[Senate Hearing 114-533]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 114-533


 THE TERROR FINANCING RISKS OF AMERICA'S $400 MILLION CASH PAYMENT TO 
                                  IRAN

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
         NATIONAL SECURITY AND INTERNATIONAL TRADE AND FINANCE

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                                   ON

    EXAMINING THE TERRORISM FINANCING RISKS OF ALLOWING THE ISLAMIC 
 REPUBLIC OF IRAN TO GAIN ACCESS TO LARGE AMOUNTS OF HARD CURRENCY AND 
 THE U.S. GOVERNMENT'S PAYMENTS OF $1.7 BILLION IN FOREIGN CASH TO IRAN

                               __________

                           SEPTEMBER 21, 2016

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs



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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

MIKE CRAPO, Idaho                    SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
DAVID VITTER, Louisiana              CHARLES E. SCHUMER, New York
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
MARK KIRK, Illinois                  JON TESTER, Montana
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina            JEFF MERKLEY, Oregon
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
JERRY MORAN, Kansas

           William D. Duhnke III, Staff Director and Counsel
                 Mark Powden, Democratic Staff Director
                       Dawn Ratliff, Chief Clerk
                      Troy Cornell, Hearing Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor

                                 ______

 Subcommittee on National Security and International Trade and Finance

                     MARK KIRK, Illinois, Chairman

        HEIDI HEITKAMP, North Dakota, Ranking Democratic Member

TOM COTTON, Arizona                  MARK R. WARNER, Virginia
BEN SASSE, Nebraska

                Brett Quick, Subcommittee Staff Director

        Craig Radcliffe, Democratic Subcommittee Staff Director

                                  (ii)


































                            C O N T E N T S

                              ----------                              

                     WEDNESDAY, SEPTEMBER 21, 2016

                                                                   Page

Opening statement of Chairman Kirk...............................     1

Opening statements, comments, or prepared statements of:
    Senator Heitkamp.............................................     3

                               WITNESSES

Michael B. Mukasey, Former Attorney General of the United States.     4
    Prepared statement...........................................    22
    Responses to written questions of:
        Senator Sasse............................................    36
Eric S. Edelman, Counselor, Center for Strategic and Budgetary 
  Assessments, Cochair, Iran Task Force at JINSA Gemunder Center, 
  and Former Under Secretary of Defense for Policy...............     6
    Prepared statement...........................................    23
Suzanne Maloney, Deputy Director, Foreign Policy, and Senior 
  Fellow, Center for Middle East Policy, Energy Security and 
  Climate Initiative, The Brookings Institute....................     8
    Prepared statement...........................................    28

              Additional Material Supplied for the Record

Additional material submitted by Chairman Mark Kirk..............    38

                                 (iii)

 
 THE TERROR FINANCING RISKS OF AMERICA'S $400 MILLION CASH PAYMENT TO 
                                  IRAN

                              ----------                              


                     WEDNESDAY, SEPTEMBER 21, 2016

                                       U.S. Senate,
         Committee on Banking, Housing, and Urban Affairs, 
 Subcommittee on National Security and International Trade 
                                                and Finance
                                                    Washington, DC.
    The Subcommittee met at 10:30 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mark Kirk, Chairman of the 
Subcommittee, presiding.

            OPENING STATEMENT OF CHAIRMAN MARK KIRK

    Chairman Kirk. The Subcommittee will come to order.
    The subject of today's Subcommittee hearing is the 
financing dangers of the $1.7 billion in cash payments to Iran.
    In August and September of 2016, the Wall Street Journal 
revealed that the Administration had secretly airlifted $400 
million to Iran in January of 2016, and another $1.3 billion to 
Iran weeks later, and the total $1.7 billion payment was made 
all in foreign currency. To get a sense of just how much cash 
we sent to Iran, look at this chart. A stack of $400 million in 
500-euro notes is--would total 264 feet tall. The $1.3 billion 
in 500-euro notes equals two stacks that are 430 feet tall. For 
comparison, the Tribune Tower in my home of Chicago is about 
462 feet tall.
    Then, last Sunday, we learned that the Administration had 
made at least two wire transfer payments to Iran prior to 
January of 2016. In July of 2015, the U.S. wired $848,000 to 
Iran to settle a museum dispute involving art and fossils. 
Then, in April of 2016, the United States wired $9 million to 
Iran as part of the deal to move 32 metric tons of heavy water 
from Iran's nuclear program. These United States wire payments 
contradict the President's claim that the United States had 
prevented--was prevented from paying Iran any other way besides 
cash. These wire transfers also raised questions of why we paid 
Iran in cash, and when we would have used--when we should have 
used safer payment methods.
    The January of 2016 cash airlift came at the same time as 
Iran released four illegally detained Americans, including the 
Washington Post reporter, Jason Rezaian, and Amir Hekmati, a 
former Marine from Arizona, and Pastor Saeed Abedini of Idaho. 
The American people are obviously relieved that four U.S. 
citizens have come home after being illegally detained by the 
Iranian Government, and the White House had led us to believe 
that it had actually released these people solely after the 
release of seven Iranians convicted, or accused of violating 
United States sanctions law, and the removal of 14 Iranians 
from Interpol's Extradition Watch List. We now know that this 
was not a prisoner for exchange--prisoner for hostage exchange. 
It was a cash for hostages deal with Iran.
    The $1.7 billion in cash payments that Iran has been--after 
$1.7 billion in cash payments, Iran has been emboldened. Iran 
has taken more American hostages, including Baqr Namazi and 
Reza Shahini. As this chart shows, on August 22nd, the State 
Department issued a warning that Iran is looking to seize and 
detain more American citizens.
    Iran conducted multiple ballistic tests on March 8th and 
March 9th and on April 19th of 2016. On August 20, 2016, Iran 
announced the formation of its Shiite Liberation Army, a new 
foreign legion to fight Iran's sectarian wars in Syria and 
Lebanon and Yemen. On September 6th, Iranian fast-attack boats 
harassed United States Navy ships in the Persian Gulf, and on 
September 15th, Iran threatened to shoot down two U.S. 
reconnaissance planes in the Persian Gulf.
    What also worries many Americans is that the White House 
just handed over $1.7 billion in cash to the world's biggest 
State sponsor of terrorism, according to the State Department's 
June 2016 Terrorism Report, on top of all the cash that the 
Administration released during and after these negotiations.
    Why should we care? We should care because hard cash is the 
preferred currency of terrorism. As this chart shows, in the 
worst-case scenario the Foundation for the Defense of 
Democracies estimates that we released to Iran as much as $33.6 
billion in cash and precious metals to Iran. That is enough 
cash to circle the Earth four times in $100 bills. That is 
enough cash for Iran to fund Hezbollah terrorists for 168 years 
at the current funding levels.
    We should care because Iran and its terrorist proxies have 
killed more Americans than ISIS has. As this chart shows, on 
October 23, 1983, Iran-backed terrorists killed 241 Americans 
in the Beirut bombing, including Marine Sergeant John Phillips 
of Wilmette, Illinois, that I went to church with. General 
Joseph Dunford has said that Iran-backed militants have killed 
some 500 U.S. service men and women in Iraq and Afghanistan. 
Armed with billions in cash, how much more harm could Iran and 
its terrorist allies do to Americans in the free world?
    For comparison, the New York Times estimates that al 
Qaeda's 9/11 attacks caused $55 billion in direct physical 
damage and $123 billion in the direct economic impact, and that 
is on top of the 2,996 families that did not have their loved 
ones returned to them. Six thousand people were also wounded on 
9/11. Al Qaeda did all that damage on just a half-million 
dollar budget. What could Iran and its terrorist allies do with 
tens of billions in cash, I would ask? How do we lower the 
terrorism risks of the Administration's billions of dollars in 
cash payments to Iran?
    We welcome three witnesses now who will help us think 
through some more of these issues. I first want to say this. 
The Subcommittee invited the Treasury Department to testify on 
this panel but the Administration declined to send a witness.
    I am delighted to have with us today Judge Michael B. 
Mukasey, who has served as the 81st Attorney General for 
President George W. Bush; and Ambassador Eric S. Edelman, who 
was the former Under Secretary of Defense for Policy, who is 
now a Distinguished Fellow at the Center for Strategic and 
Budgetary Assessments and Cochair of the Iran Task Force at 
JINSA; and Dr. Suzanne Maloney, the Deputy Director for Foreign 
Policy and Senior Fellow at the Center for Middle East Policy 
at The Brookings Institute.
    A housekeeping note, I will follow the early bird rule, 
alternating by both sides, and we will open it up for five-
minute question rounds. I would now recognize the junior 
Senator for North Dakota, for her opening remarks.

              STATEMENT OF SENATOR HEIDI HEITKAMP

    Senator Heitkamp. Thank you, Mr. Chairman, and my great 
hope is that this Subcommittee hearing can play a constructive 
role in providing oversight of the Administration's recent 
actions related to Iran.
    I think there is no doubt that an unchecked Iran poses not 
just a threat but a grave threat to the national security of 
the United States and our allies. This is why it is so 
important to implement tough, smart policies related to Iran, 
whether it is to open up relationships and have a discussion 
about their nuclear program or whether it is to cutoff 
financing for its support of terrorism, or to fight back 
against its actions, which are clearly providing a 
destabilizing effect in the Middle East.
    The Administration's decision to complete a payment owed to 
Iran, as part of a settlement of a 35-year-old dispute, at the 
same time that the nuclear deal was being implemented and Iran 
was releasing five wrongfully detained Americans involves many 
of these issues and raises many of these questions.
    Our focus today should be on whether this decision advances 
the national security interests of the United States. It should 
be not on scoring political points. Did the payments comply 
with the law? Were they in the President's authority to make? 
Did the Administration's decision contribute, at long last, to 
the release of innocent Americans? Did the payment to settle 
the long-standing claims at the Hague Tribunal actually save 
the U.S. taxpayers money? How can we counter Iranian efforts to 
fund terrorism or other illicit activity?
    These are the questions that we should be asking, and I 
hope this hearing can shed some light on those answers.
    We also need to not lose sight of the actions Congress must 
take and can take to make Americans and this world safer. With 
the expiration of the Iran Sanctions Act at the end of the 
year, it is a legitimate debate whether the Administration 
needs additional authorities to prevent Iran from backsliding 
on its nuclear deal and to continue to hold Iranians' feet to 
the fire on the development of ballistic missiles, support for 
terrorism, and, importantly, violations of human rights.
    But maybe the most important thing that we need to do 
today, if we were going to take action, would be to confirm 
Adam Szubin. I think everyone who has ever met Adam Szubin, 
anyone who has had any interaction, knows that this country is 
safer if Adam Szubin is the confirmed--confirmed in the job 
that he currently occupies. He is an amazing young man. I look 
at the Adam Szubin problem not just in the context of are we 
serious about terrorism, are we serious about putting a steady 
hand in that job, that can, in fact, enforce and understand and 
build international relationships to maintain the sanction 
regime, but are we serious about attracting the best and 
brightest human beings to public service in the most critical 
jobs? And so I do want to make the point that Adam Szubin's 
confirmation would go a long way to making me sleep better at 
night, knowing that this young man feels appreciated.
    But I look forward to the testimony. I want to thank you 
for your time. It is always amazing that we are able to get 
volunteers to appear, especially volunteers of the stature that 
we do, and I thank the Chairman for holding this important 
hearing.
    Chairman Kirk. Thank you. We would like to now turn to our 
three witnesses. I will now recognize our witnesses for their 
opening statements. Judge Mukasey will go first, and will be 
followed by Ambassador Edelman, and then Dr. Maloney.

STATEMENT OF MICHAEL B. MUKASEY, FORMER ATTORNEY GENERAL OF THE 
                         UNITED STATES

    Mr. Mukasey. Thank you, Mr. Chairman, and thank you, 
Ranking Member Heitkamp, and thank you for having this hearing, 
which I think, as the Ranking Member pointed out, helps fulfill 
a very important function of Congress, which is oversight of 
the Executive.
    I submitted a written statement. I do not want to waste 
your time by simply going over the substance of it. It is 
essentially a catalog of questions about this transaction, 
questions that, many of which are subsumed within a letter that 
Chairman Ed Royce of the House Foreign Affairs Committee sent 
to the Secretary of State back in February, questions that I 
believe have not yet been answered.
    What I want to do is focus principally on--not on, 
necessarily the payment itself, and particularly the form that 
it took. The Ranking Member asked several questions in her 
opening remarks, one of which was, was it within the law? I 
think it was. Was it within the authority of the President? I 
think it was. Did it result in the release of Americans? There 
has been a big dispute about whether this has resulted in the 
release, i.e., payment of ransom, and I am not going to get 
into that here. There is no doubt that people were released 
concurrent with the payment, and to the extent that it speeded 
that release, that release obviously was welcome.
    Did it save money? It may very well have saved money, but 
that, I think, raises an old saying about being penny wise and 
pound foolish. The question is not whether it saved money. The 
question is whether it had to be made in the form that it was 
made, and what is going to result from that.
    I suggest to you that what is going to result from that is 
nothing good. We initially heard that it had to be made in that 
form because we cannot wire money to Iran. We have no way of 
getting them money other than in pallets of cash. As the 
Chairman pointed out, the facts directly rebut that. There have 
been wire payments to Iran. It could easily have been 
transferred to a country that does do business with Iran, and 
that could have put the money in a bank account. That was not 
done.
    There is only one purpose for which cash in that amount is 
useful, and that is to do what Iran has been doing around the 
world, which is acting as a sponsor of terrorism. It is not 
useful for infrastructure projects, which we were told are very 
much the concern of the Iranians because of their economy. 
Iranians do not pay Iranians in euros and Swiss francs. As far 
as purchasing equipment overseas, paying the money by--paying 
money that was transferred to Iran, out of Iran, in cash, is 
not the most economical or the most convenient way to pay for 
equipment that you need in connection with infrastructure 
projects. That is much easier to do in a bank account.
    The only conceivable purpose for this money is to finance 
illicit activities, because the cash is untraceable. That is 
the reason that the Iranians insisted on it, and why we agreed 
to it is something that I think this Committee ought to probe, 
because I believe there are no good reasons for having agreed 
to it.
    In addition to the considerations that I pointed out in my 
statement, I should point out that there is present in the 
world another rogue State, North Korea, that is cash-starved 
and that has an active nuclear program. The Iranians, of 
course, we know have an active missile program--ballistic 
missile program, a program that is not useful for any purpose 
other than to deliver a nuclear weapon. So the question then 
becomes, do they intend to continue their nuclear program, in 
part, with the use of this kind of money? And when you have a 
cash-starved country like North Korea, that is conducting 
nuclear tests--in fact, conducted one this month, that poses a 
distinct danger.
    We know that the North Koreans have proliferated in the 
past. Back in 2007, they built a reactor in Syria that clearly 
was not for the Syrians. Syria is and has been an Iranian 
client State. They built a reactor in Syria. The Israelis were 
nice enough to demolish it. But clearly the North Koreans have 
the capacity and the inclination to proliferate, when they 
think it is worth their while. And when Rouhani and his folks 
are sitting there with $1.7 billion in their jeans, it can be 
made very much worth their while, in addition to which, that 
kind of money is going to buy a lot of dead Westerners, and I 
think that we ought to examine why the payment was made in that 
form, and that is really my principal concern.
    And with that I will relinquish the balance of my time. 
Thank you.
    By the way, I should add one more point, and that is you 
mentioned Adam Szubin. I share your high regard for Adam 
Szubin. In fact, he was the person who first made the point, in 
response to a question that I asked him about the usefulness of 
the Iranian ballistic missile program. He acknowledged that the 
only conceivable reason for having a ballistic missile program 
is to deliver a nuclear weapon. And for that candor and for his 
talent, I agree with you. He is a very able public servant and 
we are lucky to have him.
    Chairman Kirk. Ambassador Edelman, let me ask you a 
question.
    [Pause.]
    Chairman Kirk. OK. Go ahead.

