see as some duplicity here, 

that on one hand when it fits the political narrative the Administration is criticized for not making these separate negotiations all 

combined into one, and when it fits the political narrative a month 

or 2 before a presidential election suddenly we are criticizing the 

fact that they assume that they were. 

Well, they can’t have it both ways. So, you know, this does not 

make these negotiations—these agreements do not make—does not 

make Iran a good player on the global stage. There are still a lot 

38 

of unresolved issues—certainly some regarding their terrorist activities or their support of terrorist activities fits that category. 

The fact that we still haven’t had information about the status 

of Robert Levinson is another cause of great concern. Many of us 

continue to press Iran for information regarding his status. 

But to hear the same voices say that the release of these Americans should have been part of these separate negotiations now say 

that they were a part, coming out of the same voices, makes it obvious that what is going on here is simply politics, sadly, especially 

when we consider the gravity of not just the relationship between 

the United States and Iran and Iran and the rest of the world, particularly in that region, but to bring in the release—the happy release of these Americans into that conversation, I think is unfortunate. 

So let me just ask, at what point since 1979 did the United 

States have any direct negotiations with Iran? Was there any point 

in time before President Obama and President Rouhani spoke by 

telephone during the General Assembly? Was there any direct negotiations, face-to-face negotiations officially between the United 

States and Iran between the revolution and that moment in 2013? 

Mr. BACKEMEYER. Congressman, I wouldn’t want to speak to the 

entire history, but let me summarize and I think we will answer 

your question. Diplomatic contact was basically cut off for that entire period. 

Mr. KILDEE. I guess the better way to put it: Was there ever an 

opportunity that presented itself to resolve these longstanding disputes through direct negotiation, whether it is the release of the 

Americans or this dispute that resulted in the payment that is the 

subject of this hearing? Was there a moment that occurred prior to 

the JCPOA negotiations that took place that allowed for another 

track of negotiations to occur simultaneously? 

Mr. BACKEMEYER. Well, with respect to The Hague Tribunal, as 

my colleague has noted, we have had ongoing conversations in that 

tribunal to settle claims. But with respect to the consular issues 

that you raised that we do agree are so important, our first real, 

tangible opportunity to raise those was in the context of the 

JCPOA, and we took every opportunity in those negotiations, as 

you note, to raise these particular cases. And it was that channel 

that allowed us to continue discussions on their ultimate release. 

Mr. KILDEE. Thank you for that. 

My point is that it should come as no surprise to anybody observing the relationship between the United States and Iran that for 

the first time in a very long time the ability to have bilateral discussion suddenly occurred outside the context of tribunal action. 

This was bilateral discussion that was able to take place as a result 

of the JCPOA negotiation. 

I know that that opened the door for discussions regarding the 

disposition of the Americans, and I know that it opened the door 

for discussion regarding the resolution of these longstanding disputes. 

So the fact that these all took place in a period of time which 

was coincidental is as a result not of just sudden coincidence, but 

as a result of a change in the nature of relationship between the 

two governments. 

39 

With that, I know I have exceed my time. Thank you very much. 

Mr. FITZPATRICK [presiding]. The gentleman’s time has expired. 

The gentleman from Maine, Mr. Poliquin, is recognized for 5 

minutes. 

Mr. POLIQUIN. Thank you, Mr. Chairman, very much. I appreciate it. 

Ms. Grosh, I believe you stated in your opening statement you 

have been at the State Department dealing with these claims, settlement process, for about 30 years? 

Ms. GROSH. Yes, that is correct. 

Mr. POLIQUIN. Okay, about 30 years, thank you. And you have 

been involved in a number of different transactions. How many of 

them have been settled in cash? 

Ms. GROSH. To be clear, I am not involved in the exact financial 

transactions but I have— 

Mr. POLIQUIN. Okay, well to the best of your knowledge—to the 

best of your knowledge of the settlements that you have been involved with, is it common for these settlements to be disposed of 

in cash? 

Ms. GROSH. Again, I think as I raised, Congressman, with one 

of your colleagues, there have been various pretty large settlements 

over time, some small. Each one has been sui generis and there has 

been a difference in the way many of those settlements have been 

paid. 

Mr. POLIQUIN. Okay. Since you are not going to answer me the 

question how common it is to use cash let’s just move on. 

I have to be very honest with you, I am very concerned about 

this. And I think all kinds of Americans across our great land are 

concerned about this. I certainly know the people that I represent 

up in Maine are very concerned about this. 

Let’s step back for a minute. We have a government that is—has 

vowed to wipe our major ally in the Middle East—really the only 

one that we trust, I think—Israel, off the face of the earth. And 

they vowed to kill as many Americans as they can and they have 

blood on their hands right now. 

And you have been working on a claim settlement here that 

dates back 37 years. And you testified, Ms. Grosh, earlier today 

that because of the sanctions in place back in January that there 

was an inability to transfer $1.7 billion from America to Iran because the banking system problems because of the sanctions, which 

we now know is not true. 

So all of a sudden we have a wire transfer going from this country to a bank account in Europe somewhere, Switzerland I presume, where it is then converted into cash. $400 million of principal payments and $1.3 billion in cash. And that is transferred to 

a pallet or a series of pallets and put on a cargo plane in Europe 

before it is flown to Tehran. 

So my question to you is, since we don’t want any of this cash 

to land in the hands of terrorists who are trying to kill Americans 

in the Middle East, who at the other end of that transaction, Ms. 

Grosh—you worked on this transaction for a long time—who in Europe when that cash was put on wooden pallets before it was sent 

over to Tehran, what top-ranking American official was there to 

see that cash? Who? 

40 

Ms. GROSH. I am really not in a position to answer that because 

I was involved in the settlement. I believe some of my colleagues 

here today discussed those— 

Mr. POLIQUIN. Ms. McCord, do you know who it was? Who was 

the top-ranking American official who was on the ground in Europe 

when that cash was put on a pallet before it was flown over to 

Tehran? Who was it? 

Ms. MCCORD. I am also not— 

Mr. POLIQUIN. Okay, so you don’t know. 

Mr. Ahern, do you know? You work for Treasury. 

Mr. AHERN. Sir, as I stated in my— 

Mr. POLIQUIN. Okay, you weren’t involved. 

Mr. Backemeyer, do you know somebody? Do you have a name 

for me? 

Mr. BACKEMEYER. Congressman, let me address your particular 

question. 

Mr. POLIQUIN. Do you have a name for me who was the top-ranking U.S. official who was on the ground when the cash was put on 

the pallet? 

Mr. BACKEMEYER. Congressman, I would be happy to brief you 

in closed setting on all the details— 

Mr. POLIQUIN. Okay. 

Ms. Grosh, let’s go back to you since you are not going to answer 

me. Okay, do we know, when the cash was transported from this 

airport in Europe to Tehran, who was the top-ranking Iranian official who was in receipt of that cash? 

Ms. GROSH. I was not there. 

Mr. POLIQUIN. Does anybody know? 

Ms. GROSH. I negotiated the— 

Mr. POLIQUIN. Okay. Does anybody know? We are going to have 

the same stalling here. Does anybody know? 

Mr. AHERN. Sir, as I mentioned in my opening statement, the 

cash was eventually dispersed to a representative of the Central 

Bank of Iran. 

Mr. POLIQUIN. Okay. Was this someone who represented the 

military or was this someone who represented economic development of Iran? Who was it? What is his name? 

Mr. AHERN. It was an official of the Central Bank of Iran. 

Mr. POLIQUIN. Okay, do you have a name for me? 

Mr. AHERN. I don’t recall his name, sir. 

Mr. POLIQUIN. Oh, but you do have name, you just don’t recall 

it now, correct? 

Mr. AHERN. Sir, there were a variety of people. 

Mr. POLIQUIN. Okay, so you do—there is a person, though, correct? And you have that name. You just told me—I think you just 

referred, you don’t recall who it is. That means there is someone 

and there is a name, correct? 

Mr. AHERN. There were a variety of officials involved in this 

transaction. I would have to take that question back. 

Mr. POLIQUIN. So if our office got in touch with yours, Mr. Ahern, 

you could tell us who that individual was or those individuals were, 

couldn’t you? 

Mr. AHERN. We will take that inquiry back, sir. 

Mr. POLIQUIN. Say it again? 

41 

Mr. AHERN. I will take that inquiry back, sir. 

Mr. POLIQUIN. I didn’t hear you. My ears are bad. 

Mr. AHERN. I will take your inquiry back, sir. 

Mr. POLIQUIN. You will take my inquiry back. No, I don’t want 

the inquiry back; I want the answer. I want to know who was in 

receipt of that cash when that—when those pallets of cash landed 

in Tehran. 

Here is why. Here is the problem, Mr. Ahern: We don’t have any 

idea where this cash went. We don’t know who received it. We 

don’t know what it was used for, and it is untraceable, and it is 

with the a country that is the state sponsor of terrorism—one of 

the three state sponsors of terrorism in this world. 

Don’t you think that is a problem Mr. Ahern? We don’t even 

know who received the cash. 

Mr. AHERN. A couple of points, sir. One, to carry on the comments of my colleague, I would commend to you the testimony of 

Acting Undersecretary Szubin, who has testified about the funds 

freed up by the JCPOA and has testified about the deep economic 

hole that Iran was in, to the tune of half a trillion dollars. And so 

I would commend that testimony to you. 

Mr. POLIQUIN. Cash is the currency of terrorism. 

Chairman DUFFY. The gentleman’s time has expired. 

Mr. POLIQUIN. This is a state sponsor of terrorism that received $1.7 billion of cash on a pallet in Tehran. Our office will be in 

touch with yours, Mr. Ahern, so we can find out who the Iranian 

officials were who received that cash. 

Thank you. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Minnesota, Mr. 

Ellison, for 5 minutes. 

Mr. ELLISON. Thank you, Mr. Chair and ranking member. 

You know, Mr. Chair, I just want to say that I think that this— 

we always have to understand that all of the things we talk about 

in this committee take place within a certain context, and I would 

like just to remind folks January 15, 2013—no, actually that is the 

date that this document I am reading from was cited, but actually 

it was on the night of Barack Obama’s inauguration, group of top 

GOP luminaries gathered together in a Washington steakhouse 

and pledged to each other that they would make President Obama 

a one-term President, oppose every single thing he did. 

I am telling you that since that time we have seen committee 

after committee, issue after issue, relentlessly trying to make anything—anything—into a scandal or something like that. And I only 

want to say to my friends who are part of this, you literally are 

shaking the American people’s faith in the institutions of this nation by pursuing that strategy. You said Obama was going to be 

a one-term President. Well, you lost. 

And you know what? I wish that people would just come to their 

senses and do what was right for the American people, and I am 

going to keep on hoping that we do that. 

Now let me just say this, also: I have read reports in the press 

that the Treasury Department worked with foreign partners to effectuate the transfer of funds as part of The Hague Tribunal settlement payment. 

42 

First of all, this money that we have been talking about, was 

this—were these funds that were always Iranian funds that we 

froze? That is a question to anybody on the panel. 

Ms. GROSH. Congressman, the $400 million that was paid immediately, that came—those were Iranian funds in the FMS Trust 

Fund that is held in the Treasury. 

Mr. ELLISON. And why were they Iranian funds? What made 

them Iranian funds? 

Ms. GROSH. These were funds that were paid into the FMS Trust 

Fund during the course of the Iranian Foreign Military Sales program. And as I noted earlier, that was— 

Mr. ELLISON. What year? 

Ms. GROSH. This would have been from the—throughout the 

1970s and up through 1979, when we had the memorandum of understanding. 

Mr. ELLISON. So back in the 1970s, they paid us the money for 

some items and we froze that money after the seizure of our embassy? 

Ms. GROSH. There was a blocking prior to the—sorry, following 

the taking of the embassy. The 1981 Algiers Accords addressed 

issues that had been taken in response to the hostage taking 

The trust fund had always been there. There was a memorandum of understanding and Iran pointed to that as a basis for 

its claim that those funds were to be returned to Iran. 

Mr. ELLISON. Okay. So reports indicate that you worked with 

both the Dutch as well as the Swiss Central Bank. Can you confirm that? 

Mr. AHERN. Sir, we did work with a variety of partners in this 

transaction. 

Mr. ELLISON. Okay, fair enough. 

Now, it was reported in the press that at least one member of 

the Congress said that the U.S. flew pallets of U.S. dollars to 

Tehran. Would you say that that statement would be accurate? 

Pallets of U.S. dollars. Is that what happened? 

Mr. AHERN. That is inaccurate, sir. 

Mr. ELLISON. Inaccurate? 

Mr. AHERN. Inaccurate. 

Mr. ELLISON. Okay, so you said inaccurate. 

Mr. AHERN. That is correct. As I mentioned in my opening statement, in both transactions the funds were converted to a foreign 

currency. They were then withdrawn as foreign currency bank 

notes— 

Mr. ELLISON. Right, but you should understand that the whole 

country is watching this. This is sort of like a theatrical performance and I don’t want to be inarticulate about this, the claim that 

there was some pallet of U.S. dollars flown from America to Tehran 

is a false statement. You used the term inaccurate, right? 

Mr. AHERN. That is correct. U.S. dollars were not dispersed to 

Iran. 

Mr. ELLISON. Right, right. 

So can you mention what foreign financial institutions were involved? Weren’t these major institutions? I mean, there is some implication that there is some shady, obscure stuff going on. Were 

43 

these major, reputable institutions that we are talking about who 

helped facilitate the transfer? 

Mr. AHERN. Sir, what I can say is that our partners in both 

transactions were different central banks, national central banks. 

In the first transaction it was the Swiss National Bank. In the second transaction it was the National Bank of the Netherlands, the 

Dutch National Bank. 

Mr. ELLISON. Now look, in my 38 seconds remaining, I just want 

to pursue this. I have seen some of my colleagues demanding 

names of individuals who have somehow played some role in facilitating the whole transaction. As just a Member of Congress who 

has rules around classified information and who has a general commitment to protect and safeguard the lives, interests, and the 

means and methods of U.S. engagement, particularly with foreign 

power, I mean, how would you regard that? 

Is that appropriate to disclose the names of individuals? And 

would it jeopardize U.S. national interest to do so in a public open 

hearing like this? 

Mr. BACKEMEYER. Congressman, it is certainly our preference to 

discuss those details in a closed setting. 

Mr. ELLISON. For the interest of the United States Government. 

Mr. BACKEMEYER. Exactly. 

Mr. ELLISON. And people. 

Mr. BACKEMEYER. Exactly. 

Mr. ELLISON. All right. 

I yield back. 

Chairman DUFFY. The Chair now recognizes the gentleman from 

Arkansas, Mr. Hill, for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman. 

Thank the panel for being here. 

And, of course, we are not here to talk about Obamacare. We are 

not here to talk about Donald Trump. We are here in an open hearing to try to give some clarity to this transaction that has been I 

think inadequately disclosed by the Administration. 

So the fact that we are doing part of this not in a classified setting is for the benefit of the American people so that they have 

more clarity about this transaction and all the details around it, 

and I thank the chairman for scheduling it. 

I am confused because my friend from South Carolina began 

talking about President Clinton’s signing of the Victims Act back 

in 2000, and that is sort of related also to my friend’s comments 

from Minnesota. I am used to gap accounting and not government 

doublespeak and double-counting, but I am trying to understand 

that if, as you said, Ms. Grosh, that the $400 million was—in that 

2000 act was appropriated by Congress, did we release Iran, then, 

from their $400 million obligation? 

Because we keep talking about it as if we froze this account in 

1979 and then, pursuant to the Algiers Accords, that money was 

still sitting there and we paid interest on it. But in fact, we, in that 

act, paid out $400 million of appropriated money. 

So is the $400 million then remaining in the FMS account not 

the United States’ money? In other words, was Iran released from 

that obligation? 

44 

Ms. GROSH. Congressman, if I could try to clarify that, under the Victims of Trafficking Act Congress appropriated $400 million. This 

would be in subsection (b) of that act that was referred to earlier. 

Funds not otherwise made available in an amount not to exceed 

the total amount in the foreign military sales account at the date 

of enactment, which was $400 million. 

Then in a subsequent provision of that act the United States 

Government—because those were appropriated funds the United 

States Government was then subrogated to those claims, meaning 

that they became the claims of the U.S. Government. And the U.S. 

Government was then in a position to pursue those claims against 

Iran. 

And so in the overall settlement we factored in those claims in 

reaching the settlement that we did in January. 

Mr. HILL. You both used that term, ‘‘factored into the overall settlement,’’ but it just seems in conflict with that law to me, in my 

reading of it. 

It says, ‘‘No funds shall be paid to Iran or released to Iran from 

property blocked under the International Emergency Economic 

Powers Act or from the Foreign Military Sales Fund until subrogated claims have been dealt with to the satisfaction of the 

United States.’’ And so in my view the satisfaction of the United 

States includes the people of the United States and the people’s 

representatives here in Congress. 

So whose signature, whose wet signature authorized this settlement? Did Secretary Lew approve this settlement and make the 

recommendation to President Obama? 

Ms. GROSH. I am really not in a position to know at what level, 

but I believe— 

Mr. HILL. Mr. Ahern, can you shed light on that? I know the 

State Department led the negotiations, but who approved this 

transaction and its structure? Did Secretary Lew approve it? 

Mr. AHERN. This settlement was the subject of a number of interagency discussions, as you can imagine. Secretary Lew, Acting Undersecretary Szubin were part of those discussions. I don’t know 

the answer to your question beyond that. 

Mr. HILL. And Secretary Lew, of course, was the director of OMB 

in 2000, so I assume he knows the details of this Public Law 106- 

386 and this particular paragraph, since he was the director of the 

Office of Management Budget at that time. 

I want to give you another shot at explaining how it factored into 

the overall settlement, though, because the way I take it is we released them and, in fact, we, the taxpayers, ought to get $400 million plus accrued interest. And yet we have paid it out as a part 

of this overall settlement, and that is double counting to me. I just 

am not clear on your point. 

Ms. GROSH. Maybe I could give you an example. At the top of my 

remarks I mentioned that in 1990 we entered into a settlement 

with Iran. It settled both U.S. Government claims and U.S. national claims for $105 million. 

In my experience in claims practice, it is not unusual to settle 

multiple claims together at the same time. And if those are the 

claims of the U.S. Government we take all those into account, just 

as we could counterclaims. 

45 

And so in the negotiation of this claim settlement with Iran we 

had discussions about those claims and they were settled along 

with the trust fund issues. 

Mr. HILL. Well, thank you for that answer. 

But, Mr. Chairman, I remain confused that this is somehow double counting, and I urge our committee staff to try in discussions 

to get to the bottom of that. 

Last question I have for the Treasury official: Were there any 

IRGC members on the IranAir flight that picked up this money and 

took it back to Tehran? 

Mr. AHERN. As I said, the money was disbursed to a representative of the Central Bank of Iran. As I understand it, there were no 

specially designated nationals involved. 

Mr. HILL. Thank you. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the ranking member of this subcommittee, the gentleman from Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Witnesses, I thank you and I compliment you for being truthful 

and forthright. 

This hearing today has taken us back 35 years thereabout, 

maybe a little bit more, to the Algiers Accords. And I think it was 

appropriate that we do this. 

But I also think it appropriate for us to go back to the inauguration of President Obama because it was around that time that persons met and concluded—in fact, pledged—that they would do everything that they could to stop the President. That is what POLITICO reported: Stop the President. 

But I have in my hands what I would like to place in the record, 

an article styled, ‘‘The Republicans’ Plan for a New President.’’ 

Mr. GREEN. And this article addresses the notion that on the 

night of Obama’s inauguration a group of top GOP luminaries, as 

was indicated by another member, quietly gathered in a Washington steakhouse. 

They were there to lick their wounds. But ultimately they created this plan on how to deal with the incoming Administration. 

This is a furtherance of the plan. 

And for those who are curious as to persons in attendance, without going through all of the luminaries, I think it appropriate to 

say that the current Speaker of the House was in the house. 

I think it fair to say, as reported in this article—and by the way, 

there are other reports. CNN has reported on this. It has been reported widely. But it is fair to say that the current majority leader 

had a leadership role. He was there, too. 

So with this kind of pledge made to each other it just seems appropriate that the style of this hearing would be, ‘‘We Kept Our 

Word, and We Are Keeping Our Word, and Anything That This 

President Brings Up, We Will Oppose It.’’ And that has been the 

record. The record is replete with specific examples of how they 

have opposed everything this President has brought forth. 

But I will be very candid with you. I did not believe that it would 

get to this point. 

There are families—I have two—who have relatives who are 

being held hostage. Can you imagine what these families have to 

46 

conclude when they hear people saying that somehow giving—returning money to people that belonged to them, and seeing our people come home, that there is something inappropriate about this? 

These families are suffering. I meet with them regularly. I know 

their pain. They want their loved ones to come home. 

We ought to be proud of the fact that we didn’t give a ransom, 

and we did bring them home. This was the money that belonged 

to the Iranians. It was a prisoner swap. We have Americans who 

were brought home. 

My God, can we not credit the President with something? He has 

made a difference in the lives of these people. 

But this is not about this specific transaction. It is really about 

a deal that was cut on the night of the inauguration thereabout to 

do everything to disenfranchise this President. 

Who would have thought that Members of Congress would say 

that the President wasn’t born in the United States of America? 

The President of the United States of America not born—not an 

American? It has continued, it has been consistent, and they have 

been persistent. 

But we have to stand by the truth. 

Remember William Cullen Bryant: ‘‘Truth, crushed to earth, 

shall rise again.’’ 

Remember Carlyle: ‘‘No lie can live forever.’’ 

Remember Martin King: ‘‘The arc of the moral universe is long, 

but it bends toward Justice.’’ 

History will not be kind to these who would do what they are 

doing to this President, pursuant to a deal that was made. You are 

keeping your word. 

I yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman, and thank you for 

calling this very important hearing. 

Mr. Ahern, are you old enough to know the TV show, ‘‘Dragnet?’’ 

Mr. AHERN. I am, sir. 

Mr. PITTENGER. You are. Sergeant Friday? 

Mr. AHERN. He is one of my favorite characters, sir. 

Mr. PITTENGER. Then you recall, ‘‘Just the facts, ma’am, just the 

facts.’’ 

Mr. AHERN. Yes, sir. 

Mr. PITTENGER. He was renowned for that line, and I think that 

is all I would request today. I am going to ask a series of questions, 

and I would like your response, just the facts, if I could. 

Mr. Ahern, what—who exactly was in charge in gathering the 

$400 million in currency? What level of staff is tasked to gather the 

$400 million in cash, place it on a plane, and send it to a foreign 

government? How were these dollars packaged? 

Was the military used to fly the plane, to fly the money to Iran? 

How did Iran receive the cash? Please take a moment and articulate the exact process of the money exchange from the money the 

State Department went to the bank and withdrew the cash to the 

moment Iran received the money. 

47 

Mr. AHERN. Sir, as I said, there were two payments. They flowed 

in generally the same manner, but I will break them down into two 

payments and walk through the flow, how they each worked. 

With respect to the $400 million principal that was held in the 

FMS account, that—those funds were transferred to the—an account of the Swiss National Bank. 

Mr. PITTENGER. Who was in charge of gathering that money? 

Mr. AHERN. I am sorry, sir? 

Mr. PITTENGER. Who was in charge of gathering the $400 million? 

Mr. AHERN. It was a wire transfer to that account. Once in that 

account, the foreign national bank converted those funds— 

Mr. PITTENGER. And who initiated the wire transfer? 

Mr. AHERN. That was initiated by the, as I said in my opening 

statement, the Defense Finance and Accounting Service. 

Mr. PITTENGER. I am sorry I missed that. But just kindly convey 

that. 

Mr. AHERN. It was a Department of Defense-controlled account, 

and so the Defense Finance and Accounting Service, DFAS, was 

the one to initiate that wire payment. We helped them build the 

wire instruction to do that. 

The funds were then transferred to the foreign central bank, 

which converted them into Swiss francs. Those francs were then 

withdrawn as bank notes. They were transported from one location 

in Switzerland to Geneva, and there they were disbursed to a representative of the Central Bank of Iran. 

With respect to the second payment, the $1.3 billion that represented the compromise of interest pursuant to the settlement 

agreement, that money was transferred, again, from the Judgment 

Fund, which is the fund that Congress has authorized for the payment of judgments and settlements when there is no other appropriated fund. It was transferred to the account of another central 

bank, again, the Central Bank of the Netherlands. 

It was converted into euros at that stage. It was withdrawn as 

bank notes, pursuant to an arrangement between the United 

States, the home government of that central bank, and Iran. That 

bank then disbursed those funds to representatives of the Central 

Bank of Iran. 

Mr. PITTENGER. Was there a receipt for all these fund transfers? 

Was a receipt given? 

Mr. AHERN. For which leg, sir? 

Mr. PITTENGER. Well, when the funds were received—when 

money is transferred there is acknowledgment and there is a receipt. Was there a receipt given for the transfers? Do we have access to those receipts? 

Mr. AHERN. I am not familiar with the answer to that question, 

sir. I would have to take that back. 

Mr. PITTENGER. Well, I would like to know what type of receipt 

was received, in what manner, from Iran to the United States for 

the $400 million. 

Mr. Ahern, considering the funds that were received, what confidence do you have that this money was not diverted immediately 

toward terrorist interests and organizations? 

48 

Mr. AHERN. Again, to carry on some of the comments that my 

colleagues have made in the past, and also I would commend to 

you the testimony of our Acting Assistant Secretary Szubin recently with respect to the funds that were released pursuant to the 

JCPOA, and he has testified in detail about the deep hole that the 

Iranian economy was in to the tune of half a trillion dollars. And 

so while we can’t track any particular bank note, we do know that 

Iran had a very significant domestic need for funds. 

I can also say that the Treasury Department is committed to 

identifying and countering terrorist financing, its facilitators, its 

networks. We have an entire office, the Office of Terrorism and Financial Intelligence, that combines all the national security functions of the Department under one roof. That office’s primary mission, in fact the reason it was established, was to counter terrorist 

financing, and we continue to be focused on countering terrorist financing and its networks. 

Mr. PITTENGER. These negotiations are scripted and very well 

thought through in an effort to make sure that there are no mistakes intentionally. How could this be done without recognizing 

that $400 million would be transferred simultaneously that the 

hostages were being released? Was there not a full recognition that 

that would be taking place, and at least the perception of that reality? 

Mr. BACKEMEYER. Congressman, if I may interject to answer 

your question, as I have mentioned, it was a fact that we tried to 

resolve multiple lines of business all—on or around the same time. 

That included the Iranian nuclear deal, which we were implementing, and the IEA verified that weekend that Iran had met its 

commitments under that deal. We were trying to resolve the prisoner release and the return of our American citizens back to the 

United States. 

And as I mentioned previously, that was—there was a reciprocal 

humanitarian gesture with respect to Iranian nationals that were 

in the United States. 

And we were trying to resolve this particular issue with respect 

to the settlement of the claims because we thought that this judgment was in the interest of the United States. And we did so all 

at the same time because there was a momentum that did not exist 

for the past 3 decades and we were fearful that if we let one or 

two of these lines of effort drag out and we did not conclude them 

all at the same time that we would jeopardize our— 

Mr. PITTENGER. My time has ended. I will just say that I was 

there to receive Pastor Abedini in Germany and he heard the conversation between—with one of the guards that they were waiting 

for a plane to come in with the cash. He has made already a public 

statement on that. Thank you very much. 

Chairman DUFFY. The gentleman’s time has expired. 

I would note that we are going to move to a second round of 

questionings of the panel. I am going to yield to the ranking member for a brief moment to voice an objection. 

Mr. GREEN. Thank you, Mr. Chairman. I do object. And I will be 

more explicit with my objection with the 5 minutes that I will consume in the second round. But I do object and would ask that we 

not have another round of this. 

49 

Chairman DUFFY. And duly noted, and it is in the prerogative of 

the Chair to go to a second round. 

So the Chair now recognizes himself for 5 minutes. 

I want to go to a few points of clarification. 

Again, who authorized the payment? That question has been 

asked for numerous times. 

Mr. Ahern, I think you indicated that at least Mr. Lew was involved in knowledge of this agreement. Correct? 

Mr. AHERN. Sir, think it is unsurprising that with a transaction— 

Chairman DUFFY. Agreed. 

Mr. AHERN. —of this nature it would involve discussions— 

Chairman DUFFY. Mr. Backemeyer, was Mr. Kerry apprised of 

this? 

Mr. BACKEMEYER. Secretary Kerry has been deeply involved in 

all of our discussions with Iran. This has been subject to a vigorous 

debate within our interagency— 

Chairman DUFFY. And the President was aware of this, as well? 

Mr. BACKEMEYER. —and the cabinet of the United States. 

Chairman DUFFY. I am going through some quick cleanup. President was aware of—as well, of this deal? Absolutely correct? 

Mr. BACKEMEYER. President was aware. 

Chairman DUFFY. Highest levels. Okay. 

When these deals in the tribunal are resolved there is a settlement agreement that is put out. A settlement agreement in regard 

to this deal has not been released. Is a settlement agreement forthcoming? 

Ms. GROSH. I believe I could ask—answer that question, Congressman. Typically what happens at the tribunal if there is a settlement—and this would have applied to U.S. national settlements 

as well as government settlements—they are affirmed as an award 

on agreed terms and they would be attached to— 

Chairman DUFFY. Is there a settlement agreement forthcoming? 

Ms. GROSH. The parties in this situation, because there are—it 

was—there are pending claims at the tribunal the parties asked 

the tribunal not to record it as a— 

Chairman DUFFY. There have been pending claims at the tribunal for 37 years and a settlement agreement has been released. 

I would expect that a settlement agreement, so the American people can see what the deal truly was, should be forthcoming, and it 

is of concern to this committee that it is—it has not been released 

and appears, by your testimony, is not forthcoming. 

Ms. GROSH. Yes, there are claims continuing. In fact, today my 

office is filing a submission in the FMS claims with the Iran-U.S. 

Claims Tribunal, and there is a lot of concern about the fact that 

those claims are ongoing and we do not want to undermine any 

U.S. positions. 

Chairman DUFFY. And Iran knows of this deal. It is just that we, 

the American people, want to know about it as well. And I am sure 

if you share it with us you don’t undermine your negotiating position with Iran because they were part of it. 

In regard to the $400 million, I think you all indicated there was 

a claim by the victims of Iranian terror lien on that $400 million. 

You all agreed to that? 

50 

Has that lien been released now that that $400 million has been 

paid? 

Ms. GROSH. The statute really doesn’t provide for a lien, so I am 

not sure what you are really talking about, but— 

Chairman DUFFY. There is a claim to the money. Mr. Mulvaney 

read that to you and you agreed that there was a claim or a lien, 

however you want to phrase it, per statute on the money. 

Ms. GROSH. It was subrogated to the United States Government. 

That is correct. That— 

Chairman DUFFY. So now that that $400 million has been released to Iran, who is going to pay the claims to the victims of Iranian terror? 

Ms. GROSH. The victims of Iranian terrorism who had those judgments were already paid in 2000. 

Chairman DUFFY. So there is no outstanding claims? 

Ms. GROSH. There are outstanding claims. 

Chairman DUFFY. So who is going to pay those outstanding 

claims? 

Ms. GROSH. Those individuals have pursued litigation in U.S. 

courts. They have received judgments, and as far as I am aware 

they are pursuing— 

Chairman DUFFY. They are not going to get— 

Ms. GROSH. —they are pursuing attachments to— 

Chairman DUFFY. So is the U.S. Government going to be responsible for those claims? 

Ms. GROSH. They are the claims of the U.S. nationals and they 

do not become the claims of the U.S. Government unless they are 

subrogated or unless the U.S. Government formally exercises diplomatic protection. 

Chairman DUFFY. I want to go quickly here. As part of the Iran 

nuclear deal assets were unfrozen, or thawed, if you will. As part 

of that deal were any of those assets transferred or converted into 

cash and also transferred back to Iran? 

Mr. BACKEMEYER. Congressman, the sanctions relief in the 

JCPOA, the Joint Comprehensive Plan of Action, was quite different. You are correct that the sanctions were lifted that had previously restricted those funds. And those sanctions were lifted and 

Iran then was—it was up to Iran to access those funds. 

