Was Obama’s $1.7 billion cash deal with Iran prohibited by U.S. law?
Iranians walk past a billboard showing the late revolutionary leader Ayatollah Ruhollah Khomeini and Basij paramilitary force members. (Vahid Salemi/AP)
So we tweeted in response:Never gotten over the fact that Obama was able to send $1.7 Billion Dollars in CASH to Iran and nobody in Congress, the FBI or Justice called for an investigation!— Donald J. Trump (@realDonaldTrump) February 18, 2018
Then Omri Ceren, managing director of the Israel Project, tweeted that we were wrong:Has no one who works for Trump ever explained it was a legal settlement of money the Unites States owed Iran from before the 1979 revolution? https://t.co/bM0osncfOw— Glenn Kessler (@GlennKesslerWP) February 18, 2018
Hi Glenn, this isn't true. US courts ruled that money belonged to US victims of Iranian terrorism. Also Cong statute prohibited transfer of funds until those accts were settled. Also money had already been cleaned out for that (so US paid twice). Also it didn't have to be cash. https://t.co/K1UpWswXZu— Omri Ceren (@omriceren) February 19, 2018
So we asked for evidence of his tweet and said we would examine it. (He sent this article.) The dust-up also merited an article in the Tablet, suggesting The Fact Checker had fallen for Obama administration spin.
We went into this exercise with an open mind, and here’s what we discovered.
The Facts
Contrary
to Trump’s tweet, this $1.7 billion transaction was investigated by
Congress. We reviewed transcripts of congressional testimony, a Treasury
inspector general’s report and various letters between lawmakers and
the Obama administration; we also interviewed national-security lawyers
and former Obama administration officials.
The
situation certainly looks unusual on its face. On Jan. 16, 2016, the
same day four American detainees, including The Washington Post’s Jason
Rezaian, were released, a jumbo jet carrying $400 million in euros,
Swiss francs and other currencies landed in Tehran. That money
purportedly was partial payment of an outstanding claim by Iran for U.S.
military equipment that was never delivered. Soon after, $1.3 billion
in cash followed.
The cash transaction was controversial even within the administration. The Wall Street Journal reported that
the head of the Justice Department’s national-security division
objected that it would look like a ransom payment. State Department
officials insisted the negotiations over the claims and detainees were
not connected but came together at the same time, with the cash payment
used as “leverage” to ensure the release of detainees.
Now
to the substance of our inquiry: Was it against the law to transfer the
money to Iran until accounts were settled regarding victims of
terrorism?
Before
the 1979 revolution, Iran under the shah was reputedly the biggest
buyer of U.S. military equipment, depositing funds for potential deals
in a Defense Department account. When Iran seized U.S. Embassy staffers
as hostages, the military sales account was frozen. The issue — and
other outstanding claims — has been litigated ever since through a
claims tribunal established in The Hague. Some of the money in the
account was used to pay American companies whose contracts were
canceled, but by 2000, about $400 million was left in what was known as
the Foreign Military Sales (FMS) Trust Fund account.
That
is when the families of victims of Iranian-linked terrorism who had won
court cases stepped in. They were unable to force Iran to pay the
judgments, but Stephen Flatow, the father of a woman killed in a 1995
militant attack in Gaza, discovered the FMS trust fund and sought
payment from it.
Congress
passed a law in 2000 under which the U.S. Treasury could pay
compensatory judgments (plus a portion of punitive damages) issued for
claims against Iran (as well as Cuba). All told, about $400 million was paid out in relation to court judgments against
Iran covered by the law and subsequent legislation in 2002 — about the
equivalent of what was in the FMS trust fund. That is because the amount
in the FMS trust fund essentially provided a cap on what would be paid
out to those judgment holders who were eligible for compensation under
the law. (The family of Alisa Flatow, for instance, received $26
million, which was used to establish a scholarship fund.)
The law, Victims of Trafficking and Violence Protection Act (VTVPA),
said that upon payment, the claims of those individual judgment holders
were “subrogated” to the United States. That means the claims of those
individuals essentially became the claims of the United States
government vis-a-vis the foreign state — in this case, Iran.