 STATEMENT OF ERIC S. EDELMAN, COUNSELOR, CENTER FOR STRATEGIC 
 AND BUDGETARY ASSESSMENTS, COCHAIR, IRAN TASK FORCE AT JINSA 
  GEMUNDER CENTER, AND FORMER UNDER SECRETARY OF DEFENSE FOR 
                             POLICY

    Mr. Edelman. Thank you, Mr. Chairman, and thank you, 
Senator Heitkamp, for giving me an opportunity to be here 
before the Subcommittee to talk about the $1.7 billion cash 
payment to Iran in January and February of 2016.
    Normally, the risks of the world's largest--of providing 
the world's largest State sponsor of terrorism with such funds, 
concurrent with the release of unfairly and illegally detained 
U.S. citizens would trigger a pretty robust debate in the 
United States, but I think given the unusual nature of this 
election season, there has not been enough attention devoted to 
this, so I really commend you for holding this hearing.
    I want to talk a little bit about the specifics of the 
transfer and also the larger context in which this took place, 
and I have got a longer written statement that I have submitted 
which I hope will be included in the permanent record of the 
hearing, Mr. Chairman.
    The United States negotiated with Iran to repay funds that 
were originally deposited in--with the United States as part of 
the FMS sales program back in the Shah's era. So this was 
something that had been going on for quite some time. The 
settlement involved not only $400 million of Iranian money 
deposited but $1.3 billion of interest that was calculated as 
being what might be awarded by the tribunal that has been set 
up as a result of the Algiers Accord despite the fact that the 
FMS account itself--we do not let those accrue interest. I know 
that from my time as Under Secretary of Defense.
    The thing that is important about this transaction, in my 
view, is that both U.S. and Iranian officials acted as though 
the initial $400 million payment was crucial to getting the 
Americans to safety. Despite having readied the hostages for 
release the day before, we now have testimony from one of the 
hostages himself that they were kept overnight at the airport 
as an assurance that the planeload of money was on its way. 
Conversely, we now know, from statements by--public statements 
by State Department spokesman, John Kirby, that the 
Administration was also using the delivery of the money as 
``leverage.''
    So if both sides of the transaction believed that the money 
was crucial to the return of the hostages, I can only say--not 
as a lawyer, because I am not a lawyer and I do not play one on 
TV--but as a diplomat, it looks and sounds like ransom to me.
    Fundamentally, the United States should never pay ransom 
for hostages. My old boss, George Schultz, stated this problem 
clearly when he wrote in his memoirs, ``We should always be 
willing to talk to any credible person about our hostages. 
Hostages should know we would never cease our efforts to gain 
their release. But we owe the millions of Americans at risk 
throughout the world that they will not be turned into targets 
by the known willingness of our Government to pay money, sell 
arms, pressure another Government to pay money, or in any other 
way make it profitable to take Americans hostages.''
    This is particularly a problem, I would say, in a regime 
like--with a regime like Iran's, where hostage-taking and 
ransom-seeking are a core element of statecraft, going back to 
the 1979 hostage crisis, which was the occasion, of course, for 
the suspension of foreign military sales to Iran to begin with. 
And this is something, I think, that as the Chairman noted in 
his opening statement, the State Department itself has taken 
recognition of by issuing a travel advisory, reiterating the 
risks of unjust arrest and detention to U.S. citizens traveling 
in Iran.
    The manner in which the payment was made should also raise 
concerns. The use of an unmarked cargo plane filled with 
pallets of cash, apparently accompanied by U.S. officials, and 
kept secret for a long time by the Administration certainly 
supports the impression that this was ransom. Apparently some 
participants in the interagency deliberations about this, as 
reported in the press, were, you know, concerned about this as 
well, and expressed opposition to the transaction taking place 
in this way. I know, if I were still in Government, and had 
been participating in the interagency transactions, I would 
have seen this as providing continued support to Iran's 
militarily disruptive and destabilizing activities throughout 
the region.
    Moreover, since cash is fungible, the payment could 
obviously be used, as General Mukasey was just discussing, to 
subsidize Iran's ongoing support for terror.
    My time is running out so let me just make one more point. 
This issue, to me, is symptomatic of something broader, that 
goes beyond the release of the hostages and the return of the 
money from the FMS account. It is that Iran has been holding 
U.S. policy hostage with regard to the JCPOA, and it has done 
that because the Administration has been willing to allow, you 
know, Iran to hold the fact that the Administration regards the 
JCPOA as so important to demand more and more concessions from 
the United States, whether it has to do with transparency, or 
whether it has to do with payments in cash. And by bending over 
backwards to fulfill Iran's demands, the Administration has 
lost all credibility in its statements that it will maintain 
pressure on Iran to forswear terrorism and stop its efforts at 
regional destabilization, something that Senator Heitkamp was 
adverting to in her comments.
    I will not go through the list--it is in my statement of 
the various instances of bad behavior that the Chairman 
mentioned. I would add to what he said, the harassment of U.S. 
naval forces in the Gulf, the taking of the U.S. Marines 
hostage--or Navy sailors hostage, at gunpoint in January, which 
a Navy investigation subsequently determined was illegal.
    And, finally, let me end on a note that Senator Kirk, in 
his opening statement as Chairman, touched on, which is what we 
do not know--and this goes to, I think, the issue of oversight 
for the Subcommittee--what we do not know is exactly how much 
cash has now been transferred. Clearly there were some wire 
transfers. Clearly there were some cash transfers. And I think 
given the risks that General Mukasey has outlined, that I have 
outlined in my statement, it is imperative for the Committee, 
in its oversight responsibilities, get to the bottom of exactly 
how much cash has been transferred, why it was done, and to 
have a really clear conversation with the American people of 
what the risks are.
    Chairman Kirk. Dr. Maloney.

STATEMENT OF SUZANNE MALONEY, DEPUTY DIRECTOR, FOREIGN POLICY, 
   AND SENIOR FELLOW, CENTER FOR MIDDLE EAST POLICY, ENERGY 
    SECURITY AND CLIMATE INITIATIVE, THE BROOKINGS INSTITUTE

