The Rial Dilemma: How the U.S. Tried to Help Iran and Lied About It
A Senate report released this week details the Obama administration’s back-door dealings to help Iran after the nuclear deal came into effect. The administration issued Iran a special license in February 2016 that allowed it to briefly convert frozen funds through the United States financial system. This was directly opposite to what officials were telling Congress at the time.
The report, released on June 6, shows that Obama officials tried to help Iran and then lied about it. Chairman of the Republican Committee Rob Portman told the Washington Post, “I think they did it because they were so eager to get an agreement with Iran.”
After the Joint Comprehensive Plan of Action (jcpoa) came into effect on Jan. 16, 2016, Iran had a problem. Under the deal, Iran now had legal access to $5.7 billion in oil money that had been frozen under U.S. sanctions. Oman’s Bank Muscat was holding it in rials, the Omani currency. The rial is an obscure currency that is very hard to convert, especially without access to the U.S. dollar. Once Iran was free to use the money, it wanted to convert it into currency that it could use.
It wanted the money in euros. The easiest way to do that was to convert the money into U.S. dollars first. However, that required involving the U.S. financial system—which was forbidden, even under the nuclear deal. Before, during and after the nuclear deal was implemented, the Obama administration repeatedly assured Congress that Iran would have no access to the U.S. financial system. This included U.S. banks converting money for Iran. Three days after the deal went into effect, Bank Muscat contacted the U.S. Office of Foreign Assets Control (ofac) for help.
ofac was faced with a dilemma. The most efficient way to change the rials into euros would be through an American bank. To keep the exchange quiet, it would use one of the two U.S. banks that had previous dealings with Bank Muscat. But U.S. sanctions technically denied Iran from converting the money into U.S. dollars, even if it was only for a few seconds. ofac wasn’t even sure if it would be legal.
ofac sat on the issue for 10 days. The Treasury Department debated whether the sanctions that remained in place on Iran allowed such a transaction to occur. But Iran was getting impatient. An Iranian negotiator told the State and Treasury departments that Iran was disappointed. Under the nuclear deal, it had “expected free access and use of [their] funds abroad.” Iran said it felt like America wasn’t fulfilling its obligations.
Bank Muscat was waiting for a special license from ofac. A license like this one “allows specified transactions to occur that would otherwise violate U.S. sanctions.” Without this license, Oman would have violated U.S. sanctions if it tried to transfer the rial into dollars for Iran. The license made it legal.
The Treasury Department decided that issuing Bank Muscat this license was legal. It declared that the nuclear deal “[allowed] the government of Iran to engage in ‘transfers,’ ‘foreign exchange (including rial-related transactions),’ and the ‘purchase or acquisition by the government of Iran of U.S. bank notes.’”
The license itself was technically legal. However, as AP News wrote, “Still, it went above and beyond what the Obama administration was required to do under the terms of the nuclear agreement” (emphasis added throughout).
The Obama administration was almost literally bending over backward to make the exchange. It worked around every existing law and sanction to make sure it was legal. The Washington Post wrote:
To facilitate the transaction, Obama officials engaged in lengthy discussions with Iranian and Omani officials; appealed to the two American banks to undertake the transfer; privately issued a special Treasury license that would guarantee it was allowed under still-existing U.S. sanctions; and even approached the New York Federal Reserve Bank for help.
So what stopped the exchange? The banks. Ultimately, both of the U.S. banks declined to act as intermediaries in the transfer. They were edgy about the sanctions. They also feared the damage to their public image if news of the proposed transaction came out, which it inevitably would. They never used the license. Iran eventually gave up and went the more complicated route.
The Iranians were not happy when America told them there was nothing it could do. However, the Obama administration told Iran that by issuing the ofac license, they had already “exceeded [their] jcpoa commitments.”
And then the Obama administration hid it from Congress. Obama officials repeatedly told Congress that Iran wouldn’t have any access to the U.S. financial system—even while they were issuing a license that allowed Iran to have that access, however temporarily. One source said that Obama officials also declined to tell Congress about the license when directly asked.
