An investigation by the Senate majority has revealed that, despite repeatedly assuring Congress that Iran would remain barred from the U.S. financial system, the Obama Administration conspired to give Iran access to American banks so it could convert the cash windfall it received from sanctions relief into dollars.
The report exposes the remarkable steps Obama administration officials took to close the Iran nuclear accord -- or Joint Comprehensive Plan of Action (JCPOA) -- even as it was still being negotiated.
President Trump canceled U.S. participation in the accord on May 8, rattling other signatories and effectively killing the deal.
“The Obama administration misled the American people and Congress because they were desperate to get a deal with Iran,” said Sen. Rob Portman (R-Oh), Chairman of the Homeland Security Committee’s Permanent Subcommittee on Investigations, which issued the report.
News of the investigation broke the same day the Trump Administration issued stark warnings to any entities that might try to help Iran game the U.S. financial system and dodge the new sanctions that took effect after the president exited the JCPOA.
As part of the JCPOA, Iran could reclaim billions of dollars in state assets and bank accounts frozen by international sanctions. Critics decried the newly acquired funds as “bribe money” to entice Iran into signing the controversial agreement.
Despite Iran’s right to reclaim the seized monies, it remained illegal for U.S. persons, entities, and financial institutions to do business with Iran, or with third parties acting on behalf of Iran.
Rials For Sale
The ban also included so-called “U-turn transactions” -- deals by or on behalf of an Iranian bank in which a U.S. bank would act solely as an intermediary to convert one foreign currency into dollars and then to another foreign currency.
Allowing these transactions would have made it easier for Iran to funnel money through the international banking system and boost the value of its assets on the global market.
Several State and Treasury Department officials told Congress there was no cause for concern. In July 2015, Obama Treasury Secretary Jack Lew testified before the Senate Foreign Relations Committee that Iran would “continue to be denied access to the [U.S.] financial and commercial market” under the proposed nuclear accord.
Later that same month, the Treasury Department’s Acting Under Secretary for Terrorism and Financial Intelligence, Adam Szubin, testified to the Senate Banking Committee that “Iranian banks will not be able to clear U.S. dollars through New York, hold correspondent account relationships with U.S. financial institutions, or enter into financing arrangements with U.S. banks.”
Despite the many guarantees to Congress, the Treasury Department still tried to allow Iran to convert foreign currency worth billions of U.S. dollars, the report said.
In January 2016, when the JCPOA went into effect, Iran had roughly $5.7 billion worth of assets parked at Bank Muscat in Oman. According to Senate investigators, Iran urgently requested access to U.S. dollars.
Because the rial is pegged to the U.S. dollar, Iran wanted to convert the rials into dollars, and then convert the dollars into euros. The most expeditious way to make the conversion was to use a U.S. bank as an intermediary, because U.S. sanctions made it difficult for foreign banks to convert Iranian assets.
According to the report, Bank Muscat contacted the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and requested a waiver from the sanctions to convert Iran’s rials into euros. On February 24, 2016, OFAC issued Bank Muscat a specific license to allow $5.7 billion worth of Iranian assets to pass through the U.S. financial system, even though the move was prohibited by U.S. sanctions.
After the license was granted, Obama administration officials pressured two U.S. banks to facilitate the transaction, the report said. One official wrote, “I agree it would be a good idea to have [Secretary] Lew engage [the U.S. bank]. If they refuse we can suggest [Secretary] Kerry will call, which will drive them nuts.”
While OFAC officials prodded the banks to convert the Iranian funds, the Treasury Department continued to deny it was doing so -- and even put the claim in writing.
According to the report, Senators Marco Rubio (R-Fl.) and Mark Kirk (R-Il.) wrote to Treasury officials seeking clarification of “new reports suggesting the Administration is working to give Iran access to the U.S. financial system or to dollar transactions outside of the U.S. financial system.”
In June, 2016, three months after it granted Muscat Bank a license to convert Iranian currency to dollars, Treasury officials replied to the senators by letter.
“To be clear,” the letter read, “the U.S. Department of Treasury is not working on behalf of Iran to enable Iranian access to U.S. dollars elsewhere in the international financial system, nor are we assisting Iran in gaining access to dollar payment systems outside the U.S. financial system. The Administration has not been and is not planning to grant Iran access to the U.S. financial system.”
According to Senate investigators, the main reason Iran’s currency was not converted is because neither of the bank's administration officials pressured were willing to do it. Had they been caught helping Iran avoid U.S. sanctions, the banks would have faced terrible liabilities and suffered grievous damage to their reputations -- even if the Obama administration urged them to do so.
The report said that after the banks rebuffed them, Treasury and State Department officials still sought other ways to convert Iran’s currency. They considered coordinating with the Federal Reserve Bank of New York, the Bank for International Settlements and the Central Bank of Germany.
None of these alternatives happened and Iran’s money remained at Bank Muscat.
Frustrated by the inability to convert its currency, one lead Iranian negotiator complained to his counterpart at the State Department that Iran could not convert its funds as requested.
In defense, the State Department official responded that the U.S. had “exceeded its commitments” to the JCPOA by issuing the license that enabled Bank Muscat to “work with any U.S. financial institution to facilitate the conversation of [Iranian] assets in the banks from rials to other non-dollar currencies.”
The same State Department official also wrote that the Bank Muscat transaction was “prohibited by U.S. sanctions that are still in place, and which we were clear we would not be removing as part of the [nuclear accord],” the report said.
Tony Blinken, Obama’s then deputy secretary of state, adamantly denied any wrongdoing by the administration, and said investigators never even contacted him or anyone who was involved in the Bank Muscat license. He also rejected assertions that the Obama administration paid off Iran to sign the JCPOA.
In an interview with CNN’s Wolf Blitzer, Blinken said the U.S. promised to return frozen Iranian assets as part of an “interim agreement” negotiated with Iran before the final JCPOA was signed.
In November, 2013, the U.N. Security Council’s permanent members plus Germany signed a temporary accord with Iran called the “Joint Plan of Action” (JPOA). The JPOA lifted some economic sanctions on Iran in exchange for suspending portions of its nuclear program while a final deal was negotiated. It took effect in January, 2014.
“Iran had right of return of their money,” Blinken said. “This was a one-time license to overcome a problem.”
Regarding allegations of a coverup, Blinken said the Treasury Secretary fully informed Congress about the license, and that Congress was “repeatedly briefed at the staff level.”
Blinken added that he wouldn’t handle the process any differently today.
“We were dealing with the number one security threat to the United States -- a nuclear Iran,” he said. “Iran had to get something in return as part of a deal. What we did made our security, and the security of our allies, better.”