    Ms. Maloney. Chairman Kirk, Ranking Member Heitkamp, and 
Subcommittee Members, thank you so much for the opportunity to 
appear today.
    The January 2016 release of five Americans from months, and 
even years, of unjust detention in Iran prompted celebrations 
here and around the world, precisely because the detention of 
these individuals, as well as many other innocents, underscores 
the threats to basic rights and freedoms in Iran today. That 
the detained Americans released was timed to coordinate with 
the settlement of a nearly 40-year-old financial dispute 
between the two countries, and that this settlement included 
payments made via airlift of foreign currency, has prompted 
allegations that the Obama administration paid a ransom to 
Tehran.
    I would like to make four points, quickly, in the time I 
have available.
    First, I do not believe that this was ransom. A ransom is, 
by definition, a payment made to secure the release of a 
detained person. The January 2016 transactions and subsequent 
related payments were, in fact, made to satisfy a legitimate 
debt that the United States owed to Iran. I have gone into 
detail in my written statement about the history of the claim 
against the United States. But to describe the settlement of 
this claim as a ransom is not consistent with the well-
established history, and its arbitration, over the course of 
several decades, in a forum specifically established for that 
purpose. The word ``ransom'' also obscures the source and 
purpose of the payment, which provided Tehran with nothing 
other than its own funds.
    Second, while the timing has clearly stoked controversy, 
the Obama administration's coordination of the settlement to 
facilitate other American priorities with respect to Iranian 
behavior is neither unusual nor surprising.
    Indeed, since 1979, each American President has sought to 
use economic leverage, both penalties and incentives, as a 
central component of the strategy for addressing the challenges 
posed by Iran. This broad blueprint has remained in place over 
the past 37 years. The hostage crisis ended only as part of a 
carefully crafted set of diplomatic and financial arrangements, 
and Presidents Reagan, Bush, Clinton, and George W. Bush, as 
well as President Obama, have each used various measures of 
transactional diplomacy with Iran to secure American interests. 
These have never precluded the intensification of sanctions or 
the use of military force or other coercive measures. These are 
not mutually exclusive policy approaches.
    Third, I believe that the settlement of this claim and the 
broader diplomacy toward Tehran have advanced the United 
States' national interest. Further delaying the settlement 
would not have obviated its eventual conclusion and might have 
resulted in a higher judgment. And while the mechanics of these 
payments have generated controversy, had the method of payment 
differed, the beneficiary would still have been the same. 
Washington's limitations and constraints on the ability to 
track these funds would have been similar, irrespective of the 
mode of payment.
    It is galling to settle a debt that provides a benefit to a 
regime that remains fundamentally dangerous actor toward the 
region and its own citizenry. But the discomforting reality of 
the international system is that the United States has and must 
engage with a variety of Governments whose interests conflict 
with our own. It is short-sighted to view the settlement of a 
largely forgotten financial dispute with Iran's post-
revolutionary Government as a real victory for Tehran or its 
leadership. The price that Iran has paid, and notably will 
continue to pay, for its recalcitrance on the nuclear issue, 
its support for terrorism, destabilizing actions around the 
region, and its treatment of its own citizens, including dual 
nationals, vastly outstrips the repayment of this debt.
    Finally, I want to speak to the issue and the concern that 
this settlement will provoke additional hostage seizures by the 
Iranians. I understand why such inferences have been drawn, and 
the appeal of imputing a kind of rational calculus to Iran's 
treatment of its dual nationals. In my view, this reflects an 
inaccurate assessment of the drivers of Iranian politics. I see 
no evidence that Iran's long-standing patterns of human rights 
abuses, inadequate rule of law, and exploitations of 
individuals are subject to the logic of financial incentives.
    Even after the prisonor release in January, Americans 
remain missing or detained in Iran: Robert Levinson, a retired 
U.S. Government employee who has been missing since 2007; my 
good friend, Siamak Namazi and his 80-year-old father, lured 
back to Tehran in February; Robin Shahini and U.S. permanent 
resident, Nizar Zakka, who was recently apparently sentenced to 
a 10-year term on trumped-up charges of espionage. Add to that 
list many other dual nationals, and I would surely exhaust my 
time before you today.
    But in these arrests, I would assert that there is no 
attempt to extort, to method to the madness. Only one factor 
drives the detention and seizure of Americans and other dual 
nationals: the deep-seated paranoia of the Islamic Republic.
    Finally, these detentions and Iran's other policies may be 
tempting to see an indictment of the Obama administration's 
policy toward Tehran. The rewards of diplomacy with the Islamic 
republic, while as yet limited, should not be dismissed out of 
hand. Tehran's pathway to a nuclear weapons capability has been 
extended significantly for at least a decade, and an onerous 
inspections and verifications regime has been put in place.
    Five Americans were able to leave the confines of Iran's 
most notorious prison and are with their families today. It is 
possible to see in other developments, including recent efforts 
to comply with multilateral counterterrorism financing 
requirements, as evidence of a creeping recognition among the 
Iranian leadership that meaningful rehabilitation on the world 
stage will require adherence to the norms of the international 
system. It is not an end but it is a beginning.
    Thank you.
    Chairman Kirk. Thank you. I think we will begin 
questioning.
    I wanted to ask Ambassador Edelman a question.
    Do you see any irony in the decision by the European Union, 
made this year, to cancel the printing of the 500-euro note? 
This is a stack of 75,000 euros worth of 500-euro notes, what I 
would urge you to never ever spend anywhere near North Dakota.
    Do you see any irony in the European Union canceling--
discontinuing the 500-euro note because it was so involved in 
money laundering and terrorism?
    Mr. Edelman. Well----
    Chairman Kirk. I would say that in the case of $400 
million, that--if you do the math it is 800,000 500-euro 
notes----
    Mr. Edelman. Right.
    Chairman Kirk. ----that have just been discontinued because 
the EU itself feels that those notes are very useful in money 
laundering and terrorism.
    Mr. Edelman. Yeah. I was aware, Senator Kirk, that the EU 
was taking that step, and for the reasons that you have 
outlined, which is that it has been a problem for the European 
Union in terms of money laundering. So, yes, it is certainly an 
irony that we sit here today talking about the use of, you 
know, of 500-euro notes in order to pay off this debt.
    I do want to take issue, if I might--I mean, I have great 
respect for Dr. Maloney and her expertise on the Iranian 
economy, in which she is unsurpassed. But I do not think it is 
completely correct to say that the money that was returned to 
Iran was all Iranian money. Yes, the $400 million that was paid 
back were Iranian monies that went into the FMS account. The 
$1.3 billion, however, was U.S. taxpayer money from the 
judgment fund, and it was--you know, it was essentially imputed 
interest that the Administration concluded it should pay 
because it would avoid a potentially larger payment if this 
went to the tribunal. And it is really for the Administration 
to answer the question of why they believed that, why they 
believed it in this timeframe, et cetera, after, you know, 35 
years of this discussion going on.
    Chairman Kirk. I wanted to ask Judge Mukasey a question 
here.
    Ambassador Edelman has--American--has Americans as victims 
of terrorism, recovered a roughly $55 billion judgment under 
U.S. court agreements. Do you think that maybe, that we should 
have satisfied that judgment prior to providing $33 billion in 
cash to the Iranians?
    Mr. Mukasey. I think there is lively case to be made for 
balancing whatever our obligations were to the Iranians, based 
on their deposit, with the judgments--numerous judgments--
outstanding against them, that they have bobbed and weaved and 
avoided satisfying. And from what I understand, that was not 
even a talking point in these discussions.
    There are hordes of deserving U.S. plaintiffs who have not 
recovered money, simply because the Iranians are very adept at 
keeping sovereign funds out of the reach of U.S. courts. But 
certainly the leverage, whatever leverage we had, might have 
been exercised in favor of satisfying some of that obligation 
as well.
    Chairman Kirk. Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman, and thank you 
all for your testimony. I do want to note, kind of for the 
record, we know that Mr. Szubin was invited to attend, would 
have attended, probably, if he were not traveling today, and 
doing the important work that he has, in terms of maintaining 
our sanctions regime.
    And thank you for your kind comments, Attorney General. I 
like calling people attorney general because I think it is a 
very high calling, as the former attorney general from North 
Dakota.
    You know, and I hate to do this, because I am going to talk 
about a series of hypotheticals, and I want to ask what if, and 
you are obviously both very critical of the action the 
Administration took. What if the Administration had made this 
payment but it were in wire transfers? Would you feel any 
differently about this payment? And if you can just do yes or 
no, that would be great.
    Attorney general?
    Mr. Mukasey. Yes.
    Mr. Edelman. Yes.
    Senator Heitkamp. So if the wire--if they were--if this was 
not a cash transfer you would feel differently about the 
payments. I think we have confirmed that.
    If, in fact, we were ordered, or lost the case in front of 
the Hague Tribunal, would you have thought it was appropriate 
to make a payment without at least discussing, and without--you 
know, we can talk about whether it is ransom. Obviously we are 
settling a claim. But one of the criticisms of the nuclear deal 
was that we did not get more concessions on missiles, we did 
not get more concessions on hostages, you know, that this went 
on without those discussions.
    And so now we are in this ironic place of having settled a 
long-term financial claim that was pending before an 
international tribunal, with the criticism that we did work a 
side deal--and that is my assessment of it--for release of 
hostages.
    So if, in fact, we had been ordered by the tribunal to make 
payment, and that payment included an interest component, do 
either of you believe that we should have made that payment?
    Mr. Mukasey. If awarded by a tribunal, to which--I mean, 
you are----
    Senator Heitkamp. Right. I am saying, let us say that 
instead of settling the claim----
    Mr. Mukasey. Right.
    Senator Heitkamp. ----in the Hague Tribunal, we actually 
took this to full litigation and there was an----
    Mr. Mukasey. And we lost.
    Senator Heitkamp. We lost.
    Mr. Mukasey. Right. If we are ordered by a tribunal, to 
whose jurisdiction we have agreed to do something, then we have 
to do it.
    Senator Heitkamp. Right. So frequently, as you know, as the 
former attorney general, and your whole life in the legal 
arena, when we are looking at a large claim and we are able to 
settle it for much less, that is not necessarily a bad thing to 
engage in the settlement.
    Mr. Mukasey. Correct.
    Senator Heitkamp. Correct. Ambassador?
    Mr. Edelman. Senator Heitkamp, I agree with what my 
colleague just said, but I think the issue here is the 
conflation of that settlement with the release of the hostages, 
and I think that is why even members of the Administration, 
according to the Wall Street Journal, thought that this looked 
like a ransom, and therefore were opposed. People in the 
Justice Department, reputedly, were opposed to this, and I 
would have agreed with them.
    Senator Heitkamp. Yeah. I think that we are in that spot 
where we are looking at motivation as opposed to kind of 
looking at it from a legal standpoint. Obviously, there is 
legitimacy to the argument that there was a claim pending in 
front of the Hague Tribunal, that claim had been pending for a 
numbers of years, we settled the claim, and, oh, by the way, we 
also were able to secure the release of the hostages.
    So I think we need to be--if the answer is we should have 
settled the claim and not tried to get Americans home, I think 
there would be a lot of people on the other side equally 
critical of that decision, even though it appears, or there is 
an appearance of impropriety as it relates to payment of 
ransom.
    Would you agree with that?
    Mr. Edelman. No, Senator Heitkamp, I do not agree with 
that. I think the issue here is not that no one wanted to get 
Americans back. People did, obviously, want to get Americans 
back. The issue is what means you use to get them back. And if 
the means you use is paying the Iranian Government off, in 
anticipation of a judgment that has not yet been rendered, and 
which--I mean, if it were rendered I agree with General 
Mukasey; we would obviously have to abide by it. But it had not 
been rendered. The Administration has made the argument that it 
was imminent and it was going to happen soon, and it was going 
to lead to larger cost--possibly. I would like to know the 
rationale for that statement, because I do not think it has 
ever been provided.
    Senator Heitkamp. I think having been someone who was--have 
been historically involved in some pretty high-profile 
settlements, hindsight is always 20/20 and there is always 
judgment on whether we could have done better, whether we 
should have held out. I think that this is a judgment that was 
made by the Administration that they were actually saving 
taxpayer dollars. We will never know because we will never see 
the ultimate litigation.
    But, I mean, I think it is important to get your opinion, 
that the troublesome piece of this really has been the cash 
transfer and not necessarily the payment, had the payment been 
ordered by the court or the payment--had the payment been done 
with a wire transfer.
    So thank you for you comments. Maybe in a second round we 
will get a chance to talk about what the future looks like, in 
terms of Iranian policy, which I think is one of the great 
opportunities that we have in this hearing today.
    Chairman Kirk. Mr. Toomey.
    Senator Toomey. Thank you, Mr. Chairman, and thank you to 
the witnesses for being here.
    A question for Dr. Maloney. Is it your view that if that 
unmarked cargo plane carrying pallets of stacked cash had never 
landed at its destination that the Americans would, 
nevertheless, have been released at that time by the Iranians? 
Is it just a coincidence?
    Ms. Maloney. I do not believe it is a coincidence. I 
believe, in fact, that the timing of three rounds of diplomacy, 
three different channels of diplomacy, one focused on the 
implementation of the nuclear deal, one focused on the 
settlement of this long-standing dispute, and one focused on 
the efforts to release Americans unjustly detained in Iran was 
deliberately converged in order to try to expedite the set of 
American priorities----
    Senator Toomey. So--OK.
    Ms. Maloney. ----that were intended at all.
    Senator Toomey. So if the cash had not landed, the 
Americans would not have been released but we should not 
understand that to be a ransom payment. That is interesting.
    Let me ask a question about the fund from which this 
money--the account from which this money was released. It is my 
understanding that the Foreign Military Sales account held the 
roughly $400 million that the Iranians had paid for some F-14s 
back in the 1970s. However, it is my understanding that in 
2000, Congress passed the Victims of Trafficking and Violence 
Protection Act, and that that law prevented the U.S. from 
paying Iran the money--I think it was $377 million at that 
time, in the FMS account--prevented that money from going to 
Iran unless and until outstanding judgments were first paid. My 
further understanding is that President Clinton authorized the 
Treasury to pay out something like $380 million at the end of 
2000, to settle several outstanding judgments.
    Now, if this is the case, then what money was left in the 
FMS account? Ambassador Edelman, do you have--can you shed any 
light on this, because it is not clear to me that there was 
$400 million of Iranian money anymore, since, by U.S. law, it 
was used to settle judgments.
    Mr. Edelman. Senator Toomey, I cannot shed any light on 
that, really. That would be someone from DSCA would have to, 
you know, let you know what was in that account. I do not know. 
What I do know is what I have read in the Wall Street Journal 
article about how this all transpired.
    Senator Toomey. General Mukasey, does--can you----
    Mr. Mukasey. I cannot shed any light on it. I do not--it is 
obviously the people who administer that account, who are 
either in the Treasury Department or the Defense Department--I 
am not sure which--Defense Department--would be expert on what 
was there and what was not.
    Senator Toomey. I think it would be interesting to find 
out.
    Mr. Mukasey. I should think it would be, and that is one of 
the questions that I think, in the catalog of questions, that 
bears exploration.
    Senator Toomey. Another question that comes to mind is, did 
the--JPOA, as I understand it, authorized the release of $700 
million per month to Iran, from various escrow accounts held by 
various foreign nations. Did that money have to go by cash, or 
was that money money that was sent by wire transfer? Do we 
know? General Mukasey.
    Mr. Mukasey. I believe there is--there has been money sent 
by wire transfer. Whether it was that money or other money, I 
do not know. But certainly the JCPOA does not--I have read the 
JPOA and it does not specify cash.
    Senator Toomey. Ambassador.
    Mr. Edelman. Yeah. Senator Toomey, I do not know the answer 
to that question and I think that, really, that is something 
that Senator Kirk adverted to at the outset, which is we do not 
know how much cash has actually been transferred to Iran and it 
would be an interesting question to get an answer to from the 
Administration.
    Senator Toomey. And the other question that comes to mind 
is, if this money were transferred by wire transfer, then why 
was it necessary for the Administration to transfer funds 
exclusively in cash, subsequently?
    This is--does this make sense, to--Ambassador Edelman to 
you, or----
    Mr. Edelman. The President has said, on--you know, in his 
press conference, that there was no mechanism to get cash, or 
get money to Iran through the regular international financial 
system, but we know, just from stories in Politico the other 
day, that, in fact, there have been wire transfers of money, 
and we have had settlements under the tribunal. So it does not 
appear to me that cash was the only mechanism available. It was 
the mechanism that was decided upon for this transaction and 
that is one of the issues which I think, again, the Committee 
is well within its rights to get, you know, a more detailed 
answer from the Administration.
    Senator Toomey. Well, and further to that point, didn't the 
Administration recently admit that they sent electronic fund 
transfers to order--to Iran, when they decided to pay Iran 
for----
    Mr. Edelman. The heavy water.
    Senator Toomey. ----complying with the agreement, the terms 
that they already were obligated to comply with, without having 
had to be paid to comply with it. Was not that done by wire 
transfer?
    Mr. Edelman. That is my understanding, Senator Toomey. It 
is something I mentioned in my written statement.
    Senator Toomey. Well, this continues to be very mysterious 
and I think the American people deserve to get some answers 
here. Thank you very much to the witnesses for helping out.
    Chairman Kirk. Mr. Menendez.
    Senator Menendez. Thank you, Mr. Chairman, and to Ranking 
Member Heitkamp for holding an important hearing and the 
invitation to attend, even though I am not a Member of the 
Subcommittee, but as a Member of the full Committee I very much 
appreciate the opportunity. And I certainly want to salute you, 
Mr. Chairman, for your long-term interest in Iran and your 
partnership with me for some time, in pursuing Iran's nefarious 
desires for nuclear power but not for domestic consumption but 
for nuclear weapons. So I appreciate your work in that regard.
    I have focused a lot of attention, both on this Committee 
and on the Senate Foreign Relations Committee, on taking steps 
to stop Iran's ability to finance terrorist organizations and 
operations, and I am disappointed that we do not have a 
representative from the Administration here today, because some 
of these questions are--can be speculated by our private and 
distinguished panel but they cannot be spoken to with authority 
unless we had somebody from the Administration.
    Today's hearing, focusing on cash payment to Iran for 
claims relating to unresolved arms sales during the time of the 
Shah, these payments were made at the exact same time we 
exchanged Iranian prisoners for Americans unjustly held in 
Iran. And while I rejoice in the fact, whenever an American who 
should not have been a hostage in the first place can be 
released and brought back safely, I am always concerned about 
what our policy is in the world as it relates to how we deal 
with achieving the release of hostages, because once one is 
paid for the purposes of releasing a hostage, that is a 
precedent with almost unlimited consequences, because you just 
simply, in essence, put, you know, a target on the back of 
Americans to say, acquire them, and then they--you can get 
money for them, or other concessions.
    And that is a risk, which is why, if the Administration has 
good answers to this, that is fine, but there are legitimate 
policy questions that are raised by the nature of the concern 
of what happened in that regard.
    Let me just say, I want to take an opportunity to reiterate 
my concern for Robert Levinson, an American citizen who 
mysteriously disappeared in Iran almost 10 years ago. Robert's 
daughter, Sarah, is a constituent of mine, as is her 3-year-old 
son, who has never met his grandfather. In fact, Robert has not 
met five of his six grandchildren. Throughout various 
revelations about this prisoner exchange we have learned the 
State Department repeatedly raised concerns about American 
citizens wrongfully detained in Iran, and I would urge the 
State Department, who I hope is listening, and anyone here who 
might be able to help, to continue to press the Government of 
Iran to fully cooperate in our efforts to find Robert and bring 
him home.
    Now, there are a lot of moving pieces to the underlying 
essence of the purpose of this hearing, and I certainly am as 
concerned as anyone else about what exactly took place and for 
what purposes. That there was a pending tribunal and claim is 
fine. I am dismayed that when I was the Chairman, and the 
Ranking Member, and as a senior Member of the Senate Foreign 
Relations Committee, and as a senior Member of this Banking 
Committee, that not once did the Administration ever share that 
this was a pending item and/or that it was in the midst of a 
potential negotiation. Not once. Not once.
    And maybe that would have taken, you know, some of the 
sting out of the gall but it is just interesting to note that 
there was never once sharing with either the committee of 
jurisdiction or the committee of jurisdiction with sanctions, 
which is this Committee. So, to me, that already creates a 
concern.
    But I would like to ask our witnesses, to the extent that 