Chairman DUFFY. And were they able to access those funds in 

cash? 

Mr. BACKEMEYER. At that point, once those sanctions restrictions 

were lifted it would be up—between them and whatever bank they 

had their funds in— 

Chairman DUFFY. So are you aware, did they get large transfers 

of hard currency back to Iran that you are aware of? 

Mr. BACKEMEYER. I am not aware of how Iran is ultimately—or 

how any funds were ultimately disbursed to Iran. What we know 

is that— 

Chairman DUFFY. Were any disbursed to Iran? So they got the 

$1.7 billion in cash. Did they get any other cash payments by way 

of us unfreezing their assets? 

Mr. BACKEMEYER. Well, Congressman, it is worth remembering 

that these were— 

51 

Chairman DUFFY. Yes or no? I got limited time. Yes or no? Did 

they get more cash? 

Mr. BACKEMEYER. These were Iranian funds in Iranian accounts 

overseas— 

Chairman DUFFY. I know that. So did— 

Mr. BACKEMEYER. —and they used those funds to buy and trade 

and do things like that— 

Chairman DUFFY. So is it fair to say they got more cash shipments in with hard currency because we unfroze their assets? Yes, 

right? 

Mr. BACKEMEYER. No, I am not sure that it is. I don’t know how 

Iran would have sought the disposition of its assets overseas. 

Chairman DUFFY. One last question: This deal that you say is so 

great—was a determination from the tribunal imminent? 

So I was a prior prosecutor. Before the jury comes back—the jury 

is about to come in or the judge is about to rule, the parties settle. 

Was the judge about to rule? Was there an imminent settlement 

of this deal that was pending that made you have to act and settle 

for $1.7 billion? 

Ms. GROSH. As I mentioned in my opening, the—Iran was pressing very hard to go to hearings. 

Chairman DUFFY. That is not my question. I didn’t act if they are 

pressing you. I asked you if a settlement or a determination by the 

tribunal was imminent, not whether they were pressing you. They 

have probably been pressing for 37 years. Was there a determination imminent? 

Ms. GROSH. At that point in time it was our judgment that there 

was going—that there was a possibility of a judgment coming very 

soon. 

Chairman DUFFY. So the hearings had been had? All of the evidence was with the tribunal and they were about to make a decision. Is that your testimony? 

Ms. GROSH. My testimony is that Iran was pressing for a preliminary determination about this issue regarding the disposition of 

the trust fund and interest. 

Chairman DUFFY. So there was no— 

Ms. GROSH. It was our determination that it was much better to 

have a decision made to resolve this for a much smaller amount 

than what we thought the tribunal could have rendered. 

Chairman DUFFY. So there was no imminent determination on 

the horizon. My time has expired. 

And I will now recognize the ranking member, Mr. Green, for 5 

minutes. 

Mr. GREEN. Mr. Chairman, thank you. 

I am a former judge and I can say to you from experience that 

when the litigants sense what the ruling of the court will be it becomes imminent at that point. You don’t have to say it for it to become imminent. But when they sense that there is a ruling that 

may be adverse to their best interest it is not unusual for those 

who are litigating to act. 

Mr. Chairman, I want you to know that we are displeased with 

the hearing, and I want to thank all of my colleagues who have appeared and who are prepared to return, but this really has become 

now about more than oversight; it is about micromanaging the 

52 

presidency—more specifically, micromanaging President Barack 

Obama. 

The President should have the latitude to negotiate international 

affairs. It is inherent in the power of the executive branch. But we 

want to micromanage this President. 

A deal was made, and to the extent that the deal can be consummated we would go this far. I think that it would be a disservice for us on this side to legitimatize a continuation of this fiasco. 

There are some things that you just don’t do. You don’t participate in your own demise. You don’t allow people to create a petard 

to which you can be hoist. There are some things you just don’t do. 

To continue with this is a disservice to the committee itself because this has become about nothing more than confusion and an 

attempt to honor a commitment that was made when the President 

was inaugurated. 

So I thank you for allowing me to, pursuant to the rules, of 

course, make this comment, and I am going to ask that all of the 

members on our side make a—make better use of your time. This 

has gone too far already and we are not going to take it any further. 

With that, not only do I yield back my time but I will make my 

departure. 

Chairman DUFFY. Thank you. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill, for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman. 

On the issue of the ransom topic, I know that the Department 

of State and the U.S. Government has been—expressed displeasure 

in the past when Germany paid 5 million euros in Mali, and when 

France paid 25 million euros in Mali for—to Al Qaeda, and it was 

something we tried to enforce through all of our diplomatic channels and our leadership channels as the United States. 

And public reports say that Al Qaeda has between 2008 and 

2014 gotten about 125 million euros in paid ransom for tourists or 

captives that have been returned to their countries. 

So my concern is no matter what it is called, you have an appearance problem. And I think that is something that was poor 

judgment in the process of the negotiating effort. 

And secondly, to Chairman Royce’s point, this issue of cash is 

really disturbing to me, and I think it is to anyone who has been 

a former Treasury official, as I have on my resume. You just don’t 

provide cash to the number one state sponsor of terrorism. 

And as Chairman Royce pointed out, the tribunal regulations 

permit it, and clearly this was an Iranian request and we acceded 

to it. And it was, in my view, not the right decision in the best interest of the American people because we know what is done with 

cash in the hands of the number one state sponsor of terrorism. 

You also have testified today that it is—I think Mr. Backemeyer, 

you commented on the state of the Iranian economy. 

And whether you are the desk officer at the assistant secretary 

for international economic policy at State or over in Oasia, sure 

people write estimates of the state of our friends and foes around 

the world, but with an $800 million approximately purchase price 

53 

parity in GDP, taking the midpoint of the public number of what 

was freed up in the JCPOA of $100 billion, that is 20 percent of 

GDP. So if they want to help the Iranian people maybe they can 

cut down on a $20 billion defense budget and not be looking to that 

as a reason in negotiations to be, you know, kind-hearted and settling for a higher interest payment than you think perhaps they 

should have received. 

So I really think if we want the Iranians to have a better economy and take care of their ‘‘domestic infrastructure needs,’’ they 

ought to rearrange how they spend their money and not spend so 

much money threatening their neighbors, threatening the United 

States, threatening the people of Israel. 

With that, Mr. Chairman, I yield back. 

Chairman DUFFY. The gentleman yields back. 

I would just like to note as we are going to wrap up this portion 

of the hearing, I thank the panel for their service to our country. 

I know how hard all of you work. I know that you have gotten 

tough questions today. But do know that the Congress and this 

committee respects your work, though we might have some disagreement with what has taken place in regard to this deal. 

I would just note that you may get follow-up questions from committee members that I would ask you to answer in a reasonable 

amount of time. 

I would also note specifically to State and to Treasury, we have 

sent over written requests for documentation. It has been over a 

month. There has been zero production from either State or Treasury—documents that we are entitled to. 

I would ask you to take that message back to your superiors and 

please provide those documents that are duly owed to the Congress. 

With that, again, thank you. 

Our committee is now going to stand in recess for 5 minutes as 

we switch out panels. 

[brief recess] 

Chairman DUFFY. I want to welcome our second panel, and first 

off apologize to the panel that the first panel took so long, but I 

thought it was worthy of a lengthy discussion. I hope you all do, 

as well. 

Let me introduce our second panel: Mr. Dubowitz is the executive 

director of the Foundation for Defense of Democracies; Dr. Rubin 

is a resident scholar at the American Enterprise Institute, AEI; Mr. 

Lorber is a senior associate at the Financial Integrity Network; and 

Ms. Maloney is the deputy director of foreign policy, and a senior 

fellow at the Center for Middle East Policy at the Brookings Institution. 

Each of the four of you will be recognized for 5 minutes to give 

an oral presentation of your testimony. And without objection, each 

of your written statement will be made a part of the record. 

Once the witnesses have finished their testimony, each member 

of the subcommittee will have an opportunity to ask each of you 

questions for a period of 5 minutes. 

Again, you probably all know this, but on your table you have 

your three lights: green means go; yellow is you have a minute left; 

and red means your time is up. 

54 

I would just note that the Democrats know we are doing this second panel. We may get some more of them back in the room as we 

proceed, but they know we are going to proceed without any of 

them here. 

With that, Mr. Dubowitz, you are recognized for 5 minutes. 

STATEMENT OF MARK DUBOWITZ, EXECUTIVE DIRECTOR, 

FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. DUBOWITZ. Thank you, Chairman Duffy, Vice Chairmen 

Fitzpatrick, Ranking Member Green, Congressman Hill, and distinguished members of the subcommittee. On behalf of FDD and its 

Center on Sanctions and Illicit Finance it is an honor to testify 

today. 

And we have talked about Iran’s malign activities and they pose 

a severe threat to U.S. national security. These activities include 

support for terror groups, Shiite militias, proxy forces, and rogue 

states. 

As has been discussed today, to expand these illicit activities the 

regime needs cash because it is liquid, it is untraceable, it is convertible, and it is easy to transfer. And according to the Financial 

Action Task Force, cross-border cash transfers are one of the main 

methods used to move illicit funds, launder money, and finance terrorism. 

Now, instead of focusing my testimony only on the question of 

whether the $1.7 billion was a ransom, I want to broaden the inquiry. The key question I want to ask today, which is best illustrated in the handout that you have before you as well as on the 

screen, is did Iran, in fact, get tens of billions of dollars of cash, 

maybe up to $33.6 billion? 

So let’s start with this: President Obama has said, ‘‘The reason 

that we had to give them cash is precisely because we are so strict 

in maintaining sanctions. We could not wire the money.’’ 

Well, as we have discussed, legally the President is wrong. Existing regulations permit transactions. 

The President may also use his special authority under IEEPA 

to authorize banks to facilitate these transactions. 

In short, there are no legal barriers. The tribunal has settled 

about 4,000 claims. I find it hard to believe they were all done in 

cash. 

Now, it is certainly possible that banks were unwilling to not 

wire the funds no matter what guarantee they got because they 

have a healthy fear of sanctions after so many years. But if so, it 

raises a troubling question: How did Iran receive the billions of dollars in sanctions relief under the JPOA and JCPOA? 

During the JPOA negotiations we know that Iran was granted 

$700 million a month, or $11.9 billion, from its restricted overseas 

oil escrow accounts. If no mechanism existed to transfer the tribunal funds through the formal financial system, what mechanism 

was used to transfer the $11.9 billion? 

Now, a senior official has admitted to The Wall Street Journal 

that, ‘‘Some of that money was sent in cash,’’ and that, ‘‘We had 

to find all these strange ways of delivering the monthly allotment.’’ 

What exactly were these strange ways? Did they include cash, or 

55 

gold, other precious metals? Or was there a formal financial channel? 

Now, it doesn’t end there. In July, U.S. officials estimated that 

Iran had repatriated ‘‘less than $20 billion from previously frozen 

overseas assets of $100 to $125 billion.’’ Were those funds also repatriated in cash and gold? Was this in addition to the $11.9 billion 

or inclusive? 

If the White House could only send cash to Iran from the start 

of the JPOA period through the tribunal payment, that could 

amount to a grand total of $33.6 billion. Did any of this money go 

through the formal financial system? 

If so, the Administration is not being truthful about the $1.7 billion. If many billions of dollars arrived in Iran on pallets, this 

would be a pretty astounding revelation. 

Now to the question of ransom. 

If Iran was able to receive some or all of the sanctions relief 

through the formal financial system, why was the $1.7 billion paid 

in cash? For example, in February 2014 the Bank of Japan reportedly wired $550 million to an Iranian Central Bank account in 

Switzerland as part of the interim agreement. There is no reason 

that the Administration couldn’t have wired the $1.7 billion immediately to that same account rather than sending cash. 

So perhaps Iran simply wanted cash. As one senior official said 

to The Wall Street Journal, ‘‘Sometimes the Iranians want cash because it is so hard for them to access things in the international 

financial system.’’ 

Is this an admission that cash was an Iranian demand and not 

a logistical impossibility? The $400 million cash delivery in January was part of a tightly scripted exchange timed to the release of 

the American hostages. If Washington needed Iran to receive the 

funds immediately in order to keep to the script, was cash the only 

way or could they have wire-transferred that money immediately 

to the same Central Bank of Iran account, Swiss Central Bank? 

Now, the Administration calls it leverage, but Iranian officials 

call it a ransom. And it is really that Iranian opinion that I think 

matters. This might explain one of the reasons why the IRGC has 

arrested more Americans and other dual nationals, to cash in 

again. 

So let me conclude by summarizing my concerns with these two 

key questions. Number one: Did the Administration authorize the 

cross-border transfer of as much as $36 billion in cash and perhaps 

gold, or some portion thereof? If so, the White House provided Iran 

with unprecedented and untraceable funds to fuel Iranian regime 

terror and other nefarious activities. 

Or, question two: If the Administration never before authorized 

the transfer of cash and gold to Iran, did they send this $1.7 billion 

as a unique cash delivery to satisfy Iranian demands? And did they 

do this because it was the only way to get our hostages back? Well, 

this suggests ransom. 

It just seems to me that the Administration can’t have it both 

ways. 

Thank you for the opportunity to testify, and I look forward to 

your questions. 

56 

[The prepared statement of Mr. Dubowitz can be found on page 

80 of the appendix] 

Chairman DUFFY. Thank you. 

Dr. Rubin, you are recognized for 5 minutes. 

STATEMENT OF MICHAEL RUBIN, RESIDENT SCHOLAR, 

AMERICAN ENTERPRISE INSTITUTE 

Mr. RUBIN. Chairman Duffy, Ranking Member Green, and honorable members of the subcommittee, thank you for the opportunity 

to testify today about the Obama Administration’s willingness to 

provide Iran with $400 million in cash on the same day Iran released all but one of the American hostages it held. In subsequent 

days the United States delivered an additional $1.3 billion. 

At issue is whether the payment was proper, whether it was ransom, how Iran used the money, and whether the fact that the payment was made in cash might fuel greater terrorism. 

I have gone into detail in my written testimony, utilizing Iranian 

sources and Iranian government journals, with regard to how Iranian figures perceived the payment, how they might launder it, 

what their strategy is, and how the Islamic Revolutionary Guard 

Corps corrupts the Iranian economy. For the sake of brevity, let me 

summarize. 

When Secretary of State John Kerry says the $1.7 billion was 

Iranian money, there is no reason it needed to be paid now. After 

all, successive Administrations, both Democratic and Republican, 

have delayed repayment so as to avoid funding Iranian terrorism. 

Likewise, if the United States freezes accounts linked to Al Qaeda 

or Hamas, releasing it and saying, ‘‘It is their money anyway,’’ 

would not be a tenable explanation. 

Cash payments are highly irregular. The closest precedent was 

the 1848 treaty ending the Mexican-American War. There is no 

critical economic need in Iran for which they have used the cash. 

The White House and State Department might perform intellectual somersaults to avoid calling the payment a ransom, but despite initial denials, the State Department has now acknowledged 

the linkage between the cash paid and the release of the hostages. 

We have had repeated diplomatic dialogue over the years, so to say 

that this is just a confluence of events is absolute nonsense. 

And Undersecretary of State William Burns, for example, met directly with the Iranians in 2008, I believe it was; Ryan Crocker in 

2007. The whole arms-for-hostages scheme during the Reagan Administration was, at its core, about diplomatic dialogue. 

Regardless, Washington’s spin is irrelevant. Iranians perceive 

the payment to be a ransom and said so. ‘‘Taking this money back 

was in return for the release of American spies,’’ a senior Islamic 

Revolutionary Guard Corps general said. 

Not only has delivery of the millions of dollars been perceived as 

a ransom, providing an incentive to seize more hostages—and indeed, they have been seized—but because the money was delivered 

in cash the payment bolstered the strength of the Islamic Revolutionary Guard Corps and augmented its ability to finance and conduct terrorism. 

57 

I should say that reliance on the Iranian defense budget or their 

line items—it shouldn’t be done. They are fictional. Iran’s budget 

is opaque. 

After the Flatow verdict back in 1999 or 2000, where the judge 

assigned damages based on the line item for resistance, the line 

item simply disappeared in subsequent budgets. That didn’t mean 

that the Iranians stopped conducting terrorism. 

Every time the United States Government has offered Iran incentives in the face of terrorism the Iranian response has been 

more terrorism and hostage-taking. That was the case with the 

Reagan-era arms-for-hostages scheme. It should be no surprise that 

the Iranians have seized more than a half-dozen Western hostages 

in the months since. 

The problem isn’t just incentivizing bad behavior. Rather, the 

problem is that the IRGC continues to dominate the Iranian economy. Allowing the IRGC to have custody of the money is to allow 

the group to launder cash for its own purposes. 

Even Iran’s Justice minister just a month ago has said that 50 

million bank accounts in Iran are opaque or their ownership unclear. That is a country of 80 million people—50 million bank accounts the Justice minister in Iran says are basically bogus. 

In my written testimony I also highlight how the IRGC often 

uses the Tehran Stock Exchange to launder money and play a shell 

game with companies to evade proliferation and terrorism sanctions. So this is another danger of making the payments in cash. 

Payment in cash is especially problematic as it hampers the ability of the intelligence community and the Treasury Department to 

trace it. Remember, the Iranian plot to murder the Saudi ambassador in Washington, D.C. was exposed because the United States 

was monitoring specific bank accounts. Also remember that a suicide bomb belt can cost as little as $1,500. 

This hearing may be about Iran, but the issue is broader. What 

happens in Tehran doesn’t stay in Tehran. Exposing U.S. rhetoric 

about refusal to pay ransom as empty has put a target on every 

American’s back and convinced terrorist leaders and rogue regimes 

that kidnapping and ransoming pays. 

Thank you for the opportunity to testify. 

[The prepared statement of Dr. Rubin can be found on page 126 

of the appendix.] 

Chairman DUFFY. Thank you. 

Mr. Lorber, you are now recognized for 5 minutes. 

STATEMENT OF ERIC B. LORBER, SENIOR ASSOCIATE, 

FINANCIAL INTEGRITY NETWORK 

Mr. LORBER. Thank you. 

Chairman Duffy, Vice Chairman Fitzpatrick, Ranking Member 

Green, and distinguished members of the subcommittee, 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 the legality of the $400 million cash payment, as well as the 

subsequent $1.3 billion cash payments; the risks that such payments pose; and how, most importantly, we could have structured 

these payments to limit Iran’s ability to use these funds to support 

terrorism, weapons proliferation, and regional instability. 

58 

With the recent 1-year anniversary of the JCPOA it is as important as ever to ensure that Iran is limited in its ability to support 

terrorist forces and corrupt the international financial system. 

Make no mistake: Though Iran has signed and implemented the 

JCPOA, it has not changed the underlying criminal activity that 

has led respectable financial institutions across the world to refuse 

to do business there. 

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 IRGC, the Iranian military, and Iran’s proxy 

terrorist forces throughout the region. 

To be clear up front and as discussed, this payment does appear 

permitted under U.S. law. Pursuant to 31 CFR 560.510(d)(2), which 

is part of the ITSR, U.S. persons are authorized to conduct all 

transactions necessary to payments related to settlement agreements in a legal proceeding between the United States and Iran. 

The provision permits U.S. Government officials and foreign financial institutions to transfer these funds to Iran after a settlement 

agreement at the United States-Iran Claims Tribunal, even if such 

transfers are done in cash, though I will point out that, as Representative Royce noted, that means you could use the formal financial system to transfer these payments. You do not have to go 

through cash. 

Despite the likely legality of the transfer, however, the payment 

of this money to Iran, particularly without preconditions to ensure 

that it was not used to support Iran’s terrorism-related activities, 

is both troubling and a missed opportunity. It is troubling because 

in providing funds to Iran without controls on how it would use 

that money, we allow the country to disperse these funds to the 

Iranian military and other nefarious actors. 

In addition, the very nature of the payment reportedly led IRGC 

officials to conclude that it amounted to a ransom. While the payment itself may not have been a prohibited ransom payment under 

U.S. law, Iran’s perception of that payment matters. 

A principal 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 United States will pay for hostages, those bad actors will be 

less likely to take them. Because of the particular nature of these 

payments, Iran believed this to be a ransom and consequently may 

be more inclined to seize Americans in the future, as Mr. Rubin 

noted. 

It is a missed opportunity because the United States could have 

set up payments stemming from the settlement agreement in a 

way that conditioned providing the funds on ensuring they would 

not be able to support terrorism or be given to the Iranian military 

or sanctioned parties. By releasing these funds in such a way rather than in unrestricted cash, the Administration could have outmaneuvered the Islamic Republic. 

Moving forward, Congress should take specific steps to ensure 

that any funds given to Iran are subject to certain conditions. First, 

Congress could pass legislation that modifies 31 CFR 560.510 and 

requires that any funds to be sent to Iran pursuant to a settlement 

59 

agreement be placed in an escrow account and released only upon 

meeting certain conditions, including that the funds not be provided to a sanctioned party and must be released in tranches with 

a certification provided by the secretary of the Treasury and relevant U.S. Government agencies that the prior released amount 

has not gone to designated parties or to entities engaged in a number of proscribed activities. 

Second, Congress could take steps, including passing legislation, 

to ensure that any payments made to Iran would present reduced 

risks of diversion by setting up a so-called white list, where Western banks could process legally permissible transactions to vetted 

and monitored Iranian banks with no connections to the IRC or to 

the government or Iran. Such a white list would create a specified 

channel for processing transactions, including settlement agreements like this one, in a way that would limit Iran’s ability to 

channel the funds to the IRGC and designated parties. 

As Iran continues to support terrorism and foment regional instability, the United States should ensure that we play no role in 

inadvertently funding such activities or putting U.S. citizens at 

risk. These proposals, I believe, are a step in that direction. I look 

forward to discussing them with you during the remainder of the 

hearing. 

Thank you for your time. 

[The prepared statement of Mr. Lorber can be found on page 102 

of the appendix.] 

Chairman DUFFY. Thank you. 

And Ms. Maloney, you are now recognized for 5 minutes. 

STATEMENT OF SUZANNE MALONEY, DEPUTY DIRECTOR, FOREIGN POLICY, AND SENIOR FELLOW, CENTER FOR MIDDLE 

EAST POLICY, THE BROOKINGS INSTITUTION 

Ms. MALONEY. Chairman Duffy, Vice Chairman Fitzpatrick, 

Ranking Member Green, and distinguished subcommittee members, thank you for the opportunity to appear before you today. 

When five Americans returned home in January after months, or 

in some cases even years, of unjust imprisonment in Iran we all 

rightly celebrated. The detention of these individuals, including a 

Washington Post reporter, a Christian pastor, and a former U.S. 

Marine, as well as many, many other innocents, underscores the 

threats to basic rights and freedoms in Iran’s Islamic Republic. 

That this release was timed to coincide with the settlement of a 

nearly 40-year-old financial dispute between the United States and 

Iran and that this payment included an airlift of foreign bank notes 

to Tehran has prompted the allegations of ransom that have 

brought us here today. 

I want to speak first to the question of ransom. I do not believe 

the facts of the case support the use of the word. 

As Chairman Hensarling noted at the outset of the hearing, a 

ransom is a payment made specifically to secure the release of a 

detained person. This sum, by contrast, was made to satisfy a legitimate debt that the United States owed to Iran. 

The payment provided Tehran with nothing other than its own 

funds—money that was due to Iran as part of the adjudication of 

an old settlement. Further delay in settling this claim would not 

60 

have obviated its reimbursement. In fact, we benefitted, as the 

prior panel discussed, from an expeditious resolution of the remainder of the Iranian claims before the tribunal. 

Let me move beyond the specifics of the payment to emphasize 

a point that I think has been lost in the controversy. The coordination of the two separate tracks of negotiation to expedite American 

priorities and advance the American national interest with respect 

to Iranian behavior is neither unusual nor surprising. Since the 

1979 seizure of the U.S. embassy in Tehran, each American President has sought to utilize economic leverage, both penalties and incentives, as a central component of a strategy designed to address 

the challenges posed by revolutionary Iran. 

This is the point of the sanctions, after all. It is the logic of the 

deal that was made to release the hostages in 1981, and it was the 

toolbox that was used by each of President Obama’s predecessors. 

Presidents Reagan, George H. W. Bush, William Clinton, and 

George W. Bush each utilized sanctions as well as economic incentives in order to try to gain cooperation from Iran on various priorities. 

Using economic leverage has never precluded the intensification 

of sanctions or the use of military force for other coercive measures 

against Iranian actors or their proxies in the region. These are not 

mutually exclusive policies. 

Let me close by speaking to the issue of the unjust detention of 

Americans and other dual nationals in Iran. There have been a 

number of critics of the Administration who have warned that the 

linkage that appears to be present in this settlement might induce 

Iran to seize more Americans and increase the risks to Americans 

in Iran. 

I understand why such inferences have been made and I appreciate the rationale of imputing a kind of rational calculus to Iran’s 

treatment of its own citizens and of its dual nationals. Unfortunately, in my view this reflects a naive understanding of the drivers of Iranian politics. 

I simply see no evidence that Iran’s longstanding patterns of 

human rights abuses, inadequate rule of law, and exploitations of 

individuals to advance an ideological narrative are subject to the 

logic of financial incentives. There is no attempted extortion here. 

In these arrests I think that there is no method to the madness 

other than the obnoxious realities of authoritarian power. There is 

one factor that drives the detention and seizure of Americans and 

other dual nationals, and that is the DNA of the Iranian State includes and emphasizes a paranoia that is deep-seated toward external actors and external states. The jailing of Americans has always 

been motivated by a sense of a conspiracy, American-led, of regime 

change that is facilitated by these individuals. 

In that respect, let me conclude my remarks with an appeal to 

Congress to devote at least as much time and energy to seeking 

ways to facilitate the release of those Americans who remain behind bars, missing, or detained in Iran today—first and foremost, 

Bob Levinson, who was sent to Iran by his own government; also 

Siamak and Baquer Namazi, who have been in prison for as long 

as a year, in one case; and Nizar Zakka, who is a U.S. permanent 

resident. There are a number of other dual nationals who are 

61 

seized in Iran today, and this is at a—the center point of the legitimacy of the Iranian regime. 

Thank you. 

[The prepared statement of Ms. Maloney can be found on page 

118 of the appendix.] 

Chairman DUFFY. Thank you. 

The Chair now recognizes himself for 5 minutes. 

Ms. Maloney, you talk about prior presidents using sanctions and 

incentives in the past, and I wouldn’t dispute that point. But can 

you give me an example of one prior President that has, in essence, 

given $400 million of Iranian cash back to them, $1.3 billion of taxpayer money back to them in the form of interest, and the fact that 

we have unfrozen billions of dollars in assets? What other President has given that much to Iran? 

Ms. MALONEY. President Ronald Reagan sold arms to Iran while 

it was in an existential war with Iraq. President George H. W. 

Bush provided Iran with settlements at a time where—under the 

very similar conditions of the U.S.-Iran— 

Chairman DUFFY. To the tune of how many billions of dollars? 

How many billions of dollars? 

Ms. MALONEY. —Claims Tribunal. 

Chairman DUFFY. How many billions? 

Ms. MALONEY. Hundreds of millions of dollars in that case, and 

they— 

Chairman DUFFY. Did you say a hundred or— 

Ms. MALONEY. —were intended to help to facilitate the release— 

Chairman DUFFY. Hundreds of millions or hundreds of billions? 

Ms. MALONEY. —of American hostages and other Westerners 

in— 

Chairman DUFFY. Listen, don’t talk over me. Hundreds of millions or hundreds of billions? 

Ms. MALONEY. Hundreds of millions. 

Chairman DUFFY. Hundreds of millions. So it is fair to say not to the tune of $33.6 billion. I think that is what is important to 

note here, the size of this— 

Ms. MALONEY. I don’t believe that figure is part of the transaction that is under the consideration— 

Chairman DUFFY. I am just going to note that I— 

Ms. MALONEY. —of this hearing today. 

Chairman DUFFY. I yielded to you for 5 minutes for your testimony. This is my 5 minutes, and I will ask questions and hope you 

will answer them. And I will reclaim my time, but please don’t talk 

over me. 

I would just ask the panel, is there any significance to the fact 

that this money wasn’t wired or sent by way of a check, but instead 

was—it was wired and then converted to cash and sent into Iran? 

Is there any significance to the cash component of this? 

Mr. Rubin? 

Mr. RUBIN. Very briefly, it makes it much easier to launder and 

much easier to use for nefarious purposes. 

Chairman DUFFY. And why is it? Why is it easier to use cash to 

launder or use for nefarious purposes? 

Mr. RUBIN. We often monitor bank accounts, and banks also 

have various structures and, in theory, transparency requirements, 

62 

which make it hard to conduct terrorism or drug dealing or any 

other nefarious activity through the banks. That is why organized 

crime uses cash. 

Chairman DUFFY. Mr. Dubowitz, did you have an answer to 

that? You look like you were going to say something. 

Mr. DUBOWITZ. No, I absolutely agree. And the example I quoted 

in my opening testimony is we facilitated or green-lighted the 

transfer of $550 million by wire transfer in 2014 as part of the 

JPOA sanctions relief. It instantaneously hit the Central Bank of 

Iran’s accounts in Switzerland, at the Central Bank of Switzerland. 

So the question then is, Mr. Chairman, why send $400 million 

in cash if, as Mr. Backemeyer said, they were seeking immediacy? 

They had to provide an immediate payment. That is what he said 

in his testimony. 

Well, we could have provided immediate payments by wire transferring. I mean, you have seen those films—those scenes in movies 

where the hostage-taker is on the phone with his banker in Switzerland and he says to him, ‘‘The money has hit the account,’’ and 

he says, ‘‘Great,’’ and they release the hostages. So there are ways 

to do this. 

And I think the $33.6 billion is at issue in this hearing because 

how did that money get repatriated to Iran? How much got repatriated to Iran? And did they send billions of dollars of cash—so we 

are not just talking about $1.7 billion; we may be talking about $8 

billion, $10 billion, $15 billion of cash? 

Chairman DUFFY. And my concern with this is that this is the 

lead sponsor of terrorism in the world. And frankly, if you look at 

successful terrorist attacks, whether in our country or other places, 

it is cheap. It doesn’t cost a lot of money. And you look at the 

amount of terror that can be financed with—if we just use the $1.7 

billion, it is a lot of really bad activity that can be financed with 

that taxpayer money. 

One other question I want to ask the panel. There is a dispute, 

and you have all heard it: Was this ransom? 

Now, I am going to tell you I believe if it walks like a duck and 

it quacks like a duck it is not a rooster. It is a duck. Some are trying to say it is a rooster. 

Let’s leave that aside for a second because we could debate that 

all day. What do you perceive the rest of the world—Iran and other 

rogue regimes and rogue actors—how do they, do you think, perceive what happened with this $400 million for five prisoners? 

Anyone on the panel? 

Mr. RUBIN. It is perceived as a ransom and we should expect 

that other groups are going to play, ‘‘look at me,’’ to try to do better 

than the Iranians have done once they are in need of cash, as well. 

Chairman DUFFY. Can anybody tell me on the panel—and even 

you, Ms. Maloney—that the money that has been paid, that this 

will not be used for terrorism or funding terrorist purposes as seen 

fit by the Iranian regime? 

Ms. MALONEY. I can make no assurances about how the Iranians 

spend their money. What I can tell you is the long history of Iran’s 

involvement in terrorism demonstrates no correlation between the 

amount of revenues available to Iran and its nefarious activity 

abroad. 

63 

Chairman DUFFY. My time has expired. 

I am now going to yield to the Vice Chair of this subcommittee, 

the gentleman from Pennsylvania, Mr. Fitzpatrick, for 5 minutes. 

Mr. FITZPATRICK. Thank you, Mr. Duffy. 

For the past almost 2 years a task force of this committee—bipartisan task force—had a series of hearings where we investigated, reviewed, debated, and ultimately put together some bipartisan legislation that passed the House of Representatives recently. 

It is now sitting over in the Senate. We investigated how to deny 

resources, specifically cash, to international terrorist organizations 

that want to kill Americans and kill citizens of our allies. 