This is the actual text, with the key portions highlighted:
“(c) SUBROGATION. — Upon payment under subsection (a) with respect to payments in connection with a Foreign Military Sales Program account, the United States shall be fully subrogated, to the extent of the payments, to all rights of the person paid under that subsection against the debtor foreign state. The President shall pursue these subrogated rights as claims or offsets of the United States in appropriate ways, including any negotiation process which precedes the normalization of relations between the foreign state designated as a state sponsor of terrorism and the United States, except that 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 such subrogated claims have been dealt with to the satisfaction of the United States.”
When lawmakers quizzed State Department lawyer Lisa Grosh in 2016, they were clearly puzzled by this provision, and you can see the two sides talking past each other.
THEN-REP. MICK MULVANEY (R-S.C.): “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?”
GROSH: “No, the funds have remained in the trust fund as Iranian moneys in the trust fund. The United States Congress appropriated $400 million to be paid to these individuals —”
MULVANEY: “Instead of taking the money out of the FMS trust fund, but by doing so we thus own the $400 million.”
GROSH: “No, that’s incorrect, I’m sorry.”
Here’s
the explanation: Just because there are $400 million in subrogated
claims, it does not mean that Iran actually must return that money to
the United States. The text of the law provides for a lot of wiggle
room: U.S. officials “shall pursue these subrogated rights as claims or
offsets of the United States in appropriate ways, including any
negotiation process … until such subrogated claims have been dealt with
to the satisfaction of the United States.” Obama officials say that is
what happened, with the final amount of the settlement — $400 million
plus $1.3 billion in interest — taking into account the subrogated
claims.
John B. Bellinger,
chief State Department lawyer under Condoleezza Rice and before that
legal adviser to the National Security Council for President George W.
Bush, reviewed the law and the congressional exchange over the clause at
our request.
“The
VTVPA does not say that the USG could never release the FMS funds to
Iran; it says the funds could not be released to Iran ‘until such
subrogated claims have been dealt with to the satisfaction of the United
States,’” he said. “I assume that when the Obama administration paid
the FMS funds plus interest to Iran, they concluded that this VTVPA
provision was satisfied.”
The Treasury inspector general (IG) examined the payments and reported on Nov. 10, 2016 that it had received verbal assurance from the Justice Department “that the settlement comports with the VTVPA.” In its semiannual report to Congress in
March 2017, the IG said the payment was made “after receiving necessary
information and authorizations from the Departments of Justice and
State.”
The
Tablet article raised questions about the size of the interest penalty —
$1.3 billion — and called on Treasury to release all documents related
to the payment of the claim, such as the computation of the amount of
interest allegedly owed. (The Treasury IG report indicated that the
State Department relied on a calculation involving the annual prime
lending rate and simple interest method, which seems out of the
ordinary.) We made a request to Treasury for the information, but a
Treasury spokesman declined to provide it because of the ongoing
litigation between the United States and Iran.
Obama
administration officials had claimed that without a deal with Iran, The
Hague tribunal might have imposed an even higher interest penalty on
the United States.
Bellinger
agreed that that was a concern. “There was a significant risk, based on
its judgments in recent years, the Iran-U.S. Claims Tribunal would have
issued a decision awarding a larger amount to Iran,” he said. “If the
tribunal had done that, and the U.S. government was then unwilling or
unable to pay the award, the U.S. would have violated its obligations
under the Algiers Accords.” He said “it was prudent to settle the
claims, even if it required the U.S. to take the highly unpalatable
action of making a payment to Iran.” (The Algiers Accords were
agreements signed by the United States and Iran in January 1981 to
resolve the Iran hostage crisis.)
The State Department has noted that
under The Hague process, Iran has paid out more than $2.5 billion in
awards to U.S. nationals and companies. With a few exceptions, the major
outstanding claims concern Iran against the United States, heightening
the sensitivity of U.S. officials about discussing the issue. Much as
Trump dislikes Obama’s dealings with Iran, releasing the documents now
might raise the cost to U.S. taxpayers later.
As
for why the transfer was made in cash, given that the previous claims
reached through The Hague tribunal were paid via wire, U.S. officials
have cited the impact of increasingly tough sanctions imposed on Iran.
If time was of the essence, cash was the best way to go.
The Pinocchio Test
Regular readers know we have been willing to award ourselves Pinocchios if
we get something incorrect. But that’s not the case here. One can
certainly disagree with the Obama administration’s decision to send a
jet with cash to Tehran on the same day that American detainees were
released, but the action taken did not violate the law passed by
Congress. Readers, as always, have the option of offering their own
rating below.
Do you rate this claim as true or false?
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