they know, did we put any type of mechanism in place, to your 
knowledge, from what you have been able to review, to track 
these funds, the actual monies that were paid to see how, in 
fact, they might be used?
    General Mukasey.
    Mr. Mukasey. Well, the attraction of cash, particularly 
from the Iranian viewpoint, is that it cannot be traced, so 
that unless we put physical traces on the bundles of money, 
which I seriously doubt, or put tracking devices on them, there 
is no way to trace it, and that is the----
    Senator Menendez. You could have marked the bills, right?
    Mr. Mukasey. Pardon?
    Senator Menendez. You could have marked the bills.
    Mr. Mukasey. Sure, you could have marked the bills. On the 
other hand, that is not going to tell you anything until they 
come back to the source. They can circulate for n years, n 
being a large number, before we find out what happened to them, 
if we find out then. Once they are in the hands of the Iranians 
they can use it for any purpose they want, anywhere they want, 
and we are not going to find out about it unless and until it 
comes back, and we get to examine the funds again. So the 
notion of keeping track of numbers, I think, is just--is a 
diversion.
    Senator Menendez. One other area that I am concerned about, 
that does not seem to have been dealt with, Section 2002 of the 
Victims of Trafficking and Violence Protection Act contains the 
provision that essentially says that the President may not make 
payments in connection with a foreign military sales program 
account until claims made against Iran from American victims of 
terrorism have ``been dealt with to the satisfaction of the 
United States.''
    Now, again, I recognize there are no Administration 
witnesses here, which is a question I would have put to them, 
but are any of you aware of such a determination being made, 
and if so, would this--is this notification made in public, or 
would it have been made in public? And would it have gone to 
the State Department or the Department of Justice, who 
ultimately approves payments out of the judgment fund?
    Can any of you speak to that?
    Mr. Mukasey. I do not know of any such determination that 
was made. The closest thing is the certification of the 
attorney general, that the payment was in the interest of the 
United States. One might question a witness from the 
Administration as to whether that determination included a 
determination that the United States was satisfied with the 
record of the Iranians in paying these judgments. That is not a 
judgment that could conceivably have been made by the attorney 
general. She would have had to have gotten that information 
from somebody else.
    Senator Menendez. And to our knowledge, do we know if the 
State Department made such a determination?
    Mr. Edelman. Senator, I am not aware of any such 
determination, and again, I agree with you. This is something 
that it would be particularly interesting to know from the 
Administration.
    The question that General Mukasey just raised, in answer to 
your other question about tracing the money or tracking the 
money, there are press reports that U.S. officials accompanied 
the pallets of cash and turned them over to the Iranians. It 
would be interesting to know, since the money, as I understand 
it, again, from the Wall Street Journal, came from the Central 
Bank of Switzerland and the Netherlands, whether these euro 
notes and other denominations--I am not even sure we know 
exactly what other currencies might have been used here--
whether there was any effort to put some physical tracking 
device on those.
    I mean, these are all questions, some of which would 
obviously have to be----
    Senator Menendez. Mr. Chairman, thank you.
    Mr. Edelman. ----answered in a closed session.
    Senator Menendez. I am just going to close by saying that I 
have concerns. I have often either sponsored or advocated for 
victims of terrorism to have the ability to have the 
opportunity to make their case in court, and if they get a 
judgment to be able to have that judgment attached to the funds 
of those who committed the acts of terrorism. This action took 
place so precipitously, and I do not think this section of the 
law that I cited was dealt with, that those victims of 
terrorism who have outstanding claims and have not been 
satisfied, in the case of Iran, were cheated out of the 
opportunity to have that opportunity and to attach that 
judgment.
    And so I will look forward to, hopefully, at some point, 
having the Administration come before the Committee and 
explaining these issues, because beyond the moment of this, 
there will be a moment tomorrow, and I just want to understand 
whether we are going to pursue the law, and if there are 
interpretations of the law that are different, then we need to 
know them because I, for one, might want to create a more 
hermetic opportunity for the victims of terrorism to have the 
opportunity to pursue an attachment against those who they get 
judgments of.
    Thank you very much.
    Chairman Kirk. Mr. Moran.
    Senator Moran. Mr. Chairman, thank you very much. I, too, 
as Senator Menendez indicated his gratitude to you and to the 
Ranking Member. I am a Member of the full Committee but not a 
Member of this Subcommittee, and I appreciate the opportunity 
to join you here today.
    I want to follow up on what Senator Menendez was 
indicating. I have introduced legislation--it is Senate Bill 
2452--that would prohibit the further transfer of any money to 
Iran until the judgments are satisfied. But let me ask a 
question that would precede that legislation, which is, is 
there any law on the books currently, today, that would 
prohibit what transpired here, until the judgments are 
satisfied? What we know is there is at least 80 terrorism cases 
against Iran under the terrorism exception to the Foreign 
Sovereignty Immunities Act, totaling some $46 billion. And it 
seems to me that, among other problems with what has transpired 
here, the failure to satisfy any of those claims with the money 
being held by the United States is one that is significant.
    But Senator Menendez indicates there is current law that 
may have been violated without a specific finding. Is there--
what is the state of the law today? Anything violated when this 
happened in the--other than what was just described by Senator 
Menendez? General.
    Mr. Mukasey. I do not know of any law that was violated. I 
have written on the subject and my initial view was that no law 
was violated. But what is legal ain't necessarily right, and 
this ain't right.
    Senator Moran. It seems to me that the law should be 
compatible with what is right and wrong. It sometimes is and 
often is not. Again, I would highlight the legislative effort 
and ask my colleagues. Both Senator Kirk and Senator Toomey are 
sponsors of that legislation. But it seems to me we have missed 
a tremendous opportunity to satisfy the claims of American 
citizens against the Iranian Government that are legitimate and 
have gone to judgment.
    Let me ask an additional question in regard to the 
conversation that has taken place. I want to make certain and 
perhaps this has been made clear to others, but I want to know 
the distinction between cash and wire transfers. Both of the 
witnesses, the Ambassador and the general, indicated they would 
reach a different conclusion if this was not a transaction that 
occurred in cash.
    Why is--for the record, why is cash such a desirable 
outcome on the part of Iran, I suppose, and why--what are we 
giving up when we make a payment in cash as compared to a wire 
transfer?
    Mr. Mukasey. I think what we are giving up is our ability 
to detect the use of the money. You transfer something into an 
account. We can monitor that in various ways--some known, some 
not known, and it is a lot easier to monitor the use of money 
that is transferred that way than it is--if I say easier, it is 
impossible to monitor the use of cash once it passes into the 
hands of the person who is going to use it.
    As I said before, we do not find out where that money is 
until it, for some reason, it comes through the bank again or 
it comes through our hands again and we can look and see if we 
can keep track of the serial numbers or whatever.
    Senator Moran. And the reason that we, the United States, 
would want to monitor the use of those--the proceeds of that 
transfer, or the delivery of cash, is to ensure that Iran is 
not violating some agreement, or a set of agreements?
    Mr. Mukasey. Right, and is not using it to finance 
terrorism, which it has a long record of doing. It is one of 
the States that is considered a State sponsor of terrorism. 
They have a branch of the Iranian Revolutionary Guard Corps, 
the Quds Force, that is devoted specifically to that activity. 
The Quds Force--I mean, this is a bonanza for them.
    Senator Moran. First of all I would say, General, that 
while it would be useful to know whether Iran is using these 
proceeds to fund terrorism, the fact that Iran uses its 
capabilities, its financial capabilities to fund terrorists, as 
you say, is known. So it is almost as if we are oblivious to 
that circumstance.
    Is there part of the agreement related to the nuclear 
capabilities of Iran? Are they restricted from using these 
proceeds in some way that we, therefore, should be following 
how the proceeds are used?
    Mr. Mukasey. The short answer to that is I do not know. I 
mean, I have read the agreement. I have not--I mean, I do not 
have it in front of me. But regardless of whether it is in the 
agreement or not, Iran violates agreements with abandon and 
impunity all the time. The question is what would we do about 
it if we knew, and we would certainly be in a position at least 
to decide that, whether we are going to do something, and, if 
so, why. If we do not know, obviously we cannot decide to do 
anything.
    Senator Moran. Anyone else?
    Ms. Maloney. If I might interject very briefly, I 
understand the rationale and the distinction between cash 
payments and wire transfers in terms of the capacity to track, 
but I do think that it is worth noting that, in fact, any funds 
that go into the Iranian system, given the opacity of the 
financial system there, and given the well-honed capacity for 
smuggling and evasion of financial scrutiny, it effectively 
puts money in the hands of a very bad actor. I noted almost no 
concern about the method of payment when objections were 
expressed to payments that were made to Iran, or sanctions 
relief, that was facilitated to Iran under the interim deal or 
the final nuclear deal.
    Fundamentally, the form of the payment is less important 
than the fact that it is a payment. We recognize that it is a 
payment to a bad actor. We have made this payment with the 
determination that ultimately it serves the American interests 
in satisfying a debt, and conceivably also contributing to the 
expedited release of Americans.
    Senator Moran. Doctor, thank you for that. I would say 
that, in many ways other than I understand the traceability 
issue, I do not know that I care a lot about whether the money 
is wire transferred or it is delivered in cash. My opposition 
is to deliver it in any form. You make the case that we 
apparently have the opportunity for benefits to our country and 
its citizens and world security that outweigh--in my view, you 
see this as a positive and an overall scheme of developing a 
relationship with Iran.
    I see the transfers of money, regardless of how they arrive 
there, as one more means by which Iran can perpetuate its 
terrorism around the globe.
    Mr. Chairman, thank you very much.
    Chairman Kirk. Mr. Cotton.
    Senator Cotton. Thank you all for joining us this morning 
to explore the implications of paying a ransom in cold, hard 
cash to the world's worst State sponsor of terrorism.
    Judge Mukasey, I just want to be sure I am clear about your 
legal assessment on these matters. As you wrote in the Wall 
Street Journal, you believe that the cash transfer was legal, 
though not right.
    Mr. Mukasey. Correct.
    Senator Cotton. It has been reported there were at least 
two wire transfers to Iran in the last year-plus. One was in 
the summer of 2015, to settle some claims about architectural 
drawings, fossils, maybe some other artifacts. One was over our 
purchase of heavy water earlier this year.
    Do you believe those wire transfers were legal?
    Mr. Mukasey. Yes. I mean, I do not see--I do not--the short 
answer is I do not know the circumstances surrounding those 
transfers, but I know nothing that challenges their legality.
    Senator Cotton. So if they are both legal, transferring 
cash in a wire transfer, then do you know why the 
Administration would have chosen to pay this $400 million in 
cash, as opposed to making a wire transfer?
    Mr. Mukasey. I do not know. I think it is a sensible 
conclusion that that term was insisted upon by the Iranians.
    Senator Cotton. So it was a policy decision then, not a 
legal decision?
    Mr. Mukasey. Definitely not a legal decision.
    Senator Cotton. Judge Mukasey, Ambassador Edelman, you have 
both sat in NSC meetings and principal committee meetings, and 
deputy committee meetings. At what level of our Government 
would you expect that kind of policy decision to be made?
    Mr. Edelman. Well, I would expect it to at least gone to a 
Principals Committee meeting, and probably a full NSC with the 
President in attendance.
    Mr. Mukasey. Likewise. I mean, I would expect it to go to 
the highest level.
    Senator Cotton. And Ambassador Edelman, you have spent some 
time dealing with Iran and in the Middle East throughout your 
career. If Judge Mukasey surmises correct, and it was a demand 
of the Iranian Government that that $400 million be transferred 
in cash, not over wires, do you have any estimates over which 
element of the Iranian Government would have requested that 
cash payment?
    Mr. Edelman. You know, it would be pure speculation, 
Senator Cotton, but presumably you could imagine it would be 
the IRGC, which may have played a role in the transfer. We do 
not know. Again, it is one of the details that would be good to 
find out.
    Senator Cotton. Not the Ministry of Health?
    Mr. Edelman. I somehow doubt that.
    Senator Cotton. Or the Ministry or Transportation?
    Mr. Edelman. Well, we actually know that after the payments 
were made that the Iranian military budget was plussed up, 
interestingly, by $1.7 billion. Now, whether that money stays 
with the military budget, which was just finalized in August, 
or whether that money, you know, is made available to the IRGC 
in some fashion, we just do not know.
    Senator Cotton. Judge Mukasey has explained it is very hard 
to track cash, almost impossible, and you might only discover, 
years later, in whose hands it was found, and you do not know 
whose hands it has passed though. Would you be surprised to 
find some of that cash in the hands of, say, Lebanese Hezbollah 
in a year or 2 or 3 years, Ambassador Edelman?
    Mr. Edelman. Not in the least.
    Senator Cotton. Would you be surprised to find it in, say, 
the hands of Doctors Without Borders, or other international 
NGO's, performing humanitarian work?
    Mr. Edelman. That would be a first in my experience.
    Senator Cotton. Thank you.
    Since you have spent a lot of time in the Middle East, 
Ambassador, is this a region where leaders of States understand 
and depend upon power and will, or do they respect law and 
rhetoric?
    Mr. Edelman. Well, I would say power is at a premium in 
this region, and one of my concerns is that we should always, 
in dealing with countries in this region--and it goes beyond 
Iran. I, you know, would say the same of Turkey where I was 
Ambassador--by emphasizing our own clear adherence to the rule 
of law in how we conduct ourselves.
    Senator Cotton. A common phrase in communications, whether 
it is politicians or businessmen, negotiators, is it is not 
what you say, it is what people hear.
    Many U.S. Government officials, from our President down to 
low-level functionaries, have repeatedly said that this was not 
a ransom payment. That is what they are saying. What do you 
think the Ayatollahs in Tehran, and, for that matter, every 
other bad actor throughout the Middle East or around the world, 
hear whenever they hear that we transferred $400 million on the 
same weekend that we received American hostages?
    Mr. Edelman. Well, again, it requires one to make a 
surmise, Senator Cotton, but my surmise, as I stated in my 
written statement, is that on the Iranian side there was 
clearly a belief that this payment was being made in exchange 
for the hostages, and that was articulated by at least one 
commander of the IRGC, who was quoted to that effect in the 
press.
    Senator Cotton. Thank you all.
    Chairman Kirk. I want to thank our witnesses and Senator 
Heitkamp for coming. Do you have any closing remarks?
    Senator Heitkamp. No, just that it is enormously important 
that the discussion about national security issues take the 
level that we have taken today, where we can have reasonable 
disagreement. Hopefully we learned a little from each other and 
that we can move forward. This is one of the gravest threats 
facing our national security and the security of our allies, 
and I want to thank everyone for their volunteering today. 
Sometimes, especially when you come with a minority opinion, it 
is a little tougher, so thank you, Dr. Maloney, for appearing.
    And I look forward to better understanding how we can move 
forward in a very nonpartisan way to address the concerns that 
every member of the U.S. Senate, and hopefully anyone who has 
awareness--situational awareness of what is happening in the 
Mideast, the concerns that they have about protecting our 
allies and protecting our national security against the Iranian 
regime.
    And so thank you so much for coming.
    Chairman Kirk. Well, I want to thank our witnesses and 
Senator Heitkamp. The record will remain open until the close 
of business Wednesday, September 28th, and we stand adjourned.
    [Whereupon, at 11:47 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                PREPARED STATEMENT OF MICHAEL B. MUKASEY
              Former Attorney General of the United States
                           September 21, 2016
    Chairman Kirk, Ranking Member Heitkamp, Members of the 
Subcommittee. I am grateful to the Subcommittee for inviting me to 
participate in this important hearing, which addresses the 
circumstances surrounding the payment in January 2016 of $1.7 billion 
in cash--euros and Swiss francs--to Iran, of which $1.3 billion 
represented U.S. taxpayer funds--a payment said to have been in 
settlement of a $400 million claim by Iran against the United States, 
plus interest. That claim, which was or is pending before the Iran 
claims tribunal in the Hague, relates to a deposit during the 1970s on 
a military equipment purchase in that principal amount by the Iranian 
Government then headed by the Shah.
    I know that this payment has generated a good deal of discussion, 
and of controversy, corresponding as it did with the release of four 
Americans unjustifiably imprisoned by Iran. Obviously, like most 
people, I have views about the payment of ransom and its long term 
effect on the security of Americans, and some knowledge of the 
unbearable pressure on families and on people unjustifiably held. I am 
not here to talk about those issues, but rather about the transfer of 
cash to Iran in the amounts at issue here, and under the circumstances 
present here, and the questions raised by such a transfer, that we 
should know the answers to--and certainly that Congress should know the 
answers to, and that I think have not as yet been answered.
    The reason why a cash payment raises serious questions should be 
obvious. Iran is a designated State sponsor of international terrorism. 
There is simply no legitimate reason why such an entity should want 
cash other than to pursue terrorism.
    It has been said that Iran is in need of resources to pay for 
infrastructure projects. No doubt that is true. However, payments 
within Iran to contractors would be in Iranian rials, not in euros or 
Swiss francs. Payments outside Iran for equipment and the like would 
far more conveniently be made from banks located outside Iran, than in 
cash transported from Iran to other countries. The only reason to 
insist that cash in the form of euros and Swiss francs be provided to 
Iran--in Iran--is to permit that money to be distributed outside its 
borders in a way that cannot be traced. The activity that Iran pursues 
outside its borders that requires untraceable funds is terrorism.
    Indeed, there is a branch of the Iranian Revolutionary Guards 
Corps--the Quds Force--that focuses exclusively on promoting terrorism 
abroad. That is the unit that financed a plot in 2011 to assassinate 
the Saudi ambassador to the United States in Washington, DC, and has 
been responsible for numerous other violent acts.
    The President said initially, when the only cash payment that was 
known was the $400 million of principal, that a cash payment was 
necessary because the United States has no banking relationship with 
Iran. Indeed, he mocked those who suspected the cash transfer as 
enthusiasts of adventure fiction. In recent days, we have learned that 
what was obvious at the time of the initial transfer--that the United 
States could have made payments to Iran through conventional banking 
channels with the help of third parties that do have banking 
relationships with Iran--in fact was done on other occasions.
    Given Iran's record of financing deadly terrorist attacks in Latin 
America, Europe, and the Middle East--including but not limited to 
Israel, as well as the repeated statements by its leaders that their 
goal is to destroy Israel and cripple the United States and its allies, 
it is obvious that we have paid $1.7 billion toward the destabilization 
of Governments friendly to the United States in the Middle East and 
elsewhere, and the murder of many in those countries, in Europe, and in 
the United States.
    The following questions, among others, present themselves. Was the 
settlement of this claim documented; if so, where are the documents? 
Was there any legal analysis of the claim and likely outcomes; is that 
analysis contained in a memorandum; where is that memorandum? Was there 
any factual analysis of the likely use of cash as opposed to other 
forms of payment? Was it the Iranians who insisted on cash? What 
consideration was given to other forms of payment? Who negotiated that 
settlement, and who in the chain of command up to and including the 
President approved it?
    Funds for the settlement were taken in part from a settlement fund 
maintained by the Treasury Department that reflects that the settlement 
was certified by the Attorney General as in the interests of the United 
States; is there any documentation of that certification; is there any 
writing setting forth the elements that led the Attorney General to 
reach that conclusion; with whom did the Attorney General consult in 
order to reach that conclusion?
    I recognize that answers to some of these questions might 
conceivably elicit an objection based on executive privilege, which is 
a valuable and important governance tool for the executive. 
Nonetheless, the questions should be asked; if they elicit such an 
objection, it can be evaluated. Some of the information--including the 
fact of the Attorney General's certification--has already been 
disclosed, which could impact the validity of any privilege claim.
    Before the full extent of this payment became known, I wrote on 
this subject in a newspaper column and indicated at the time that I saw 
no reason to believe that any laws were violated in the making of this 
payment. I still believe that. I wrote also at the time that I thought 
the people of this country, some of whom may suffer the physical 
effects of Iranian terrorism, and all of whom will suffer its political 
effects, deserved an explanation of why such a payment was deemed to be 
in the national interest. That belief has been strengthened by the 
evidence that alternatives to cash payment existed but were not used.
                                 ______
                                 