As we have heard many times during the course of those hearings and even here today, cash is—it is the preferred currency of 

terrorism. So imagine our surprise in the middle of a 2-year investigation that we find out that the United States Government, in negotiating with the Islamic Republic of Iran, reaches a settlement 

that provides $400 million to be delivered in the middle of the 

night to Iran in cash. It was the first payment. 

I haven’t heard a lot about the second. I guess the second pay- ment was the interest that taxpayers paid, maybe $1.3 billion. 

Is there any indication as to how those second payments were 

made? Were they also made in cash? 

Any of the panelists that may wish to comment? 

Mr. DUBOWITZ. Yes. The Wall Street Journal reported that it was 

made in cash and Administration officials have confirmed that. It 

sounded like the same kind of financial scheme where it was wiretransferred to a central bank in Europe, withdrawn, and then provided to the Iranians. And then, again, flown on an Iranian plane 

to—presumably to Iran, or perhaps it stopped in Damascus or Beirut to give money to Assad or Hezbollah. One doesn’t know. 

Mr. FITZPATRICK. Mr. Dubowitz, do you know on what airline the 

cash—at least the initial cash—was delivered to Tehran? 

Mr. DUBOWITZ. So again, The Wall Street Journal reported that 

the money was picked up by an Iran Air plane, which is controlled 

by the Revolutionary Guard but was designated in 2011 because it 

was controlled by the IRGC and regularly flies routes from an 

IRGC resupply base in Abadan, Iran to Damascus and on to Beirut. 

So good plane to use if you want to send that cash to Hezbollah 

or Assad. 

Mr. FITZPATRICK. One of the more frustrating things with the 

previous panel is with all the Government witnesses from the Department of the Treasury, the Department of State, and the Department of Justice, nobody could tell us who specifically requested 

that the delivery be made in cash. Was it a condition of Iran? Was 

it a suggestion of the United States Government? 

Is there any open-source information out there as to how that decision was made or light that you can provide to us so that we can 

get that information back? 

Mr. DUBOWITZ. So Mr. Backemeyer said that the reason they 

used cash is because they needed an immediate payment. Now, 

presumably the Iranians demanded an immediate payment if they 

were going to release the hostages, and he suggested that only— 

the only immediate payment that they could actually think of was 

cash. 

64 

And what I have tried to suggest in my testimony is that there 

are other ways to transfer money immediately. It is an electronic 

transfer that takes a millisecond and that could hit the Central 

Bank of Iran’s account in Switzerland. 

Now, as Mr. Rubin said, you want to use the formal financial 

system because the Swiss Central Bank is not going to give the Iranians hundreds of millions of dollars without knowing who the end 

beneficiary of that transaction is. And so it is good to keep things 

in the formal financial system. 

It provides transparency and checks and balances against money 

laundering and terror financing, and it is precisely why the Iranians don’t want the money in the formal financial system. They 

wanted it in cold cash that they can then ship to Hezbollah, to 

Assad, and to their other surrogates. 

Mr. RUBIN. If I may, sir, according to reporting in The Wall 

Street Journal and elsewhere, the negotiations to release the hostages culminated around Christmas time in 2015 with this idea of 

a swap between the hostages that Iran held and many IranianAmerican and Iranian prisoners who had been found guilty of trying to smuggle nuclear parts and other prohibited components. 

At that point in time the Iranians demanded an additional $400 

million, and to put it simply, they were utilizing as leverage the 

desire—the overwhelming desire of the Administration to come 

back with an agreement. I mean, simply put, if we don’t want to 

call it a ransom we can call it a bribe in order to maintain—figuratively—in order to maintain the notion that this agreement was 

working. 

Mr. FITZPATRICK. Mr. Lorber, you suggested that there were 

other ways you could have structured the payments to essentially 

outmaneuver Iran. What— 

Mr. LORBER. Exactly. So going to the question of immediacy, we 

actually had a mechanism set up to provide Iran with funds under 

the JPOA, the precursor to the JCPOA. There was a humanitarian 

finance channel that had been specifically set up to allow foreign 

financial institutions to give funds—wire-transfer funds directly 

into Iran for that purpose. And so the argument that it needed to 

be in cash for immediacy purposes I don’t think holds that much 

water. 

Mr. FITZPATRICK. Thank you. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill, for 5 minutes. 

Mr. HILL. Thanks, Mr. Chairman. 

Can anyone report to me on a transaction under a tribunal-type 

settlement, legal settlement, or in any other case where the United 

States Government has made a payment in cash? 

Mr. DUBOWITZ. There is no evidence of that. In fact, I mean, we 

found a 2015 tribunal settlement for $848,000 that was owed to 

Iran, and it seems to have been wire-transferred. And so of the 

4,000 tribunal settlements we see no evidence that any of those tribunal settlements were paid in cash. 

Mr. HILL. Further, in your testimony, since the JCPOA has been 

put in place and sanctions have been lifted you cited the government of Japan wiring money to Tehran, I presumed is a part of the 

65 

freed frozen accounts. So there has been evidence of SWIFT wiretransfer since the completion of the JCPOA. Is that your general 

understanding? 

Mr. DUBOWITZ. Congressman, in fact, not only since the completion of the JCPOA, but since the completion of the interim agreement. And Mr. Backemeyer seems to suggest that there was a financial embargo in Iran and that is the reason that we couldn’t 

send electronic funds. 

But the reality is is that Iranian banks remained on SWIFT even 

at the height of sanctions. As Mr. Lorber says, there is a humanitarian channel where over 3,000 humanitarian transactions are 

settled every year. We gave the Iranians access to $11.9 billion and 

$700 million a month was sent from the Bank of Japan and other 

banks to these accounts that Iran could use. 

And that is really the heart of my testimony, which is the Administration is trying to have it both ways. Either there is a financial embargo, which is why they had to send $1.7 billion in cash. 

If that is the case then they have sent many billions of dollars in 

cash, including the $11.9 billion and the $20 billion that they admit 

to repatriating. Or there is no financial embargo; it is just difficult, 

but there are other ways to actually send the money besides cash, 

and they used cash in this case because it was an Iranian demand. 

The Administration can’t have it both ways. 

Mr. HILL. It seems to me that there is no legal basis for cash 

other than the request of the negotiating party, that they sought 

cash. So I think that is what we have heard both from the government witnesses today and from our private sector panel. 

Mr. Lorber, you talk about this idea of Iran certifying that the 

funds aren’t used for terrorism. You used a couple of examples. 

To me that was one of the biggest weaknesses in sanctions relief 

under the JCPOA because it was a cliff vesting. They got all their 

money held—frozen abroad back immediately with no ability to let 

it out over time if they maintained compliance with this agreement. 

I am not sure your white list idea would hold a lot of clout with 

me because I am not sure we know what goes on inside Iran. But 

this idea that we let money out over time and we have Iran certify 

a pledge to the payment that it be certified not be used for terrorism might be useful. 

Have we used that in any settlement before—that kind of settlement over time basis with certifications from the recipient? 

Mr. LORBER. I am not familiar with any circumstance, particularly in the Iranian case, where we have used a sort of tranched 

approach with intermediate certification. But I agree that it would 

be a way to at least ensure that there could be some limitations. 

And indeed, we have proposed this in other contexts, as well, before this committee. Mr. Dubowitz and I have both suggested something along these lines when structuring the Boeing and Airbus 

deal to Iran as a way to structure those contracts. 

Mr. RUBIN. If I may, sir, the PLOCCA legislation required that 

there be regular certification, I believe biannual, that none of the 

monies which are given to the Palestinian authority or the Palestine Liberation Organization are used for terrorism. So there is 

precedent in which such certifications can occur. 

Mr. HILL. Thank you. That is helpful. 

66 

Can you think of any legitimate justification why in January— 

in the 17 January announcement by the Administration about the 

release of the—our hostages, our American citizens, which we are 

all thrilled to have back—we want Robert Levinson back, as well; 

we need to keep that pressure up—and the decision about this 

claim settlement matter, can you think of any legitimate justification of why the Administration kept the fact that they paid all this 

money in cash secret from the American people? What would be 

the basis for that? 

Mr. DUBOWITZ. Well, I think there are two reasons. One is the 

concerns that everybody is raising about how cash is used by 

money launderers and terror financiers. 

I think the second reason is I think the Administration is loath 

to admit that they may have transferred many billions of dollars 

to Iran. And we are not just talking about $1.7 billion, but we are 

talking all of that money that is on the screen there, some or all 

of the $33.6 billion. 

If they had admitted that it was cash, Congress would then 

rightly be asking questions about all the other money that Iran has 

repatriated over the past 3 years and then you would be very concerned that it is perhaps billions if not tens of billions that the Iranians have gotten in cash to finance not only terrorism but to support their military, to support Bashar Assad, and all the other malign activities. 

Mr. HILL. Thank you. 

I want to conclude, Mr. Chairman, by reading from the distinguished former member of the Senate, Joseph Lieberman his—in 

his op-ed today in The Wall Street Journal: ‘‘On the 15th anniversary of 9/11 the United States should not be rewarding Iran for its 

deadly actions with gifts of sanctions relief and the easing of arms 

embargoes and ballistic missile restrictions. It is time to hold the 

regime accountable for its reckless aggression and support of terrorism.’’ 

I yield back. 

Chairman DUFFY. The gentleman yields back. 

The Chair now recognizes the gentleman from New Hampshire, 

Mr. Guinta, for 5 minutes. 

Mr. GUINTA. Thank you very much, Mr. Chairman. 

Thank you all for being here today. 

Ms. Maloney, I wanted to actually start with you. I have listened 

to your comments and I have read earlier testimony. Am I correct 

in making the statement that you don’t believe this was either a 

ransom or an exchange for prisoners, the $400 million? 

Ms. MALONEY. What I believe is that the timing of the release 

of the prisoners was coordinated with the timing of the resolution 

of this long-held financial dispute between the two countries. I do 

not believe it was a coincidence. 

Mr. GUINTA. You do not believe it was a coincidence. 

Ms. MALONEY. I do not. And I believe that that is, in fact, consistent with exactly what the Bush Administration—the George H. 

W. Bush Administration—did in seeking the release of Americans 

who were held hostage and other Westerners held hostages in Lebanon in the late 1980s and early 1990s. This is the sort of diploVerDate Nov 24 2008 21:22 Mar 08, 2018 Jkt 025944 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 K:\DOCS\25944.TXT TERI
67 

macy that the United States has engaged in time and time again 

with Iran. 

It doesn’t always pay off. It didn’t pay off as we had hoped in 

the—with the release of hostages in—from Lebanon. It did, in this 

case, clearly pay off with the release of the four Americans and a 

fifth American who had been held at the same time. 

Mr. GUINTA. At a cost of $400 million? 

Ms. MALONEY. At a cost of resolving a debt that we would have 

had to resolve irrespective of the release of those Americans. I 

would rather clear the underbrush, as President Bush said when 

he talked about very similar actions back in the late 1980s, and see 

the return of Americans who are being held unjustly than to resolve a debt and not see the return of these same Americans. 

Mr. GUINTA. Do you believe that there was any discussion of the 

prisoner exchange in the JCPOA? 

Ms. MALONEY. I believe what I have read in the media consistently, which is that Secretary Kerry and those officials who were 

engaged in the negotiations raised the case of these Americans 

time and time again on every occasion when they met with their 

Iranian counterparts. 

Mr. GUINTA. So it is likely as part of that Iran deal there is discussion about a return of prisoners; and there also, coincidentally, 

at the same time is a discussion about $400 million or $1.3 billion 

payment. 

Ms. MALONEY. The negotiations that go on at the U.S.-Iran 

Claims Tribunal are very much separate and distinct, I think, from 

the broader diplomatic— 

Mr. GUINTA. I thought you just said Secretary Kerry brought it 

up at every single— 

Ms. MALONEY. At the nuclear negotiations, yes. 

Mr. GUINTA. Okay. So that is— 

Ms. MALONEY. He brought up the status of American prisoners 

in Iran. 

Mr. GUINTA. Okay. So that is my question. While Secretary 

Kerry, under the direction of President Obama, is negotiating with 

Iran on the JCPOA they brought up at every moment, as you said, 

every possible option and chance to release prisoners. And it 

sounds like as a result of that agreement there was a $1.7 billion 

payment made. 

Now, I understand that you are saying there is a tribunal that 

has to be addressed, so that is the—that is their justification for 

a ransom payment. 

Ms. MALONEY. The deliberations at the tribunal have been going 

on now for 35 years. They occur through very separate channels— 

Mr. GUINTA. So, okay— 

Ms. MALONEY. —very separate personnel from those who were 

involved in the negotiations over the nuclear deal or those who 

were involved with the negotiations of the— 

Mr. GUINTA. So 35 years of negotiations and this is the moment 

that Secretary Kerry and President Obama decide to make a $1.7 

billion transfer? 

Ms. MALONEY. We have paid out judgments as part of the U.S.- 

Iran Claims Tribunal for 35 years— 

68 

Mr. GUINTA. Do you think there was a judgment that was imminent with— 

Ms. MALONEY. —as the Iranians have paid to us. 

Mr. GUINTA. Do you think there has—there was a judgment that 

was going to be imminent? 

Ms. MALONEY. The previous panel debated the use of the word 

‘‘imminent.’’ I don’t have any way to gauge whether it was or was 

not. 

What I do believe is what the State Department legal advisor’s 

office testified at the previous panel, which was that they believe 

that this compromise agreement was in the interest of the American people, that it was, in fact—represented a lower figure than 

what the Iranians had been demanding, and that it was worthwhile to get the— 

Mr. GUINTA. I have heard their— 

Ms. MALONEY. —claim resolved. 

Mr. GUINTA. No, I appreciate that. Reclaiming my time, I have 

heard their excuse and I have heard their rationale. I just don’t believe it, nor do the American people. 

Do you know what the President Obama’s Administration position is on private citizens paying ransom internationally? 

Ms. MALONEY. I am very familiar with the prohibitions, longstanding policy against payment of ransom for release of hostages 

abroad, and I think it is a wise policy that ought to be defended. 

I do not believe in this case that a ransom was, in fact, paid. I believe that economic leverage was used as part of a broader diplomatic engagement— 

Mr. GUINTA. What economic leverage? 

Ms. MALONEY. —with an adversarial state. 

Mr. GUINTA. I mean, when you look at this screen, $33.6 billion 

in cash. What economic leverage? 

Ms. MALONEY. I don’t believe that we have evidence that $33.6 

billion was paid in cash to Iran. 

Mr. GUINTA. Okay. So what evidence do—what dollar amount do 

we have evidence of that was paid to Iran, in your opinion, if it is 

not $33.6 billion? 

Ms. MALONEY. We have evidence and we know from The Wall 

Street Journal that a payment was made in foreign currency cash 

to Tehran in the case of the resolution of this financial dispute in 

January and early February of this year and that that was a total 

of $1.7 billion. 

Mr. GUINTA. Thank you very much. 

Chairman DUFFY. The gentleman’s time has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton, for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

And, Mr. Dubowitz, maybe if you would speak to this, I just listened to Ms. Maloney’s comments in regards to policy of the United 

States not to be paying ransom for hostages. In fact, Ms. Grosh 

from the Department of State said that, indeed, was not the policy 

of the United States. 

Would you speak, is there a distinction with a difference when we deliver $400 million on pallets in the dead of night to Iran? Is 

that a ransom? 

69 

Mr. DUBOWITZ. Steve Sotloff, who was executed by ISIS, used to 

be an adjunct fellow at my organization, and I know the Sotloff 

family tried to privately raise money to free Steve and that the 

Obama Administration threatened the family with criminal prosecution if they moved forward. 

I think there has been some modification of that policy now 

under President Obama, but it is—what is clear to me is that the 

Administration saw an opportunity to use leverage, as State Department Spokesman John Kirby has admitted, to use leverage. 

The money was leveraged to get the hostages back. 

So Dr. Maloney admits lots of presidents have used leverage to 

try and get hostages back. I think other Administrations have also 

paid ransom. This may not be the first time. 

I think what we do is try to—we try to create a cover story so 

that we don’t violate our prohibition against ransom payments in 

order to pay ransom so that we can get hostages back, and that is 

exactly what has happened. I think the Administration doesn’t 

want to admit it, because they don’t want to admit we paid a ransom after they have threatened the prosecution of the Sotloff family. 

I think they don’t want to admit it because they don’t want to 

admit how much cash has actually gone to Iran. I don’t think it is 

$33.6 billion, but I do think it is probably in the neighborhood of 

$8 billion to $10 billion based on conversations I have had with 

former Administration officials. 

I think we are talking about at least $8 billion to $10 billion of 

cash that has gone to Iran since the JPOA period, and the Administration does not want to admit that because that $8 billion is 

going to be used to fund terrorism, to fund the Iranian military, to 

fund missile procurement, to fund illicit nuclear procurement in 

Germany. And there is no way that our intelligence community, 

once it is in cash, can trace and to figure out and confirm that that 

money is actually being used for economic development and not for 

malign activities. 

Mr. TIPTON. Could you maybe expand just a little bit? Because 

when we listened to Mr. Backemeyer and he said the desire to be 

able to conclude all of our lines of effort effectively it falls in with 

what you just described. 

What is going to be the outcome with other rogue nations when 

they are now looking at the United States, given what we know 

now, and daylight being shown on this Administration’s policies, 

this Administration’s actions in delivering cash to Iran? What can 

we expect out of other rogue players? 

Mr. DUBOWITZ. Look, the Iranians have been taking American 

hostages for decades. American Presidents have been trying to get 

hostages back. Fictions have been created in order to pay ransom 

payments to the Iranians in order to get those hostages back. We 

have seen in other situations with this where a fiction has been 

created to try and pay a ransom. 

If I were the Iranians, I would do exactly what they are doing 

now. They are taking more hostages. 

If I were other rogue actors, my inference from all of this would 

be the Obama Administration pays ransoms, and so I am going to 

take more hostages. They will create some elaborate fiction to preVerDate Nov 24 2008 21:22 Mar 08, 2018 Jkt 025944 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 K:\DOCS\25944.TXT TERI
70 

tend that they are not, but I am going to take more hostages in 

order to get hundreds of millions if not billions of dollars back from 

the United States. I mean, that would be my interpretation if I 

were a rogue actor. 

Mr. TIPTON. Would you maybe speak, because I know you were 

in—listening to the testimony that Mr. Backemeyer commented 

that the vast majority of the $400 million in cash had gone to infrastructure programs in Iran. Is there any way, given your comments 

now on cash—how can we— 

Mr. DUBOWITZ. Look, I agree with Dr. Rubin. I think that is ridiculous. I think there is no way that they can confirm whether 

$400 million in cash, in unmarked bills, delivered to the Iranians 

ends up in an infrastructure project rather than in either the Iranian defense budget, which is then sent along to the Revolutionary 

Guards and the Quds Force, or doesn’t go to the defense budget, 

ends up in some hidden line item which goes directly to Qasem 

Soleimani so that he can continue to fund his bloodshed in Syria. 

I mean, I don’t know how our intelligence community can continue 

to make these claims that they know for sure that most of the 

money received is going to infrastructure. 

Mr. TIPTON. Dr. Rubin? 

Mr. RUBIN. If I may, sir, first of all, Mark is absolutely correct 

that there is no way of knowing and it would be very useful to 

press the Administration on how they know. Second of all, remember that Khatam-al Anbiya, which is the economic wing of the Islamic Revolutionary Guard Corps, according to some estimates 

dominates up to 40 percent of the Iranian economy, including 

major infrastructure projects. 

Now, the official budget of the Islamic Revolutionary Guard Corps is about $5 billion per year. If you factor in the cross-Persian 

Gulf smuggling you add another $11 billion or $12 billion per year. 

Now, according to open sources, just in the South Pars oil field, 

which is the Iranian oil field in the Persian Gulf, the IRGC infrastructure programs have gotten up to $50 billion in no-bid contracts, which means if you were to zero out the official budget of 

the Islamic Revolutionary Guard Corps, proportionately they would 

be facing less of a budget cutback than the U.S. military is through 

sequestration. 

Mr. TIPTON. Thank you. 

And I yield back, Mr. Chairman. 

Chairman DUFFY. The gentleman’s time has expired. 

I just want to note that thank goodness, through these kind of 

payments from our Government to Iran, we have now bought peace 

with the Islamic State. Or not so much. 

I want to thank the panel for your patience, for taking the time 

to testify, and for sharing your insight with this committee. We are 

very grateful for that. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

71 

And this hearing is adjourned. 

[Whereupon, at 1:33 p.m., the hearing was adjourned.] 

(73) 

A P P E N D I X 

September 8, 2016 

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EMBARGOED FOR DELIVERY 

Paul Ahern, Assistant General Counsel for Enforcement and Intelligence 

U.S. Department of the Treasury 

Hearing on Iran Payment, "Fueling Terror: The Dangers of Ransom Payments to Iran" 

House Committee on Financial Services, Subcommittee on Oversight and Investigations 

September 8, 2016 

Chainnan DuffY, Ranking Member Green, thank you for inviting me to testify today. I am pleased to be 

here alongside my colleagues from the State Department and the Justice Department. My name is Paul 

Ahern and I am the Assistant General Counsel for Enforcement and Intelligence at the Treasury 

Department. 

I am here today to discuss with you Treasury's role in effectuating the payments related to the January 

2016 settlement of the long outstanding claim at the Iran-United States Claims Tribunal in The Hague. 

The settlement involved two payments by the United States regarding an account established decades ago 

with Iranian funds, as well as its claim for interest on that account. 

The Administration publicly announced the $1.7 billion settlement on January 17, 2016, and that 

announcement is publicly available at the State Department's website. 

The Settlement Payments 

For the first settlement payment, Treasury assisted the Defense Finance and Accounting Service in 

crafting a wire instruction to transfer $400 mitt ion on January 14,2016. 

The $400 million came out of what is typically referred to as the Foreign Military Sales Trust Fund. It had 

amounted to about $600 million until 1990, when the Bush Administration entered into a settlement 

returning $200 million to Iran, and since that time the fund has amounted to about $400 million. 

Treasury worked with DFAS and the Federal Reserve Bank of New York so that the funds transferred 

from DF AS to a European Bank. The funds were then converted to a foreign currency and physically 

transported to Geneva. 

On January 17, Treasury disbursed the payment to an official from the Central Bank of Iran, tor transfer 

to Tehran. The funds were under U.S. government control until their disbursement pursuant to the 

settlement. 

The second settlement payment, involving settlement of the dispute over accrued interest, was disbursed 

out of the Judgment Fund. 

The Judgment Fund is the source of funding Congress has provided for use generatty in paying judgments 

and settlements of claims against the United States when there is no other source of funding. 
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25944.002

Awards and settlements of Tribunal claims have been paid from the Judgment Fund in the past, including 

a $278 million settlement reached in 1991. 

Though the payment to settle the dispute over accrued interest was one payment, the Judgment Fund 

system has a technical limitation that prevents it from processing individual claims in amounts over ten 

digits in length. 

Therefore the single claim of$1.3 billion was broken into 13 claims of$99,999,999.99, and the remainder 

of $10,390,236.28. As in similar prior instances, the system's technical limitation required a claim to be 

divided into smaller amounts. 

These amounts are displayed on Treasury's Judgment Fund website, as is additional information about 

claims processed through the Judgment Fund. 

Treasury disbursed the payment after receiving the appropriate approvals from the Department of Justice. 

The payment from the Judgment Fund was initiated through a transfer to a European Bank. 

In this circumstance, it was held available for disbursement to Iran. Pursuant to an arrangement between 

Iran, the home country of the European Bank, and the United States, the European Bank converted the 

$1.3 billion into a foreign currency and then disbursed the funds as banknotes to an official from the 

Central Bank of Iran. 

This process occurred in two installments, one on January 22 and the other on February 5. 

The Payments were Consistent with Existing Sanctions 

The sanctions regime we built with our international partners had effectively cut off Iran from the 

international financial system. Iran was very aware of the difficulties it would face in accessing and using 

these funds if they were in any form other than cash, even after the lifting of sanctions under the Joint 

Comprehensive Plan of Action. 

Therefore, effectuating the payment of the funds in the FMS account and the subsequent interest 

payments in cash was the most reliable way to ensure that they received the funds in a timely manner, and 

it was the method preferred by the relevant central banks. 

For both the payments to settle the disputes over principal and the interest, no direct transfer was made 

from any U.S. account to Iran. In addition, these transactions complied with U.S. sanctions law and did 

not require a unique license, waiver, or other form of authorization. 

Treasury's Iranian Transactions and Sanctions Regulations, at 31 C.F.R. 560.510, explicitly authorize 

"[a]ll transactions necessary to payments pursuant to settlement agreements entered into by the United 

States Government" in a legal proceeding in which the United States is a party, such as settlements of 

claims before the Tribunal. 

Thank you again for the opportunity to testify about these issues. I look forward to answering your 

questions. 
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25944.003

Statement of 

Christopher Backemeyer, Deputy Assistant Secretary for Iran 

Bureau of Near Eastern Affairs 

U.S. Department of State 

House Financial Services Subcommittee on Oversight and Investigations 

September 8, 2016 

Chairman Duff'y, Ranking Member Green, and Members of the Subcommittee, 

thank you for the opportunity to appear before you today. My name is Chris 

Backemeyer and I am the Deputy Assistant Secretary of State for Iranian Affairs. 

am a career State Department official and I have worked on Iran for the better part 

of the last decade. I welcome the opportunity to come before the committee as 

well as the American people and describe and correct some of the 

misunderstandings about the Hague Claims Tribunal Settlement that was reached 

and announced in January of this year- a settlement that we concluded was clearly 

in the U.S. national interest and which saved the U.S. taxpayer potentially billions 

of dollars. 

As you know, President Obama and Secretary Kerry announced the settlement on 

January 17, when it was concluded, and specifically noted that the settlement 

involved $400 million for the FMS Trust Fund that had been established with 

Iranian funds, as well as $1.3 billion as a compromise on interest on this sum. This 

was also posted on the State Department website. 

After the announcement, we received inquiries from the Congress, and in each case 

we offered to provide a closed briefing to members and staff, and one member 

requested such a briefing, which we provided. 

The Hague claim settlement resurfaced in the press again recently, and again we 

received questions from the Congress, and again we offered to provide a closed 

briefing to members and staff. And two days ago, we provided two such briefings 

- one for House staff and one for Senate staff. 

And, we are happy to be here today to continue discussing this issue and all of the 

things that we have accomplished for the American people through our diplomatic 

efforts toward Iran. 

I should note at the outset that there will be limitations to what I and my colleagues 

can say in an open setting. As I mentioned earlier, we have previously offered 

closed briefings because there a number of litigation and diplomatic sensitivities 
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that could jeopardize U.S. interests if we were to go into too much detail. 

Specifically, as my colleague will explain in more detail, the settlement in January 

addressed a significant part- but only one part- of a much larger, multi-billion 

dollar claim, which is being actively litigated, including filings this week. 

Iran has a long history of mining the U.S. public record for ammunition to use 

against us in claims litigation. This includes statements that have been made in 

Congressional briefings. As a result, it is extremely important that we not say 

anything in a public setting that would jeopardize our defenses to Iran's remaining 

claims at the Tribunal. There will also be limitations to what we can say about 

certain diplomatic discussions we have had with foreign partners, whose 

cooperation we rely on to address the myriad of security and diplomatic issues 

around the world. 

With those limitations, I will proceed to provide you with as much information as I 

can today. I think the best way to start is to take a moment to summarize the series 

of events that occurred on the weekend of January 16-17, a weekend where we 

finalized a number of diplomatic efforts that advanced U.S. interests in significant 

ways. As you may be aware, at this time, the United States was pursuing multiple 

lines of effort that we sought to finalize on or around the same time in midJanuary. 

First, we were on the verge of implementing the nuclear deal, and the International 

Atomic Energy Agency (IAEA) was in the process of verifYing that Iran had met 

all of its commitments under the deal for reaching Implementation Day. On that 

weekend, the breakout time for Iran's nuclear program went from less than 90 days 

to at least one year. 98 percent of its enriched uranium stockpile was removed, and 

extensive transparency measures- the most comprehensive to be negotiated in the 

non-proliferation context were implemented. 

At the same time, we were pushing to finalize an arrangement to get several 

wrongly detained American citizens, including Washington Post reporter Jason 

Rezaian, Christian Pastor Saeed Abedini, and former U.S. Marine Amir Hekmati, 

safely out of Tehran, which was a top priority for us and one that I know Congress 

shared. We had been pressing the Iranians to release these Americans at every 

opportunity throughout the nuclear negotiations and continued our efforts to secure 

their release over 14 months of separate discussions. These individuals were 

facing lengthy prison terms - if not potentially worse sentences - on trumped-up 

national security and espionage charges. Absent the resolution we were able to 
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reach during this period of intense diplomatic effort, we may not have been able to 

secure their freedom and reunite them with their families anytime soon. 

And, lastly, our lawyers were working to finalize the settlement of a long-standing 

claim that the Iranians had filed at the Iran-U.S. Claims Tribunal at The Hague 

regarding the Foreign Military Sales (FMS) Trust Fund. The issue of settling the 

large remaining claims at the Hague Tribunal, including the FMS Trust Fund, had 

been raised by Iran a number of times over the years. The Iranians had been 

making a push at the Tribunal to have a hearing on this case and we knew they 

were eager to settle the case so that they could address critical economic issues, 

such as their weakening currency. As my colleague will describe in a moment, we 

realized that we could take advantage of the importance that Iran attached to 

recovering its principal from the FMS Trust Fund in order to drive a bargain on the 

37 years of interest Iran claimed on that principal, which would greatly benefit 

U.S. taxpayers and protect the United States against the potential risk of a large 

adverse judgment. 

There has recently been much attention paid to the timing of these various issues, 

which has led to some mischaracterizations that I welcome the opportunity to 

clarity here today. It's important to remember that for more than three decades we 

have had no diplomatic relations with Iran and minimal diplomatic contact. As a 

result, there was a significant risk that any one of these efforts could unravel. It 

was our assessment at the time that by taking advantage of the diplomatic 

momentum and trying to finalize all of these issues on or around the same time, we 

could maximize the likelihood that we would achieve all of our priorities. 

The priority that we were the most worried might not succeed was the release of 

our American citizens. This process had gone in fits and starts, and there were 

elements inside Iran extremely opposed to any sort of arrangement in which our 

citizens would be freed. We therefore had some significant concerns that it would 

unravel. And, those fears escalated over January 16th and 17th when, after the 

terms of the consular arrangement had been finalized and the Swiss were just about 

ready to fly our people out of Iran, we were unable to locate the wife and mother of 

Jason Rezaian. It was agreed that Jason's wife and mother would also be allowed 

to leave Iran as part of this deal, so their disappearance was highly concerning. At 

this point, the IAEA had verified Iran's commitments and implementation of the 

nuclear deal had begun. And my colleagues at the Treasury Department had begun 

the necessary arrangements to pay the principal in the FMS trust fund, but the 

payment had not yet occurred. 
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When this uncertainty presented itself we became very concerned and decided to 

take a pause before finalizing this other line of effort, specifically the finalization 

ofthe payment for settlement of the FMS Trust Fund claim. After a stressful night 

of uncertainty, and after several high-level phone calls to Iranian officials, 

including by Secretary Kerry, we were able to confirm the location of Jason's wife 

and mother and get them on the airplane so that they could leave Iran. With that 

resolved, we moved forward with a reciprocal humanitarian gesture in which we 

provided relief to certain Iranian nationals including several dual U.S.-Iranian 

nationals- who had primarily been charged with sanctions-related crimes, and we 

also reinitiated our efforts to finalize the outstanding actions that we had agreed to, 

including the payment oflran's FMS Trust Fund principal. This decision was 

made out of prudence when the success of our diplomatic efforts was in serious 

doubt. So, we took the prudent step to pause, assess the situation, and resolve our 

concerns before moving forward. 

Through these negotiating tracks we were able to conclude these issues in a 

manner that advanced our core interests - again, ensuring Iran can never have a 

nuclear weapon, potentially saving taxpayers billions of dollars on this claim, and 

freeing wrongfully detained Americans as well as ensuring the return of their 

family members from Iran. 

