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The Journal Gazette

Thursday, March 01, 2018 1:10 pm

Was Obama's $1.7 billion cash deal with Iran prohibited by U.S. law?

GLENN KESSLER | Washington Post

This will be an unusual fact check. Essentially, we are fact-checking The Fact Checker.

Like many things these days, it all started with a tweet. President Donald Trump tweeted about the $1.7 billion in cash the Obama administration sent to Iran and wondered why there had not been an investigation.

"Never gotten over the fact that Obama was able to send $1.7 Billion Dollars in CASH to Iran and nobody in Congress, the FBI or Justice called for an investigation!" Trump wrotes on Twitter on Feb. 18.

So we tweeted in response: "Has no one who works for Trump ever explained it was a legal settlement of money the United States owed Iran from before the 1979 revolution?"

Then Omri Ceren, managing director of the Israel Project, tweeted that we were wrong: "Hi Glenn, this isn't true. US courts ruled that money belonged to US victims of Iranian terrorism. Also Cong statute prohibited transfer of funds until those accts were settled. Also money had already been cleaned out for that (so US paid twice). Also it didn't have to be cash."

So we asked for evidence of his tweet and said we would examine it. The dust-up also merited an article in The Tablet, suggesting The Fact Checker had fallen for Obama administration spin.

We went into this exercise with an open mind, and here's what we discovered.

Contrary to Trump's tweet, this $1.7 billion transaction was investigated by Congress. We reviewed transcripts of congressional testimony, a Treasury Inspector General report and various letters between lawmakers and the Obama administration; we also interviewed national-security lawyers and former Obama administration officials.

The situation certainly looks unusual on its face. On Jan. 16, 2016, the same day four American detainees, including the Washington Post's Jason Rezaian, were released, a jumbo jet carrying $400 million in euros, Swiss francs and other currencies landed in Tehran.

That money purportedly was partial payment of an outstanding claim by Iran for U.S. military equipment that was never delivered. Soon after, $1.3 billion in cash followed.

The cash transaction was controversial even within the administration. The Wall Street Journal reported the head of the Justice Department's national-security division objected it would look like a ransom payment. State Department officials insisted the negotiations about the claims and detainees were not connected but came together at the same time, with the cash payment used as "leverage" to ensure the release of detainees.

Now to the substance of our inquiry: Was it against the law to transfer the money to Iran until accounts were settled regarding victims of terrorism?

Before the 1979 revolution, Iran under the shah was reputedly the biggest buyer of U.S. military equipment, depositing funds for potential deals in a Defense Department account. When Iran seized U.S. Embassy staffers as hostages, the military sales account was frozen. The issue -- and other outstanding claims -- has been litigated ever since through a claims tribunal established in The Hague. Some of the money in the account was used to pay American companies whose contracts were canceled, but by 2000, about $400 million was left in what was known as the Foreign Military Sales Trust Fund account.

That is when the families of victims of Iranian-linked terrorism who had won court cases stepped in. They were unable to force Iran to pay the judgments, but Stephen Flatow, the father of a woman killed in a 1995 militant attack in Gaza, discovered the FMS trust fund and sought payment from it.

Congress passed a law in 2000 under which the U.S. Treasury could pay compensatory judgments (plus a portion of punitive damages) issued for claims against Iran (and also Cuba). All told, about $400 million was paid out in relation to court judgments against Iran covered by the law and subsequent legislation in 2002 -- about the equivalent of what was in the FMS trust fund. That is because the amount in the FMS trust fund essentially provided a cap on what would be paid out to those judgment holders who were eligible for compensation under the law. (The family of Alisa Flatow, for instance, received $26 million, which was used to establish a scholarship fund.)

The law, Victims of Trafficking and Violence Protection Act, said that upon payment, the claims of those individual judgment holders were "subrogated" to the United States. That means the claims of those individuals essentially became the claims of the United States government vis-a-vis the foreign state -- in this case, Iran.