                 PREPARED STATEMENT OF ERIC S. EDELMAN
  Counselor, Center for Strategic and Budgetary Assessments, Cochair, 
Iran Task Force at JINSA Gemunder Center, and Former Under Secretary of 
                           Defense for Policy
                           September 21, 2016
    Mr. Chairman, Ranking Member Heitkamp, Members of the Committee, 
thank you for the opportunity to appear before you today on the dangers 
of the Administration's decision to transfer $1.7 billion cash to Iran 
in January and February 2016. At the outset this morning I want to make 
clear that I am not a lawyer and I am not an expert on sanctions. 
However, I have followed Iran closely for more than a decade, both as 
Ambassador to Iran's neighbor Turkey, and then as Under Secretary of 
Defense for Policy. I have continued working on the challenges that 
Iran presents to regional order since retiring from Government service 
in 2009, including as chair of a bipartisan Iran Task Force sponsored 
by the Gemunder Center for Defense and Strategy. \1\ We have issued a 
range of detailed reports that among other issues raise serious 
concerns about providing Iran the wherewithal to continue destabilizing 
U.S. interests and our allies, but I want to stress that my views 
expressed here today are my own.
---------------------------------------------------------------------------
     \1\ The Gemunder Center Iran Task Force, http://www.jinsa.org/
gemunder-center-iran-task-force. I would like to thank Jonathan Ruhe, 
Associate Director of the Gemunder Center, for his assistance in 
preparing this statement and Mark Dubowitz and Annie Fixler of the 
Foundation for Defense of Democracies for their extremely valuable 
comments and suggestions.
---------------------------------------------------------------------------
    Normally, the risks of providing the world's largest State sponsor 
of terrorism with such funds, especially concurrent with Iran releasing 
illegally detained U.S. citizens, would dominate headlines and trigger 
uneasy memories of Americans taken hostage in Tehran. Unfortunately, 
these matters have been overshadowed by a tumultuous Presidential 
campaign that has drawn attention elsewhere, and has not been notable 
for any serious discussion of these issues by either Mr. Trump or 
Secretary Clinton.
    I therefore applaud the Subcommittee's efforts to examine this 
matter and its implications for national security.
The Pitfalls of Paying Ransom
    I defer to my fellow witness Attorney General Mukasey about whether 
the $400 million payment to Iran on January 17 meets the legal 
definition of ``ransom.'' The United States negotiated with Iran to 
repay these funds, originally deposited by the Shah to purchase U.S. 
weapons, to resolve a legal dispute unrelated to American hostages in 
Iran in early 2016. The settlement included an additional $1.3 billion 
in interest transferred to Iran in cash on January 22 and February 5, 
despite the fact this account was not interest bearing.
    Nevertheless, events show that both U.S. and Iranian officials 
acted as though the initial $400 million payment in this transaction 
was crucial to getting the Americans out safely. Despite having readied 
the hostages for release the day before, Iran kept them overnight at 
the airport as an assurance the planeload of money was on its way. 
Conversely, American officials withheld delivering that money until the 
hostages took off from the airport in Tehran. \2\
---------------------------------------------------------------------------
     \2\ Lindsay Castleberry, ``Freed American Hostage: We Waited All 
Night at the Airport'', FOX Business, August 4, 2016.
---------------------------------------------------------------------------
    After the payment method became public this summer, State 
Department spokesman John Kirby said flatly, ``With concerns that Iran 
may renege on the prisoner release . . . we, of course, sought to 
retain maximum leverage until after American citizens were released.'' 
\3\ A commander of Iran's Revolutionary Guard Corps (IRGC), which 
detained several of the U.S. hostages, said that ``taking this much 
money back was in return for the release of the American spies.'' 
Speaking not as a lawyer but a career diplomat, this definitely looks 
and sounds like ransom to me. \4\
---------------------------------------------------------------------------
     \3\ U.S. Department of State, ``Daily Press Briefing'', August 18, 
2016; see also: David Sanger, ``U.S. Concedes $400 Million Payment to 
Iran Was Delayed as Prisoner `Leverage','' New York Times, August 18, 
2016.
     \4\ Jay Solomon and Carol E. Lee, ``U.S. Sent Cash to Iran as 
Americans Were Freed'', Wall Street Journal, August 3, 2016.
---------------------------------------------------------------------------
    Fundamentally, the United States should never pay ransom for 
hostages. In his memoirs, my old boss former Secretary of State George 
Shultz stated the problem clearly when he wrote:

