The $1.7 billion cash payment that the White House recently sent to Iran suggests that Washington may have transferred Tehran more than $33 billion in untraceable cash and precious metals since 2014, giving the Islamic Republic greater flexibility to launder money and finance terrorism, a sanctions expert told Congress on Thursday.
In his testimony  before the House Financial Services Committee, Mark Dubowitz, the executive director of the Foundation for Defense of Democracies, challenged the White House’s claim that it had to transport the money to Iran in a mixture of foreign currencies on plane instead of wiring it because, according to the administration, “we are so strict in maintaining sanctions and we do not have a banking relationship with Iran.”
Dubowitz noted that the law governing sanctions against Iran authorizes American financial institutions to facilitate payments intended to settle claims between the U.S. and Iran, and that this exception was used in the past to pay damages incurred when the U.S. accidentally shot down an Iranian airliner in the 1980s. “Since we know that the $1.7 billion was transferred in cash, it is logical to ask, what other settlements … have been made in cash?” Dubowitz asked.
During negotiations for the nuclear deal, which started in January 2014 and extended until July of last year, the U.S. allowed Iran to repatriate $700 million in frozen assets monthly for a total of $11.9 billion. But if no “banking relationship with Iran” existed then, Dubowitz questioned, did the U.S. also transfer those fund in cash and precious metals to Iran?
Dubowitz added that U.S. officials said  in July — a year after the nuclear deal was reached — that Iran “brought home less than $20 billion.” After observing that the administration did not clarify whether the $20 billion figure was inclusive of or separate from the $11.9 billion that Iran received from sanctions relief during the nuclear negotiations, Dubowitz noted that, with the addition of the $1.7 billion payment, “The worst-case scenario here is that Iran may have received as much as $33.6 billion in cash or in gold and other precious metals” since 2014.
Dubowitz cautioned that transferring this much cash to the world’s leading state sponsor of terrorism carries significant risks. “According to the Financial Action Task Force (FATF), an international watchdog fighting money laundering, ‘the physical cross-border transportation of currency … [is] one of the main methods used to move illicit funds, launder money and finance terrorism,'” he noted. Dubowitz speculated that Iran could have requested the hard cash in order to fund infrastructure projects or because it was difficult to repatriate the funds quickly. But he also mentioned the alternative explanation that “Iran needed hard currency to fund its malign activities because the regime wanted those transactions to be untraceable. ”
The uncertainty over how much cash and precious metals Iran received as part of the nuclear deal also raises questions about how the money was spent, Dubowitz observed. According to Iranian media reports, the $1.7 billion transferred by the U.S. was allocated  to military spending, marking a significant increase in Iran’s military budget. This could pay for “Iran’s conventional armed forces, procure advanced weaponry in contravention of the arms embargo, support the activities of the IRGC and Quds Force in Syria, Iraq, Lebanon, Yemen and elsewhere, and/or provide direct support to Hezbollah, Hamas, Palestinian Islamic Jihad and other Iranian-assisted terrorist organizations,” Dubowitz said.
Even after that spending, Iran could still have received $20 billion more in cash following the implementation of the nuclear deal. Dubowitz pointed out that even as the administration claimed that Iran would likely use its windfall from sanctions relief to repair infrastructure and pay down debt, Secretary of State John Kerry acknowledged that “some of [Iran’s unfrozen assets] will end up in the hands of the IRGC or other entities, some of which are labeled terrorists.”
“But Kerry sidesteps a central question,” Dubowitz said. “How much easier will it be for Iran to distribute those funds if they arrive in the form of cash in euros, Swiss francs, or other easy-to-use hard currencies?”
“To put the $20 billion in perspective: $20 billion is one billion more than Iran’s entire $19 billion defense budget for 2016-2017, which already amounts to a near doubling of its military budget compared to the previous year,” Dubowitz continued. He pointed out that it will help Iran continue to give its proxy Hezbollah as much as $900 million a year and $6 billion annually to Syrian dictator Bashar al-Assad.
Iran could also use its newfound liquidity to improve its ballistic missile program, the restrictions on which were relaxed as part of the nuclear deal. It could also boost its spending on efforts to illicitly procure nuclear, missile, biological, and chemical weapons-related materials, as was documented  in a report released by German intelligence in July. “It is safe to expect that Iran will continue its intensive procurement activities in Germany using clandestine methods to achieve its objectives,” Germany’s federal intelligence agency warned at the time.
Dubowitz cited Iranian Supreme Leader Ayatollah Ali Khamenei’s recent proclamation that “to secure our population, our country and our future we have to increase our offensive capabilities as well as our defensive capabilities.” Dubowitz commented that “Billions of dollars in cash, which is easier to hide, exchange and launder, and more difficult to trace, would go a long way in helping the supreme leader realize that goal.”
Dubowitz offered several policy recommendations at the end of his testimony. First, he urged Congress to determine the scope of the cash and precious metal transfers to Iran. He also recommended passing a law prohibiting the future transfer of large amounts of cash and precious metals to state sponsors of terrorism. He further suggested establishing escrow accounts in nations that Iran wants to do business with, which would limit Iranian purchases to only those items and materials that it is legally permitted to buy. Such a system would give the Iran the liquidity it claims to want, but limit its purchases of illicit products and materials.
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