Again, each of these arrangements was analyzed on its own merits and determined 

to be in U.S. interests: The release of several of our U.S. citizens along with the 

safe return of Jason Rezaian's mother and wife by Iran was based on a reciprocal 

humanitarian gesture in which we provided relief to certain Iranian nationals 

including several dual U.S.-Iranian nationals who had primarily been charged 

with sanctions-related crimes. And the release of the FMS Trust Fund monies was 

based on a settlement oflran's claim for those monies and for 37 years of interest, 

a settlement that was highly favorable to the United States. 
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Wasllington, DC 

September s, 2016 

W\\ w.ddCnddcmocracy,org 
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Mark Dubowitz September 8, 2016 

Chairman Duffy, Vice Chairman Fitzpatrick, Ranking Member Green, and distinguished 

members of the Committee on Financial Services, and Subcommittee on Oversight and 

Investigations, on behalf of the Foundation for Defense of Democracies and its Center on 

Sanctions and Illicit Finance, thank you for the opportunity to testify. I am honored to appear 

before you to discuss the dangers of cash payments to the Islamic Republic of Iran, including, 

but not limited to, the cash transferred to secure the release of American hostages. 

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, 1 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 $1 I. 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.2 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 courts3 The weakening of missile 

language in the key UN Security Council Resolution,4 the lifting of a conventional arms embargo 

1 Under the JCPOA, restrictions start to lapse on Transition Day which is eight years from Adoption Day (October 

18, 2015). Other restrictions related to Iran's enriched uranium stocks and enrichment capabilities begin to lapse 

after ten and 15 years from Implementation Day (January 16, 2016). 2 Adam Szubin, "Written Testimony of Adam J. Szubin, Acting Under Secretary of Treasury for Terrorism and 

Financial Intelligence United States Senate Committee on Banking, Housing, And Urban Affairs," Teslimony before 

Senate Commiltee on Banking. Housing, and Urban Affairs, August 5, 2015. (hli.P.s:if~\>i.YV.j[t:_a_~IJ_ry.g()_Vip_r~~":: 

<:£!1J<:If.P.r~ss-r£L<:'!scMl'.age_:;ij!.()_l44 ·.'!"!'.X.) 3 "Total Awards-Iran," Congressional Research Service, September 2, 2016. (Available upon request) 4 Colum Lynch, "Washington Made It Easy for Iran to Fire Its Ballistic Missiles," Foreign Policy, March 16, 2016. 

(bttp:! /f orejgt}p() I icy.cotn/20 I t)IO)! 16/washi!!!Mn-ma..<le:it -easy,for-iran01o:fire-ils-baJlistic-m i ssiles!) 

Foundation for Defense of Democracies www.defenddemocracy .org 
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Mark Dubowitz September 8, 2016 

in four years, and lifting the missile embargo in seven years5 severely undermines international 

efforts to combat Iran's illicit activities. 

A key driver of these threats remains the Islamic Republic's ability to bankrotl and finance a host 

of terrorist groups, militias, and proxy forces throughout the Middle East,6 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 Dcpartment.7 

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 

ofBashar 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 cash8 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: 

I) 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 United Nations Security Council, Resolution 2231, July 20,2015, pages 99-100. 

(https:llwww.iagcgrg/sites/defaultl[ile§Lu.!l-".C resolutiol!~_:u_L2015.rdD 6 U.S. Department of State, Bureau of Counterterrorism, "Country Reports on Terrorism 2015 Chapter 3: State 

Sponsors of Terrorism Overview," accessed September l, 2016. (httn.J!www.stat<U!o~/j/ctlrJsicrt/20151257520.htm) 7 Justin Siberell, "Special Briefing: Country Reports on Terrorism," U.S. Department of State, June 2, 2016. 

(!J!tpcf.iw.w_w,.e!ate.g()vjrf]l'li_]2;:;/p~/~0]~ Q.6/1_5_~QJ3".bl!rr); U.S. Department of State, "Country Reports on Terrorism 

2015 ," June 20 16. (h.I!Pl6~-'YW.o'it".t<:XQY/_dQf\!!Il\'.lltSior_g_a_rli7,_ati()l1_g_2§~'!2l'>i.D 8 Jay Solomon and Carol E. Lee, "U.S. Sent Two More Planeloads of Cash to Iran After Initial Payment," The Wall 

Street Journal, September 6, 2016. (httpJL\\:ov_w,\V~.£()!)1/_a_rticlesil!::§::5CBt-!)vo-t)10!<':jlJ.:!!1Cloa<!s:2f::cash-to:iranaftcr-initi~l=P_ayment,l473208256) . ·---

Foundation for Defense of Democracies 2 www.defenddemocracy.org 
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Mark Dubowitz September 8, 2016 

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 oflntelligcnce, 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."9 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. 

What do we kii9JLit~t>_out fu~ $1.7-billion payment and existing legal authorities? 

On January 16, 2016, the Obama administration announced that the JCPOA reached in July 2015 

had entered its implementation phase. 10 The next day, January 17, the administration announced 

another deal with Iran: the settlement of a dispute pertaining to a Foreign Military Sales (FMS) 

Trust Fund dating from before the 1979 Iranian revolution and the U.S. Embassy hostage crisis. 11 

For several decades, Tehran tried to obtain these funds through the Iran-United States Claims 

Tribunal. 12 

In the January 17 announcement, Secretary of State John Kerry explained that the United States 

agreed to pay Iran the balance of the funds in the FMS account, $400 million plus "roughly $1.3 

billion" in interest. 13 What the administration failed to mention at that time, and what The Wall 

Street Journal revealed in August, is startling: On January 17, an Iranian cargo plane loaded with 

euros, Swiss francs, and other non-dollar currencies flew from Geneva to Iran in a sequenced 

series of events timed with the release of five American hostages. 14 Just this week, The Wall 

9 Jay Solomon and Carol E. Lee, "U.S. Sent Two More Planeloads of Cash to Iran After Initial Payment," The Wall 

Street Journal, September 6, 20 16. (~_l_t.P:~U-~-~~.:!~:?i~J!~L~n!.~.!~§[l_!_±~~n!-: t~yQ_-::_tp_Q!~:PJml_~9514_~Qf:_~~-sb.:tQ:.i!:!!J!.: 

lifter- initi~I-J1aymcnl·~l4 7 3 2~082~56) 10 John Kerry, "Remarks on Implementation Day," U.S Department of State, January 16, 20 !6. 

(lct!P.:i/}V_\V_\V,,\at£,gQ_v:l_s£C£C\?'Yft£!ll~L~:;/_2_Ql§~I}J (£~J))_(i.~~-t1)l) 11 John Kerry, "Hague Claims Tribunal Settlement," U.S. Department of State, January 17, 2016. 

(http://www.stalc.gov/sccrctary/remarks/20 16/0 I /251338Jl\m) 12 Letter to Committee on Foreign A!Tairs Chairman Edward R. Royce from Assistant Secretary of State for 

Legislative Affairs Julia Frificld, March 17, 2016. (https:liforejglliJffuir~h21!e"'go~yivyl':: 

c_Q~1<:ntit!l'!2?<ls/2Q_lQIQfu:QlJ2l2::POS- Rsg>.Qg,;_c:{'gnccms-re-I ~ 7-B iII ion-Pay~g_~l::JQ:: lranc£41) 13 The statement docs not specify how the interest was calculated. 14 Jay Solomon and Carol E. Lee, "U.S. Sent Cash to Iran as Americans Were Freed," The Wall Street Journal, 

August 3, 2016. (htt_rr:l/v~vy\\~~vy~,c:<!.'Jli'"'!i£le_sLt1:.s:~~1t::f•~sh 1o,ir"'l}:as-5m~r:i'?!lS:\Yl'fl2'::.fr~g~<l:li7QJ51_8~H); Jay 

Solomon and Carol E. Lee, "U.S. Held Cash Until Iran Freed Prisoners," The Wall Street Journal, August 18,2016. 

(http:/ /wwvy~ \','Sj .coml5rticles/u-s-hc J~d_-easiJ~:tm ti l-iraJ1-Jrced-pris<,mers·l4 7[469 2 56) 

Foundation for Defense of Democracies 3 www.defenddemocracy.org 
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Mark Dubowitz September 8, 2016 

Street Journal further revealed that the administration also transferred the $1.3 billion to Iran in 

two cash payments through Europe on January 22 and February 5 "in the same manner" as the 

$400-million payment. 15 

The optics of these cash transfers was reportedly the subject of controversy within the 

administration. President Obama's Justice Department raised concerns that the timing of the 

payment too closely coincided with the release of American hostages. 16 Why the administration 

concealed - or, at a minimum, failed to note - the cash payments for so long is a question that 

remains to be answered. But when confronted with the story of the $400-million cash payment, 

on August 4, President Obama dismissed its significance: "The reason that we had to give them 

cash 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." 17 

It is my assessment that President Obama is mistaken on the legalities and practicalities of 

sending funds to Iran under existing U.S. laws and regulations. According to an analysis by my 

organization, the administration's argument is "undercut by the sanctions regulations it 

supposedly relies upon." 18 Specifically, the Iranian Transactions and Sanctions Regulations, 

which stipulate the sanctions and exceptions in financial dealings with Iran, licenses payments 

and limited dealings between the Iranian and American financial system in order to receive, pay, 

or settle claims pursuant to the Iran-United States Claims Tribunal. 19 

Through this Tribunal-related license, any American or foreign bank facilitating the transfer of 

any portion of the $1.7 billion payment to Tehran through the formal financial system would be 

insulated from sanctions-violations risks and related penaltics.20 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 Act21 to authorize banks to facilitate these 

transactions. Indeed, nearly 3,000 special licenses arc granted every year for sales of food, 

medicine, and other humanitarian-related goods into Iran. 22 Thus, the transfer of funds in cash on 

15 Jay Solomon and Carol E. Lee, "U.S. Sent Two More Planeloads of Cash to Iran After Initial Payment," The Wall 

Street Journal, September 6, 20 J 6. (lt.!!PJiF)Y.!Y..:.~Y.~j:..l;2!:!].(~r:_tj~t~?l.!:1_-:_~--~-~-D!:J2Y.9..:!}}.9J:~.:Qi~nsJq~Q.~.-of-~~.?.~: ~.9_-:b::?.rr~. 

alicrcini tiaj_,p~ymem.c 1_4}:R0~2')6) 16 Devlin Barrett, "Senior Justice Official Raised Objections to Iran Cash Payment," The Wall Streel Journal, 

August 12, 2016. (~.~Y-~Y.:.~~~-~j .. ~q~y.[~y-:tjc,t;.~l~.enior-j!:J,~li'?.~:o(fki~l~_raj~e.<J:.c>.bj~qiQnS-t9:-irt~n:-~ash-p~ymcnt1_:!709943.§()) 

17 Barack Obama, "Press Conference by the President Aller Meeting with National Security Officials," 

The White House, August 4, 2016. (l]t!Qs:!lww\V,\V]1iJeh_()~_sc,g \C[th<;,pf<;S_s:Qff]J;~i;!QJ_Q,'Q8/04fpml':_conlcrgJf": 

p_f_~~'!J4c!!J:_~t!~£::_lll<;£.thlg.":.~<:l.~iq.D~.I:-_s_~~~-~Ij_ty:_Q,Dl~.i.!! l_s) 18 Behnam Ben Taleblu and Annie Fixler, "Settling with Iran: $1.7 Billion and U.S. Hostages," Foundation for 

Defense of Democracies, September 2016, page 5. 

{!11tJ?_~:~\~'Y.~Y.:.9~ f~J.1.4.9S~UJ.9..~.L~~-~Y.:.9.Jg/~g-~_t_c:_mi~!PI.o~~J.~/ g~ll~r~J!~~lllillL~-~jJ~_!f~!J.._pQ_t) 19 Iranian Transactions and Sanctions Regulations, U-8. Department of the Treasury, 31 e-C.F.R. §560510, 

December 26, 2012. (ht1J2:Uw.vv_v\,et:Jr,gov/cgi-binltextidx''SI Q'C.~':!h<lea2.'!7_6.'\2._d..b I dbc5efd2933b250a5&mc~trusffiJ1.2Q>'-":i'1LJJ§O !51 O&rgn=div8) 20 As noted in: Behnam Ben Taleblu and Annie Fixler, "Settling with Iran: $L7 Billion and U.S. Hostages," 

Foundation for Defense of Democracies, September 2016, page 5. 

(http:./ /vvvv'"Jlgl£!l.d..d"!llQEaCJeQrg;'£_on(<:Q!Ll1!'1oil<ls/g"!)naJ/::ict)Ji!1Dv_ith_!rlillJl<!f) 21 International Emergency Economic Powers, 50 U.S.C § 1701-1708_ (ht!J?~:!Jw.vv_\Vtreasury,gov/r_cs_o_urc£_c 

~n.~~r!~.~~f~i.Q(l_scCDQ~~!!l~~1tsf.is:~I?.~I?9..D 22 Author interview with sanctions attorney on September 2, 2016. 

Foundation for Defense of Democracies 4 www.defenddemocracy.org 
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Mark Dubowitz September 8, 20 16 

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 history23 

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 1988.24 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. "

25 Why was the $1.7 -billion settlement different 

from previous Tribunal-related payments? 

Did the Obama administration have no choice but to transfer the $1.7 billion in cash? 

No legal barriers exist to the settlement of claims of the Iran-United States Claims Tribunal 

through the formal financial system. But perhaps it was a logistical impossibility to transfer the 

$1.7 billion through the formal financial system. Over the past decade, the Treasury Department 

convinced global banks of the illicit finance risks that Iran poses to the global banking system. 

These warnings were backed by billions of dollars in fines imposed on some of the largest 

financial institutions, which still remain wary of returning to Iran.26 Taking the administration at 

its word, perhaps no banks were willing to wire funds to Iran, no matter what guarantees they got 

from the administration that the transaction was legal. 

Although White House Press Secretary Josh Earnest claimed on January 19 that "the interests of 

taxpayers were very well served by reaching this settlement,"27 the administration originally did 

not explain how this interest payment was transferred to Iran. After the press uncovered details 

about the January 19 payments from the Treasury Department-administered Judgment Fund,28 a 

mechanism created by Congress in the 1950s to pay claims against the U.S. government not 

otherwise covered by existing appropriations,29 the administration confirmed the use of this 

mechanism.30 Previously, administration officials stated that the $1.3 billion was transferred to 

23 Sec reference to this lack of precedent, and one notable historic exemption in: Bradley Klapper, "A $400 Million 

Cash Payment to Iran Has Little Precedent," Associated Press, August 29,2016. 

(http:/ i;J ll£ll£W'iJ;Oc"Q!nfJ'<)I itic~~wireS_tg_ry/400·!)ljiJj()D'"C<!Sh:P"J'JIIC]ll-_iraJl::PJ~(;id~Ql:1J 7J 22_9_!) 24 Bridie McAscy, "The Recent Settlement at thC Iran-United States Claims Tribunal: Historical Context, 

Implications, and the Future-- Part n,•· Kluwer Arbitration Blog, March 21, 2016. 

(http :<''k luwcrarbi tratlop b log_.com/20 16/03/21 /thc-r.~c.ept -sctt le;ment -a~- the-jran -un_i tcd-statcs-claims-~ri bt!n~lh-i.~-~-~iif_~;Q~!£:~.!.~~~iQD~~iii~~~J)~:~~~b~~f~t}!ii~Q_~J1-~ i~~) ------- ··-· ---------- ------ - ~----- --- ------------ . ------ -- ---- - -- - - 25 Bradley Klapper, "A $400 Million Cash Payment to Iran Has Little Precedent," Associated Press, August 29, 

2016. (bttJl:iie!:>~ncc'vs_.Ko.com/PoliticshY.ir<?l<Lryi4Ql!:!nLW2n.:<:ash::PaYm!'.nt-iran:rrccs_de_Qtc'!ll12_597). 26 Alanna Petroff, "Europe's banks too scared to do business with Iran," CNN, May 12,2016. 

(h]tp:/IJ!J()O_cy,<; n"<:_ol0!7Ql.6!02fE/n~ws£ir~~-:\>~nks c_uroJ1.c-john~kcrry/) 27 The White House, "Press Briefing by Press Secretary Josh Earnest, 1/19/2016," January 19, 2016. 

(h!tps://w~vw.\\!hit"-hQIJ_S~lh_e::m:~,_s-ot]l"-/_~0 16/0 lll9/press-briefing·press-sccretary-josh-eamest-ll920 16) 28 Claudia Rosell, "Riddle of$1.3 Billion for Iran Might Relate to 13 Outlays Of Exactly $99,999,999.99," The New 

York Sun, August 22, 2016. (http://www._nvsun . .<,:Q~1/f()X~\@'Iiddlc_:-Qf::ll-billign-for-iran-might-bc-solvcdbYL~\'22!) 29 U.S. Department of the Treasury, Bureau of Fiscal Service, "Judgment Fund: Background," accessed August 23, 

20 16. (ht(Jlsjjvvw\v.fi~cal_.lrea~ury,g()v /f~s"J'VJ£tC>ill9.:vlm:nt!i<lill'\'!1.sl&a_c~g[Qllt1Q,h!Jl1) 30 As noted by: @APDiploWriter, ".@statedept confirms 13 Judgment Fund payments of$99,999,999.99 & I of 

$10.4M on Jan 19 were for interest on Hague settlement with #Iran." Twitter, August 24, 2016. 

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Mark Dubowitz September 8, 2016 

Iran through a foreign central bank in a "fairly above-board way"31 in non-U.S. currency.32 This 

week, officials from the State, Treasury and Justice departments reportedly told congressional 

staffers that the $1.3-billion payment was made in the same manner as the $400-million payment 

through Europe, in cash (in euros, Swiss francs, and other non-U.S. currencies), and flown by 

plane to Iran on January 22 and February 5. Treasury confirmed to The Wall Street Journal that 

the subsequent payments were also in cash.33 Incredibly, it seems the administration considers 

flying plane-loads of cash to the world's largest state sponsor of terrorism to be "fairly aboveboard." 

Since we know that the $ L 7 billion was transferred in cash, it is logical to ask, what other 

settlements from the Tribunal have been made in cash? The Tribunal itself states that it has 

"finalized" more than 3,900 cases.34 Were some or all of the awards from these cases paid in 

cash despite the legal authority to process them through normal financial channels? 

For example, the U.S. paid Iran $848,072.15 on July 27,2015 as the result of a Tribunal ruling. 35 

Was this made in cash as well? Conversely, if the $848,000 was sent to Iran using the formal 

financial system, why did the administration send the $1.7 billion in cash? Congress should 

demand answers. 

Did the Obama administration green light more than the $1.7 billion in cash? 

During the negotiations to reach the nuclear deal, the P5+ 1 permitted Iran to repatriate $1 1.9 

billion dollars from restricted, overseas oil escrow aceounts36 Taken on average, these payments 

Ch!tm;//t~i!\>t:·<::oin[IIJ'_Diplq\\fri1<::rh~tl1>!76848J95.tin@o.QQQ1:); Bradley Klapper, "2 days after cash delivery, US 

paid $1.3 billion to Iran," Associated Press, August 24,2016. 

(!illp_;!/l:JiggQ.ry,ap,gr,&i~[!ic_li:O 60()_!.2Jil6acl:J1£J>!bal'd~b_29JilJLd_91eflc_QaX.'tcillkr:ea.s~_:deJi ~.cry, ue·paid,I 3cbi ll.ion, 

_lfa}1) 

31 Bradley Klapper, "U.S. Paid $1.3 Billion to Iran," Associated Press, August 24,2016. 

(h_~tp_./L~Y"~~:..:_usl)c\y§.:~Q!ll!Pt:~·:Y:?.!JLQl.iJ~~?l<u1i£~~~!'JQ19..:-_!lli-=-~-4!1:..4~ flg_r::~~D.:4~J !.Y.t:fY:::YrJ?_~jQ-_ U.::.~i.l.liQfl __ :J!?J~f!!l 32 Jay Solomon and Carol Lee, "U.S. Sent Cash to Iran as Americans Were Freed," The Wall Street Journal, August 

3, 20 16. (h!1P.:~!.~~-~Y...~·-·-~-~:.~j ·~9D~(~Q.i:E~£-~(~-~ .. S:-:.~~})~::.~~-sl~::.~9.:: tr~~1-~-~~-§.:~IIJ_5;_~_is:a~~s_-\y_~E~-Jf~~<:l-l "J.79.l.~J ~) 1) 33 Jay Solomon and Carol E. Lee, "U.S. Sent Two More Planeloads of Cash to Iran After Initial The Wall 

Street Journal, September 6, 2016. \h.[!J:U'iE'Y''~· 'VSJ,c.Q!l11i~_rtl<:i".Si''cscsc'n.tc!'""'''-nl0I'' -P!.an.<o!Q<l_Qe:Ql:·.c<l:s_llc_IIQ:!I<'!l.: 

§!Jl~r-i!lJJl~?X!l1_~ll_t_:l_1J~~20&_22_Q) 

34 Note, this number is derived from the Tribunal's own website. See: The Iran-United States Claims Tribunal, 

accessed August 23, 2016. (httpAw_w\V,i'!st;t,Il£!1) 35 Correction to Award and Decision on Request for Additional Award, DEC 136-A15(IV)/A24-FT, Iran-U.S. 

Claims Tribunal (March 5, 20 15), page 106. (1!\t!':/['<:.VI''Y,i~s<:J&~!{<;i,cn<:r~J~'~:lOPQ<:l!m_ents/AWARJ.JI:Z: 

DEC%20No.%20DEC%20JJ.il.cAI5il.YJA.~.'!c.EI.P.10; lnfonnation accessed via the Judgment Fund payment search 

database. See: U.S. Department of the Treasury, "Judgment Fund Payment Search," accessed September I, 2016. 

(https:l/jfund.fms.lr£a.~,g()vjfra<lfuoarch\Veb/JFPymtSearchAction.doj; For more infonnation, see: U.S. Department 

of the Treasury, Bureau of Fiscal Service, "Judgment Fund: Background," accessed August23, 2016. 

OWp~~/ (\y_\~\Y"~fls~_<!tl~~~"~y"ry .. gg~:L(~~9JYJ~-~~gp_y/pp~t./l9_gf.~t.n_!jf1?~kgrq!!!l_Q_._h!m) 36 U.S. Department of the Treasury, "Frequently Asked Questions Relating to the Extension of Temporary Sanctions 

Relief through June 30, 2015, to Implement the Joint Plan of Action between the P5 + 1 and the Islamic Republic of 

Iran," November 25, 20 I 4. (http>;f/\V\V\V,!l:'O'h'llfY,gQyJ[esg_ur<;~: 

s;_en,.t_er/sanctionsiPr:o_grams/Docu_!ncnts/jpQ~_ ~xLfaq_!.! ~520 l4_ . .Rc!D 

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from accounts in foreign banks amounted to roughly $700 million per month.37 If no mechanism 

existed in the formal financial system to transfer the $1.7 billion to Iran, what mechanism was 

used to transfer the $1 1.9 billion? The Wall Street Journal reported that a senior administration 

official admitted that "some" of that money was repatriated in cash. This official claimed, "We 

had to find all these strange ways of delivering the monthly allotment."38 What exactly were 

these "strange ways"? 

If some money could be transferred using the formal financial system, why were any funds sent 

back to Iran outside the system in cash? Was the entire $11.9 billion or significant portions of it 

repatriated to Iran in cash or in gold and other precious metals? This is a legitimate line of 

questioning to pursue given the enormous illicit financial risks of sending billions of dollars in 

cash to the world's foremost state sponsor of terrorism. 

The Foundation for Defense of Democracies and Roubini Global Economics estimated that 

Tehran had about $90-$120 billion in foreign assets prior to the implementation of the JCPOA in 

a combination of liquid and illiquid assets.39 In his testimony less than one month after the 

JCPOA was reached, Acting Under Secretary of the Treasury Adam Szubin estimated that "total 

Central Bank of Iran (CBI) foreign exchange assets worldwide are in the range of $100 to $125 

billion. Our assessment is that Iran's usable liquid assets after sanctions relief will be much 

lower, at a little more than $50 billion. The other $50-70 billion of total CBI foreign exchange 

assets are either obligated in illiquid projects (such as over 50 projects with China) that cannot be 

monetized quickly, if at all, or are composed of outstanding loans to Iranian entities that cannot 

repay them.'40 

Nearly four months after the implementation of the JCPOA, both Secretary of State John Kerry 

and State Department Spokesman John Kirby assessed that Iran had only repatriated an 

estimated $3 billion dollars.41 In July, the Associated Press cited U.S. officials who estimated 

that Iran "brought home less than $20 billion."42 Were these funds repatriated to Tehran in cash 

or in gold and precious metals? Through the formal financial system? Or through some 

17 As noted in: Carol E. Lee and Jay Solomon, "Critics of! ran Nuclear Deal Attack U.S. Cash Payment." The Wall 

Street Journal, August 3, 20 I 6. (ffi.!pj/~..!Y.~~-si..~QJn/~.r!i~h;dg!ili_f_s:oJ:JrgD..:!.l!,!S.!.E~E.:Q_~?-J2!.t!~-~_ky_:-~:f_~t~h:P-'!Y1!1~Ut.-: 

l4_7Q255_5_'1_2) 

38 Carol E. Lee and Jay Solomon, ··critics of Iran Nuclear Deal Attack U.S. Cash Payment," The Wall Street 

Journal~ August 3, 20 16. (hHQ.Ji~.~Y~.!Y-~9.l!lli!ItifLe..?i~_[i.!.if§-O f- ir~.!l.:-!lJ:l_~!f_~I::_q~lll~_t_t_~_~_k.-_l,l_-:~G.~~h:Jl?Yl1}~1.!: 

117()2555~92) 

39 See: Mark Dubowitz, Annie Fixler, and Rachel Ziemba, "Iran's Mysterious Shrinking Reserves: Estimating the 

Value of Tehran's Foreign Assets," Foundation for Defense of Democracies and Roubini Global Economics, 

September II, 20I5. 

(h~tQ://~:.~~:~::.<i~f~J!Qd_~.!!1.ocraf.i'..:QI.&~Qf.IJ~-U.~·:YPJ9A9.~!.P\~h.ljs;a_tjQ!}S!F QJ2.!3-Q~t.PinLBPR.9IUG!!!s _lJ}YJil~r.i_o_~?__?.hT.i~~-ing_ 

,;;,';_<:rvcS.jJ_dD 

40 Adam Szubin, "Written Testimony of Adam J. Szubin, Acting Under Secretary of Treasury for Terrorism and 

Financial Intelligence United States Senate Committee on Banking, Housing, And Urban Affairs," Testimony heji;re 

Senate Committee on Banking, Housing, And Urban Affairs, August 5, 2015. (h\!Pili'Y,\i'Y.Jr""'CUIY-ZQ:ViQI"iS.: 

centcr/pr~S:!<:l'-"-'-"-sJ'"gcs/j!O I 44.aspx) 41 See: John Kerry, "Remarks at J Street's National Gala Dinner," Aprill8, 2016. 

(h_ll];lJi'Y.'Y'Y,'i_t;;~,gQY{>e_cr_e!i!.D'Lt:<:m:;rks/1QJ§i()41:1?.22.;;Lhtltl); John Kirby, "Daily Press Briefing," US. 

Department of State, April 19, 2016. (http:/6_v\\'vy,st;!ijO,gQ.yir/pilf.Pisi.<IPQ(20 16/04/2~5..2fi.Lhill1!1JR6J::!) 42 Bradley Klapper, "A year later, Iran nuclear deal is holding but fragile," Associated Press, July 13, 2016. 

(http://bi gstory .aJl, o~rg/artic lc/f()g§6(J33 54_ I ]:4adb8d26c2l f54df5e I e/year, later -iran-!lu.::lear -d.<: a!-fragi lc-hQLdjng) 

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Mark Dubowitz September 8, 2016 

combination? The administration should also clarify if the $20 billion dollars is inclusive of the 

$11.9 billion in JPOA funds, or if the $20 billion was in addition to the $11.9 billion. 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.43 This raises major illicit financial concerns: According to the 

Financial Action Task Force, "the physical cross-border transportation of currency ... [is] one of 

the main methods used to move illicit funds, launder money and finance terrorism."44 

Perhaps the Iranians demanded cash because they could not repatriate any of the JPOA, JCPOA, 

and Tribunal funds through the formal financial system because of the stifling sanctions 

environment. The JPOA and JCPOA funds may also have limited Iran to paying for imports, for 

example, but the regime could not bring the money home to pay for their domestic needs. 

Perhaps Iran needed hard currency to pay foreign companies for domestic projects, and this 

money had to be repatriated first before payments were made. Perhaps financial restrictions 

made it possible for Iran to receive money from abroad in only rials when it was repatriated but 

not in convertible, hard currency. These are all plausible explanations for why the White House 

sent such a large amount of cash to a state sponsor of terrorism. 

There is an alternative explanation, too: Iran needed bard currency to fund its malign activities 

because the regime wanted those transactions to be untraceable . 

.W_e_[e formal financial channels available to the Obama aqmi.n~!ration? 

If a workable formal financial channel could have been used, why did the Obama administration 

send cash? 

The White House could have worked through a European intermediary for the entire transaction 

involving the electronic transfer of money to the Iranian financial system and not, as it reportedly 

did, through Swiss and Dutch central banks only for the electronic transfer of the funds from the 

U.S. to Europe. Even at the height of the U.S. sanctions regime (2010-2013), sizable trade 

continued between Iran and the European Union. In 2013, when U.S. and EU sanctions were at 

their peak, total EU-lran bilateral trade was 6.2 billion euros45 This was sharply down from 27.8 

billion euros in 20 II and 13 billion euros in 2012, but still significant46 

43 $400 million Tribunal principal payment+ $1.3 billion Tribunal interest payment+ $11.9 billion JPOA relief+ 

$20 billion JCPOA relief 44 Financial Action Task Force, "Operational Issues Financial Investigations Guidance," June 2012, page 23. 

<J:t.l!Q;I/www.fatfg~~Q.m.Lmedia/fatf/documents/reports/Operat1onal%20Issues Financ1al%20inyestit.wtipns%20Guj9£1.ll~A24D 45 For instance, it should be noted that European imports from Iran dropped rapidly {but did not zero-out) in 2012, 

likely due to the passage and implementation of oil sanctions. But Tehran continued exporting goods to Europe from 

2012-2015, raising questions as to how Iranian entities were paid for their exports. See graph in: European 

Commission, Directorate-General for Trade, "European Union, Trade in goods with Iran," June 21,2016, page 3. 

(llttp :j/tr:lQ-"'.ec.~.\l.rQfm,Q••/dgcJil>i<:!QCsj2Q_QQI~<Wlfl)llJ'TL!r.a<l<>.LllJl9:1,pdQ 46 Ibid. 

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Mark Dubowitz September 8, 2016 

Are we to believe that no European company in those years was able to send or receive payments 

to Tehran through the formal financial system? It is well known that some Iranian banks 

remained free of U.S. and European sanctions, and that these banks continued to access the 

SWIFT financial messaging system, even when 17 other banks were barred from it. Even at the 

height of the sanctions regime, Obama administration officials rejected a complete financial and 

commercial embargo of Iran. They justified these open financial channels to process unlimited 

volumes of humanitarian transactions with Iran, as well as non-sanctionablc commercial 

transactions with those countries holding oil escrow funds. 47 Iran also could use any funds not 

subject to the oil escrow restrictions or frozen pursuant to judicial order. It is unclear why the 

Obama administration could not use these financial channels. 

After January 2014, when the interim agreement was implemented, the administration authorized 

Iranian access to $700 million monthly, on average, in these escrow funds. Tracking the first 

payment, Reuters reported that on February I, 2014, the Bank of Japan transferred $550 million 

"to an Iranian Central Bank account in Switzerland, a U.S. Treasury spokeswoman said.'.48 This 

raises a further question: If the Bank of Japan made an electronic transfer for the first payment, 

was cash ever used for any of the other payments? 