        We should always be willing to talk to any credible person 
        about our hostages. The hostages should know that we would 
        never cease our efforts to gain their release. But we owe the 
        millions of Americans at risk throughout the world that they 
        will not be turned into targets by the known willingness of our 
        Government to pay money, sell arms, pressure another Government 
        to pay money, or, in any other way, make it profitable to take 
        Americans hostage. \5\
---------------------------------------------------------------------------
     \5\ George P. Schultz, ``Turmoil and Triumph: Diplomacy, Power, 
and the Victory of the American Ideal'' (New York: Scribner, 1993), p. 
857.

    Simply put, paying for hostages only incentivizes more hostage 
taking.
    This is particularly problematic with a regime like Iran's, where 
hostage taking and ransom seeking is a core element of statecraft. In 
1981, amid the upheaval of the Iran-Iraq War, the fledgling regime 
received billions in unfrozen assets and much-needed military equipment 
in exchange for freeing the 52 U.S. embassy hostages in Tehran. Over 
the next 8 years nearly 100 Westerners, including 25 more Americans, 
were taken hostage by Iran and its proxies in Lebanon. \6\ History is 
now repeating itself: since January, Iran has detained three more 
Iranian Americans and four other Western dual-nationals. Once reports 
of the cash transfer surfaced last month, the State Department 
reiterated the risks to U.S. citizens of unjust arrest and detention if 
traveling in Iran. \7\
---------------------------------------------------------------------------
     \6\ Pierre Razoux, ``The Iran-Iraq War'' (Cambridge, MA: Belknap, 
2015), p. 585n1.
     \7\ U.S. State Department Bureau of Consular Affairs, ``Iran 
Travel Warning'', August 22, 2016.
---------------------------------------------------------------------------
    The payment is also particularly problematic because it reinforces 
Iran's belief that it benefits by crossing U.S. redlines. Shortly 
before the Joint Comprehensive Plan of Action (JCPOA) on Iran's nuclear 
program was announced last summer, President Obama asserted publicly 
``the United States Government will not make concessions, such as 
paying ransom, to terrorist groups holding American hostages.'' \8\ 
Since the cash payments were made in January and February directly 
undermining longstanding U.S. policy against paying ransom, Iran's 
Former President Mahmud Ahmadinejad has demanded that more of the money 
in frozen U.S. accounts be returned to Iran. This includes $2 billion 
that the U.S. Supreme Court ruled should go to American victims of 
Iranian-backed terrorism. \9\
---------------------------------------------------------------------------
     \8\ White House Office of the Press Secretary, ``Statement by the 
President on the U.S. Government's Hostage Policy Review'', June 24, 
2015.
     \9\ ``Iran officially Sues U.S. for `Asset Verdict' '', Mehr News 
Agency (Tehran), June 16, 2016; Louis Nelson, ``Former Iranian 
President to Obama: Return Seized $2 Billion'', Politico, August 8, 
2016.
---------------------------------------------------------------------------
    The manner in which the payment was made also should raise 
concerns. The use of an unmarked cargo plane filled with pallets of 
cash, apparently accompanied by U.S. officials and kept secret by the 
Administration certainly supports the impression this was a ransom. So 
does the Administration's ex post facto defense, including personally 
by President Obama, that sanctions prohibit direct contact between U.S. 
and Iranian financial systems. In reality, it would appear that an 
electronic transfer was perfectly legal under regulations that permit 
such transactions as part of settlements pursuant to the Iran-United 
States Claims Tribunal, and many claims have been settled through that 
mechanism. Furthermore, the Administration had no problem wiring Iran 
$9 million in April as part of a separate agreement to buy Iran's 
excess heavy water. \10\
---------------------------------------------------------------------------
     \10\ On the issue of U.S. electronic transactions with Iran's 
banking system, see: Louis Nelson, ``U.S. Wire Payments to Iran 
Undercut Obama'', Politico, September 18, 2016. On the issue of 
sanctions exemptions for such transactions with Iran, see: Behnam Ben 
Taleblu and Annie Fixler, ``Settling With Iran: $1.7 Billion and U.S. 
Hostages'', Foundation for Defense of Democracies (September 2016), p. 
5. On the issue of U.S. officials' involvement in the transfer, see: 
Adam Kredo, ``Congress Suspects Obama Admin Delivered Billions in Cash 
to Iranian Revolutionary Guard Corps'', Washington Free Beacon, 
September 12, 2016. The funds were under U.S. Government control until 
their disbursement pursuant to the settlement: U.S. Treasury Department 
response to Rep. Duffy, p. 2 (http://freebeacon.com/wp-content/uploads/
2016/09/Treasury-Response-to-Rep-Duffy-September-9-2016.pdf).
---------------------------------------------------------------------------
    Had I been participating in the interagency deliberations reported 
in the press, I would have stressed the dangers of dealing in cash, 
since it clearly could be used for continued support of the Iranian 
military's disruptive and destabilizing activities, as appears to be 
the case here. Moreover, because cash is fungible, this payment could 
free up funds in Iran's Government budget to subsidize its ongoing 
support for terrorism.
    Indeed, without a paper trail it becomes much harder to ensure that 
Iran cannot use these funds to circumvent the U.N. arms embargo or 
illicitly procure ballistic missile or nuclear technology. In May, 
Iran's Guardian Council allocated an additional $1.7 billion--the same 
as the total cash payment--to the military for the upcoming annual 
budget that was finalized in August. At one level, this seems 
understandable from an Iranian perspective, since the FMS monies were 
originally intended for military procurement, but the Administration 
should be candid with Congress and the American public about this. 
Although the $400 million is arguably Iranian money, the interest 
payment of $1.3 billion is actually a U.S. taxpayer subsidy to the 
Iranian military. \11\
---------------------------------------------------------------------------
     \11\ Eli Lake, ``U.S. Taxpayers Are Funding Iran's Military 
Expansion'', Bloomberg View, June 9, 2016; Saeed Ghasseminejad, ``Iran 
Gives Green Light To Direct $1.7 Billion From U.S. to Military'', 
Foundation for Defense of Democracies, September 1, 2016; Annie Fixler, 
``$1.3 Billion of the Cash to Iran Was Taxpayer Money'', Foundation for 
Defense of Democracies, September 13, 2016.
---------------------------------------------------------------------------
    The timing of this transaction was problematic from another 
perspective as well. Arbitration of the money owed Iran was initially 
separate from discussions about swapping Americans detained illegally 
in Iran for Iranians charged or convicted legally in the United States. 
Shortly before JCPOA implementation, however, Iran also demanded 
immediate repayment of the $400 million plus interest, to which 
President Obama acceded. \12\ Therefore as a result of poor U.S. 
negotiating, the JCPOA was inaugurated with an uneven prisoner 
release--seven Iranians charged or convicted of sanctions violations, 
in exchange for four Americans detained on trumped up charges--with the 
United States appearing to subsidize Iran for the privilege. \13\
---------------------------------------------------------------------------
     \12\ Jay Solomon and Carol E. Lee, ``U.S. Sent Cash to Iran as 
Americans Were Freed'', Wall Street Journal, August 3, 2016.
     \13\ In addition to the seven Iranians charged or convicted of 
sanctions violations, the United States also dropped charges and 
Interpol notices against another 14 Iranians, including two connected 
to Mahan Air. See: Josh Rogin, ``Prisoner Swap May Help Iran Arm 
Assad'', Bloomberg View, January 17, 2016.
---------------------------------------------------------------------------
Iran Holds U.S. Policy Hostage
    In far too many respects, this incident embodies the deeper 
failures of the Administration's Iran policy. As we stated in our 
recent Gemunder Center Iran Task Force report on the JCPOA, ``the 
agreement made public last July, and the policy decisions attending its 
implementation, show a clear pattern of unilateral Iranian demands 
being met by unforced U.S. concessions.'' \14\ Though we issued this 
report before the cash payments were revealed, we argued that Iran is 
holding the success of the JCPOA hostage in a much broader sense.
---------------------------------------------------------------------------
     \14\ JINSA Gemunder Center Iran Task Force, ``The Iran Nuclear 
Deal After One Year: Assessment and Options for the Next President'', 
July 2016, p. 7.
---------------------------------------------------------------------------
    Indeed, years of unenforced redlines by the Obama administration--
including the one on ransoms--have created a disturbing asymmetry in 
U.S.-Iran relations, where both countries behave as though the United 
States is too invested in the JCPOA to risk angering Iran. We've 
reached a point where the Administration bribes Iran not to violate the 
letter or the spirit of the agreement too egregiously or too publicly. 
\15\
---------------------------------------------------------------------------
     \15\ JINSA Gemunder Center Iran Task Force, ``The Iran Nuclear 
Deal After One Year: Assessment and Options for the Next President'', 
July 2016, p. 16.
---------------------------------------------------------------------------
    Thus we have seen U.S. officials praising Iran for releasing the 10 
U.S. Navy sailors it took hostage at gunpoint in January, actions that 
a U.S. Navy investigation found to be a violation of international law. 
We also have witnessed the Administration pledging to be a better 
partner whenever Tehran insists on further sanctions relief. \16\ In 
this light, it is unsurprising that they went to extraordinary lengths 
to provide incentives to Iran to free hostages in time for JCPOA 
Implementation Day.
---------------------------------------------------------------------------
     \16\ Kristina Wong, ``Navy Investigation Concludes Iran Broke 
International Law by Detaining Sailors'', The Hill, June 30, 2016. For 
an examination of U.S. efforts to accommodate Iranian demands, see: 
JINSA Gemunder Center Iran Task Force, ``The Iran Nuclear Deal After 
One Year: Assessment and Options for the Next President'', July 2016, 
p. 10-11.
---------------------------------------------------------------------------
    Because the Administration's announcement of the settlement in 
January neglected to mention any aspects of the transaction that make 
it look uncannily like a ransom--specifically, the cash payments and 
the actual sequencing of events--the whole incident points to another 
core flaw in U.S. Iran policy. \17\ This Administration, which pledged 
to be the most transparent in history, argued that the core bargain 
underpinning the JCPOA would be unprecedented transparency in exchange 
for allowing Iran to maintain a sizable enrichment capacity, far 
greater than even supporters of the JCPOA initially argued would be 
prudent. \18\ Despite that, the Administration committed itself to a 
series of side agreements that only maintain Iran's ``compliance'' by 
weakening the deal further. \19\
---------------------------------------------------------------------------
     \17\ President Obama said the prisoner exchange ``reflects our 
willingness to engage with Iran to advance our mutual interests,'' 
while also implying that the settlement of the $400 million was both 
separate from, and subsequent to, the prisoner exchange: ``With the 
nuclear deal done, prisoners released, the time was right to resolve 
this dispute as well.'' See: White House Office of the Press Secretary, 
``Statement by the President on Iran'', January 17, 2016.
     \18\ According to the Los Angeles Times, a Government-approved 
Iranian Web site claims the U.S. negotiating position for the number of 
permissible Iranian operating centrifuges under a nuclear agreement 
climbed from an initial 500 to 1,500, then 4,000 and ultimately 6,000. 
See: Paul Richter and Ramin Mostaghim, ``Iranian Web site reports U.S. 
giving ground on nuclear centrifuges,'' Los Angeles Times, November 4, 
2014.
     \19\ JINSA Gemunder Center Iran Task Force, ``The Iran Nuclear 
Deal After One Year: Assessment and Options for the Next President'', 
July 2016, p. 9-10.
---------------------------------------------------------------------------
    These arrangements in Iran's favor--self-inspection of Parchin, 
less reporting from inspectors, buying Iran's excess heavy water, 
exemptions for uranium stockpiles and heavy water in overseas storage--
make a mockery of the Administration's promise. \20\
---------------------------------------------------------------------------
     \20\ Jay Solomon, ``Uranium Provides New Clue on Iran's Past 
Nuclear Arms Work'', Wall Street Journal, June 19, 2016; George Jahn, 
``Secret Document Lifts Iran Nuke Constraints'', Associated Press, July 
18, 2016; David Albright and Andrea Stricker, ``JCPOA Exemptions 
Revealed'', Institute for Science and International Security, September 
1, 2016.
---------------------------------------------------------------------------
    So too does the Joint Commission that oversees Iran's compliance, 
since its work is confidential. Meanwhile, IAEA reporting on Iran's 
nuclear program is now far less detailed than the reporting prior to 
the JCPOA. \21\ Combined, these factors allow Iran's nuclear program to 
become more advanced than was publicly agreed, and more opaque. And 
like the claims payment in January, we now pay Iran for the privilege 
of its ``adherence'' to a heavily watered-down deal.
---------------------------------------------------------------------------
     \21\ For an assessment of the lack of critical information in IAEA 
reporting on Iran's nuclear program, see: David Albright and Andrea 
Stricker, ``Analysis of the IAEA's Third Iran Deal Report: Filling in 
Missing Details'', Institute for Science and International Security, 
September 9, 2016.
---------------------------------------------------------------------------
    By bending over backward to fulfill Iran's demands, the 
Administration's other promise--that it will maintain pressure on Iran 
to foreswear terrorism, end its efforts at regional destabilization and 
defend our allies--has also lost credibility. \22\ Tehran is wasting no 
time exploiting this through an increasingly aggressive foreign policy.
---------------------------------------------------------------------------
     \22\ In August 2015 President Obama wrote a letter to Congress 
outlined his options to maintain pressure to deter Iranian aggression 
(Jonathan Weisman, ``In Letter, Obama Tells Congress U.S. Will Still 
Press Iran'', New York Times, August 20, 2015); Secretary of State John 
Kerry, on September 2, 2015, said: ``we will maintain international 
pressure on Iran'' (U.S. State Department, ``Remarks by Secretary Kerry 
on Nuclear Agreement with Iran'', September 2, 2015).
---------------------------------------------------------------------------
    Since the JCPOA was adopted last October, it has tested a series of 
nuclear-capable ballistic missiles in defiance of the U.N. Security 
Council Resolution endorsing the deal. These can reach all U.S. allies 
in the region, a point Iran drove home by stamping ``Israel must be 
wiped out'' in Hebrew on two of the missiles it tested in March. \23\
---------------------------------------------------------------------------
     \23\ Amir Vahdat, ``Iran Fires 2 Missiles Marked `Israel Must Be 
Wiped Out' '' Associated Press, March 9, 2016.
---------------------------------------------------------------------------
    This parallels Tehran's growing effort to undermine other U.S. 
allies, evidenced recently by Supreme Leader Ali Khamenei accusing 
Saudi Arabia of murdering hajj pilgrims and questioning Riyadh's right 
to manage Islam's holiest sites. \24\ Earlier this summer, IRGC 
Commander Qassem Solemani issued the most explicit Iranian threat to 
date against Bahrain's leaders, warning of their potential overthrow 
and a subsequent ``bloody intifada.'' \25\
---------------------------------------------------------------------------
     \24\ Nabih Bulos, ``Iranian Leaders Criticize Saudi Arabia Over 
Last Year's Deadly Hajj Crush and Stampede'', Los Angeles Times, 
September 7, 2016.
     \25\ Euan McKirdy, ``Iran: Bahrain's Leadership Could Fall Over 
Cleric's Treatment'', CNN, June 21, 2016.
---------------------------------------------------------------------------
    In case those messages were too subtle or indirect, IRGC naval 
forces are stepping up their dangerous harassment of U.S. forces in the 
Persian Gulf. In the first half of this year alone, the U.S. Navy 
recorded more unsafe interactions with Iranian forces than in all of 
2015. The week before taking our sailors hostage in January, Iranian 
ships fired unguided rockets less than a mile in front of a U.S. 
aircraft carrier. In just the past month they have come even closer, 
swarming U.S. warships to the point our forces had to veer out of the 
way and fire warning shots at the Iranians in separate incidents. \26\
---------------------------------------------------------------------------
     \26\ Jon Gambrell, ``Why Do U.S., Iran Often Face Off in Persian 
Gulf?'' Associated Press, September 8, 2016.
---------------------------------------------------------------------------
    At the same time, Tehran has steadily ramped up cooperation across 
the region with Moscow--another avowed U.S. adversary. Shortly after 
the JCPOA was announced, Iran escalated its support for the Assad 
regime in Syria in coordination with Russia, and the two countries 
worked against the United States to stymie the U.N. plan for a 
transition of power in Syria. Iran has also hosted Russian strategic 
bombers and taken possession of the advanced S-300 air defense system, 
which it claims to have deployed to Fordow (although commercially 
available overhead imagery seems to belie this), despite the supposedly 
peaceful nature of this facility under the JCPOA. \27\
---------------------------------------------------------------------------
     \27\ Jeremy Binnie and Sean O'Connor, ``Iran Has Not Deployed S-
300 to Fordow as Claimed'', Jane's, September 2, 2016.
---------------------------------------------------------------------------
    All of these actions are fueled by another form of ransom: Iran's 
windfall ``signing bonus'' for implementing the JCPOA. Like the $1.7 
billion cash on cargo planes, once back in Iran these funds cannot be 
recaptured, despite Administration promises that sanctions can ``snap 
back.'' \28\ Iran's annual defense budget has already grown by $9 
billion, nearly doubling, since sanctions relief took effect. \29\
---------------------------------------------------------------------------
     \28\ The U.S. Treasury Department and Congressional Research 
Service estimate Iran had $100-150 billion foreign exchange assets 
worldwide at the time the JCPOA was announced, of which roughly half 
were usable liquid assets (the remainder being committed previously to 
creditors or in the form of nonperforming loans). Iranian officials 
have stated they intend to keep some of their usable liquid assets 
abroad for cash management purposes. See: U.S. Department of the 
Treasury Press Center, ``Written Testimony of Adam J. Szubin, Acting 
Under Secretary of Treasury for Terrorism and Financial Intelligence to 
U.S. Senate Committee on Banking, Housing, and Urban Affairs, August 5, 
2015; Ken Katzman, ``Iran Sanctions'', Congressional Research Service, 
May 18, 2016.
     \29\ Eli Lake, ``U.S. Taxpayers Are Funding Iran's Military 
Expansion'', Bloomberg View, June 9, 2016.
---------------------------------------------------------------------------
    One particularly troubling aspect of this entire episode is that it 
may not be the only instance in which sanctions relief was realized via 
cash transactions. The Administration argument that cash was the only 
mechanism to transfer the $1.7 billion raises questions about how much 
other money was transferred to Iran in cash. In a worst-case scenario, 
it may be more than $30 billion. We simply don't know, and the 
Administration has not been very forthcoming.
    This matter is clearly a question where the Subcommittee's 
oversight responsibilities cry out for a greater degree of transparency 
by the Administration, so that Senators and members of the House can 
better understand the risks to national security that these cash 
transactions incur. \30\
---------------------------------------------------------------------------
     \30\ Mark Dubowitz, ``Fueling Terror: The Danters of Ransom 
Payments to Iran'', Testimony before the House Financial Services 
Committee, September 8, 2016. (http://www.defenddemocracy.org/
testimony/fueling-terror-the-dangers-of-ransom-payments-to-iran)
---------------------------------------------------------------------------
    Because Iran received this money as part of sanctions relief at the 
outset of the deal, and because the Administration did whatever it 
could to help, Iran has no incentive to discontinue the dangerous 
behavior that ultimately led to it being paid in the first place. 
Sadly, therefore, it was only half-jokingly that a reporter asked the 
State Department spokesman last month whether the United States still 
owed Iran 13 cents in interest and was it holding onto the small change 
for leverage. \31\
---------------------------------------------------------------------------
     \31\ U.S. Department of State, ``Daily Press Briefing'', August 
23, 2016; a recent letter from the Treasury to Congressman Mike Pompeo 
clarifies the breakdown of payments and the 13 cents may not be an 
actual issue because the payment may have been over 1.3 billion 
dollars, ``Obama Admin `Laundered' U.S. Cash Via New York Fed, Euro 
Banks'', Washington Free Beacon, September 19, 2016 at http://
freebeacon.com/national-security/obama-admin-laundered-u-s-cash-iran-
via-n-y-fed-euro-banks/.
---------------------------------------------------------------------------
    Due to the Administration's actions, that may be the only leverage 
they have left. It therefore falls to Congress, and hopefully the next 
President, to redirect U.S. policy. As we noted in our latest Gemunder 
Center report, neither Congress nor the next Administration is bound to 
any of the informal or secret pledges made to Iran during JCPOA 
negotiations or implementation. \32\
---------------------------------------------------------------------------
     \32\ JINSA Gemunder Center Iran Task Force, ``The Iran Nuclear 
Deal After One Year: Assessment and Options for the Next President'', 
July 2016, p. 19-20.
---------------------------------------------------------------------------
    The Administration should simply stop caving to Iran's demands and 
stop indulging its continual reinterpretation of what it is owed. A 
stronger stance here can do much to restore U.S. leverage while still 
upholding the JCPOA, flawed as it is.
    I thank you Mr. Chairman for my time, and I look forward to the 
Committee's questions.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                 PREPARED STATEMENT OF SUZANNE MALONEY
 Deputy Director, Foreign Policy, and Senior Fellow, Center for Middle 
  East Policy, Energy Security and Climate Initiative, The Brookings 
                               Institute
                           September 21, 2016
    Chairman Kirk, Ranking Member Heitkampt, and Members of the 
Subcommittee, thank you for the opportunity to appear before you today. 
I am very pleased to offer my views, although I must emphasize that I 
represent only myself before you today. The Brookings Institution does 
not take any institutional positions on policy issues.
    The January 2016 release of five Americans after months or even in 
some cases years of unjust imprisonment in Iran prompted celebrations 
and relief among many Americans and the rest of the world. Tehran's 
detention of these individuals--including a Washington Post reporter, a 
Christian pastor, and a former U.S. Marine--as well as many, many other 
innocents underscores the threats to basic freedoms in Iran's Islamic 
Republic.
    That the detained Americans' release was timed to coordinate with 
the settlement of a nearly 40-year-old financial dispute between the 
United States and Iran--and that this settlement included payments to 
Tehran that were transacted via the airlift of foreign currency--has 
prompted allegations that the Obama administration paid a ``ransom'' to 
Tehran.
The Payments Do Not Constitute Ransom
    I would strongly assert that such charges have no basis. While the 
Administration erred in initially suggesting that the settlement and 
the prisoner release were wholly unrelated, the facts of the case do 
not support the use of the word ``ransom.'' A ransom is--by 
definition--``a payment made to secure the release of a detained 
person.'' And yet, as William and Mary Law Professor Nancy Combs, who 
formerly represented the United States at the U.S.-Iran Claims 
Tribunal, emphasizes, the January 2016 transactions and subsequent 
related payments were ``made to satisfy a legitimate debt that the U.S. 
owed to Iran.'' \1\
---------------------------------------------------------------------------
     \1\ Lauren Carroll, ``Donald Trump's Mostly False Claim That $400 
million Payment to Iran Was `Ransom' '', Politifact, August 24, 2016, 
http://www.politifact.com/truth-o-meter/statements/2016/aug/24/donald-
trump/donald-trump-calls-400-million-payment-iran-ransom/.
---------------------------------------------------------------------------
    Specifically, the payment derived from the legal framework 
established as part of the resolution of Iran's 1979 seizure of the 
U.S. Embassy in Tehran, codified under the 1981 Algiers Accord. That 
Accord established the U.S.-Iran Claims Tribunal, which has since 
settled thousands of financial claims and helped spur the private 
settlement of many more. The Tribunal has worked to the benefit of U.S. 
individuals and corporations whose holdings in Iran were jeopardized or 
harmed as a result of the turmoil that led up to the revolution itself, 
the change in the Government that ensued, and the subsequent rupture of 
diplomatic relations between Washington and Tehran.
    Among the relatively small number of outstanding claims were those 
that related to the robust sales of arms and related military materiel 
to Iran's pre-revolutionary Government--a trade that approached $6 
billion in 1977. \2\ As part of the Iran Foreign Military Sales 
program, payments were made into a trust fund to facilitate prompt and 
reliable compensation of U.S. contractors. In February 1979, after the 
collapse of Iran's monarchy and the assumption of authority by Iran's 
Provisional Government, Tehran immediately sought to end its security 
relationship with the United States. At that time, Washington and 
Tehran concluded a Memorandum of Understanding (MoU) that specified the 
FMS programs to be voided and halted payments, some of which had 
already been disrupted by revolutionary turmoil. Over the next several 
months, more than $10 billion in undelivered military sales were either 
cancelled by Tehran or reduced by the U.S. Department of Defense. \3\ 
The MoU also stipulated that all unexpended FMS payments should be 
deposited in an interest-bearing account established by Washington 
specifically for the purpose of accruing interest on the outstanding 
balance. \4\ After Iran's November 1979 seizure of the U.S. Embassy and 
the detention of its personnel for what would become a 15-month ordeal, 
the remainder of Iran's FMS Trust Fund was frozen by the Carter 
administration, along with all other U.S.-based Iranian assets.
---------------------------------------------------------------------------
     \2\ Kate Gillespie, ``US Corporations and Iran at the Hague'', 
Middle East Journal 44:1 (Winter, 1990), p. 18-36.
     \3\ ``Financial and Legal Implications of Iran's Cancellation of 
Arms Purchase Agreements'', U.S. General Accounting Office, July 25, 
1979, U.S. GAO 109986, http://www.iranwatch.org/sites/default/files/us-
gao-cancellationagreement-072579.pdf.
     \4\ The United States of America and Iran Memorandum of 
Understanding Concerning the Revisions of Foreign Military Sales (FMS) 
Letters of Offer and Acceptance, February 3, 1979, https://
treaties.un.org/doc/Publication/UNTS/Volume%201168/volume-1168-I-18582-
English.pdf.
---------------------------------------------------------------------------
    In 1982, Tehran filed a claim before the U.S.-Iran Claims Tribunal 
related to the FMS Trust Fund, which Lisa Grosh, Assistant Legal 
Advisor in the Office of International Claims and Investment Disputes 
at the U.S. Department of State, has described as ``a giant breach of 
contract case covering 1,126 huge FMS contracts.'' \5\ Over the ensuing 
decades, Grosh estimated that 40 rounds of formal negotiations between 
State Department lawyers and Iranian representatives aimed at resolving 
this claim took place, with some portions of the claim settled a number 
of years earlier.
---------------------------------------------------------------------------
     \5\ Lisa Grosh, Assistant Legal Advisor, Office of International 
Claims and Investment Disputes, U.S. Department of State, testifying 
before the Subcommittee on Oversight and Investigations, Committee on 
Financial Services, U.S. House of Representatives, ``Fueling Terror: 
The Dangers of Ransom Payments to Iran'', September 8, 2016, http://
financialservices.house.gov/calendar/eventsingle.aspx?EventID=400971.
---------------------------------------------------------------------------
    Efforts to advance a resolution of the remaining FMS claims 
apparently intensified in recent years, and as with previous components 
of the claim, the expectation of hearings and a prospective judgment 
prompted efforts to reach a negotiated resolution that included a 
compromise on the amount of interest that Tehran was seeking. That 
settlement included a $1.3 billion total for accumulated interest, a 
figure that Administration officials have said was considerably lower 
than Iran's original claim. The original $400 million sum was paid from 
the FMS Trust Fund, whereas the $1.3 billion in interest was disbursed 
from the Judgment Fund, under the auspices of the U.S. Department of 
the Treasury.
    As announced in January, the settlement ``finally and fully 
resolves Iran's claim for funds in the FMS Trust Fund'' and the 
associated outstanding interest. \6\
---------------------------------------------------------------------------
     \6\ Grosh, September 8, 2016, http://financialservices.house.gov/
calendar/eventsingle.aspx?EventID=400971.
---------------------------------------------------------------------------
    To describe such a settlement as a ransom is simply not consistent 
with the well-established history of this claim and its arbitration 
over the course of several decades in a forum specifically designated 
for that purpose. Such a description also obscures the source and 
purpose of the payment, which provided Tehran with nothing other than 
its own funds.
    Since the revelations about the arrangements surrounding the 
transfer of the $400 million, there has been an intense debate about 
its propriety, legality, and wisdom. However, insinuations that the 
payment or its modalities entailed a violation of existing sanctions 
laws are unfounded. In fact, it appears that the return of $400 million 
to Tehran as well as the subsequent transactions related to the $1.3 
billion in interest, even in their unorthodox form, are consistent with 
the existing sanctions regime. The Iranian Transactions and Sanctions 
Regulations (ITSR) provide explicit authorization for licensing of 
transactions related to the resolution of disputes between the United 
States and Iran. \7\
---------------------------------------------------------------------------
     \7\ Department of the Treasury Foreign Assets Control Office 31 
CFR Part 560 Iranian Transactions Regulations; Final Rule, Federal 
Register 77:204, October 22, 2012, https://www.treasury.gov/resource-
center/sanctions/Programs/Documents/fr77_64664.pdf.
---------------------------------------------------------------------------
    We do not yet have complete information about processes and 
personnel engaged in the different channels of dialogue with Iran 
during the lead-up to the January 2016 settlement. However, the 
official remarks made by several U.S. officials with the Departments of 
State, Justice, and Treasury challenge the caricature presented by some 
media outlets of a simplistic transaction in which money was provided 
in explicit exchange for the release of imprisoned Americans. This 
episode appears to have involved a much more complex array of 
diplomatic interaction between the United States, the Islamic Republic, 
and several other countries and international institutions. The 
convergence of three distinct diplomatic channels in January 2016 
surrounding the FMS claims, the prisoner release, and the certification 
of the implementation of the Joint Comprehensive Plan of Action does 
not, in and of itself, establish a direct linkage in their specific 
outcomes.
    Finally, based on the information released publicly to date, the 
only clear linkage between the return of $400 million to Iran and the 
release of imprisoned Americans was the Administration's decision to 
halt the transaction until Tehran had complied with its commitments to 
free those who had been unjustly detained as well as several relatives. 
In other words, the transactions related to the FMS claim were utilized 
not as a carrot, but as a stick. It is difficult to imagine that anyone 
in this forum would have condoned the fulfillment of the settlement of 
the FMS claim in January had the Americans not been released.
U.S. Policy Toward Iran and Economic Leverage
    While the legal justification for treating the settlement and the 
January payment to Tehran as ransom is shaky or even nonexistent, the 
timing--in tandem the release of unjustly detained Americans--has 
clearly stoked the controversy. However, the Obama administration's use 
of this settlement to help facilitate and/or expedite other Americans 
priorities with respect to Iranian behavior is neither unusual nor 
surprising.
    Indeed, since the 1979 seizure of the U.S. embassy in Tehran, each 
American President has sought to utilize economic leverage--both 
penalties and incentives--as a central component of a strategy to 
address the challenges posed by revolutionary Iran. The U.S. policy 
framework was established in the earliest hours after the embassy staff 
was taken hostage. As a former senior State Department official 
recalled, ``almost as soon as policy discussions began on [the day 
after the embassy was overrun], the members of the crisis team in both 
the White House and the State Department focused on a two-track 
strategy.'' The objective then was to ``open the door to negotiation'' 
while also ``increas[ing] the cost to Iran of holding the hostages.''
    Since then, the U.S. formula for influencing Iran via a combination 
of pressure and incentives has remained fundamentally intact, and each 
U.S. Administration, Republican and Democratic, has utilized the same 
toolbox, applying sanctions and other forms of economic pressure while 
also testing the possibilities of diplomatic dialogue and direct 
engagement with the Iranian Government. Each iteration has varied, 
according to circumstances and Presidential style, but the broad 
blueprint for American policy on Iran has proven remarkably consistent 
over the past 37 years.
    This dual-track American approach toward the Islamic Republic has 
imparted a persistently transactional dimension to the interaction 
between Washington and Tehran. The formative skirmish between 
Washington and revolutionary Iran--when Iranian students seized the 
U.S. Embassy in Tehran and held its personnel as hostages for more than 
15 months--ended only as part of a carefully crafted set of diplomatic 
and financial arrangements that included a coordinated release of the 
hostages in concert with the transfer of $7.956 billion in previously 
frozen Iranian overseas assets to an escrow account.
    Since that time, Washington has utilized transactional diplomacy 
with Iran repeatedly, and notably with quite mixed results:

