[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
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
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
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
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Oversight and Investigations
SEAN P. DUFFY, Wisconsin, Chairman
MICHAEL G. FITZPATRICK, AL GREEN, Texas, Ranking Member
Pennsylvania, Vice Chairman MICHAEL E. CAPUANO, Massachusetts
PETER T. KING, New York EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina KEITH ELLISON, Minnesota
ROBERT HURT, Virginia JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee JOYCE BEATTY, Ohio
MICK MULVANEY, South Carolina DENNY HECK, Washington
RANDY HULTGREN, Illinois KYRSTEN SINEMA, Arizona
ANN WAGNER, Missouri JUAN VARGAS, California
SCOTT TIPTON, Colorado
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
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
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 2\1/2\ 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.
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
parade; 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 2\1/2\ 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.''
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.
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.
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 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 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.
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
interest-bearing 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 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.
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.
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 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?
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 common-
sense 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?
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 Washington 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?
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?
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--
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--
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 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?
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 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.
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
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).
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?
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
mid-2015 or was it still open-ended?
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.''
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--
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.
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 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 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
facilitate $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.
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.
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?
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.
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 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.
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?
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?
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.
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 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?
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.
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
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.
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?
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.
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?
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--
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 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 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.
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 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.
[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.
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.
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 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 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 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, 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.
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
payment 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 wire-transferred 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.
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
Iranian-American 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 freed frozen accounts. So there has been evidence
of SWIFT wire-transfer 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.
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 diplomacy 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--
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?
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 pretend 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.
And this hearing is adjourned.
[Whereupon, at 1:33 p.m., the hearing was adjourned.]
A P P E N D I X
September 8, 2016
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