Moreover, couldn't the administration have put the $1.7 billion in Tribunal settlement funds in 

the CBI account at the Swiss bank so that Iran could access them for legitimate commercial 

purposes? Banks monitor their accounts to prevent money laundering and terrorism financing. 

Transferring the funds to a Swiss bank would be clearly preferable than the cash transfer because 

once the funds are in cash, the money is untraceable. Even if it was more difficult to use formal 

channels, it appears that they did exist. 

The transfer of cash to Iran sets a dangerous precedent for future Tribunal settlements or other 

fund transfers to Iran, and legitimizes the kind of financial activities that the U.S. government is 

vigilantly warning the private sector to avoid. The private sector looks to the U.S. Treasury for 

guidance about financial integrity and learns just as much by example as through lengthy 

notifications and regulations. By transferring cash to Iran, the U.S. government undermined the 

very anti-money laundering protections that Washington demands of all private actors.49 

Even if there were no formal financial conduits available for the administration to authorize the 

transfer of funds to Iran, why didn't the Obama administration create one? There was a clear 

need for a formal channel that could have better protected against Iranian abuse. As an example, 

in 2007, the United States used a complicated system involving the Federal Reserve Bank of 

New York and a North Korean account in a Russian bank to enable North Korea, under 

47 For an explanation of the restrictions that came into effect in February 2013 requiring oil revenues to be deposited 

in escrow accounts) see Kenneth Katzman, "Iran Sanctions," Congressional Research Service, May 18,2016, page 

22. (~ttQ://fas.org/s!lJ?{cre[mide'!§Y:R~~~QELP.<iD 48 Hirofumi Takemoto and Takaya Yamaguchi, "Exclusive: Japan makes first oil payment to Iran in a year: 

sources," Reuters, February 5, 2014. (b!!n..;LL~~.W-~V:J~uJex~S.9J.lJ!~~!J:1jcJ~{.~J..$.::.ii;!H:-J1JL~t;~tr_:_~I£1J!Sferi<jllf>Jl[{I'AL4()~!l2()J:'f01Q~) 

49 Author interviews with former Department of Justice prosecutors on September 6, 2016. 

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punishing financial sanctions, to repatriate $25 million in frozen assets held in Macau's Banco 

Delta Asia. 50 None of this involved flying pallets of cash to Pyongyang. 

If a formal mechanism did exist, why wasn't this mechanism used for the $400-million and $1.3-

billion payments? This only underscores the importance of an investigation into why the $400 

million (and likely the $1.3 billion) needed to be transferred in cash in January. 

Cash as "leverage" 

We know from public reporting that American officials were aware of the Iranian need for cash. 

"Sometimes the Iranians want cash because it's so hard for them to access things in the 

international financial system ... They know it can take months just to figure out how to wire 

money from one place to another,"51 a senior official stated to The Wall Street Journal. Is this an 

admission that cash transactions were not the only way to deal with Iran but rather an Iranian 

demand? If Iran demanded cash when formal channels were open, and the administration 

complied with this demand, Congress has a right to know why. 

What we also know from The Wall Street Journal's subsequent reporting is that the delivery of 

cash to Iran was "a tightly scriEted exchange specifically timed to the release of several 

American prisoners held in Iran." 2 Docs this choreography provide clues for why Washington 

agreed to provide the funds in cash? 

If the United States needed Iran to receive the funds on the same day as the U.S. made the 

payment in order to keep to the script, then perhaps cash was the only way to guarantee that Iran 

received immediate access to the money. If this was the case, what was it that was so valuable 

about providing Iran immediate access to money from a FMS account belonging to a regime that 

was deposed more than three decades ago? Why was the resolution of this decades-long dispute 

so critical that the administration decided to process it outside the formal system when more 

transparent electronic transfer mechanisms existed? 

State Department Spokesman Kirby has repeatedly denied that the $400 million was a ransom 

payment to Iran, yet he admitted that the choreography was designed "to retain maximum 

leverage until after American citizens were released."53 When questioned further by the press 

corps, Kirby admitted that "the events came together simultaneously. But obviously, when 

you're inside that 24-hour period and you already now have concerns about the endgame in 

terms of getting your Americans out, it would have been foolish, imprudent, irresponsible, for us 

50 Glenn Kessler, "North Korea Gels $25 Million Frozen by U.S. Probe," The Washington Post, June 15, 2007. 

(ht!p:l /www.washinglonpost.com/wp-dyn/contentiarticlei2007 /06/!_4/ AR2007061400 181 .him!) 51 Jay Solomon and Carol Lee, "U.S. Sent Cash to Iran as Americans Were Freed," The Wall Street Journal, August 

3, 20 16. (hJ!J2!L'O''v_w.,}~j._c()t!li!!.rticle.~iu:s-scnt,_cg~l:t::_to-ir'!Jl.:i!~:'!.I!!,r.icans:'v.!"<::fre.,9.:1.119J 8l_E4) 52 See: Carol E. Lee, "U.S. Held Cash Until fran Freed Prisoners," The Wall Street Journal, August 18, 2016. 

(h\tp;/{'£\.V'O'.~'.i ,co_r,tani_cj_<;s u-~le.l;l_-_<;~§!1:1Jnti 1.-iran:.fr,c_tl:.rsi.~<:J~SI~:H7J.4:62256) 53 John Kirby, "Daily Press Briefing," U.S Department ofState, Augusl 18, 2016. 

(bttp:/iwww.slatc.go~/r/paiprs/clpb/20 !6/Qg/261 128.hll_rl) 

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Mark Dubowitz September 8, 20 16 

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."54 

To. date, the administration denies that the "maximum leverage" afforded by the transfer of the 

$400 million amounted to a ransom. The subsequent $1.3 billion appears to be the second half of 

the administration's "leverage." Kirby's admission and the timing of the first payment suggest 

that the reason the administration was willing to take on the illicit finance risks inherent in a cash 

transfer was to get the hostages released. The payments were leverage, but the leverage would 

only work if Iran got immediate access to the funds, and so it had to be in cash. This is the 

common-sense definition of a ransom payment: a quid pro quo where one party provides 

something of value to the other party in order to facilitate the release of hostages. 

In a recent research memo by FDD, we described how persons and entities55 in Iran, including a 

senior IRGC official who is in charge of the organization's paramilitary Basij forces, explicitly 

linked the payment and the release of the American hostages. 5

6 Clearly, some Iranian officials 

see this as a ransom whether or not the administration acknowledges it as such. 

How will Iran spend the mo~1 

If there was no mechanism through the formal financial system to send Iran the $1.7 billion in 

settlement money, the $11.9 billion in JPOA sanctions relief funds from its oil escrow accounts, 

and the $20 billion from Iran's total liquid, unencumbered assets following the implementation 

of the JCPOA, Iran received as much as $33.6 billion in cash. Even using the Obama 

administration's estimate from July 2016 that Iran repatriated no more than $20 billion, the 

amount of untraceable cash may still be staggering. It is worth recalling that,}'rior to November 

2013, Iran only had $20 billion in fully accessible foreign exchange reserves5 

Officials in Iran have already announced that the repatriated $1.7 billion in FMS principal and 

interest will go to the defense budget. In an interview with Fars News on July 7, an Iranian 

parliamentarian claimed that the money from the settlement must be "allocated to the armed 

forces. "58 The fina I budget passed weeks later ended up containing this allocation. 59 This could 

54 John Kirby, "Daily Press Briefing,'' U.S. Department of State, August 18,2016. 

(bttp:l/w W~0!<'l£lli'~.il'i'!!"1!91'2£;!Q_1 Q!Qil1~2U2.8,h1!]1) 55 Additionally, a semi-official media-outlet close to the lRGC put out a video vindicating the Iranian narrative of 

the money transfer. See: Amir Toumaj, "The Iran Money Transfer: Unanswered Questions," Foundalion}Or Defense 

of Democracies, August 5, 2015. O:HtQ_:f/www~9~fcnQ_Q2n!Q~'=.<!S:Y..·.9fgl_!ll~<li.~.:J~.!!.f..~tm.ir.:.tQQ!Tifti:l~igm:llND_CY: 

~f};!I)S.!~f:!:!_ni!!.l.~'~r.~Q:-ili!_~-~L9.D~i) 

56 See reference to Iran' Basij Commander (Mohammad-Reza Naqdi) in: Behnam Ben Taleblu and Annie Fixler, 

"Settling with Iran: $1.7 Billion and U.S. Hostages," Foundation for Defense of Democracies, September 2016, 

page 4. (h!!P://'~.'YcP£i'S'~!!Qdcm.Qf@D',(}rg/contcnt/uploads/general/Settling with_lr'!'U'.<ill 57 Mark Dubowitz and Rachel Ziemba, "When Will Iran Run Out of Money?" Foundation for Defense of 

Democracies and Roubini Global Economics, October 2, 20!3. 

(!illpj~"~'2Y·defu:Jsli!.emocracy.orglcontenVuploads/documents/lrall_R_cp_Qr:t_fii1''J 2.p~<J.O 58 " uJ;.... '-'w,; jl ~by~ wJJ, l.rli> ...,.,_, •.;4.>' ..S-"'.J '4 J.)p c<i.»l.. IW..I ;::1- ..siAJ.-"' "'-' jl.:i.. c<o.;l,4.. .;lj.\ ~ ...,.,_, 

~w..t .rli> ...,.,_, .._;:,. JlUo<; <> o)o <"'"(The 5 Thousand Billion [Toumans] Belongs to the Armed Forces I The Story 

Behind Informing the Leader About the Defense Budget I What Takeaway Does the Government Have from the 

Tenth Parliament That it Seeks to Slice the Defense Budget?)," Fars News Agency (Iran), July 7, 2016. 

(http:/ 1

;vww.(arsnews.com!l}250417000304) 

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Mark Dubowitz September 8, 2016 

mean that the funds will be used to pay for Iran's conventional armed forces, procure advanced 

weaponry in contravention of the arms embargo, support the activities of the IRGC and Quds 

Force in Syria, Iraq, Lebanon, Yemen and elsewhere, and/or provide direct support to Hezbollah, 

Hamas, Palestinian Islamic Jihad and other Iranian-assisted terrorist organizations. 

But this does not account for the additional billions of dollars that Iran repatriated. 

The administration may try to downplay the significance of this estimated $20 billion by arguing 

that Iran needs hundreds of billions of dollars in foreign direct investment over the next decade 

to modernize its aging energy sector as well as its domestic infrastructure. This is the same 

argument the administration used to dismiss concerns about the amount of Iranian overseas 

assets that the JPOA and JCPOA unfroze. But even Secretary of State Kerry admitted, "Some of 

[Iran's unfrozen assets] will end up in the hands of the IRGC or other entities, some of which are 

labeled terrorists."60 

But Kerry sidesteps a central question: How much easier will it be for Iran to distribute those 

funds if they arrive in the form of cash in euros, Swiss francs, or other easy-to-use hard 

currencies? 

To put the $20 billion in perspective: $20 billion is one billion more than Iran's entire $19 billion 

defense budget for 2016-2017, which already amounts to a near doubling of its military budget 

compared to the previous year.61 The $20 billion also represents more than five percent of Iran's 

total GDP,62 and more than 20 percent oflran's total government budget.63 Access to $20 billion 

in cash is about $4 billion greater than Israel's entire 2015 defense budget.64 The $20 billion also 

provides Iran with significant resources to fund one of Israel's most deadly enemies: Iran 

provides Hezbollab with as much as $900 million annually, according to Israeli intelligence 

59 Saeed Ghasscminejad, "Iran Gives Green Light to Direct $1.7 Billion from U.S. to Military," Foundation for 

Defe~se of Democracies, September I, 2016. C!:!Un:!liv~~A~!~Q_c)..f!fm9f['!CJ:.:..Qt:g/.!!!~dj~~.ll.,l.~b~-~~gb_~~B1-h'!9J~Q: 

i~<!n_~_gi y~~:£!?_t?.!!.::J.ig!lt:-"!9:~cli!_e~_t:_L7_~ QjD ion- fr_Q_Q~.:j!.§..-~9..:!D.ili~ID'i) 60 Elise Labott, "John Kerry: Some sanctions relief money for Iran will go to terrorism," CNN, January 21,2016. 

(h!tP.~U~~~~.~~.~.ml:S9m/4Q.l QLQJ.a.!/p_Ql i!if?liQ.hXI_-:-J<-~.rr_y_-J1lQ.IJ5;Y_:ir!.l.TI.:~~~!l~Ji<LD~:!.errorj_~~~lJ0 61 Saeed Ghasseminejad, "Iran Doubles Down on its Military Budget," foundation for Defense of Democracies, 

June 3, 2016. (!Jttpji_ww»:Ae.li:nc!d<:m(}.f@S'_&IJtLmcdi!!-hillsaced-ghasseminejad-iran-doubles-down-on-its-militar:y: 

Ql!<)g9/) 

62 The World Bank, "Iran," April!, 2016. (h_ttpJ/www.worldbank.org/en/<;_outl)_ry{iran/overvi~wJ 63 Amir Vahdat, "Iran's parliament approves $97 billion budget," Associated Press, April 19,2016. 

(http:/lbig>!Q.r:y,ap,tl!,gl~t:tit:J.ej@~i:J22]_5_:l_()_l>2±3Jl39a5'18_~_aa7c_25_~,1l?/lr?Q>:Parli'!l)l~nJ-"P]l[(}_Y<!S::'IZ:billiQ11-h~!l_g£t) 

64 Sec 2015 figures in: Sam Perlo-Freeman, Aude Fluerant, Pieter Wezeman, and Siemon Wezeman, "Trends in 

World Military Expenditure, 2015," Stockholm International Peace Research Institute, April2016, page 2. ( 

hllp:l/books~sipri.org/filesi£,SI,SlPRI fS 1 ()Q1,pdf) 

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cstimates.65 UN officials estimate that Iran provides $6 billion to Syrian President Assad 

annualll6 -less than a third of what Iran may have repatriated in cash and gold. 

Tehran could take that $20 billion in cash and continue its illicit procurement of material needed 

to produce and test ballistic missiles. Despite the warnings of numerous experts,67 reductions in 

Iran's ballistic missile arsenal were not required under the JCPOA. Iran has tested ballistic 

numerous times since the inking of the JCPOA last summer, and almost all of these platforms it 

tested were nuclear capable68 By allocating cash to this program, Tehran could refine its existing 

missile arsenal and make its missiles more precise,69 work on space-launch vehicles under the 

guise of a satellite program/0 as well as test missiles that previously failed to launch. 71 

Tehran also could use the $20 billion in cash to further its iiJicit procurement attempts, some of 

which were detailed in a recent report by German domestic intelligence services.72 In its annual 

report released at the end of June, Germany's domestic intelligence agency found that Iran 

engaged in a "quantitatively high level" of attempts to acquire nuclear, missile, biological, and 

chemical weapons-related technology and equipment.73 While the report only covered 2015, the 

intelligence agency concluded, "It is safe to expect that Iran will continue its intensive 

65 Yaakov Katz, "Security and Defense: The fly in the spider web?" The Jerusalem Post (Israel), July I, 2011. 

(b!tpj/_'Y.I\..~9."!'-'Q!!JJJ2<ienesi~<::£~!Lty,_a.!l.4.·R.eJe.!'.S£::IIl_e_ Byoin·th£:s.P!.<l."!:::\\'eQ). Also, note that in 2013, Reuters 

reported: "A regional security official with access to current intelligence assessments put Hezbollah's annual income 

at between $800 million and $1 billion, with 70-90 percent coming from Iran, the amount partly depending on the 

price of oil." See: Sarnia Nakhoul, "Special Report: Hezbollah gambles all in Syria," Reuters, September 26,2013. 

(ht!P.JJ.vvww.rcutcr_s.com/article/us-syria:hezbollah-sp~~l-rcport-idUSBRE98POP,.I20130926) 

66 Eli Lake, "Iran Spends Billions to Prop Up Assad," Bloomberg, June 9, 2015. 

([lttp_://vvw_w_,.blgo!11\>~cgyje_w_.c;QI1J/art.i.<:lt:.e/;! () 15 :06-.Q'}Lir?n·SQ<:_ng_s.:\>ill ion~:\Q·prOQ:YP.:essad) 67 For an example, see: Behnam Ben Taleblu, "Don't Forget Iran's Ballistic Missiles," War on the Rocks, August 25, 

20 14. (h\tp:j.i_w__aront!!er.o.c);s,<:Q.mJ1.9J 4/Qfl!<!Qnt: Iorgc!:iran.~:.bal.lietic..:'nissi_lcell; "Including Ballistic Missiles in 

Negotiations with Iran," Iran Task Force, September 2014. (I!!!Pjf1as_l<,fo_r<:".QT>j_ran.orglpdf/Ba11istic Missij_e_e.,p_f!J) 68 Michael Elleman, "Iran's Ballistic Missile Program," Testimony before the Senate Banking. Housing. and Urban 

Affairs Commillee, May 24, 2016. (http:l/w_ww_,b@l<_!f1.&".cn.aj_t:,go:Yip_u_l:>l.is:L0'<:.1:!'Lfi.~!_f64<1913-'!::clQf<::4<!<:.±Ma1: 

f'l J.9.\>a.E2.f.<J!9JlDC029490J6l D L825 81.J.l.2.2_FcA.QZ§.l.l_LQ~l:\16-t;lkmllf1~sJi>].rof1..Y£<!D 69 As exemplified by the Emad missile. For more on that missile see: "Emad," Military Edge, accessed September 2, 

2016. (http_:;'jrniiilarycdgc.<:>rg/ar.rnaincntsl~rnad/). Also, analysts almost uniformly concur that Iran is seeking to 

refine the accuracy of its missiles. For example, see: Anthony H. Cordesman, "'Iran, Missiles, and Nuclear 

Weapons," Center for Stralegic & International Studies, December 9, 2015. (h~.tP.~_:/N.:_Y'{~Y·f:~!~~Qrg/_~_naly~i.~~ir~.D-::: 

mi~~ii~~'!DJ!::Jl,.Y.~~~ar-w~-~5~!!~) 70 Adam Kredo, "Iran Satellite Launch Prompts Fear of Long Range Ballistic Missile Attack," The Washington Free 

Beacon, August 31, 2016. (ht.t1E(Lfb;~!?~!lG_QD.cCqn_1{D_<!!!.Q!Ji!1:-.~~~~-!ILty(i.IJ:l-.f!:-_satyUi!~-:-1_<!!-!Dfh:lll~QJ!1PJ~'t'J~-~.f:JQ!ill.:I<!fl.E,t;"­

hi!Jll~t.i~:q_l_i~.§iJ~-::~!1m.~k!.) 71 This depends a great deal on if analysts believe Iran has platforms like the BM-25, for instance. For analysis of its 

recent reported test, see: Behnam Ben Taleblu, "Iran's Latest Test Shows It Is Doubling Down on Ballistic 

Missiles," Foundation for Defense of Democracies, July 20, 2016. (bitpj/ww_w_,sk.[e_I].Cl<,l"':!l.<:>fL'lfY"Q!gfmcdia· 

hitlbehnancckn:!~lcblu-irans-l'!_t_e_sH£s_( s_ll(l\V,S·il·doubling·down-on-balli,;tic·l11issilqL) 

72 Sec reference to this report in: Benjamin Weinthal, "Post-JCPOA, Iran Revs Up Nuclear, Missile Procurement in 

Germany," Foundation for Defense of Democracies, July 8, 2016. (http:ihY2V_vv,.tJ9[C.!l<l.d_e_f110(;J<l"J',orgfm£d_i.a: 

bj!L'P<;nj~ml~=--~·YSiQthal :12Q~!_:-jq~-Q~--ir_<!!l-=-r~~<t:!!P.~rJtL<;.lt;l!.I:...IDJ.?~i.ls-=PIQ~JJJ.~_r!_1_~Q!:_i~'tg~nmmy[) 73 Benjamin Wcinthal, "German intel report charges Iran seeking illegal nuke, missile tech," Fox News, July 7, 2016. 

(http:!/\V.'.V.\VJ9xncvy'LC()tn/vyor]<,li:/.Q 16/Q]i_Q]lj;cmlailointc 1-rcp_o_Ij::f)l!!rge~,iL'!.Q:".C<:ki_tlg:iJlgga_l_:.nt!~.".:':!l issil'-: 

tc.c]I.html) 

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procurement activities in Germany using clandestine methods to achieve its objcctivcs."74 Tehran 

is also reportedly trying to do the same thing in Latin America. 75 

Just recently, Iran's Supreme Leader Ayatollah Ali Khamenei said, "In order to secure our 

population, our country and our future we have to increase our offensive capabilities as well as 

our defensive capabilities."76 Billions of dollars in cash, which is easier to hide, exchange and 

launder, and more difficult to trace, would go a long way in helping the supreme leader realize 

that goal. 

Policy Recommendations 

Congress is rightly concerned about the delivery of pallets of untraceable cash to the world's 

leading state sponsor of terrorism when other methods were both available and feasible under 

U.S. law. Congress should consider legislation to prevent Iran from receiving any additional cash 

transfers. Congress should also consider applying the lessons learned to future ways in which 

sanctions may be unwound in ways that better protect U.S. national security and global financial 

standards. 

1. Pass legislation reqmrmg the administration to be fully transparent on details 

surrounding its transfer of cash to Iran 

Congress should pass legislation to force the administration to answer a series of questions that 

until now it has refused to address. These include: 

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 ctTect? 

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? 

74 German Federal Ministry of the Interior, "2015 Annual Report on the Protection of the Constitution Facts and 

Trends," English Summary, June 28,2016, page 30. (!>llJ?s://www.vcrfassungsschutz.de/cmbed/annual-rcport-:1_Ql~.: 

s_umn~; "Verfassungssehutzbericht 2015 vorgestellt (The Federal Office for the Protection of the 

Constitution's 2015 report)," Bundesamtfiir Verfassungsschutz (Germany), June 28,2016. 

(h ~! /www. 'C~cfassungssfh utz,delde/aktuelles/me ldungen/me-20 160_628-vorste !lung-vsb-20 15) 75 See documentation and reference to an original Brazilian report in: Emanuele Ottolenghi, "Iran looks to Latin 

America to revive missile infrastructure," The Hill, August29, 2016. (h_ttpjfth_ehii_Lc_om/hlqg_>/p_tmdlt>;: 

Q!.,Qg/ii]_t~!!li!_t!Q!!~IfJ.~2§}_f_:li_<1:n:_!9Q~_S_:-!O_:_hHiD:_~!I!_~f!CJ!::J.9:f~Vive.:~~~.i.~?_i.lc_:-_i!_1f~§!f!:I_C~l!f_~_) 

76 "Iran's Khamenei says need to boost offensive military capabilities," Reuters, August 31, 2016. 

(h_ttp.:f/~~ }~~y,_tc~~t;_rs.co_tp{ ~t_!i~l~:!ll~- in~n-poliJi9i:_~J1~~1.1~n~I- id_U_S_lZ(N 1 l6~J= D 

Foundation for Defense of Democracies 14 www.dcfcnddemocracy.org 
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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? 

2. Prohibit large cash and precious metals tranfers to and withdrawals by state 

sponsors of terrorism 

As an immediate and practical stopgap measure, Congress should consider legislation to restrict 

cash and precious metals transfers to actors with a history of significant terror financing, money 

laundering, proliferation financing, and other illicit financial conduct. Specifically, the legislation 

should prevent all U.S. and foreign banks from facilitating large cash withdrawals for countries 

1) designated as a state sponsor of terror; 2) designated as a jurisdiction of primary money 

laundering concern under the USA PATRIOT Act Section 311; or 3) included on the Financial 

Action Task Force's black list or designated as a jurisdiction with strategic anti-money 

laundering and counter-financing of terrorism deficiencies. 

This restriction should extend to settlement claims for the Iran-United States Claims Tribunal. It 

is important for the United States to uphold its commitment to that tribunal and pay settlements 

and awards, but they should not be in cash or gold. Additionally, the legislation should prohibit 

the U.S. Treasury from providing licenses or comfort letters allowing foreign financial 

institutions to facilitate cash withdrawals for designated state actors. Any foreign financial 

institution that facilitates large cash withdrawals should be subject to sanctions. 

The legislation should address a number of outstanding issues relating to victims of terrorism. 

First, Iran still owes American terrorism victims and their families more than $55 billion in 

unpaid, outstanding damages awarded by American courts77 Congress should consider 

legislation that requires the administration to force Iran to settle these judgments before any 

further Tribunal claims or any other payments from the Treasury Department's Judgment Fund 

are released to Iran. 78 

Second, in 2000, Congress passed the Victims of Trafficking and Violence Protection Act which 

allowed the U.S. government to compensate Iran's terrorism victims out of frozen or seized 

Iranian assets.79 Newsweek revealed in January that the U.S. government compensated victims in 

amounts approximating $400 million but never deducted, as promised to Congress and these 

victims, the funds from Iran's assets back in 2000. With the return of the $400 million to Jran, 

77 "Total Awards- Iran," Congressional Research Service, September 2, 2016. (Available upon request) 78 For example, Office of Senator Marc Rubio, Press Release, "Rubio Introduces Legislation to Prohibit Ransom, 

Stop Obama Administration's Payments to Iran," September 6, 2016. 

(http;,l/':\'\\:_cVJ_ll]JjQ~ep_~t£,£\QYLJ>l!Qh~lind_e_><£fm_illr<:s§,rcJ~ases'?IQe:OF4Al:l21f~B53,4£1Jc-JJ)!)F-092El)_lo5AJ OA) 79 Victims of Trafficking and Violence Protection Act of2000, Pub. L. 106-386, 114 Stat. 1543, codified as 

amended at 22 U.S. C. §7101. (https:l/www.congress.go~IQ_6LJ>lawslpubll8~1PLAW·l06J1lllJI186.pdt) 

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U.S. taxpayers, rather than the Iranian regime, compensated the victims.8

° Congress could 

require the administration to explain the series of decisions that allowed Iran to skirt justice and 

left the American taxpayer to foot the bill for Iranian acts of terrorism. 

3. Create a legal mechanism to move escrow fnnds to a global bank in a country where 

Iran wants to shop 

The JPOA and JCPOA unfroze more than $100 billion in Iranian oil escrow accounts and other 

overseas assets.81 Much of this money is likely in oil escrow accounts82 in countries including 

China, Turkey, India, South Korea, Japan, and Taiwan because they received exemptions to 

purchase Iranian oil during the height of U.S. sanctions. Prior to the JCPOA, Iran could only use 

these escrow funds on non-sanctionable goods in the countries where they were accumulating or 

to finance humanitarian transactions anywhere in the world. Tehran did not find enough goods to 

buy despite China's large consumer industries, Japan's world-class pharmaceuticals industry, 

India's large generic drug industry, and South Korea and Japan's sophisticated medical 

equipment. As a result, much of these funds accumulated before Iran could spend down the 

existing money. 

During the nuclear negotiations, the P5+ 1 authorized Iranian access to $11.9 billion from these 

oil escrow accounts. At the time, I recommended that, instead of repatriating the funds to Iran, 

they should be transferred to a select few qualified foreign banks in Europe that could enable 

Iran to pay for approved goods and services.83 Iran would have had access to these oil revenues 

for the purposes of purchasing unlimited amounts of non-sanctionable goods and there would 

be no logical reason for Iran to demand the payments in cash. The P5+ l could have authorized 

the funds to be transferred to whichever European bank was most convenient for Iran's 

commercial sector. The advantage of this structure was to deny the regime funds that it could use 

for illicit purposes. 

The problem is exacerbated now that the JCPOA has unfrozen all of Iran's assets. During the 

congressional debate about the agreement, I recommended that instead of simply unfreezing the 

assets, a payment plan for the JCPOA could have been tied to verifiable implementation of 

specific commitments under the agreement to cease Iran's illicit financial activities. This 

80 Jonathan Broder, '"Exclusive: U.S. Taxpayers, Not Tehran, Compensated Victims of Iranian Attacks Against 

Americans," Newsweek, January 22,2016. (h!!Q;1/~~~WLDeW~~~k .. <;on1firan-m~J~~{_-Q_c_<_:~.l-tcrJOri~m_-~jctims­

!ilm.i.li~>c§1~l)j]"tg\~:l>_~c"..C_k~QlJ~J1>:t:4llll?_Q) 

81 Mark Dubowitz, Annie Fixler, and Rachel Ziemba, "Iran's Mysterious Shrinking Reserves: Estimating the Value 

of Tehran's Foreign Assets," Foundation for Defense of Democracies and Roubini Global Economics, September 

2015. 

(http://www.defenddemocracy.org/contentiuploads/publications/FDDRoubini...fu:pgrlJI"'!LlllY~l~QllL~ttill!_~l!1_g_ 

I£s.c!Y£SjJ<l_t) 

82 Kenneth Katzman, "Iran Sanctions," Congressional Research Service, May 18, 20 I 6, page 22. 

(http:llfas.org/sgp/crs/mideastiRS2087l.pdt) 

83 Mark Dubowitz, "Examining What a Nuclear Iran Deal Means for Global Security," Testimony before the House 

Foreign Affairs Subcommittee on the Middle East and North Africa, November 20, 2014. 

(http ://_'.v.vv.'Y.c<kfe'l(ldS'n>\>.<:J]f}',Qrg/C()nt(O!l_\/_u.Q]l)J!.<!sjdoct!'l.>~.l!l§/[)ubp\\! l!£..IcHitnony_N_qvJ0__2Q lA.p<!t); Mark 

Dubowitz and Richard Goldberg, "Smart Relief After an Iran Deal," Foundation for Dejense of Democracies, June 

2014. (http:/!vv\Vw.dcfe_ncld~m_ocracy.org/col>.IS:~t/uploads/,lo<;u_ments/Final_S!_nart_Sancti()llS_~eport.pdf) 

Foundation for Defense of Democracies 16 www .defenddemocracy.org 
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Mark Dubowitz September 8, 2016 

mechanism would have made it more difficult for Iran to fund terrorism, missile development, 

and other malign activities. 

The JCPOA, however, simply unfroze the assets. Last August, the U.S. Treasury estimated that 

about $50 billion of the $1 00 billion were liquid, unallocated, and could be used by Iran. 84 But 

global banks do not want to reengage with Iran given its illicit finance activities- which Iranian 

officials readily admit.85 Meanwhile, Iran's leadership complains that Washington is preventing 

it from accessing its own money.86 The Obama administration has acquiesced to these 

complaints in the past and allowed Iran to withdraw at least some of the funds in cash. Congress 

should be concerned that this could happen again. Might Iran demand a lump-sum withdrawal of 

its remaining overseas assets in cash? 

To preempt this, Congress should work with the Treasury Department to provide licensing 

language for the transfer of the escrow funds to a Wolfsberg Group bank,87 which could serve as 

the hub of a financial "white channel" for Iranian access to the remaining escrow funds and 

Tribunal-related payments. Alongside Treasury licensing, Congress should also legislate that 

none of Iran's overseas assets can be repatriated in cash until Treasury certifies that Iran is no 

longer a "primary money laundering concern" or a state sponsor of terrorism. 

Conclusion 

The illicit financial consequences of cash transfers to Iran warrant further congressional 

investigation beyond whether such a payment was a ransom. It is important to investigate the 

possibility that the Obama administration authorized the movement in cash of many billions of 

dollars related to JPOA and JCPOA sanctions relief as well as Tribunal claims. The transfer of 

this cash, which is untraceable, easy to hide, and valuable to a regime like Iran's with billions of 

dollars in illicit activities, would have severe consequences for American national security and 

that of our regional allies. If the administration refuses to answer fundamental questions about 

the nature and extent of the movement of cash to Iran, Congress needs to pass legislation to force 

much-needed transparency and disclosure. 

Thank you for the opportunity to testifY. I look forward to your questions. 