    President Ronald Reagan authorized the sale of arms to 
        Tehran as part of the now-infamous Iran-contra scandal. This 
        complicated and controversial exchange was premised on the 
        President's intense desire to elicit the freedom of American 
        and other Western hostages in Lebanon, as well as the 
        expectation among senior U.S. officials that a covert opening 
        would strengthen opposition within the post-revolutionary 
        system to Iran's then supreme leader, Ayatollah Ruhollah 
        Khomeini, and more broadly to the Islamic regime.

    President George H.W. Bush reached out to Tehran in his 
        inaugural address, famously promising that goodwill begets 
        goodwill, and during his presidency, Washington sought to make 
        clear through multiple avenues that cooperation would be 
        rewarded. After his inaugural rhetoric, Bush authorized 
        multiple channels to reiterate his appeal for cooperation and 
        specifically for assistance on the issue of Western hostages in 
        Lebanon. This included the settlement of several outstanding 
        financial claims in 1989, 1990, and 1991, as well as 
        intensified efforts to compensate families of victims of the 
        1988 shooting down of an Iranian passenger plane by the USS 
        Vincennes. Several of the settlements were timed to correspond 
        to the release of American hostages, and while the Bush 
        administration dismissed any linkage as ``pure coincidence,'' a 
        senior State Department officials acknowledged at the time that 
        ``there was no doubt whatsoever that what we were doing was 
        helping to aid Iran in the release of the hostages.'' \8\
---------------------------------------------------------------------------
     \8\ Elaine Sciolino, ``U.S. Near Deal To Settle Claims by the 
Iranians'', New York Times, November 21, 1991. http://www.nytimes.com/
1991/11/21/world/us-near-deal-to-settle-claims-by-the-iranians.html; 
See also Elaine Sciolino, ``Bush Hopes To Settle Iranian Assets 
Issue'', New York Times, November 8, 1989.

    President Bill Clinton undertook the most dramatic series 
        of overtures toward Tehran since 1979 at the time, including a 
        number of symbolic measures, broader sanctions reform, and the 
        lifting of existing sanctions on caviar, carpets, and 
        pistachios. That move came as part of a historic speech by 
        then-Secretary of State Madeleine Albright, in which she 
        announced the rescission and expressed formal regret on behalf 
        of the U.S. Government for America's role in the bilateral 
        estrangement and for specific past U.S. policies toward Tehran. 
        These specific incentives were proffered in recognition of 
        apparent shifts in Iran's internal political dynamics--the 
        election of a President and a majority of parliamentarians who 
        openly advocated for political and social reform of the Islamic 
        system. None of the Clinton-era overtures were coordinated in 
        advance with Tehran, although U.S. officials predicted that the 
        lifting of sanctions on caviar, carpets, and pistachios. would 
        generate reciprocal Iranian moves. \9\
---------------------------------------------------------------------------
     \9\ Phillip Shenon, ``Major Overture Toward Iran Expected in 
Speech by Albright'', New York Times, March 17, 2000, http://
www.nytimes.com/2000/03/17/world/major-overture-toward-iran-expected-
in-speech-by-albright.html.

    President George W. Bush also utilized incentives as a 
        means of seeking to induce Iran to modify its most problematic 
        policies. While the Bush administration initially resisted 
        European diplomacy on the nuclear issue, U.S. officials 
        gradually accepted that a direct American role in that dialogue 
        would offer greater leverage in dealing with the issue. In an 
        attempt to provide incentives for Iranian cooperation on the 
        nuclear talks, in May 2005, Washington dropped its objections 
        to Iran's application to begin accession talks with the World 
        Trade Organization and announced that it would consider 
        licensing sales of spare parts for aircraft on a case-by-case 
---------------------------------------------------------------------------
        basis.

    Notably, the January 2016 settlement was not the first such use of 
the body of claims associated with the U.S.-Iran Claims Tribunal as a 
means of incentivizing Iranian cooperation. In none of these cases did 
Tehran receive undue benefit as a result of the discharge of specific 
claims. Most analyses of the Algiers Accords have indicated the 
ultimate resolution of that tragic episode can be considered favorable 
to American interests, viewed broadly, and to American financial claims 
more specifically. \10\
---------------------------------------------------------------------------
     \10\ Warren Christopher and Richard M. Mosk, ``The Iranian Hostage 
Crisis and the Iran-U.S. Claims Tribunal: Implications for 
International Dispute Resolution and Diplomacy'', Pepperdine Dispute 
Resolution Law Journal 7:2 (2007): 165-176.
---------------------------------------------------------------------------
    Roberts B. Owen, the State Department legal adviser who helped 
craft the settlement, explained that ``we gave away nothing of value 
that was ours; we simply returned a relatively small part of what was 
theirs . . . '' \11\ And with respect to later actions at the Tribunal 
and the diplomatic aspirations attached to them, Abraham D. Sofaer, who 
served as State Department legal advisor from 1985-1990, underscored 
that these settlements should not be interpreted as confirmation that 
``the United States was negotiating a settlement for hostages or that 
anyone is giving them more money than they deserve.'' \12\
---------------------------------------------------------------------------
     \11\ Roberts B. Owen, ``The Final Negotiation and Release in 
Algiers'', in Warren Christopher et al., American Hostages in Iran: The 
Conduct of a Crisis (New Haven: Yale University Press, 1985), p. 324.
     \12\ Sciolino, NYT, November 21, 1991.
---------------------------------------------------------------------------
    In this sense, the Obama administration's decision to coordinate 
the resolution of the outstanding claim with the release of the 
Americans in January is perfectly consistent with the approach 
undertaken by each of its predecessors.
    There are several broad points about the use of economic leverage 
and transactional diplomacy in influencing Iran's regional and domestic 
policies:

  1.  It is important to emphasize that throughout the past 37 years, 
        the various endeavors in transactional diplomacy by each U.S. 
        Administration did not preclude the intensification of 
        sanctions or the use of military force and other coercive 
        measures against Iranian actors or their proxies in the region. 
        These are not mutually exclusive policy approaches.

  2.  It should also not be forgotten that the Iranians themselves 
        frequently view diplomacy explicitly in transactional. This was 
        particularly acute throughout the long history of the nuclear 
        negotiations; Iran approached the talks from 2003 onward with 
        the expectation of a reciprocal--and at least equivalent--
        exchange. Understandably, Iran's long pattern of deception and 
        transgressions meant that Washington and its European partners 
        saw no such equivalence. The very efficacy of sanctions and 
        Iran's internal debate surrounding the negotiations and the 
        deal only exacerbated this disconnect. The painful toll of 
        sanctions and the hyperbole deployed to gain elite and popular 
        buy-in for the nuclear agreement has upped the ante in Tehran.

