- By Eric B. LorberEric Lorber is an adjunct Fellow at the Center for a New American Security, a Senior Associate at the Financial Integrity Network, and a senior adviser at the Center for Sanctions and Illicit Finance at the Foundation for Defense of Democracies.
Iran is once again the center of a heated debate between the Barack Obama administration and Republicans in Congress, this time over whether the United States’ $1.7 billion payment to Iran amounted to a ransom to secure the release of American hostages. Regardless of whether one believes the payment, the result of a settlement agreement related to decades-old legal claims between the two countries, was ransom, one thing is certain: The nature of the payment — all cash, some delivered in the middle of night and ferried to Iran by an airline known for its connections with the Islamic Revolutionary Guard Corps, without limits to ensure Iran would not use the funds for terrorism — is troubling.
Cash transactions raise serious terrorism financing risks. According to the Financial Action Task Force, the international body that sets global standards for preventing money laundering and terrorist financing, “the physical cross-border transportation of currency … [is] one of the main methods used to move illicit funds, launder money, and finance terrorism.” These risks are particularly acute in the case in question; the State Department has identified Iran as one of the leading state sponsors of terrorism and the country actively supports terrorist organizations such as Hezbollah and Hamas, and assists Syrian President Bashar al-Assad in his murderous assault on civilians.
Obama told reporters, “[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 banking relationship with Iran that we couldn’t send them a check and we could not wire the money.” While correct that the United States government does not maintain regular banking channels with Iran and that the U.S. and European sanctions campaign against Iran seriously constrained its access to the Western financial system, historical examples suggest that the U.S. did not have to provide these funds in cash.
In 2007, as part of the Six-Party Talks over North Korea’s nuclear program, the United States facilitated a similar transfer through the formal financial system. The United States had designated Banco Delta Asia — a Macau-based bank known to hold significant assets of the North Korean leadership — as a jurisdiction of primary money laundering concern under the Patriot Act. Like Iran, North Korea was almost completely cut off from the international financial system. As part of the negotiations, the United States decided to return the $25 million in North Korean funds held in BDA’s accounts, but found that international financial institutions were unwilling to move the funds because none wanted to be seen as cooperating with a bank that was well-known to engage in illicit activity.
Instead of transferring the $25 million to North Korea using pallets of cash, the United States Federal Reserve stepped in. Banco Delta Asia transferred the $25 million via the Federal Reserve to the Russian Central Bank, which in turn sent it to Far Eastern Bank, a Russian bank in Vladivostok that held accounts on behalf of the North Korean leadership. Through this system, the United States was able to facilitate the delivery of North Korean funds back to the regime through legitimate financial channels. A similar mechanism could have been employed with the $1.7 billion payment to Iran.
The administration has also claimed it delivered the cash to Iran because the country needed immediate access to the funds to address critical economic needs. But other, less opaque options existed that would have allowed fast delivery of the money. For example, as part of the Joint Plan of Action — the interim agreement that preceded the final Iran agreement — the United States set up a financial channel using foreign financial institutions to ensure that humanitarian and agricultural goods could flow to Iran. Likewise, the administration admitted last week that it had sent hundreds of thousands of dollars to Iran through the formal financial system at the height of the U.S. sanctions regime in July 2015. The administration could have used this or similar channels to send the funds.
Moving forward, the administration — and Congress if the president is unwilling — should ensure that any payments it makes to Iran are facilitated through the formal financial system. Current bills in the House of Representatives and the Senate are steps in the right direction. The United States should also take steps to reduce the risk that Iran uses such funds to support terrorism or Assad. These steps should include: holding the funds in escrow accounts, verifying that the end recipients of the funds are not sanctioned Iranian parties, and requiring the funds be released in tranches, with a certification provided by the Secretary of the Treasury that prior tranches have not been diverted to sanctioned persons.
While Republicans and Democrats can disagree about the wisdom of providing funds that — at the very least — appeared to Iranian officials to be a ransom payment, the administration should not have sent this money in cash and risked inadvertently funding Iran’s support for terrorism. It can and should do better in the future.
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