84 Adam Szubin, "Written Testimony of Adam J. Szubin, Acting Under Secretary of Treasury for Terrorism and 

Financial Intelligence United States Senate Committee on Banking, Housing, And Urban Affairs," Testimony be(<Yre 

the Senate Committee on Banking, Housing, And Urban Affairs, August 5, 2015. (11J(Jlc;;/j\v;v.':~Jt:e'!S.!!fY,g<l.y/J:>["ee.: 

f£!1.t£ripJe:;s.::r<d-"'!§§~/p~_ge§/j_IQ.L'H.-i!o'l''l) 

85 Najmch Bozorgmehr, "Iran's 'outdated' banks hamper efforts to rejoin global economy," Financial Times (UK), 

January 19, 2016. (IJ!mJI."'-':"'V ,ft.com/cms/s/0/3_9.!'.\lfc92-b4a0-l.lf_5-b 14 7 -e5e2l?)l;t42e5l.html.#i!~£z4J2p0c1)11) 86 For example, Jay Solomon, Asa Fitch, and Benoit Faucon, "Iran's Central Bank Chief Warns Banking-Access 

Issues Jeopardize Nuclear Deal," The Wall Street Journal, Aprill5, 2016. (!illr>jl;v\yw.wsj.c<.>.Il1iarticles{irans-

<;S'!]tral-bank-chief-wJlm.S.:il.anking-acc~~lss_ues-jeop~rdiz>:J1UC!ear-de;>l.::_[46074591Q) 

87 The Wolfsbcrg Group banks include: Banco Santander, Bank of America, Bank ofTokyo-Mitsubishi UFJ, 

Barclays, HSBC, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan Chase, Societe Generale, 

Standard Chartered, and UBS. These banks have developed robust standards and practices to combat money 

laundering. "Global Banks: Global Standards," The Wolf, berg Group, accessed September I, 2016. 

(h!!J:lJ!,v;vw.\voJts.Q.erg:principles .. c:om/) 

Foundation for Defense ofDemoeracies 17 www.defenddemocracy.org 
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Statement of 

Lisa Grosh, Assistant Legal Advisor for 

International Claims and Investment Disputes 

U.S. Department of State 

House Financial Services Subcommittee on Oversight and Investigations 

September 8, 2016 

Chairman DuffY, Ranking Member Green, and Members of the Subcommittee, 

thank you for the opportunity to appear before you today. I am the Assistant Legal 

Adviser for International Claims and Investment Disputes at the Department of 

State, where I have worked to defend the United States against Iran at the 

Hague Tribunal for nearly 30 years. Over that time we have won many cases. 

We lost some. And sometimes we decided to settle. I am here today to explain 

as best I can in this setting the settlement that was announced in January. 

As Mr. Backemeyer explained, this was only a partial settlement of a very 

large case. The rest of that case is ongoing at the Hague Tribunal. Because of 

that, I am limited in what I can discuss in this public setting. As he explained, 

Iran and its lawyers are vigilant in scouring the public record for statements or 

information that they can use against us in these arbitrations. In fact I can 

recall being in the Hague Tribunal many times and hearing Iran quote 

extensively from things that witnesses and members of Congress said in 

hearings, trying to use that to their advantage. These are multi-billion dollar 

claims against the United States. So for some of your questions, I may need to 

defer the question to a closed setting, like the one we did for House and Senate 

staff earlier this week. 

To provide some background, the United States and Iran entered into the 

Algiers Accords in 1981, which created the Iran-U.S. Claims Tribunal at The 

Hague to address claims of nationals and the governments. The agreement was 

entered into by the Carter Administration, it was endorsed by the Reagan 

Administration, and it was debated by both houses of Congress. In the first 20 

years of the Tribunal process, it focused primarily on resolving claims of U.S. 

nationals for debt, contract, expropriation and other measures affecting 

property rights. U.S. citizens and companies have received over $2.5 billion in 

awards and settlements through that process. 

Significant government-to-government claims were also filed at the Tribunal. 

The majority and certainly the largest were by Iran against the United States, 
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2 

including Iran's large contract claims arising out of its former Foreign Military 

Sales ('FMS") Program. 

Like other FMS customers, Iran paid money into a Trust Fund that was used to 

facilitate prompt payments to the U.S. contractors working on Iranian contracts. 

By January 1979, Iran had already been struggling to make the necessary payments 

on its more than 1,000 outstanding FMS contracts. In February 1979 Iran and the 

United States concluded a Memorandum of Understanding (MOU) providing for 

the cancellation of many remaining purchases. The two sides worked to implement 

the MOU and wind down Iran's FMS program over the ensuing months. After the 

hostages were taken at the U.S. Embassy in November 1979, these efforts 

essentially ceased. 

The dispute over the FMS Trust Fund and interest, which resulted in the 

settlement in January of this year, was part oflran's FMS claims that it filed 

with the Tribunal in 1982. So you can imagine the scale of it and the money 

involved: it is a multi-billion dollar breach-of-contract dispute covering 1,126 

huge military sales contracts. 

Before the settlement in January, other parts of the FMS claims were decided or 

settled some time ago. Indeed, settlement discussions over technical legal matters 

have been held in this channel for decades, typically led by the State Department 

Legal Adviser and the Iranian Presidential Legal Adviser. My estimate is that 

since the early I 980s, through the Reagan, Bush and Clinton Administrations, 

some 40 rounds of claims meetings occurred at this level. Indeed, the prior 

settlements with Iran of other portions of the FMS claims occurred during the first 

Bush Administration. 

For example, in 1989, the United States and Iran settled an Iranian claim for 

military spare parts for $7.5 million, which was paid from the Judgment Fund. 

In 1990, the Parties entered into a partial settlement for $200 million from the 

Trust Fund; this is the same Trust Fund that was the subject of a final 

settlement in January. And in 1991, the Parties settled Iran's claim for titled 

FMS assets for $278 million, which was paid from the Judgment Fund. Apart 

from the FMS claims, there were other significant settlements between the 

parties, including in 1990 when the United States received $105 million from 

Iran in settlement of certain U.S. national claims and U.S. government claims. 

These settlements, and in particular the FMS settlements, were reached at key 

moments in those cases- such as before key hearings or when they were on the 

verge of going to decision. 
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3 

In the past two years, as the proceedings at the Tribunal have been advancing, we 

revisited the possibility of settlement ofTribunal claims through 2014 and 2015. 

These discussions led to settlement of small claims that were the subject of 

ongoing hearings. They involved architectural drawings, which were transferred 

to the Tehran Museum of Contemporary Art, and for fossils, which are now in the 

possession oflran's Ministry of the Environment. 

In the spring of 2015, after years of extensive briefing, Iran pressed the 

Tribunal to schedule comprehensive hearings in these remaining FMS claims. 

The Tribunal ordered both Parties to file their respective proposals for the 

structure ofhearings. Iran filed its proposal on November 11,2015. 

Iran was also pressing for a preliminary ruling on issues including the outstanding 

balance of the FMS Trust Fund and interest since 1979. They sought interest 

based on a provision in the 1979 MOU calling for unexpended FMS funds 

associated with Iran's program to be placed in an interest-bearing account. 

With the settlements over the smaller claims concluded in December 2015, and 

with hearings in the FMS claims on the horizon, we were able to achieve this 

most recent settlement, which finally and fully resolves Iran's claim for funds in 

the FMS Trust Fund, as well as its claim for interest since 1979. As we publicly 

announced in January, pursuant to this settlement, Iran received the balance of 

$400 million in the FMS Trust Fund, as well as roughly $1.3 billion representing 

a compromise on the interest. The Trust Fund balance of$400 million was paid 

from Iranian funds that were deposited in the Trust Fund itself in connection with 

the FMS Program. The payment for the compromise on interest was provided out 

of the Judgment Fund, as was the case for the largest prior settlement of the FMS 

claims during the Bush Administration. 

If Iran's claim for the Trust Fund balance and interest had gone to decision in the 

Hague Tribunal, the United States could well have faced significant exposure in 

the billions of dollars. Iran was of course seeking very high rates of interest for a 

period of over three decades. We were able to secure a favorable resolution on 

the interests and avoid the potential for a much larger award against us. 

The details of why we settled for this amount are litigation-sensitive: getting 

into that explanation would get at other issues still pending at the Tribunal. 

Iran's lawyers would try to use my words, or maybe even some of your words, 

against us to help their case. 
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4 

But what I can say here today is that I believed that this settlement was the best 

thing for the United States. It was the best way to avoid a possible decision 

from the Tribunal ordering us to potentially pay a lot more. 
102 


25944.029

Eric B. Lorber 

Senior Associate 

•ua.u'"'''"'' Integrity Network1 

Advisor, Sanctions and 

Foundation for Defense of Democracies 

Testimony before the 

House Committee on Financial Services, 

Subcommittee on Oversight and Investigations 

Fueling Terror: The Dangers 

Payments to Iran 

September 8, 2016 

Ransom 

1 The views expressed in this testimony arc my own and do not represent the views of any institution with which I 

am anlliatcd. 
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25944.030

Eric Lorber September 8, 2016 

Financial Integrity Network 

Introduction 

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.2 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 usc 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 

2 For an overview of Iran's terrorism-related activities, see U.S. Department of State, Bureau of Counterterrorism, 

"Chapter 3: State Sponsors of Terrorism Overview," accessed Sept. 1, 2016, available at 

http:llwww.state.govlj/ct/rlslcrt/20!51257520.htm. 

2 
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Eric Lorber September 8, 2016 

Financial Integrity Network 

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 Iranincluding 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."3 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.4 

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 

3 Behnam Ben Taleblu and Annie Fixler, "Settling with Iran: $l.7 Billion and U.S. Hostages," Foundation for 

Defense of Democracies, Sept. 2016, available at 

http://www .defenddcmocracy .org/content/uploads/gencral/Settling_ with _Iran. pdf. 4 See, e.g., David S. Cohen, "Why the U.S. Does Not Pay Ransoms for Americans Kidnapped by Terrorists," 

Newsweek, Aug. 23, 2014, http://www.newsweek.com/why-us-does-not-pay-ransoms-americans-kidnappedtcrrorists-266315. 

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tbe private sector-we are able to reduce the risks that Iran uses the funds to support terrorism 

and other destabilizing activities. 

I. The $400 Million and Subsequent $1.3 Billion Payments to Iran 

On January 16, 2016, otherwise known as Implementation Day, the U.S., European Union, and 

United Nations lifted a number of key economic sanctions against Iran pursuant to the JCPOA.5 

On January 17, the Obama Administration also announced an agreement for the release of five 

American hostages held in Iran.6 In exchange for tbe hostages' release, the U.S. pardoned or 

commuted the sentences of seven Iranians charged with a number of sanctions-related violations 

of U.S. law, including sanctions evasion.7 The Administration also dropped the charges and 

withdrew Interpol detention requests against a number of Iranians abroad. 8 

Also on January 17, the Obama Administration announced a $1.7 billion settlement witb the 

Islamic Republic regarding an outstanding claim against the Foreign Military Sales ("FMS") 

Trust Fund.9 

Iran's claim dated to the period before the 1979 revolution, when Iran was a significant recipient 

of U.S. military equipment As part of the FMS program, which was designed to provide Iran 

with a mechanism for purchasing U.S. military equigment, Tehran deposited funds in an account 

held by the United States Department of Defense. 1 When Iranians stormed the U.S. embassy 

and took Americans hostage at the time of the Islamic Revolution, tbe United States cut off 

military sales and froze the funds in the account-funds that Iran had placed there in anticipation 

of purchasing American military equipment 

As part of the Algiers Accord of 1981 that resolved the Iranian hostage crisis, the United States 

and Iran agreed to create the Iran-United States Claims Tribunal ("the Tribunal") to resolve 

certain legal issues related to, inter alia, these claims. According to Secretary of State John 

Kerry, the January 17 settlement for $1.7 billion, divided into $400 million in principal and $1.3 

billion in interest that had accrued in the years since the Iranian revolution, addressed the final 

case related to foreign military sales. 11 

5 See, e.g., "Remarks on Implementation Day," U.S. Department of Slate, Jan. 16, 2016, available at 

http://www .state.gov/sccretary /remarks/20 16/0 l/251336.htm. 6 See, e.g., Jay Solomon and Asa Fitch, ''Iran Releases Americans in Prisoner Swap," The Wall Street Journal, Jan. 

16, 2016, available at http://www. wsj.com!articles/imn-releases-four-unnamed-american-prisoncrs-state-tv-says1452955793. 

7 U.S. Department of Justice, Press Release, "List of Individuals Receiving Pardons/Commutations," Jan. 17, 2016, 

available at https://www.justice.gov/opa!pr!list-individuals-receiving-pardonscommutations. 8 Joel Schectman and Y cganeh Torbati, "Factbox - Iranians granted clemency by Obama in prisoner exchange," 

Reuters, Jan. 17, 2016, available at http://www.reuters.com!article/uk-iran-nuclear-prisoners-usaidUSKCNOUVllG. 

9 John Kerry, Press Statement, "Hague Claims Tribunal Settlement," U.S. Department of State, Jan. 17, 2016, 

available at http://www.state.gov/secretary/remarks/20 16/0 l/251338.htm. 10 Letter to Committee on Foreign Affairs Chairman Edward R. Royce from Assistant Secretary of State for 

Legislative Affairs Julia Frifield, Mar. 17, 2016, available at https://foreignaffairs.house.gov/wpcontent/uploads/20 16/08/03.17.16-DOS-Response-Concems-re-1. 7-Billion-Payout-to-Iran.pdf. 11 John Kerry, Press Statement, "Hague Claims Tribunal Settlement," U.S. Department of State, Jan. 17, 2016, 

available at http://www.state.gov/secretary/remarks/2016/0I/251338.htm. 

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The Obama Administration settled the case in part because it was reportedly concerned that the 

Tribunal would reach a decision in the coming weeks and months that would be unfavorable to 

the United States and require the United States to pay a significantly greater amount of money 

than the $1.7 billion it ended up providing to Iran. 12 At the time of the announcement of the 

settlement agreement, the mechanism of the payment was not made public. 

In early August, however, The Wall Street Journal broke the story that the $400 million principal 

payment was provided to Iran in cashn In particular, Swiss and Dutch central banks, at 

Washington's request, loaded $400 million in euros, Swiss francs, and other currencies onto an 

Iran Air plane in Geneva that then flew to lran. 14 Notably and according to follow up reporting 

by The Wall Street Journal, the cash was only permitted to leave Geneva until after a Swiss Air 

Force plane carrying the five American hostages had taken off from Iran. 15 In defending the 

decision to send this cash to the Islamic Republic, President Obama noted that "[t]he reason that 

we had to give them cash is precisely because we are so strict in maintaining sanctions and we do 

not have a bankinf relationship with Iran that we couldn't send them a check and we could not 

wire the money." 1 

The Administration has denied any connection between the legal settlement and the release of 

these American hostages. However, State Department Spokesman John Kirby did assert that 

"[i]t would have been foolish, imprudent, irresponsible, for us not to try to maintain maximum 

leverage [once it was decided that the hostages were going to be released around the same time 

as the first settlement payment would be sent to Iran]. So if you're asking me was there a 

connection in that regard at the endgame, I'm not going to deny that."17 In effect, the 

Administration has argued that while the settlement and the release of the hostages were not 

linked, the Administration did link the actual transport of the payment with the physical release 

of the hostages to ensure that if Iran did not allow the hostages to go, it would not provide them 

with the first settlement payment. 

In addition to the $400 million dollars in cash, the United States also paid Iran the remaining 

$1.3 billion from the Judgment Fund, which is a permanent appropriation created by Congress to 

pay Judgments against the United States which otherwise lack a funding sourcelR According to 

12 The White House, "Press Briefing by Press Secretary Josh Earnest, 11!9/2016," Jan. 19, 2016, available at 

https://www. whitehouse.gov/the-press-office/20 16/0 l/19/press-briefing-prcss-sccretary-josh-eamest-11920 16. 13 Jay Solomon and Carol E. Lee, "U.S. Sent Cash to Iran as Americans Were Freed," The Wall Street Journal! Aug. 

3, 2016, available at http://www. wsj.com/articles/u-s-sent-cash-to-iran-as-americans-werc-freedl470181874?mod~STJ. The cash payment has been confirmed by Administration officials. 

14 /d. 

15 Jay Solomon and Carol E. Lee, "U.S. Held Cash Until !ran Freed Prisoners," The Wall Street Journal, Aug. 18, 

2016, available at http://www. wsj.com/articles/u-s-held-cash-until-iran-freed-prisoners-l471469256'?mod~STl. 16 Barack Obama, "Press Conference by the President After Meeting with National Security Ollicials," The White 

House, Aug. 4, 2016, available at https;//www.whitchouse.gov/the-press-office/2016/08/04/press-conferencep.rcsidcnt-aftcr-meeting-national-security-officials. 

7 John Kirby, "Daily Press Briefing," U.S. Department of State, Aug. 18, 2016, available at 

http:/ lwww .state.gov/r/pa/prs/dpb/20 16/08/261128.httn. 18 @Pricc44, "@KredoO @sremkusrenncr The payment was provided out of the Judgment Fund, which previous 

Administrations have used for similar settlements," Twitter, Jan. 20. 2016. 

https://twitter.com/Pricc44/status/689859745088278529. 

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journalist Claudia Rosett and research by analysts at the Foundation for Defense of Democracies, 

13 payments--each approximately $100 million and totally $1.3 billion-were made to the State 

Department out of the Judgment Fund on January 19. 19 The State Department has since 

confirmed that these payments from the Judgment Fund were part of the $1.7 billion settlement 

with lran.20 Senior Administration officials have told the press that the remaining roughly $1.3 

billion was transferred to Iran in an "above-board way" through an unnamed foreign bank, 

however the exact mechanism of transmission, and whether it was done in cash, remains 

unknown. 21 

II. The Legal Bases for the Payments 

Given the broad prohibitions on U.S. persons conducting transactions with Iran or Iranian 

persons after Implementation Day, Senators and Representatives have rightly questioned whether 

the $400 million cash payment to Iran, as well as the subsequent $1.3 billion payments, violated 

U.S. law. In short, such violations appear unlikely, either under the International Emergency 

Economic Powers Act ("IEEP A") and the regulations promulgated pursuant to IEEP A, as well as 

criminal provisions related to material support for terrorism. 

First, under U.S. law, it is generally prohibited for U.S. persons to export goods or services, 

directly or indirectly, to Iran or the Goverrunent of Iran.22 Likewise, pursuant to IEEPA, U.S. 

persons may not facilitate transactions by third parties that would be prohibited if the U.S. person 

engaged in such activity.23 These prohibitions, contained in the Iranian Transactions and 

Sanctions Regulations ("ITSR"), make it illegal for a U.S. person-including a U.S. Goverrunent 

official-to send good or services-including cash or financial services--directly or indirectly to 

Iran or the Goverrunent of Iran. Likewise, if a U.S. Government official facilitates such a 

transaction, for example by asking a foreign financial institution engage in such activity, such 

facilitation would be prohibited. 

Despite this blanket prohibition, however, the ITSR contains a number of regulatory carve-outs, 

known as General Licenses, that permit certain classes of transactions that would otherwise be 

prohibited. For example, U.S. law permits U.S. persons to send certain humanitarian goods to 

Iran. In this case, a particular General License codified at 31 C.F.R. § 560.510(d)(2) explicitly 

authorizes "all transactions necessary to ... payments pursuant to settlement agreements entered 

into by the United States Government in (] a legal proceeding [involving Iran]." Because 

sending Iran the $1.7 billion was arguably necessary to the payment of the settlement agreement 

entered into by the United States and Iran to settle a claim before the U.S.-Iran Claims Tribunal 

in The Hague, the $400 million and subsequent $1.3 billion payments likely fall under this carveout and are therefore permitted under U.S. law. 

19 Behnam Ben Taleblu and Annie Fixler, "Settling with Iran: $1.7 Billion and U.S. Hostages," Foundation for 

Defense of Democracies, Sept. 2016, available at 

http://www .defend democracy .org/ conlcntluploads/ general/Settling_ with _Iran. pdf. 20 Bradley Klapper, "2 days after cash delivery, US paid $!.3 billion to Iran," Associated Press, Aug. 24, 2016, 

available at http:/ /bigstory .ap.org/article/3606!9286aeb4e3dbafd5eb29 388d93a/2-days-after -cash-dclivery-us-paid13-billion-iran. 

2l !d. 

22 31 C.F.R. § 560.204. 23 31 C.F.R. § 560.208. 

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It is worth noting here, however, that 31 C.F.R. § 560.510(d)(2) is a broad allowance for both the 

type and form of transactions related to settlement payments. For example, if the United States 

wired the money to a European Central Bank, which in tum wired the funds to a small European 

bank (or a Russian or Chinese bank for that matter) that subsequently wired the funds to Iran, all 

entities in that transactional chain would likely be insulated from liability under U.S. law. In 

other words, U.S. law likely permits payment mechanisms other than providing the Islamic 

Republic with $400 million in pallets of cash. 

Indeed, recent U.S. sanctions history makes clear that the United States has developed financial 

workarounds that do not require the large-scale distribution of cash. In a well-known recent 

example, the United States designated Banco Delta Asia ("BDA")-a Macau-based bank known 

to hold significant assets of the North Korean leadership-as a jurisdiction of primary money 

laundering concern under Section 311 of the USA PATRIOT Act.24 As in the case of Iran from 

2008-2016, North Korea was almost completely cut off from the international financial system, 

with just a handful of banks in China and Russia providing the country and its leadership 

banking services outside of the peninsula. The BDA 311 designation-in addition to carrying a 

risk of serious penalties for any legitimate financial institutions that continued to do business 

with the bank-also carried a heavy reputational taint; few financial institutions wanted to do 

any business with BDA for fear of being seen as cooperating with a bank that was well-known to 

engage in illicit activity. 

This taint created a particular challenge when the United States and its negotiating partners 

decided to facilitate the release of the North Korean leadership's funds held by BDAapproximately $25 million-as a carrot to restart the stalled Six-Party Talk's over the Hermit 

Kingdom's nuclear weapons program in 2007. The problem was that-like Iran prior to and 

immediately following Implementation Day-no legitimate bank wanted to facilitate the transfer 

from BDA to accounts in North Korea, for fear of sanctions and reputational liability. As a 

result, the United States Federal Reserve stepped in to assist. In the end, BDA transferred the 

$25 million to the Macau Monetary Authority (Macau's central bank), which in turn transferred 

it to the United States Federal Reserve. The Federal Reserve then sent it along to the Russian 

Central Bank, which passed it to Far Eastern Bank, a Russian bank in Vladivostok that held 

accounts on behalf of the North Korean Foreign Trade Bank.25 Through this system, the United 

States was able to facilitate the delivery of North Korean funds back to the regime thtough 

legitimate financial channels. 

This transmission chain shows that, when necessary, the United States Government has found 

ways to return funds to sanctioned countries where almost no banking ties to the legitimate 

financial system exist. In the case of Iran and as mentioned above-particularly given the 

General License legal cover for transactions necessary for the payment of settlements-it seems 

likely that the United States could have found a way to provide these funds to Iran other than in 

$400 million in cash. Indeed, the Administration has hinted that such pathways do exist when 

senior officials have reported that the remaining $1.3 billion was transferred to Iran in an "above24 Juan Zarate, Treasury's War(New York: Public Affairs, 2013). pp. 249-254. 25 !d. at 264. 

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board way."26 

Second, Administration officials likely did not violate other criminal offenses related to money 

laundering, support for terrorism, and paying ransoms. As former U.S. Attorney General and 

federal judge Michael Mukasey has recently noted, while it is prohibited for a U.S. person to 

transfer monetary instruments (such as cash) with the intent to promote specified unlawful 

activity pursuant to 18 U.S.C. § 1956, in this circumstance it would be difficult to prove that 

Administration officials intended to promote specified unlawful activity.27 In particular, because 

it is unclear whether the Administration knew where the funds were going-or whether they 

were going directly for specific unlawful activity such as support for a designated terrorist 

organization-it would be difficult to make a legal case that the requisite intent existed. 

Similarly, and as Judge Mukasey points out, because U.S. officials were acting in their official 

capacity, they are likely insulated from criminal prosecution.28 This doctrine--combined with 

the lack of intent-also undercuts arguments that these officials could be culpable under 18 

U.S.C. § 2339, which prohibits knowingly providing material support for a foreign terrorist 

organization.29 Likewise, under U.S. law, it is prohibited to receive, possess, or dispose of any 

money or property that has been delivered as ransom or reward in connection with certain 

kidnappings.30 In this case, it does not appear that U.S. officials arc receiving, possessing, or 

disposing of money that has been delivered as a ransom, and therefore very likely did not run 

afoul of 18 U.S.C. § 1202. 

III. Concerns Raised by the Payments 

Though the payments to Iran may have been legal, they raise serious policy concerns and 

questions about whether the United States could have found a better way to ensure that these 

funds did not end up in the hands of the Iranian military and sanctioned parties. The primary 

risks raised by these payments are twofold. First, giving the Government of Iran $1.7 billion 

($400 million of which was provided in untraceable assets) assisted a state sponsor of terror to 

promote destabilizing activities. Second, the nature of this transaction, i.e. cash delivered in the 

middle-of-the-night to a formerly-designated airline known to fly routes in support of the IRGC, 

Hezbollah, and Syrian President Bashar ai-Assad's regime (Iran Air),31 for all intents and 

purposes looked like a ransom payment. 

26 Bradley Klapper, "2 days after cash delivery, US paid $1.3 billion to Iran," Associated Press, Aug. 24, 2016, 

available at http://bigstory .ap.org/articlc/360619286aeb4e3dbafd5eb29388d93a/2-days-after-cash-dcli vcry-us-paid13-billion-iran. 

27 Michael Mukasey, "The $400 Million: Legal but not Right," The Wall Street Journal, Aug. 4, 2016, available at 

http :1/www. wsj .com/articles/thc-400-million-legal-but-not -right -14 70353025. 

28 !d. 

29 18 U.S.C. § 2339A-B. 30 18 U.S.C. § 1202. 31 "Fact Sheet: Treasury Targets Commercial Infrastructure of IRGC, Exposes Continued IRGC Support for 

Terrorism," United States Department of the Treasury Press Release, June 23, 2011. Available at 

https:llwww.treasury.gov/press-centerlpress-releases/Pages/tgl217.aspx. See also Emanuele Ottolenghi, "The Risks 

of The Iran-Boeing Deal," The Hill, June 21, 2016. http://www.defenddemoeracy.orglmedia-hit!emanueleottolenghi-the-risks-of-the-iran-boeing-deall. 

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1. Concerns About Providing Funds to the Government of iran 

First, it is well-documented that Iran is both a leading state sponsor of terrorism and continues to 

engage in such activities post-JCPOA.32 In recent months, Iran has flouted international norms 

and threatened U.S. interests in a number of ways: 

• Iran has conducted repeated ballistic missile tests in violation of United Nations 

sanctions;33 

• Qassem Soleimani, the head of the Iranian Revolutionary Guard Corps' Qods Force 

("IRGC-QF"), an entity designated by the United States for its support of-and direct 

engagement in-terrorism, traveled on multiple occasions to Moscow in contravention of 

international travel bans to coordinate military cooperation with the Russian government, 

including the delivery of the S-300 anti-aircraft missile system to Iran and defense of the 

Assad regime in Syria;34 

• Iran remains the leading state sponsor of terror and has continued its direct support to 

terrorist proxies throughout the region, including Hezbollah's activities in Lebanon and 

Syria, as well as Iraqi Shi 'ite militias who have been responsible for the deaths of 

hundreds of Americans and are now deployed in Syria to fight for the Assad regime. Tn 

some cases, this support is intended to destabilize governments allied with the United 

States. In recent months, international naval forces have interdicted Iranian arms 

shipments likely headed to Houthi rebels in Yemen;35 

• Iran has deployed troops to Syria to fight for the Assad regime, with reports of thousands 

on the ground;36 

• Iran has continued to engage in human rights abuses and restrict democratic norms. Iran 

has disqualified thousands of individuals from recent elections and continues to detain 

opposition leaders; 37 

32 See U.S. Department of State, Bureau of Counterterrorism, "Chapter 3: State Sponsors of Terrorism Overview," 

accessed Sept. I, 2016, available at http://www.state.gov/j/ct/rls/crt/2015/257520.htm. 33 "Iran Should Pay a Price for Its Ballistic Missile Tests," The Washington Post, Apr. 6, 2016, available at 

https://www.washingtonpost.com/opinions/iran-should-pay-a-price-for-its-ballistic-missiletests/20 l6/04/06/a85efl52-fc I e-ll e5-80e4-c381214dela3 _ story.html?utm _term~.! b258l ef50fe. 34 Lidia Kelly and Parisa Hafezi, "Iran's Soleimani in Russia for Talks on Syria, Missiles," Reuters, Apr. 15, 2016, 

available at http://www.reuters.com/article/us-russia-iran-so1eimani-idUSKCNOXCOTR. 35 See, e.g., Matthew Levitt, "Iran's Support for Terrorism Under the JCPOA," Wm·hington Institute for Near East 

Policy Policywatch, July 8, 2016, available at http://www.washingtoninstitute.org/policy-analysis/view/iranssupport-for-terrorism-under-the-jcpoa. 

36 See, e.g., J. Matthew Mcinnis, "How Many Iranian Forces are Fighting and Dying in Syria?" Newsweek, Oct. 28, 

2015, available at http://www.newsweek.com/how-many-iranian-forces-are-fighting-and-dying-syria-388004. 37 Sam Wilkin, "Iran excludes most candidates in elite assembly election," Reuters, Jan. 26, 2016, available at 

http://www .rcuters.com/artic1e/us-iran-e1ection-candidates-idU SKCNO V 419V. 

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• Iran detained two Iranian-American Citizens, a father and son, in October 2015 and 

February 2016, and continues to hold them. In addition, Robert Levinson remains 

missing after disappearing on Kish Island on March 9, 2007;38 

• On January 12, 2016, Iranian naval forces arrested American sailors at gunpoint, 

broadcasting the video of their detention, and subsequently mocking the sailors through a 

reenactment at a rally commemorating the anniversary of the Iranian Revolution. 39 

Iran's support for such activities has not abated. The IRGC in particular remains committed to 

threatening American interests throughout the region. The IRGC is actively engaged in-and 

often times the driving force behind-Iran's most destabilizing activities, with responsibilities 

related to the development of weapons of mass destruction, missile systems, and overseas 

operations. It and its affiliates have been responsible for all the activities-weapons 

proliferation, terrorist support, and militant activity-for which Iran was sanctioned in the past. 

Providing any funds to the Government of Iran raises serious risks that this money will be used 

to support these activities. Indeed, as Secretary of State John Kerry bas suggested, some of the 

funds returned to Iran pursuant to the JCPOA will go to support terrorist and militant groups 

like Hezbollah, Hamas, Iraqi Shi'a militias, and the Houthis in Yemen.40 

In this particular case, however, evidence suggests that the Government of Iran has already 

earmarked this $1.7 billion for use by the Iranian military. According to research by analysts at 

the Foundation for Defense of Democracies, Tehran recently finalized its fiscal year budget and 

included the $1.7 billion from the settlement of foreign legal disputes as an earmark for the 

Iranian military.41 This episode illustrates the clear risks associated with providing funds 

directly to Iran, particularly when the release of those funds is not conditioned in any way on 

ensuring that they will not be used by the Iranian military or designated entities within Iran. 

While in this case we know-largely because the Government of Iran made it clear in their 

annual budget-that the $1.7 billion ended up in the coffers of the Iranian military, in general 

providing these types of payments in cash raises the risk that the United States will be unable to 

trace the ultimate beneficiaries of the cash. Indeed, in large part because of its fungibility, once 

the United States or European Central banks, working on behalf of the United States, loaded the 

$400 million in cash pallets onto the Iran Air flight in January, we lost visibility into how those 

funds would be used by Iran. In addition, once we released the $1.7 billion to Iran without 

conditions-such as specifying that we would only release the funds to parties without ties to 

the Iranian military or the IRGC-the U.S. gave up all leverage it had to ensure that the money 

38 Barry Meier, "Seeking Robert Levinson, the C.I.A. Consultant Who Vanished," New York Times, May 13,2016, 

available at http://www. nytimes.com/20 16/05/15/nyregion/seeking-robert -levinson-cia-consultant -whovanishcd.html. 