  3.  Finally, as the historical anecdotes cited here suggest, the use 
        of incentives as bargaining chips in negotiations has 
        demonstrated a relatively mixed track record. Proffering 
        sanctions relief incrementally--either in retrospective 
        fashion, to reward constructive policy shifts or prospectively 
        to encourage the same--has typically failed to generate the 
        intended results. The long history of utilizing economic 
        pressure suggests that the use of sanctions relief as an 
        incentive often entails missed cues for both the sanctioning 
        State and the target State. In past efforts to use sanctions 
        relief to encourage changes in Iranian policies, Washington has 
        overestimated the value of its hand, while Tehran has 
        persistently undervalued any incentives put on offer.
Diplomacy Ultimately Advances American Interests
    Many have questioned the advisability of resolving the outstanding 
pre-revolutionary FMS claim at this time. However, further delay in a 
settlement would not have obviated its eventual conclusion, and State 
Department lawyers have insisted that the Tribunal's decision in this 
particular claim might have resulted in a higher judgment if a 
compromise had not been reached between U.S. and Iranian officials. 
\13\ Such an assessment is reasonable and consistent with the position 
articulated 7 years earlier, by John B. Bellinger III, State Department 
legal advisor during the George W. Bush administration. Bellinger 
argued that the United States would benefit from an expeditious 
resolution of all the remainder of the Iranian claims before the 
Tribunal, precisely because judgments in outstanding cases could entail 
such significant payments to Tehran. \14\
---------------------------------------------------------------------------
     \13\ Grosh, September 8, 2016, http://financialservices.house.gov/
calendar/eventsingle.aspx?EventID=400971.
     \14\ John B. Bellinger III, ``The Iran Talks We Should Stop: An 
Outmoded U.S.-Iran Claims Tribunal'', The Washington Post, October 22, 
2009, http://www.washingtonpost.com/wp86-dyn/content/article/2009/10/
21/AR2009102103222.html; Bellinger, ``U.S. Settlement of Iran Claims 
Tribunal Claim Was Prudent but Possible Linkage to Release of Americans 
Is Regrettable'', Lawfare, January 18, 2016, https://
www.lawfareblog.com/us-settlement-iran-claims-tribunal-claim-was-
prudent-possible-linkage-release-americans-regrettable.
---------------------------------------------------------------------------
    In addition, it is hardly surprising that the mechanics of these 
payments--via wire transfers to European financial institutions that 
were then converted to cash and airlifted to Tehran--have generated 
concern and controversy. The relevant U.S. officials who approved this 
transaction have yet to fully explain the rationale for what appears to 
be a deviation from prior practices of financial transfer to Tehran. 
The unusual mechanism of the payments warrants further clarification, 
in a closed setting if necessary.
    However, had the manner of payment differed, it is not clear to me 
that the outcome would be manifestly different from the perspective of 
U.S. interests. If the payments had been effected fully by wire 
transfer rather than the headline-grabbing ``pallets of cash,'' the 
ultimate beneficiary would have been the same. And, once the settlement 
was effected, Washington would have had no greater capacity to 
constrain Tehran's ability to utilize these funds for its own purposes, 
irrespective of the mode of payment.
    Unease among the general public and here in Congress about the 
wisdom of expanding the coffers of one of the world's worst actors is 
perfectly reasonable. And it cannot be fully, or even significantly, 
assuaged by the assurances of State Department officials that Tehran is 
likely to use these funds for ``critical economic needs.'' \15\ There 
can be no doubt in the existence and even the urgency of domestic 
economic priorities for Iran's leadership; after years of debilitating 
sanctions and domestic mismanagement, economic rehabilitation ranks at 
the top of Tehran's agenda. Iranians are eager to see the ``peace 
dividend''--jobs, opportunities, and growth--that they have been 
promised for years. Unfortunately, these priorities do not negate the 
possibility, even the likelihood, that Tehran will utilize some or all 
of the funds provided as a result of this transaction for more 
destabilizing purposes: arms procurement, support for regional proxies, 
and other malign activities.
---------------------------------------------------------------------------
     \15\ Chris Backemeyer, Deputy Assistant Secretary of State, Bureau 
of Near East Affairs, U.S. Department of State, testifying before the 
Subcommittee on Oversight and Investigations, Committee on Financial 
Services, U.S. House of Representatives, ``Fueling Terror: The Dangers 
of Ransom Payments to Iran'', September 8, 2016, http://
financialservices.house.gov/calendar/eventsingle.aspx?EventID=400971.
---------------------------------------------------------------------------
    Still, the long-term track record is clear: neither Iran's support 
for terrorism nor the development of its nuclear and missile programs 
have been driven primarily or even substantially by resource 
availability. In fact, Iran's most destructive regional policies have 
been undertaken and sustained even at times of epic constraints. 
Economic pressures--whether related to sanctions or declines in oil 
prices--did not produce corresponding abatements in Iran's efforts to 
extend its influence through nefarious activities and allies, its 
substantial investment in fueling conflicts in Iraq and Syria, or its 
illicit nuclear program.
    For the same reasons, it is unlikely that the repayment of a 
prolonged pre-revolutionary financial claim will manifestly exacerbate 
these policies. And the continuing U.S. capacity to isolate those 
entities and individuals within Iran who remain engaged in terrorist 
activities will be crucial to shaping the decisions of its leadership 
and the trajectory of its economic recovery.
    It is understandably galling to settle a debt that provides a 
benefit to a regime that remains a fundamentally dangerous actor within 
the region and toward its own citizenry. However, a discomfiting 
reality of the international system is that the United States has and 
must engage with a variety of Governments whose interests conflict with 
its own, occasionally in ways that work to the immediate advantage of 
hostile actors. That the United States upholds its obligations, even in 
dealing with regimes that routinely violate such norms, is neither 
objectionable nor worthy of censure.
    Americans interests have always been best defended and advanced by 
bolstering the rules and institutions of the liberal international 
order. While it is unfortunate that Tehran has benefited from this 
transaction, the tradeoffs here, and in the broader intensification of 
diplomatic engagement with Iran including the conclusion of the 
comprehensive nuclear deal, meaningfully advance U.S. national security 
by deferring Iran's pathway to nuclear weapons capability.
    In the same vein, it is deeply short-sighted to view the settlement 
of a largely forgotten financial dispute with Iran's post-revolutionary 
Government as a consequential victory for the Iranian leadership or 
their attachment to objectionable policies. The price that Iran has 
paid--and will continue to pay--for its recalcitrance on the nuclear 
issue, its support for terrorism and destabilizing actions around the 
region, and its treatment of its own citizens vastly outstrips the 
compensation that is the subject of this hearing.
Addressing the Unjust Detention of Americans and Other Dual Nationals 
        in Iran
    Several critics of the Obama administration and the handling of 
this episode have warned that the linkage between the financial 
settlement and the release of detained Americans in January may 
exacerbate the risks to American citizens in countries such as Iran. 
The theory seems to be that Tehran will see financial incentives in the 
seizure and bartering of American lives, and thus engage in additional 
spurious arrests, imprisonment, and/or harassment of dual nationals in 
hopes of eliciting additional financial benefits.
    I understand why such inferences have been drawn and I appreciate 
the appeal of imputing some kind of rational calculus to Iran's 
treatment of dual nationals. Unfortunately, however, in my view this 
reflects a naive and inaccurate assessment of the drivers of Iranian 
politics and policy. I simply see no evidence that Iran's longstanding 
patterns of human rights abuses, inadequate rule of law, and 
exploitation of individuals to advance ideological narrative are 
subject to the logic of financial incentives.
    Even after the prisoner release in January, Americans remain 
missing and unjustly detained in Iran: first and foremost, Robert 
Levinson, a retired U.S. Government employee missing since a 2007 trip 
to Iran's Kish Island. Also: my good friend Siamak Namazi, an Iranian-
American entrepreneur and analyst whose interest in Iran's development 
has always been paramount; his 80-year-old father Baqr Namazi, a long-
time United Nations diplomat; Robin Shahini, who was visiting his sick 
mother in Iran when he was arrested earlier this year; and U.S. 
permanent resident Nizar Zakka, who attended a conference in Tehran as 
part of his work on information technology issues for a U.S. Government 
contractor.
    Add to that list an array of others: Canadian academic Homa 
Hoodfar; British NGO staffer Nazanin Zaghari-Ratcliffe, whose 2-year-
old daughter has been stranded in Iran as a result of her detention; 
and many more British, French, and Canadian citizens. These names are 
just the tip of the iceberg; press reports have suggested that other 
cases have been deliberately suppressed in hopes of a quiet resolution. 
\16\
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     \16\ Carol Morello, ``Relatives of Western Prisoners in Tehran Try 
To Lobby Iranian President at the U.N.'', Washington Post, September 
20, 2016, https://www.washingtonpost.com/world/national-security/
relatives-of-western-prisoners-in-tehran-try-to-lobby-iranian-
president-at-the-un/2016/09/20/4bb7c4cd-c4ee-4807-8809-
66228e9c7283_story.html.
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    Washington must pay particular attention whenever one of our own is 
seized in the sole country on earth where the United States has no 
direct diplomatic presence. When an Iranian-American is seized by the 
Islamic system, the world's sole superpower is forced to fall back on 
the least satisfying instruments of diplomatic influence: eloquent 
statements from the podium, third-party consular inquiries, and quiet 
efforts through cooperative interlocutors.
    And in this search for responses, there tends to be an almost 
irresistible pursuit of an explanation. Why was this individual seized 
at this particular moment in time? What message are Iranian authorities 
trying to send with this arrest? The conventional wisdom often searches 
for explanations in Iran's fierce factionalized struggle, while some 
now wonder if Tehran will see individual dual nationals as a ready 
source of leverage in eliciting financial benefits.
    All these theories are perfectly reasonable. However, any attempt 
at surmising intent from the actions of a repressive Government tends 
to over-intellectualize. In these arrests, I would assert that there is 
no hidden message, no method to the madness other than obnoxious 
realities of authoritarian power. The reality is that there is only one 
factor that drives the detention and seizure of Americans and other 
dual nationals. The Islamic Republic's foundational moments have 
internalized a combination of deep-seated paranoia toward external 
actors and State together with a readiness to utilize official and 
semi-official violence against individuals within the DNA of the 
Iranian State and its leadership. What the esteemed historian Ervand 
Abrahamian has described as the ``paranoid style of Iranian politics'' 
has deep roots and broad appeal within today's Iran. \17\
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     \17\ Ervand Abrahamian, ``Khomeinism: Essays on the Islamic 
Republic'' (University of California Press, 1993); see also Abrahamian, 
``The Paranoid Style of Iranian Politics'', Frontline: Tehran Bureau, 
August 27, 2009, http://www.pbs.org/wgbh/pages/frontline/tehranbureau/
2009/08/the-paranoid-style-in-iranian-politics.html.
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    For Tehran, jailing Americans has never been never motivated by the 
prospect of a payoff. Rather, the center of gravity within Iran's 
ruling elite remains convinced that there is an American-led conspiracy 
of regime change, facilitated by dual nationals such as those who were 
arrested.
    Finally, it is essential to understand the broad context of Iranian 
behavior. The history of the Islamic Republic has only rarely recorded 
cases in which the leadership of this State serviced Iran's economic 
interests as its foremost priority. The notion that the January 2016 
settlement will provoke a new wave of harassment or detention fails to 
appreciate how routinely Tehran has acted against its own economic 
betterment, or how modest the recent settlement is within the overall 
financial flows and assets available to the Islamic Republic.
    And this presumption fails to account for the relative durability 
of these patterns of behavior in Iran. The arrest of innocents and the 
routine violation of human rights in Iran are a function of this ruling 
system. Despite the sophistication of its society, the vibrancy of its 
debates, the trappings of competitive and representative politics, at 
the heart of the Islamic Republic is a police State. If its agents want 
to grab you, they can and they will and they need no excuse. Multiple 
intelligence and security organizations control a prison system whose 
reaches are not known to even its parliament and whose abuses are 
infamous. No one, not the most innocuous Western tourist or the most 
well-connected Iranian power-broker, is immune to its reach.
Conclusion
    Despite the Administration's careful, almost reflexive hedging, the 
public campaign to win support for the nuclear deal relied upon an 
expectation that the agreement both evidenced and advanced a nascent 
process of political change within Iran. The July 2015 conclusion of 
the JCPOA and its subsequent implementation seemed to validate the 
Administration's underlying presumption that Iran's leaders could be 
persuaded to alter their most dangerous policies. As a result, what was 
once mostly hypothetical--the proposition that Iran can be moderated--
seems temptingly inevitable.
    However, as the ensuing months demonstrated, the end of the 
negotiations themselves did not bring about any durable conclusion to 
the controversy over Iran's nuclear program, nor did it usher in 
anything like a denouement in the Islamic Republic's most destabilizing 
policies. For this reason, it is tempting to view Tehran's continued 
harassment and detention of Americans, other foreign travelers, and 
Iranian citizens, along with a host of other abuses and dangerous 
policies, as an indictment of the Obama administration's approach to 
Iran.
    And yet the rewards of diplomacy with the Islamic Republic, while 
as yet limited, should not be dismissed out of hand. Tehran's 
prospective pathway to nuclear weapons capability has been extended 
significantly for at least a decade, and the most onerous inspections 
and verifications regime in the history of the nuclear nonproliferation 
regime has been erected to ensure this. Five Americans were able to 
leave the confines of Iran's most notorious prison and are with their 
families today. And it is possible to see in other developments, such 
as Tehran's recent efforts to demonstrate compliance with multilateral 
counterterror financing requirements, \18\ as evidence of a creeping 
recognition among the Iranian leadership that meaningful rehabilitation 
on the world stage requires adherence to the norms of the international 
system. That is not an end, but it is a beginning, and after 37 years 
of frustrated and largely unsuccessful American efforts to moderate 
Iran's most dangerous policies, it is a welcome beginning.
---------------------------------------------------------------------------
     \18\ Najmeh Bozorgmehr, ``Iranian Banks Give Revolutionary Guards 
the Cold Shoulder'', The Financial Times, September 18, 2016, http://
www.ft.com/cms/s/0/1eb9e41a-7b16-11e6-ae24-
f193b105145e.html#axzz4KtH3QCE3.
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    I thank you for the opportunity to testify here today and look 
forward to the Committee's questions.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                    FROM MICHAEL B. MUKASEY

Q.1. Why, in your opinion, would the Government of Iran prefer 
cash payments over wire transfers?

A.1. I believe the Government of Iran would prefer cash 
payments over wire transfers because the subsequent use of cash 
is impossible to monitor or trace, whereas the subsequent use 
of the proceeds of wire transfers can be monitored, at least to 
a limited extent. Thus, cash can more easily be used to finance 
terror operations without detection than wire transfers. There 
is no other possible use the Government of Iran would have for 
cash in foreign currency; it does not pay workers or suppliers 
in Iran in foreign currency; legitimate payment to suppliers or 
others outside Iran is far easier to make from bank accounts 
outside Iran than from cash that must be transported from Iran 
to another jurisdiction.

Q.2. If you were considering this request for a cash in your 
former position as Attorney General of the United States, what 
concerns would you have about such a payment? How do you think 
you might advise the President on such a request?

A.2. My concern would be that the cash would go not to finance 
projects within Iran, for which it is virtually useless, but 
rather to finance the activities of the IRGC, specifically the 
Quds Force--that branch of the IRGC that conducts and finances 
terrorism operations outside Iran. I would advise the President 
not to provide cash to Iran but rather to pay purported 
obligations, if any, by wire transfer.

Q.3. Do you have any concern that U.S. payments to Iran might 
ultimately benefit the Revolutionary Guard Corps or other 
terrorist groups? What is the impact of such support on U.S. 
homeland security?

A.3. I have substantial concern that U.S. payments in the form 
in which they were made would benefit the IRGC's Qods Force, 
for the reasons outlined above. The effect can only be to 
damage the security of this country, whether through direct 
strikes here or through activities overseas.

Q.4. Are these groups--the IRGC or Iranian-sponsored terrorist 
groups--actively plotting against the United States at home or 
abroad?

A.4. Of course, I do not have access to classified intelligence 
information relating to particular activities by the IRGC or 
its affiliates, but the whole purpose of that entity is to 
promote Iranian interests throughout the world by violence and 
subversion. Iran has already shown that it will not hesitate to 
engage in plots in Latin America and, as in the case of the 
plot to assassinate the then-Saudi ambassador to this country, 
in the United States. Thus, I believe that Iran continues to 
pursue activities hostile to U.S. interests both abroad and, if 
possible, in this country.

Q.5. How many Americans have been illegally detained in Iran 
since the Iranian Revolution? How many since the President's 
payment of $400 million in exchange for our detained personnel?

A.5. I do not know the total of Americans detained since the 
Revolution, although it would certainly include all those 
detained when our embassy was stormed, the four released 
recently, and others--including an FBI agent--Robert Levinson--
of whom the Iranians disclaim knowledge, and at least four 
people detained since the President authorized the $1.7 billion 
cash payment.
              Additional Material Supplied for the Record
     
     ADDITIONAL MATERIAL SUBMITTED BY CHAIRMAN MARK KIRK
          
          
          
          
          
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