At this same time, President Barack Obama’s undersecretary for terrorism and financial intelligence, Adam Szubin, told America 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.”
Congress wasn’t convinced. Szubin and then Treasury Secretary Jack Lew faced a congressional hearing about whether the Obama administration was going too far in the attempt to help Iran unfreeze its assets. Both officials neglected to mention the license. They also repeated the assurance that “Iran will not have access to our financial system.”
They also neglected to tell Congress one more important detail: The administration had drafted a general license as well as the specific license. This general license would have “authoriz[ed] all foreign financial institutions to conduct similar transactions using the U.S. financial system to convert Iranian asserts.” They never did anything with the license, however, once it became clear that the banks would not be coaxed into helping Iran.
Their carefully phrased testimony before Congress was ambiguous at best. At worst, it was a flat-out lie. AP News wrote:
The license issued to Bank Muscat stood in stark contrast to repeated public statements from the Obama White House, the Treasury and the State Department, all of which denied that the administration was contemplating allowing Iran access to the U.S. financial system.
Shortly after the nuclear deal was sealed in July 2015, then Treasury Secretary Jack Lew testified that even with the sanctions relief, Iran “will continue to be denied access to the world’s largest financial and commercial market.” A month later, one of Lew’s top deputies, Adam Szubin, testified that despite the nuclear deal “Iran will be denied access to the world’s most important market and unable to deal in the world’s most important currency.”
Again and again, they repeated this refrain—no access, no access, no access. But even as they were saying it, President Obama and his followers were working out a way to sidestep the sanctions.
The plan would have worked, too—if only the banks had complied. The administration did everything it could to convince the banks, even using high-profile officials like Lew and John Kerry as leverage. When the banks refused, the administration went elsewhere. The Republican Committee Report said: “Treasury and State Department officials sought other ways to move the funds. Discussions involved coordinating with the Federal Reserve Bank of New York, the Bank for International Settlements and the Central Bank of Germany.” These attempts were also unsuccessful. Eventually, the Obama administration had to accept defeat. Iran was left to convert the billions on its own.
And that’s not all. The Obama administration also signaled to U.S. and foreign banks that it wouldn’t attack those who tried to help Iran out. The report said: “For example, during a [pro-Iran] roadshow in London in March 2015 with representatives from 10 major global financial institutions, the head of [ofac] assured attendees that “95 percent of the time ofac sees an apparent violation, it results in a simple warning letter or no enforcement action.” They assured the banks that they would only take aggressive action in “egregious situations.” This signaled to these banks that if they wanted to work with Iran, America wouldn’t do anything to stop them—despite the secondary sanctions it officially threatened.
In 2016, Watch Jerusalem editor in chief Gerald Flurry called the Iran nuclear deal ”the worst foreign-policy blunder in American history.” Those are strong words. However, revelations like this one have proved that he was correct. Not only did President Obama and his officials mislead Congress and the American people about the nuclear deal, they also tried to sidestep the specifics in the deal to help Iran out. They tried to work out a solution behind the scenes, despite their official and legal commitments.
While nothing actually came of these back-channel dealings, the report still proves that the Obama administration was so desperate for a deal that it was willing to lie—even under oath. Mr. Flurry writes in Great Again: “They lied and lied and lied—and were caught in their lies! That administration covered itself in a cloak of deceit.”
He wrote in a June 2016 article:
The U.S. and the European Union lifted sanctions on Iran, released over $100 billion in frozen assets, and welcomed Iran into a whole rush of economic deals. And they received nothing in return.
Iran changed nothing in its policies of aggression, subversion and sponsoring terrorism. It didn’t even say it would reform in any of these areas! Without giving in on anything, Iran was given all it needed in order to greatly accelerate its race toward getting the nuclear bomb.
This deal does not make the world safer—it is a disaster for the world!
To learn more about why the nuclear deal was so disastrous, please read Mr. Flurry’s article “The Worst Foreign-Policy Blunder in American History.”