39 Helene Cooper and David Sanger, "Iran Seizes U.S. Sailors Amid Claims of Spying," New York Times, Jan. 12, 

2016, available at http://www.nytimes.com/20 16/0111 3/world/middleeast/iran-holds-us-navy-boats-crew.html. 40 Rebecca Kheel, "Kerry: Some Iran Sanctions Relief Will Go to Terrorists," The Hill, Jan. 21, 2016, available at 

http://thchill.com/policy/defense/266619-kcrry-some-iran-sanctions-relief-will-go-to-terrorists. 

41 Saeed Ghasseminejad, "Iran Gives Green Light to Direct $1.7 Billion from U.S. to Military," Foundation for 

Defense of Democracies, Sept. l, 2016, available at http://www.defenddemocracy.org/media-hit/saeedghasscminejad-iran-gives-green-lighHo-direct-l 7 -bi II ion-from-us-to-military/. 

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was not used to support terrorism or related activities, or would not go directly into the coffers 

of the Iranian military. 

2. Concerns About How the Funds Were Provided to the Government of Iran 

Second, the $400 million cash payment to Iran that was timed in conjunction with the release of 

U.S. hostages-while unlikely to be a prohibited ransom payment under U.S. law-raises 

serious concerns about whether Iran will be more likely to take additional Americans hostage in 

the future. As a matter of policy, the United States Government does not pay kidnappers to 

secure the release of hostages. 

The logic behind this policy is straightforward. According to Deputy Director of the Central 

Intelligence Agency (and at the time of these statements, Undersecretary of the Treasury for 

Terrorism and Financial Intelligence) David Cohen, "Ransom payments lead to future 

kidnappings, and future kidnappings lead to additional ransom payments. And it all builds the 

capacity of terrorist organizations to conduct attacks. Refusing to pay ransoms or to make other 

concessions to terrorists is, clearly, the surest way to break the cycle, because if kidnappers 

consistently fail to get what they want, they will have a strong incentive to stop taking hostages 

in the first place. There is empirical evidence to support this.'-42 

Key to breaking this cycle and deterring would-be hostage takers from seizing American 

citizens is making clear that the United States is not paying ransom for the release of hostages. 

In the case of the $400 million payment, however, the Administration muddied these waters in 

order to maintain leverage and ensure the release of the five Americans. Indeed, as State 

Department Spokesman John Kirby noted, "[i]t would have been foolish, imprudent, 

irresponsible, for us not to try to maintain maximum leverage [once it was decided that the 

hostages were going to be released around the same time as the first settlement payment would 

be sent to Iran]. So if you're asking me was there a connection in that regard at the endgame, 

I'm not going to deny that."43 

While the Administration's contention that it wanted to maintain maximum leverage at the time 

of the prisoner release is understandable, it raises serious concerns that the resulting transfer of 

funds looked like a ransom payment to Iran. 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 spics."44 If Iranian military and IRGC commanders perceived the payment as 

ransom, they may be more likely to take Americans-particularly dual U.S.-lranian citizens 

who travel to Iran frequently-hostage. 

42 David S. Cohen, "Why the U.S. Does Not Pay Ransoms for Americans Kidnapped by Terrorists," Newsweek, 

Aug. 23, 2014, http:J/www.newsweek.com/why-us-does-not-pay-ransoms-americans-kidnapped-terrorists-266315. 43 John Kirby, "Daily Press Briefing," U.S Department qf State, Aug. 18, 2016, available at 

http://www.state.gov/r/pa/prs/dpb/20 l6/08/261128.htm. 44 Behnam Ben Taleblu and Annie Fixler, "Settling with Iran: $1.7 Billion and U.S. Hostages," Foundation for 

Defense of Democracies, Sept. 2016, available at 

http://www .defenddemocracy .org/content/uploads/ general/Settling_ with_ Iran. pdf. 

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Further, the nature of the payment likely exacerbated the Iranian perception that this was 

ransom. A middle-of-the-night, all cash payment in the amount of $400 million loaded onto 

pallets and flown to Iran looks more like a ransom payment than does a wire transfer from an 

escrow account, held at a European Central Bank or another legitimate financial institution, that 

is going to an Iranian financial institution that has been vetted for any ties to illicit Iranian 

actors. This was likely why Assistant Attorney General for National Security John Carlinalong with other senior Justice Department officials--objected to the $400 million payment on 

the grounds that Iranian officials were likely to view it as a ransom and thereby undercut the 

longstanding U.S. policy.45 

IV. Missed Opportunities and Policy Recommendations 

While the $400 million cash payment and the subsequent $!.3 billion transfers raise serious 

concerns that the money will be--or already has been-used to support the Iranian military, this 

episode also represents a missed opportunity to continue to pressure Iran to stop supporting 

terrorism and to clean up its financial act. These payments-and other related payments under 

the Joint Plan of Action ("JPOA") in the lead-up to the JCPOA as well as many types of future 

payments-could have been structured in such a way that reduced Iran's perception that they 

were a ransom and, more importantly, limited Iran's ability to use these funds to support its 

destabilizing activities throughout the region. 

If-instead of providing the funds in cash or in other ways where once the United States released 

the money it lost control of how the Islamic Republic would use the funds-we conditioned the 

release of these settlement agreement funds on a number of important triggers, the risks of Iran 

using this money for illicit purposes could have been mitigated. In particular, these risks could 

have been mitigated by using escrowed accounts for settlement funds or by requiring any funds 

transfers to pass through "white listed" banks deemed to present a low risk of funds being 

diverted to illicit. 

1. Escrowed Accounts for Settlement Funds 

Instead of providing $400 million in cash to Iran, followed by sequential payments of 

approximately $100 million, the United States could have put these funds into escrowed 

accounts, held by European financial institutions, including certain Central Banks. Once the 

settlement agreement was reached, the United States could have worked with these foreign 

financial institutions (and likely additional third party European or Asian banks that maintained 

tics to the Iranian financial system) to understand who the recipients of these funds would be 

within Iran. 

At the same time, the United States could have put conditions on the release of these funds to 

ensure that they were not being relea~ed to designated Iranian banks, or to actors within Iran who 

would use the funds for illicit purposes. As discussed below, such an approach would reduce the 

risk of precisely what happened; that the funds ended up in the coffers of the Iranian military. 

45 Devlin Barrett, "Senior Justice Official Raised Objections to Iran Cash Payment," The Wall Street Journal, 

August 12, 20 !6. (http:/ I www. wsj .com/articles/senior-justice-official-raised-objections-to-iran-cash-payment1470994380) 

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While arbitrarily refusing to return the funds to Iran could be grounds for reneging on a 

settlement agreement, it is reasonable for the United States to specifY that it will not return funds 

to Iran that will go to designated parties or in support of terrorism or regional instability, in 

contravention of U.S. law. Such conditions could include provisions specifYing that, among 

others: 

• The funds cannot be directly provided to a designated person under U.S. or EU law; 

• The end recipient of the funds must be identified; and 

• The funds must be released in !ranches, with a certification provided by the Secretary of 

the Treasury and relevant U.S. Government agencies that the prior released amount has 

not gone to designated parties or to entities engaged in a number of proscribed activities. 

If the Secretary of the Treasury cannot certifY this information, the remaining payments 

must be suspended until such time as the Secretary can certifY. 

Moving forward, Congress could pass legislation that modifies 31 C.F.R. § 560.510(d) and 

requires that any funds to be sent to Iran pursuant to a settlement agreement between the United 

States and Iran be placed in an escrow account and released only upon meeting the conditions 

laid out above. 

Another benefit of this approach would be that, even if funds were returned to Iran at 

approximately the same time that the Islamic Republic was set to release hostages, such a 

payment looks far less like ransom. Providing Iran funds out of an escrowed account with 

conditions on the end-recipient is far less likely to be perceived as ransom than $400 million in 

cash pallets loaded onto Iran Air in the middle-of-the-night and time to ensure the release of U.S. 

hostages. While we cannot fully control Iran's perceptions of whether such payment would 

constitute ransom, this mechanism would certainly reduce that risk. 

2. "White List'' of Vetted, Approved Iranian Banks 

More broadly, Congress could take steps to ensure that any payments made to Iran--either by 

the United States or by the private sector in accord with U.S. and EU law-would present 

reduced risks of diversion. For example, if the United States set up a halfway house system 

where a limited number oflegitimate Western banks (likely European, given the broad remaining 

restrictions on U.S. banks doing business in Iran) with robust anti-money laundering ("AML") 

and countering the financing of terrorism ("CFT") policies, procedures, and programs could 

process legally permissible transactions to lran (including the payment of settlement 

agreements), and the United States and its Western partners heavily monitored transactions and 

receiving parties to ensure these funds were not used for illicit purposes, this would limit Iran's 

ability to use these funds (and other funds) to support terrorism. 

In particular, the United States and its partners could select a small number of Iranian banks that 

could serve as monitored-and-approved counterparties to facilitate these settlement and other 

payments. Requirements for joining the group of approved Iranian banks would include, among 

others: 

• Banks would be subjected to enhanced due diligence ("EDD") requirements, with the 

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Financial Action Task Force ("FA TF") Recommendations for high-risk counterparties, 

clients, and services acting as a floor for ensuring that the Iranian banks were not 

engaging in any illicit activity and had no tics to illicit actors;46 

• Banks would be subjected to frequent and updated EDD checks to ensure adherence to 

proper rules and regulations, and EDD would be conducted on each transaction and 

customer; 

• Banks could not have been designated by OFAC for any activities related to Iran's 

support for terrorism, ballistic missile development, human rights abuses, or fomenting 

regional instability; 

• Banks could not have any current tics to Specially Designated Nationals ("SDNs"), 

including members of the IRGC; 

• Banks have no record of engaging in deceptive financial practices; and 

• Banks must submit upon request information about their clients to Western financial 

institutions using this "white list" (i.e., Know Your Customer's Customer, ("KYCC")). 

In addition, and related to particular transactions, "white list" Iranian banks would need to 

provide information about the ultimate end recipient of the funds, including whether the 

recipients were Government of Iran entities. In the case where such funds would end up in the 

coffers of the Iranian military or other actors engaged in specified destabilizing activity, the 

transactions would be prohibited. Further, any bank on the "white list" that returns to illicit 

activity should face harsh penalties, including a permanent ban from SWIFT access, permanent 

designation by OF AC, and, for any foreign banks continuing to do business with that bank, 

secondary sanctions. 

This type of specific financial channel has precedent; during the JPOA and as a way to facilitate 

the purchase of, and payment for, the export of food, medicine, and medical devices to Iran, the 

P5+ I and Iran established a specific banking channel between Iran and foreign financial 

institutions. This channel was reportedly limited to this humanitarian function, however.47 

Such a broader "white list" would create a specified channel for processing transactionsincluding settlement agreement transfers-in a way that would limit Iran's ability to channel the 

funds to the IRGC and designated parties. Such a channel would also address one of the most 

intractable issues encountered following Implementation Day: the unwillingness of reputable 

financial institutions to return to Iranian markets and begin banking Iranian clients in ways that 

are permissible under U.S. and EU law. 

This unwillingness is understandable and justified; while the JCPOA has relaxed certain 

sanctions related to the development of Iran's nuclear program, the underlying risks of illicit 

conduct remain. In particular, the nature of the Iranian economy and the role of the government 

within the economy present serious risks related to bribery and corruption, money laundering, 

and illicit financing. Iran ranked 130 of 175 countries in Transparency International's 

46 Financial Action Task Force, The FATF Recommendations (20!2), available at http://www.fatfgafi.org/media!fatf/documcnts/rccommendations/pdfs/F A TF _Recommendations. pdf 47 See, "Frequently Asked Questions Relating to the Continuation of Certain Temporary Sanctions Relief Pursuant 

to the JPOA Prior to Implementation of the JCPOA," Office of Foreign Assets Control, Aug. 7, 2015, available at 

https:/ /www. treasury.gov /rcsource-center/sanctions/Programs/Documents/jpoa _ext_ faq""-20150807. pdf. 

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Corruption Perceptions Index as of2015. 

In 2011, the U.S. identified Iran as a state of primary money laundering concern pursuant to 

Section 311 of the USA PATRIOT Act. The Financial Action Task Force first raised concerns 

over Iran's lack of a comprehensive anti-money laundering/countering the financing of terrorism 

framework in 2007, and it still urges Iran to meaningfully address AMLICFT deficiencies. For 

example, as recently as February 19, 2016, the FATF issued a statement warning that Iran's 

"failure to address the risk of terrorist financing" poses a "serious threat ... to the integrity of the 

international financial system."48 The international community continues to recognize that 

Iran-regardless of the status of its nuclear program-poses a real and serious threat to the 

integrity of the global financial system. Indeed, the FATF, while suspending the imposition of 

mandatory countermeasures for one year to try to coax Iran into reforming its decrepit 

jurisdictional AML and CFT controls, recently decided to keep Iran on its so-called "Black List" 

to ensure that financial institutions around the world understand the serious risks that exist with 

doing business in Iran.49 This concern is justified: in the past week Iranian revolutionary and 

military forces have pushed back on any attempts to reform Iran's corrupt financial system.50 

OF AC also has made it clear that activity inconsistent with a wide range of Executive Orders 

imposing sanctions on Iran (including for providing support to terrorism, undermining the 

stability of Yemen, and other behaviors) could still subject U.S. and non-U.S. persons to 

sanctions. 

In short, 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. At the same time, smaller financial institutions, including some in Eastern Europe and 

Asia, have begun to fill the void. 5

1 These institutions often lack proper AMLICFT controls and 

the capabilities and will to ensure robust compliance when dealing with Iranian counterparties. 

As a result, Iran is slowly regaining access to Western financial markets, but in a way that may 

not effectively force its compliance with global standards prohibiting money laundering, terrorist 

financing, and illicit activity. 

Establishing a "white list" would help remedy this situation. By specifYing which Iranian banks 

present reduced risks, the United States could achieve a number of goals. First, it would force 

any Iranian financial institutions wanting to be part of the "white list" to clean up their tinancial 

crimes compliance ("FCC") act. While corruption and FCC risk permeate Iran's financial sector, 

48 "FATF Public Statement," Financial Aclion Task Force, Feb. 19, 2016, available a/ http://www.fatfgati .org/publ ications/high-riskandnon-cooperativejurisdictions/documentslpubl ic-statcment-february-20 16 .htm I. 49 Mark Dubowitz and Toby Dershowitz, "Risky Business in Iran," Forbes, June 28, 2016, available at 

http://www .forbes.com/sites/realspin/20 l6106128/risky-business-in-iran/#95318072a3 7 d. 50 Golnar Motevalli, "Top Iran Banks Dragged into Rouhani Tussle with Hardline Rivals," Bloomberg, Sept. 5, 

20 16, available at http://www. bloomberg.com/ncwslarticlcs/20 16-09-05/top-iran-banks-dragged-into-rouhanitussle-with-hardline-rivals. 

51 See, e.g., Tom Arnold and Bozorgmehr Sharafedin, "Small Banks Help Iran Slowly Restore Foreign Financial 

Ties," Reuters, June 15, 2016, available at http://in.reuters.com/articleliran-banks-id!NKCNOZ 1151. 

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incentivizing Iranian banks to come back in from the cold and cease their intentional and 

unintentional FCC-related activities would be a significant step in the right direction. 

Second, it would reduce Iran's ability to access Western financial markets and services in a lessthan-complaint way. As discussed, Iran is currently using banks that often lack effective FCC 

controls. By creating a "white list" whereby reputable European financial institutions could 

provide banking services to Iran, the United States and its partners could introduce a higher 

degree of due diligence and compliance into the financial relationship with Iran. In addition, any 

such banks doing business outside of this channel would immediately be viewed by the private 

sector as suspect, and would therefore have a more difficult time conducting business both in 

Iran and elsewhere. As a result, the "white list" approach would have a powerful market impact 

that would nudge financial relationships to more legitimate channels. 

Third and finally, if Iran balked at allowing its banks to join such a "white list", it would expose 

the regime as recalcitrant and unwilling to live up to global standards for anti-money laundering 

and countering the financing of terrorism. Such a refusal would further strengthen the argument 

both to the private sector and our international partners that Iran remains a rogue regime that 

presents serious risk, even in the post-JCPOA context. 

To be clear, both of these approaches will not totally eliminate risk. It would be very difficult to 

be certain that no funds provided to Iran--even if done through this "white list" mechanismend up helping the regime fund terrorism and regional adventurism. Likewise, even conditioning 

the release of settlement funds from an escrow account on verified certification that they not be 

provided to any sanctioned parties or other actors engaged in illicit activity is not foolproof. At 

the same time, however, these mechanisms would certainly be less risky than providing Iran with 

money without strings attached, particularly in cash. 

V. Moving Forward 

This episode illustrates the need for more sophisticated thinking on how to effectively use 

economic pressure to limit our adversaries' abilities to threaten our interests, even in the context 

of sanctions unwinding. In this case, the United States gave up much of its ability to ensure that 

this $1.7 billion was not used for illicit or nefarious purposes. 

Moving forward, Congress should consider ways, including legislative changes, to limit Iran's 

ability to access future settlement funds without condition as well as to establish specific and 

authorized channels for legitimate and legal financial transactions. Such solutions would have 

limited Iran's ability to usc the $1.7 billion in settlement funds for its defense budget and the 

Islamic Republic's ability to use much of the funds it was granted access to under the JPOA and 

the JCPOA to support terrorist activities. While Iran now has access to much of this money, 

Congress should still act to ensure that United States maintains it ability to pressure the regime 

over its continued illicit conduct. 

Thank you for your time. I look forward to your questions. 

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"Fueling Terror: The Dangers of Ransom Payments to Iran" 

Testimony before the Subcommittee on Oversight and Investigations 

Committee on Financial Services 

U.S. House of Representatives 

Suzanne Maloney 

Deputy Director, Foreign Policy and Senior Fellow, Center for Middle East Policy 

The Brookings Institution 

Chairman Duffy, Ranking Member Green, and Members of the Subcommittee, thank you for the 

opportunity to appear before you today. I am very pleased to offer my views, but I must 

emphasize that I represent only myself before you today. The Brookings Institution does not take 

any institutional positions on policy issues. 

When five Americans returned home in January 2016 after months or even in some cases years 

of unjust imprisonment in Iran, Americans and the world rightly celebrated. Tehran's detention 

of these individuals-including a Washington Post reporter, a Christian pastor, and a former U.S. 

Marine--as well as many, many other innocents underscores the threats to basic freedoms in 

Iran's Islamic Republic. 

That the detained Americans' release was timed to coordinate with the settlement of a nearly 

forty-year-old financial dispute between the United States and Iran-and that this settlement 

included an airlift of foreign banknotes to Tehran-has prompted allegations that the Obama 

administration paid a "ransom" to Tehran. 

Such charges have no basis. While the administration erred in initially suggesting that the 

settlement and the prisoner release were wholly unrelated, the facts of the case do not support the 

use of the word 'ransom.' The January 2016 transaction came as part of the legal framework 

established as part of the resolution oflran's 1979 seizure of the U.S. Embassy in Tehran, 

codified under the 1981 Algiers Accord. That Accord established the U.S.-Iran Claims Tribunal, 

which has since settled thousands of financial claims and has worked to the benefit of U.S. 

individuals and corporations whose holdings in Iran were jeopardized or harmed as a result of 

the revolution and subsequent breach in diplomatic relations. 

The settlement of a pre-revolutionary Iranian claim provided Tehran with nothing other than its 

own funds--money that was due to Iran as part of the adjudication of one of the Iranian 

government's claims before the Tribunal. As William and Mary Law Professor Nancy Combs, 

who formerly represented the United States at the Tribunal, has explained, "a ransom is a 

payment made to secure the release of a detained person. This sum, by contrast, was made to 

satisfy a legitimate debt that the U.S. owed to Iran." 1 

The Iranian claim of$400 million dates back to a payment for U.S. military equipment that was 

purchased by Iran's former monarchical government but never delivered as a result of the change 

in government and eventual rupture in the bilateral relationship. Further delay in settling that 

claim would not have obviated its reimbursement; in fact, as John B. Bellinger III, State 

1 Lauren Carroll, "Donald Trump's Mostly False claim that $400 million payment to Iran was 'ransom,'" Politifact, 

August 24, 2016, http://www. politifact.com/truth-o-meter/statements/20 16/aug/24/donald-trump/donald-trumpcalls-400-million-payment-iran-ransom/ 
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Department legal advisor during the George W. Bush administration has argued, the United 

States would benefit from an expeditious resolution of the remainder ofthe Iranian claims before 

·the Tribunal, since judgments in outstanding cases could entail significant payments to Tehran.2 

In the weeks since the revelations about the arrangements surrounding the transfer of the $400 

million, there has been an intense debate about its propriety, legality, and wisdom. However, 

insinuations that the payment or its modalities entailed a violation of existing sanctions laws are 

unfounded. In fact, it appears that the $400 million payment to Tehran, even in an unorthodox 

form, is consistent with the existing sanctions regime. The Iranian Transactions and Sanctions 

Regulations (ITSR) provide explicit authorization for licensing of transactions related to the 

resolution of disputes between the United States and Iran.3 

U.S. Policy toward Iran and Economic Leverage 

While the legal justification for treating the settlement and the January payment to Tehran as 

ransom is shaky or even nonexistent, the timing-in tandem the release of unjustly detained 

Americans--has clearly stoked the controversy. However, the Obama administration's use of 

this settlement to help facilitate and/or expedite other Americans priorities with respect to Iranian 

behavior is neither unusual nor surprising. 

Indeed, since the 1979 seizure of the U.S. embassy in Tehran, each American president has 

sought to utilize economic leverage-both penalties and incentives--as a central component of a 

strategy to address the challenges posed by revolutionary Iran. The U.S. policy framework was 

established in the earliest hours after the embassy staff was taken hostage. As a former senior 

State Department official recalled, "almost as soon as policy discussions began on [the day after 

the embassy was overrun], the members of the crisis team in both the White House and the State 

Department focused on a two-track strategy." The objective then was to "open the door to 

negotiation" while also "increas[ing] the cost to Iran of holding the hostages." 

Since then, the U.S. formula for influencing Iran via a combination of pressure and incentives 

has remained fundamentally intact, and each U.S. administration, Republican and Democratic, 

has utilized the same toolbox, applying sanctions and other forms of economic pressure while 

also testing the possibilities of diplomatic dialogue and direct engagement with the Iranian 

government. Each iteration has varied, according to circumstances and presidential style, but the 

broad blueprint for American policy on Iran has proven remarkably consistent over the past 37 

years. 

This dual-track American approach toward the Islamic Republic has imparted a persistently 

transactional dimension to the interaction between Washington and Tehran. The formative 

skirmish between Washington and revolutionary Iran-when Iranian student~ seized the U.S. 

Embassy in Tehran and held its personnel as hostages for more than 15 months--ended only as 

2 John B. Bellinger Ill, "The Iran talks we should stop: an outmoded U.S.-lran Claims Tribunal," The Washington 

Post, October 22, 2009, http://www.washingtonpost.com/wpdyn/contentlarticle/2009/10/21/AR2009102103222.html; Bellinger, "U.S. Settlement oflran Claims Tribunal Claim 

was Prudent but Possible Linkage to Release of Americans Is Regrettable," Lawjare, January 18, 2016, 

https://www.lawfareblog.com/us-settlement-iran-claims-tribunal-c1aim-was-prudent-possible-linkage-releaseamericans-regrettable 

3 Department of the Treasury Foreign Assets Control Office 31 CFR Part 560 Iranian Transactions Regulations; 

Final Rule, Federal Register 77:204, October 22, 2012, https://www.treasury.gov/resourcecenter/sanctions/Programs/Documents/fr77 _ 64664 .pdf 
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part of a carefully crafted set of diplomatic and financial arrangements that included a 

coordinated release of the hostages in concert with the transfer of$7.956 billion in previously 

frozen Iranian overseas assets to an escrow account. 

Since that time, Washington has utilized transactional diplomacy with Iran repeatedly, and 

notably with quite mixed results: 

• President Ronald Reagan authorized the sale of arms to Tehran as part of the nowinfamous Iran-contra scandal. This complicated and controversial exchange was premised 

on the President's intense desire to elicit the freedom of American and other Western 

hostages in Lebanon, as well as the expectation among senior U.S. officials that a covert 

opening would strengthen opposition within the post-revolutionary system to Iran's then 

supreme leader, Ayatollah Ruhollah Khomeini, and more broadly to the Islamic regime. 

• President George H. W. Bush reached out to Tehran in his inaugural address, famously 

promising that goodwill begets goodwill, a During his presidency, Washington sought to 

make clear through multiple avenues that cooperation would be rewarded. After his 

inaugural rhetoric, Bush authorized multiple channels to reiterate his appeal for 

cooperation and specifically for assistance on the issue of Western hostages in Lebanon. 

This included the settlement of several outstanding financial claims in 1989, 1990, and 

1991, as well as intensified efforts to compensate families of victims of the 1988 shooting 

down of an Iranian passenger plane by the USS Vincennes. Several of the settlements 

were timed to correspond to the release of American hostages, and while the Bush 

administration dismissed any linkage as "pure coincidence,'' a senior State Department 

officials acknowledged at the time that "there was no doubt whatsoever that what we 

were doing was helping to aid Iran in the release of the hostages. "4 

• President Bill Clinton undertook the most dramatic series of overtures toward Tehran 

since 1979 at the time, including a number of symbolic measures, broader sanctions 

reform, and the lifting of existing sanctions on caviar, carpets, and pistachios. That move 

came as part of a historic speech by then-Secretary of State Madeleine Albright, in which 

she announced the rescission and expressed formal regret on behalf of the U.S. 

government for America's role in the bilateral estrangement and for specific past U.S. 

policies toward Tehran. These specific incentives were proffered in recognition of 

apparent shifts in Iran's internal political dynamics-the election of a president and a 

majority of parliamentarians who openly advocated for political and social reform of the 

Islamic system. None of the Clinton-era overtures were coordinated in advance with 

Tehran, although U.S. officials predicted that the lifting of sanctions on caviar, carpets, 

and pistachios. would generate reciprocal Iranian moves.5 

• President George W. Bush also utilized incentives as a means of seeking to induce Iran to 

modify its most problematic policies. While the Bush administration initially resisted 

European diplomacy on the nuclear issue, U.S. officials gradually accepted that a direct 

American role in that dialogue would offer greater leverage in dealing with the issue. In 

4 Elaine Sciolino, "U.S. Near Deal To Settle Claims By the Iranians," New York Times, November 21, 199L 

http://www.nytimes.com/1991 I 11/21 /world/us-near-deal-to-scttle-claims-by-the-iranians.html See also Elaine 

Sciolino, "Bush Hopes to Settle Iranian Assets Issue," New York 1lmes, November 8, 1989. 5 Phillip Shenon, "Major Overture toward Iran Expected in Speech by Albright," New York Times, March 17, 2000, 

http://www.nytimes.com/2000/03/l7/world/major-overture-toward-iran-expected-in-speech-by-a1bright.html 
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an attempt to provide incentives for Iranian cooperation on the nuclear talks, in May 

2005, Washington dropped its objections to Iran's application to begin accession talks 

with the World Trade Organization and announced that it would consider licensing sales 

of spare parts for aircraft on a case-by-case basis. 

Notably, the January 2016 settlement was not the first such use of the body of claims associated 

with the U.S.-Iran Claims Tribunal as a means of incentivizing Iranian cooperation. In none of 

these cases did Tehran receive undue benefit as a result of the discharge of specific claims. Most 

analyses of the Algiers Accords have indicated the ultimate resolution of that tragic episode can 

be considered favorable to American interests, viewed broadly, and to American financial claims 

more specifically.6 

Roberts B. Owen, the State Department legal adviser who helped craft the settlement, explained 

that "we gave away nothing of value that was ours; we simply returned a relatively small part of 

what was theirs ... "7 And with respect to later actions at the Tribunal and the diplomatic 

aspirations attached to them, Abraham D. Sofaer, who served as State Department legal advisor 

from 1985-1990, underscored that these settlements should not be interpreted as confirmation 

that "the United States was negotiating a settlement for hostages or that anyone is giving them 

more money than they deserve."8 

In this sense, the Obama administration's decision to coordinate the resolution of the outstanding 

claim with the release of the Americans in January is perfectly consistent with the approach 

undertaken by each of its predecessors. 

There are several broad points about the use of economic leverage and transactional diplomacy 

in influencing Iran's regional and domestic policies: 

1) It is important to emphasize that throughout the past 37 years, the various endeavors in 

transactional diplomacy by each U.S. administration did not preclude the intensification 

of sanctions or the use of military force and other coercive measures against Iranian 

actors or their proxies in the region. These are not mutually exclusive policy approaches. 

2) It should also not be forgotten that the Iranians themselves frequently view diplomacy 

explicitly in transactional. Th1s was particularly acute throughout the long history of the 

nuclear negotiations; Iran approached the talks from 2003 onward with the expectation of 

a reciprocal-and at least equivalent--exchange. Understandably, Iran's long pattern of 

deception and transgressions meant that Washington and its European partners saw no 

such equivalence. The very efficacy of sanctions and Iran's internal debate surrounding 

the negotiations and the deal only exacerbated this disconnect. The painful toll of 

sanctions and the hyperbole deployed to gain elite and popular buy-in for the nuclear 

agreement has upped the ante in Tehran. 

6 Warren Christopher and Richard M. Mosk. "The Iranian Hostage Crisis and the Iran-U.S. Claims Tribunal: 

Implications for International Dispute Resolution and Diplomacy." Pepperdine Dispute Resolution Law Journa/7:2 

(2007): 165-76. 7 Roberts B. Owen, "The Final Negotiation and Release in Algiers," in Warren Christopher et al., American 

Hostages in iran: The Conduct o[a Crisis (New Haven: Yale University Press, 1985), p. 324. 8 Sciolino, NYT, November 21, 1991. 
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3) Finally, as the historical anecdotes cited here suggest, the use of incentives as bargaining 

chips in negotiations has demonstrated a relatively mixed track record. Proffering 

sanctions relief incrementally--either in retrospective fashion, to reward constructive 

policy shifts or prospectively to encourage the same--has typically failed to generate the 

intended results. The long history of utilizing economic pressure suggests that the use of 

sanctions relief as an incentive often entails missed cues for both the sanctioning state 

and the target state. In past efforts to use sanctions relief to encourage changes in Iranian 

policies, Washington has overestimated the value of its hand, while Tehran has 

persistently undervalued any incentives put on offer. 

It is understandably galling to settle a debt that provides a benefit to a regime that remains a 

fundamentally dangerous actor within the region and toward its own citizenry. However, a 

discomfiting reality of the international system is that the United States has and must engage 

with a variety of governments whose interests conflict with its own, occasionally in ways that 

work to the immediate advantage of hostile actors. That the United States upholds its obligations, 

even in dealing with regimes that routinely violate such norms, is neither objectionable nor 

worthy of censure. Americans interests have always been best defended and advanced by 

bolstering the rules and institutions of the liberal international order. American leadership in an 

increasingly dangerous world requires Washington to adhere to higher standards than those of its 

adversaries. 

It is deeply short-sighted to view the settlement of a largely forgotten financial dispute with 

Iran's post-revolutionary government as a consequential victory for the Iranian leadership or 

their attachment to objectionable policies. The price that Iran has paid-and will continue to 

pay-for its recalcitrance on the nuclear issue, its support for terrorism and destabilizing actions 

around the region, and its treatment of its own citizens vastly outstrips the compensation that is 

the subject of this hearing. 

Addressing the Unjust Detention of Americans and Other Dual Nationals in Iran 

Several critics of the Obama administration and the handling of this episode have warned that the 

linkage between the financial settlement and the release of detained Americans in January may 

exacerbate the risks to American citizens in countries such as Iran. The theory seems to be that 

Tehran will see financial incentives in the seizure and bartering of American lives, and thus 

engage in additional spurious arrests, imprisonment, and/or harassment of dual nationals in hopes 

of eliciting additional financial benefits. 

I understand why such inferences have been drawn and I appreciate the appeal of imputing some 

kind of rational calculus to Iran's treatment of dual nationals. Unfortunately, however, in my 

view this reflects a naive and inaccurate assessment of the drivers of Iranian politics and policy. I 

simply see no evidence that Iran's longstanding patterns of human rights abuses, inadequate rule 

of law, and exploitation of individuals to advance ideological narrative are subject to the logic of 

financial incentives. 