This is the actual text:

"(c) SUBROGATION.-Upon payment under subsection (a) with respect to payments in connection with a Foreign Military Sales Program account, the United States shall be fully subrogated, to the extent of the payments, to all rights of the person paid under that subsection against the debtor foreign state. The President shall pursue these subrogated rights as claims or offsets of the United States in appropriate ways, including any negotiation process which precedes the normalization of relations between the foreign state designated as a state sponsor of terrorism and the United States, except that no funds shall be paid to Iran, or released to Iran, from property blocked under the International Emergency Economic Powers Act or from the Foreign Military Sales Fund, until such subrogated claims have been dealt with to the satisfaction of the United States."

When lawmakers quizzed State Department lawyer Lisa Grosh in 2016, they were clearly puzzled by this provision, and you can see the two sides talking past each other.

Then-Rep. Mick Mulvaney, R-S.C.: "At the end of that after the subrogation, they are not Iran's funds anymore; they are the United States government's funds, aren't they?"

Grosh: "No, the funds have remained in the trust fund as Iranian moneys in the trust fund. The United States Congress appropriated $400 million to be paid to these individuals --"

Mulvaney: "Instead of taking the money out of the FMS trust fund, but by doing so we thus own the $400 million."

Grosh: "No, that's incorrect, I'm sorry."

Here's the explanation: Just because there are $400 million in subrogated claims, it does not mean that Iran actually must return that money to the United States. The text of the law provides for a lot of wiggle room: U.S. officials "shall pursue these subrogated rights as claims or offsets of the United States in appropriate ways, including any negotiation process . . . until such subrogated claims have been dealt with to the satisfaction of the United States." Obama officials say that is what happened, with the final amount of the settlement -- $400 million plus $1.3 billion in interest -- taking into the account the subrogated claims.

John B. Bellinger, the chief State Department lawyer under Condoleezza Rice and before that legal adviser to the National Security Council for George W. Bush, reviewed the law and the congressional exchange about the clause at our request.

"The VTPTA does not say that the USG could never release the FMS funds to Iran; it says the funds could not be released to Iran 'until such subrogated claims have been dealt with to the satisfaction of the United States,'" he said. "I assume that when the Obama administration paid the FMS funds plus interest to Iran, they concluded that this VTPTA provision was satisfied."

The Treasury IG examined the payments and reported in November 2016 that it had received verbal assurance from the Justice Department "that the settlement comports with the VTVPA." In its semiannual report to Congress in March 2017, the IG said the payment was made "after receiving necessary information and authorizations from the Departments of Justice and State."

The Tablet article raised questions about the size of the interest penalty -- $1.3 billion -- and called on Treasury to release all documents related to the payment of the claim, such as the computation of the amount of interest allegedly owed. (The Treasury IG report indicated the State Department relied on a calculation involving the annual prime lending rate and simple interest method, which seems out of the ordinary.) We made a request to Treasury for the information, but a Treasury spokesperson declined to provide it because of the ongoing litigation between the United States and Iran.

Obama administration officials had claimed that without a deal with Iran, the Hague tribunal might have imposed an even higher interest penalty on the United States.

Bellinger agreed that that was a concern. "There was a significant risk, based on its judgments in recent years, the Iran-U.S. Claims Tribunal would have issued a decision awarding a larger amount to Iran," he said. "If the tribunal had done that, and the U.S. government was then unwilling or unable to pay the award, the U.S. would have violated its obligations under the Algiers Accords." He said "it was prudent to settle the claims, even if it required the U.S. to take the highly unpalatable action of making a payment to Iran."

The State Department has noted that under the Hague process, Iran has paid out more than $2.5 billion in awards to U.S. nationals and companies. With a few exceptions, the major outstanding claims concern Iran against the United States, heightening the sensitivity of U.S. officials about discussing the issue. Much as Trump dislikes Obama's dealings with Iran, releasing the documents now might raise the cost to U.S. taxpayers later.

As for why the transfer was made in cash, given that the previous claims reached through the Hague tribunal were paid via wire, U.S. officials have cited the effect of increasingly tough sanctions imposed on Iran. If time was of the essence, cash was the best way to go.

Regular readers know we have been willing to award ourselves Pinocchios if we get something incorrect. But that's not the case here. One can certainly disagree with the Obama administration's decision to send a jet with cash to Tehran on the same day that American detainees were released, but the action taken did not violate the law passed by Congress.