Washington must pay particular attention whenever one of our own is seized in the sole country 

on earth where the United States has no direct diplomatic presence. When an Iranian-American 

is seized by the Islamic system, the world's sole superpower is forced to fall back on the least 

satisfying instruments of diplomatic influence: eloquent statements from the podium, third-party 

consular inquiries, and quiet efforts through cooperative interlocutors. 
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And in this search for responses, there tends to be an almost irresistible pursuit of an explanation. 

Why was this individual seized at this particular moment in time? What message are Iranian 

authorities trying to send with this arrest? The conventional wisdom often searches for 

explanations in Iran's fierce factionalized struggle, while some now wonder if Tehran will see 

individual dual nationals as a ready source of leverage in eliciting financial benefits. 

All these theories are perfectly reasonable. However, any attempt at surmising intent from the 

actions of a repressive government tends to over-intellectualize. In these arrests, I would assert 

that there is no hidden message, no method to the madness other than obnoxious realities of 

authoritarian power. The reality is that there is only one factor that drives the detention and 

seizure of Americans and other dual nationals. The Islamic Republic's foundational moments 

have internalized a combination of deep-seated paranoia toward external actors and state together 

with a readiness to utilize official and semi-official violence against individuals within the DNA 

of the Iranian state and its leadership. What the esteemed historian Ervand Abrahamian has 

described as the "paranoid style of Iranian politics" has deep roots and broad appeal within 

today's Iran.9 

For Tehran, jailing Americans has never been never motivated by the prospect of a payoff. 

Rather, the center of gravity within Iran's ruling elite remains convinced that there is an 

American-led conspiracy of regime change, facilitated by dual nationals such as those who were 

arrested. 

Finally, it is essential to understand the broad context of Iranian behavior. The history of the 

Islamic Republic has only rarely recorded cases in which the leadership of this state serviced 

Iran's economic interests as its foremost priority. The notion that the January 2016 settlement 

will provoke a new wave of harassment or detention fails to appreciate how routinely Tehran has 

acted against its own economic betterment, or how modest the recent settlement is within the 

overall financial flows and assets available to the Islamic Republic. 

And this presumption fails to account for the relative durability of these patterns of behavior in 

Iran. The arrest of innocents and the routine violation of human rights in Iran are a function of 

this ruling system. Despite the sophistication of its society, the vibrancy of its debates, the 

trappings of competitive and representative politics, at the heart of the Islamic Republic is a 

police state. If its agents want to grab you, they can and they will and they need no excuse. 

Multiple intelligence and security organizations control a prison system whose reaches are not 

known to even its parliament and whose abuses are infamous. No one, not the most innocuous 

Western tourist or the most well-connected Iranian power-broker, is immune to its reach. 

That this police state can coexist with institutions that lend the system some measure of popular 

legitimacy is the Islamic Republic's secret strength and an explanation for its endurance; that 

these instruments of surveillance and repression have withstood episodic confrontations by an 

educated and engaged citizenry remains the real tragedy of the revolution. 

9 Ervand Abrahamian, Khomeinism: Essays on the fslamic Republic (University of California Press, 1993); see also 

Abrahamian, "The Paranoid Style ofiranian Politics," Frontline: Tehran Bureau, August 27, 2009, 

http://www.pbs.org/wgbhlpages/frontline/tehranbureau/2009/08/the-paranoid-style-in-iranian-politics.html 
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Prepared Remarks of Mary McCord, Principal Deputy Assistant Attorney General for 

National Security, before the House Financial Services Subcommittee on Oversight and 

Investigations 

September 8, 2016 

Good morning Chairman Duffy, Ranking Member Green, and members of the subcommittee. 

Thank you for the opportunity to appear before you today to discuss the Department's role in the 

settlement of Iran's claim before the Iran-U.S. Claims Tribunal at the Hague for funds in the 

Foreign Military Sales (or "FMS") trust fund, as well as Iran's associated claim for interest on 

these funds. 

As the Attorney General made clear when the deal was first announced, the Department of 

Justice fully supported the Administration's resolution of several issues with Iran, including the 

settlement of the Hague Tribunal claim involving the FMS fund, as well as the arrangements that 

led to the return of U.S. citizens detained in Iran. 

With respect to the Hague settlement, when there is a settlement of litigation that is pending 

against the United States, it is generally paid from the judgment fund unless there is a separate 

source of funding for such a settlement. For a payment of a settlement to be made from the 

judgment fund, the Attorney General must certify to the Treasury that the payment of the 

settlement is in the best interests of the United States. 

Here, the Attorney General approved the settlement and certified payment from the judgment 

fund of the portion of the settlement that resolved the interest dispute. The certification was 

based on the Department of Justice's typical type of assessment for such judgment fund 

payments. Assessment of a settlement payment from the judgment fund includes consideration 

of the exposure that the United States faces from the claims proposed for settlement. It also 

considers the likelihood of an adverse ruling against the United States; the likely size of such an 

award; the background of the litigation, the tribunal, relevant legal arguments, relevant facts, and 

governing legal doctrines. 

The Department's certification of this settlement payment from the judgment fund was based on 

the assessment that it was in the best interests of the United States-- that the payment was 

significantly less than the United States's exposure under the claims for the balance in the FMS 

(foreign military sales) account and the interest on those funds. 

The Department of Justice also was involved in the consular negotiations with Iran, and in 

effectuating the ultimate arrangements that led to the release of American citizens. In this regard, 

DOJ identified certain criminal cases involving Iranian and Iranian-American defendants for 

which relief could be provided as a reciprocal humanitarian gesture. The defendants in these 

cases had been charged primarily with violating the U.S. trade embargo. None were charged 

with terrorist activity or other violent crimes. 

As has been noted previously, the ultimate arrangement involved the pardon or commutation of 

seven defendants who had been convicted or were awaiting trial in the United States, and the 
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dismissal of criminal charges against 14 others, all of whom were located outside the United 

States and for whom our attempts to obtain custody had failed or were likely to fail. 

DOJ was also responsible for preparing and filing the paperwork related to the pardons, 

commutations, and dismissals. 

I thank you for the opportunity to testify. I am happy to answer any questions you might have. 

2 
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Statement before the Committee on Financial Services 

Subcommittee on Oversight and Investigations 

A .... l AMERICAN 

~ 

.... ENTERPRISE 

INSTITUTE 

On ··fueling Terror: The Dangers of Ransom Payments to !ran•• 

Why Payments to Iran Always 

Backfire 

Michael Rubin 

Resident Scholar 

September 8. 2016 

The American Enterprise Institute for Public Policy Research (AEI) is a nonpartisan. nonprolit. 50 l (c)( 3) 

educational organization and does not take institutional positions on any issues. The views expressed in this 

testimon;. are those of the author. 
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Chairman Duffy, Ranking Member Green, and Honorable Members, thank you for the opportunity 

to testify today about the Obama administration's decision to settle for a $1.7 billion Iranian claim 

before the US-Iran Claims Tribunal regarding a frozen $400 million account in the United States 

established by the shah of Iran in 1979 to fund the purchase of military equipment. The 

administration delivered the $400 million principle in cash on the same day that Iranian authorities 

released four American hostages. The episode raises many questions of policy and judgment: Was 

it necessary to make the payment in January 20 16? Was the method of payment legal given existing 

sanctions? Was it wise to provide Iran with such an amount in cash? 

The controversy regarding the payment rests in both its irregularity and the suspicion that it was 

tied directly to Iran's release of US hostages and was therefore a ransom. Partisan debate may 

obfuscate any consensus within American political circles about whether to recognize the $400 

million as a ransom, but the Iranian officials most involved in the seizure of American and other 

Western hostages perceive the payment to be a ransom. Not only has delivery of millions of dollars 

provided incentive to seize more hostages, but because the money was delivered in cash, the 

payment bolstered the strength of the Islamic Revolutionary Guard Corps and augmented its ability 

to finance and conduct terrorism. 

Was delivery of the $400 million proper? 

The first question Congress should consider is whether the payment was necessary and proper. 

The White House and State Department's explanation that the United States needed to settle the 

dispute now out of fear that the claim's tribunal in The Hague might issue an adverse judgment is 

not credible. It is true that the shah of Iran had created a $400 million fund in the United States 

and that the Carter administration subsequently froze that account after the 1979 Islamic 

Revolution overthrew the shah and established a regime openly hostile to the United States. It is 

also true that, for 35 years, successive US administrations-both Democratic and Republicanhad successfully stymied any judgment at The Hague. Simply put, had the White House and State 

Department wanted to do so, they might have first delayed any judgment for years and then slowrolled payment until a time when Iranian officials no longer invested in the export of revolution or 

terrorism. They might also have used any award as counterterror leverage, given that terrorism 

sanctions prevent direct payment to the Islamic Republic in US dollars. 

The White House has further said that there was nothing untoward in paying the $400 million in a 

mix of foreign currencies stacked on wooden pallets in a cargo plane. "There's actually not 

anything particularly unusual about the mechanism for this transaction," White House Press 

Secretary Josh Earnest remarked. 1 Earnest, however, is wrong. The State Department's own Office 

of the Historian could provide no similar examples of a cash payment. According to diplomatic 

historians, the closest corollary was the 1848 Treaty of Guadalupe Hidalgo, which ended the 

Mexican-American War. In exchange for California and much of the American southwest, the 

United States agreed to pay Mexico $15 million, including a first installment of$3 million in gold 

or silver coins.2 That payment occurred as part of a final peace agreement after years of hostilities 

1 White House, "Press Briefing by the Press Secretary Josh Earnest," August 22, 2016. 2 Bradley Klapper, "Little Precedent for $400 Million Cash Payment to Iran," Associated Press, August 27, 2016. 
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had ended and with the United States the clear victor. Years later, President Ulysses S. Grant 

declared the payment "conscious money."3 

Was it a ransom? 

The $400 million has mostly become so controversial because of the accusation that the money 

was a ransom payment to the Islamic Republic to free American hostages. There is ample 

circumstantial evidence to support that accusation. All but one of the American hostages were 

freed on the same day that the United States delivered the payment. 4 The administration, however, 

initially dismissed such accusations as neither new nor newsworthy. After the Wall Street Journal 

refocused attention on the issue with new revelations, President Barack Obama expressed surprise 

that the issue was again in the news cycle. "We announced these payments in January-many 

months ago. There wasn't a secret," he said.5 What was unknown at the time, however, was that 

the United States and Iran had secretly negotiated a swap or release of Iranians and Americans 

detained in each country and that, in December 2015, the Iranian team augmented their demands 

with an insistence on a cash payment, which the Obama administration approved so the Iranian 

team could say they achieved "something tangible."6 

Obama flatly denied that the $400 million was a ransom. "We do not pay ransom. We didn't here. 

And we don't-we won't in the future-precisely because if we did, then we would start 

encouraging Americans to be targeted," he told the press. 7 State Department spokesman John 

Kirby implied that the timing of the payment was coincidental and could not be a quid pro quo. 

"Negotiations over the settlement of an outstanding claim ... were completely separate from the 

discussions about returning our American citizens home," he said. "Not only were [the] two 

negotiations separate, they were conducted by different teams on each side, including, in the case 

of The Hague claims, by technical experts involved in these negotiations for many years.''8 

Freed hostage Saeed Abedini, however, later revealed that the American hostages were unable to 

leave until a separate plane landed, presumably with the money Iranian officials had demanded.9 

In subsequent days, the Obama administration admitted that there was a quid pro quo: 10 Swiss 

officials would not allow the Iranian cargo plane to depart Geneva until American hostages were 

in the air. 11 While this implied linkage, the White House and State Department seemed to suggest 

that the payment was "leverage" and not a ransom because the money technically arrived after the 

hostages had departed Iran. 

3 Marvin Meyers, Sources of the American Republic, Volume I (New York: Addison-Wesley, 1996), 363. 4 Jay Solomon and Carol E. Lee, "U.S. Sent Cash to Iran as Americans Were Freed," Wall Street Journal, August 3, 

2016. 

5 White House, "Press Conference by the President After Meeting with National Security Officials," August 4, 2016. 6 Solomon and Lee, "U.S. Sent Cash to Iran." 7 White House, "Press Conference by the President." 8 Elise Labolt, Nicole Gaouette and Kevin Liptak, "US Sent Plane with $400 Million in Cash to Iran," CNN.com, 

August 4, 2016. 9 Fox Business News, "American Hostage: Forced to Wait for 2nd Plane Before Iran Release," August 5, 2016. 10 John Kirby, Daily Press Briefing, State Department, August 18,2016. 11 Jay Solomon and Carol E. Lee, "U.S. Held Cash Until Iran Freed Prisoners," Wall Street Journal, August 17, 

2016. 
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Was it wise? 

White House and State Department explanations might split legal hairs, but outside of Washington, 

such semantics are irrelevant Iranian officials' perception is that the United States paid a ransom. 

Iran believed it to be ransom. "Taking this much money back was in return for the release of the 

American spies," the Islamic Revolutionary Guard Corps' Brigadier General Mohammad Reza 

Naghdi, commander of the paramilitary Basij, said, a claim subsequently repeated in the Iranian 

press over subsequent weeks. 12 

While it appears the Obama administration knowingly paid a ransom, President Obama's statement 

that payment of ransoms incentivizes terror and encourages targeting of Americans is true, 

especially with regard to Iran. For example, every time the Carter administration offered new 

incentives to Iranian negotiators holding American hostages at the US Embassy in Tehran, the 

Islamic Republic increased rather than compromised its demands. 

Perhaps the best corollary, however, is the Reagan-era "Arms for Hostages" scheme. Beginning 

in the mid-1980s, Iranian proxies in Lebanon kidnapped two dozen Americans. While senior 

Reagan administration officials had criticized President Carter for negotiating under fire, 13 once in 

power, Reagan's team convinced itself that maintaining a black-and-white approach to terrorism 

was not pragmatic. On January 17, 1986, President Reagan signed an order authorizing the sale of 

guided missiles to Iran. Under terms negotiated by senior national security aides, once Iran 

received the missiles, it would order Hezbollah and other proxy groups to release American 

hostages. 

At first glance, Reagan's approach to Iran seemed to work. For 15 months beginning in June 1985, 

no Americans were kidnapped in Lebanon. After Iranian proxies released Father Lawrence Jenco, 

who had been in captivity for 564 days, the United States delivered additional spare parts to Iran. 

No sooner had American officials offloaded the last shipment of military equipment, however, 

then kidnappers seized three more Americans. 14 Simply put, the ability to restock its military gave 

Iran an incentive to seize hostages. 

While Iran may not officially receive weaponry as part of the Joint Comprehensive Plan of Action 

(JCPOA) and the subsequent agreements to release American hostages and repatriate Iranian cash 

frozen in the United States, in reality it does. Shortly after inking their agreements, Iranian 

authorities embarked on a massive military shopping spree in both Russia and China. 15 US 

diplomats might say that the JCPOA and the corollary UN Security Council Resolution (UNSCR) 

12 "Bazpeshgiri I 07 Miliyard Dollar az Em val-e Iran dar Qobal-e Azadi Jasus-e Amrikaye Bud," Fars News Agency 

(Tehran), January 20, 2016; and "Afshagari Jadid Sardar Naghdi az Jasus-e Amrikahayi," Tnews.ir (Tehran), 

February 6, 2016. 13 See, for example, Alexander Haig in Department of State Bulletin 81, no. 2048 (March 1981), 17, as quoted in 

Roberts B. Owen, "The Final Negotiation and Release in Algiers," in Warren Christopher, ed. American Hostages in 

Iran (New Haven: Yale University Press, 1985), 298. 14 John Tower eta!., The Tower Commission Report (New York: Times Books, 1987), 47-48. 15 "Didar va Goftegu-ye Farrnandehan-e Niru-ye Hava-ye Artesh-e Iran va Chin dar Peken," Fars News Agency, 

November 2, 20 15; and Associated Press, "Iran to Purchase Sukhoi-30 Fighter Jets from Russia," February 10, 

2016. 
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2231 prevent Iran from importing "offensive" arms and systems, but because the UNSCR 2231 

relies on the definitions of the UN Register of Conventional Arms, 16 definitions that some Iranian 

officials dispute or dismiss, and because Moscow offers Tehran diplomatic cover at the United 

Nations, such a prohibition has little meaning. 

Regardless of any aspect of military relief as a direct or second-order effect of recent US deals 

with Iran, the Iranian perception that the Obama administration was willing to incentivize hostage 

taking has led to additional Iranian hostage taking. In the days and weeks after the delivery of the 

$400 million, Iranian security forces seized at least a half dozen more American, Canadian, and 

European hostages in Iran, leading the US State Department to issue a new travel warning for Iran 

highlighting the heightened risk of detention. "Foreigners, in particular dual nationals of Iran and 

Western countries including the United States, continue to be detained or prevented from leaving 

Iran .... Iranian authorities continue to unjustly detain and imprison U.S. citizens, particularly 

Iranian-Americans, including students, journalists, business travelers, and academics, on charges 

including espionage and posing a threat to national security," it declared. 17 Iranian American 

Siamak Namazi, his father Baquer Namazi, American businessmen Robin Shahini, Canadian 

academic Homa Hoodfar, British charity worker Nazanin Zaghari-Ratcliffe, British businessman 

Kamal Foroughi, Frenchman Nazak Afshar, and Lebanese businessman Nizar Zakka, a permanent 

US resident, all have ended up in Iranian prison on spurious charges in the wake of the prisoner 

release that Obama and Secretary of State John Kerry claimed was the result of a newfound 

working relationship rather than the $400 million ransom. 

Do cash payments hamper counterterrorism? 

The US government paid its initial $400 million transfer to Tehran in cash and likely paid the 

remaining $1.3 billion in cash as well, although White House and State Department officials refuse 

to detail the method of the latter transfer. The purpose of cash payment in foreign currency was to 

sidestep current prohibition on doing business with Iran and Iranian banks in US dollars. 

Unfortunately, the cost to US security and the difficulties to US counterterrorism efforts may be 

extraordinarily high. 

The State Department continues to designate Iran as a leading state sponsor of terrorism. 18 Iran not 

only continues to sponsor terrorist groups in the Gaza Strip and West Bank, Lebanon, Syria, and 

Iraq, but has also provided shelter and protection to senior al Qaeda operatives. For both the George 

W. Bush and Obama administrations, the Treasury Department has been at the frontline of the 

fight against terrorism. The US government managed to break up Iran's 2011 plot to murder the 

Saudi ambassador to the United States because it was monitoring bank accounts utilized by the 

Islamic Revolutionary Guard Corps. 19 The problem with cash payments--especially in multiple 

16 UNSCR 2231, Annex B, Paragraph 5. 17 US Department of State, "Iran Travel Warning," August 22, 2016. 18 US State Department, "Chapter 3: State Sponsors of Terrorism Overview," Country Reports on Terrorism 2015, 

June 2, 2016. 19 US Department of Justice, Federal Bureau of Investigation, "Two Men Charged in Alleged Plot to Assassinate 

Saudi Arabian Ambassador to the United States," October II, 20 II; and Charlie Savage and Scott Shane, "Iranians 

Accused of a Plot to Kill Saudis' U.S. Envoy," New York Times, October II, 2011. 
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currencies-is that they allow the Islamic Revolutionary Guard Corps and other terror-sponsoring 

organizations to avoid detection. 

That terrorist attacks are relatively cheap to execute once cash is in hand simply augments the 

danger. Take Hamas, for example, one ofiran' s chief clients. A 2001 shooting attack on the Afida 

bus station in Israel that killed two and wounded 48 cost the group only $31,000.20 Likewise, an 

attack the following year in a Hebrew University cafeteria that killed five Americans cost only 

$50,000.21 A suicide bomb belt can cost as little as $1,500. 22 

In the Islamic Republic, possession is ten-tenths of the law. The Islamic Revolutionary Guard 

Corps controlled the aircraft to which the $400 million was delivered. Because the Islamic 

Revolutionary Guard Corps controls its own banks, it is unlikely that it transferred the $400 million 

to central coffers. Even if the ransom did end up in Iran's central bank, this does not guarantee 

transparency. On August 14, 2016, the Iranian press reported that Iranian Justice Minister Mostafa 

Pour-Mohammadi commented that "approximately 50 million bank accounts" in Iranian banks 

either have no name listed or have been manipulated and that "such statistics put the country's 

banking system under question.'m If 50 million bank accounts in a country of 80 million people 

are irregular or opaque, there is ample reason to question their use. 

Does money moderate Iran? 

Whether the United States delivers $1.7 billion to Iran as cash or by any other mechanism, there 

is a broader problem: reducing sanctions and bolstering trade disproportionately helps those 

elements within the Islamic Republic most hostile to the United States and most willing to sponsor 

terrorism. 

Put aside the false assumption embraced by many in the White House that President Hassan 

Rouhani is a moderate. While he certainly projects a more moderate image to the outside world, 

across the Islamic Republic's political system, Iranians have always understood Rouhani to be a 

loyalist to the ideals espoused by revolutionary leader Ayatollah Ruhollah Khomeini. Before his 

2013 election, for example, Rouhani's campaign commercials bragged about how Rouhani was 

the first person in the Islamic Republic to refer to Khomeini as an "Imam," in effect likening him 

to the Shi'ism's Messianic figure. And, as chairman ofiran's Supreme National Security Council, 

Rouhani outlined a strategy of surprise in which he would lull the United States into complicity 

with dialogue while advancing strategies to defeat it.24 

20 Matthew Levitt, Hamas: Politics, Charity, and Terrorism in the Service of Jihad (New Haven: Yale University 

Press, 2007), 55. 21 Ibid. 21 lbid. 23 "Pour-Mohammadi: 50 Milyon Hisab-e Banki Mokhdush va Majhul Al-Hawiya Darim," Islamic Students' News 

Agency (Tehran), August 14, 2016. 24 Hassan Rouhani, "Iran's Measures Rob the Americans for Foresight," (speech, Ferdowsi University Hall, 

February 9, 20 15), Rahbord (Journal of the Expediency Council's Center for Strategic Stndies, Tehran), Spring 

2005. 
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Alas, for Rouhani, this did not appear merely to be bravado or rhetoric. Beginning in the early 

1990s and accelerating after the election of Mohammad Khatami to Iran's presidency, European 

officials led by German Foreign Minister Klaus Kinkel argued that greater trade might lead the 

Islamic Republic to abandon its rogue behavior.25 Strengthening Iran's economy would not only 

bolster the position of moderates in the Islamic Republic's domestic political context but also 

augment Western diplomats' ability to engage productively with Iran on issues of concern ranging 

from terrorism to human rights. 

The 1997 election of President Mohammad Khatami and his calls for a "dialogue of civilizations" 

were exactly what Western leaders wanted to hear. Between 1998 and 2005, the European Union 

almost tripled its trade with Iran on the philosophy that the ''China model" might work and greater 

ties between Iran and the West might lead to political liberalization. At the same time, the price of 

oil-and therefore Iran's income-nearly quintupled. Iran took its hard currency windfall and 

invested it in its ballistic missile program and its then-covert nuclear enrichment facilities. 

Khatami's spokesman later bragged that the purpose of dialogue was not to compromise but rather 

to build confidence and avoid sanctions. "We had an overt policy, which was one of negotiation 

and confidence building, and a covert policy, which was continuation of the activities," he 

explained.26 Meanwhile, the official directing the money into the military was none other than 

Hassan Rouhani, who, in his capacity as chairman ofthe Supreme National Security Council, was 

fulfilling his strategy of surprise. 

It's not just a matter of political will, but rather the structure oflran's economy. Here again, the 

problem is the Islamic Revolutionary Guard Corps. The Revolutionary Guards' stature grew 

against the backdrop of the 1980-88 Iran-Iraq War. When revolutionary leader Ayatollah Ruhollah 

Khomeini finally accepted a ceasefire in 1988, putting a damper on the Revolutionary Guards' 

declared goal of liberating not just Baghdad but marching straight through to Jerusalem, the IRGC 

was loath to return to their barracks and forfeit the privileges they had acquired. Instead, they 

decided to seek independence from the politicians and bean counters in Tehran by creating their 

own independent financial base, which they called "Construction Base of the Seal ofthe Prophets" 

(Gharargah Sazandegi-ye Khatam al-Anbiya). 

To understand what Khatam al-Anbiya is like inside the Iranian economy, and without moral 

equivalence, picture the US Army Corps of Engineers combined with Bechtel, Halliburton, KBR, 

Shell, Exxon, Boeing, and Northrop-Grumman, all rolled up into one entity. Today, Khatam alAnbiya controls all heavy industry, construction, manufacturing, electronics, oil production and 

refining, shipping, and even large chain stores. To do business with Iran means working with 

Islamic Revolutionary Guard Corps front companies; there simply is no way to avoid it. 

Under President Mahmoud Ahmadinejad, Khat am al-Anbiya received upward of$50 billion in nobid contracts in the South Pars Oil Field alone. In addition, the Islamic Revolutionary Guard Corps 

25 European Council, "Conclusions of the Presidency," Part D, External Relations, p. 100, Edinburgh, December 12, 

1992; and Klaus Kinkel (speech, Bundestag debate on policy toward Iran, Bonn, April 17, 1997). 26 "Ramezanzadeh: Siyasat-e Post Perdeh Dawlat-e Khatami Adameh-e Fa'liyatha-ye Ha,teha-ye Bud," Fars News 

Agency (Tehran), June 14,2008. 
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reaps an estimated $13 billion annually in oil smugglingP This means that even if President 

Hassan Rouhani were to take the Revolutionary Guards' official budget to zero, they would face 

less of a cutback proportionately than the US military has through sequestration. The IRGC may 

be the ideological guardians ofKhomeini's views, but they can be quite pragmatic when it comes 

to making money. 

The Tehran Stock Exchange only adds to the problem. Founded in 1967 but suspended as a result 

of the 1979 Islamic Revolution, the Tehran Stock Exchange has gained renewed prominence in 

the years after Khomeini's 1989 death. In 2010, the exchange ranked as the best performing in 

Europe, Africa, or the Middle East. 28 Between 2008 and 20 II, the value of its listed shares almost 

tripled, to $108.4 billion.29 By 2013, its market capitalization exceeded $170 billion. 30 

The problem from an American security and counterterror perspective is that the Tehran Stock 

Exchange has become a primary tool by which the Iranian government and especially the Islamic 

Revolutionary Guard Corps can launder cash. When the Iranian government talks about privatizing 

state-run industries in the name of economic reform, the Tehran Stock Exchange hosts the initial 

public offering. In most cases, the firms that purchase a controlling or complete interest in the 

"privatized" companies are Revolutionary Guards-owned operations or banks. This has led over 

the past couple decades to three-card monte countersanctions, in which the US Treasury 

Department or United Nations designates companies engaged in proliferation or other illicit 

activities, only to have the Revolutionary Guards shift their operations to new shell companies 

faster than redesignation can occur. To provide Iran with cash under the current regime and with 

the current Khatam al-Anbiya domination of the economy simply allows the Revolutionary Guard, 

which took possession of the cash, to inject it into its shell game and perhaps finance or catalyze 

operations of the companies about whose activities the US Treasury Department and intelligence 

community are most concerned. 

Conclusion 

In the Middle East, perception means more than reality, and the perception among those who hold 

the reins of power inside Iran is that the $400 million payment--one opposed by the US Justice 

Department-was very much a ransom. Unfortunately, rather than resolve a crisis and ameliorate 

relations, the Obama administration and State Department's willingness to make such a payment 

may actually undercut any chance of rapprochement. Even diplomats who still believe they are 

engaging sincere regime reformists rather than being ensnared in an elaborate game of good 

27 Ali Alfoneh, "How Intertwined Are the Revolutionary Guards in Iran's Economy?" AEI Middle East Outlook, 

October 22, 2007; "Vagozari-ye 850 Melyoun Dolar Prozhehpye Jadid-e Nafti Be Khatam al-Anbiya," Abrar 

(Tehran), March 16, 2010; "Gharargah-e Khatam al-Anbia Jaygozin-e Torkiyeh Dar 3 Faz-e Pars-e Jonoubi 

Mishavad," Abrar (Tehran), Aprill9, 2010; and "Jaygozinan-e Dakheli-ye Shell va Repsol Dar Pars-e Jonoubi," Pol 

(Tehran), June 5, 2010, "Vagazari bidun nashrifat 2 pirouzeh-i nafti beh qirargah Khatam al-Anbia," Mehr (Tehran), 

February 26, 2011. 28 F. Milad, "Tehran Stock Exchange Main Index Hits New Record," Trend News Agency (Baku), December 2, 

2012. 

29 "Iran Stock Official Says Market's Value 'Very Far' From International Standards," Tehran Vision ofthc Islamic 

Republic oflran Network 5, Tehran Provincial TV in Persian, January II, 2012, 1138 GMT. 30 Tehran Stock Exchange, "CEO Message," http://new.tse.ir/cms/page564.html. 
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cop/bad cop should be worried, for the taking of new hostages is as good a barometer of where 

power lays in Iran as any. 

It is bad enough that not only Iranian officials but also other rogue regimes and terrorists groups 

can conclude that the United States is susceptible to blackmail and that its condemnation of ransom 

payments is only rhetoricaL That the Obama administration blessed a cash payment and allowed 

the Islamic Revolutionary Guard Corps to take possession of it augments the possibility that it will 

be used to catalyze terrorism across the globe and blinds the intelligence community and Treasury 

analysts who have dedicated their careers to keeping America safe. 
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Question: 

Questions for the Record Submitted to 

Lisa Grosh and Chris Backemeyer by 

Representative French Hill (#1-5) 

House Financial Services Committee 

September 8, 2016 

During testimony of the hearing you were questioned about provisions in the 

Victims of Trafficking and Violence Protection Act of2000 (PL 106-386), which 

was signed into law by President Bill Clinton on October 28, 2000. The $400 

million paid to U.S. victims oflranian terrorism under this act was appropriated 

money by Congress. Please answer the following questions: 

1. Did the United States formally release Iran from the $400 million 

obligation under this Act? 

2. Why did the U.S. Government not pursue the subrogation against the Iran 

Foreign Military Sales (FMS) account? 

3. Why did the U.S. Government not recover the $400 million from the 

FMS account as it was directed to do under the Act? 

4. Please furnish physical copies of justification from the Administration for 

why it believed that satisfaction of the subrogation requirement did not 

involve Congress? 

5. Whose wet signature authorized the decision to forfeit collection of the 

subrogation requirement? 

Answer: 

As you know, under the Victims of Trafficking and Violence Protection Act 

of 2000 (VTVP A), Congress directed the use of appropriated funds to pay the 

claims of certain victims of terrorism holding judgments against Iran at that time. 
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While Section 2002 limited the total amount of payments from appropriated funds 

to the then-existing balance of the FMS account, the VTVP A neither directed nor 

authorized the use ofFMS funds themselves to pay the judgment holders. 

Accordingly, pursuant to the terms of the statute, the funds paid out to Americans 

under the VTVP A originated with appropriated funds, not FMS funds. The 

amount paid in this manner was approximately $400 million. 

Pursuant to the VTVPA, the underlying claims of victims receiving 

compensation, once paid, were "subrogated" to the United States, meaning they 

became claims of the United States against Iran. Section 2002(c) of the VTVPA 

provides that "[t]he President shall pursue these subrogated rights as claims or 

offsets of the United States in appropriate ways," and that no funds shall be 

released from the FMS account "until such subrogated claims have been dealt with 

to the satisfaction ofthe United States." 

In reaching the January 2016 settlement over Iran's remaining Foreign 

Military Sales Trust Fund claim before the U.S-Iran Claims Tribunal in The 

Hague, we were also able to settle these claims subrogated to the U.S. under the 

VTVP A. The settlement amount that was reached beyond the $400 million in the 

Trust Fund amounted to a lower amount of interest than would otherwise have 

been agreed, in order to reflect settlement for those subrogated claims. The United 

States thus fully pursued its subrogated rights and did not forfeit those claims. By 
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achieving a significant financial benefit for the U.S. through foreclosing a higher 

amount, the settlement fully recognized the VTVP A. 

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