WASHINGTON – After striking an elusive nuclear deal with Iran, the Obama administration found itself in a quandary in early 2016: Iran had been promised access to its long-frozen overseas reserves, including $5.7 billion stuck in an Omani bank.
To spend it, Iran wanted to convert the money into U.S. dollars and then euros, but top U.S. officials had repeatedly promised Congress that Iran would never gain access to America’s financial system.
Those assurances notwithstanding, the Obama administration secretly issued a license to let Iran sidestep U.S. sanctions for the brief moment required to convert the funds through an American bank, an investigation by Senate Republicans released Wednesday showed. The plan failed when two U.S. banks refused to participate.
Yet two years later, the revelation is re-igniting the bitter debate over the nuclear deal and whether former President Barack Obama was too eager to grant concessions to Tehran.
“The Obama administration misled the American people and Congress because they were desperate to get a deal with Iran,” said Sen. Rob Portman, R-Ohio, who chairs the Senate panel that conducted the investigation.
And Republican Rep. Ed Royce, the House Foreign Affairs Committee chairman, accused Obama of trying to “hide a secret push to give the ayatollah access to the U.S. dollar.”
Not so, former Obama administration officials said, arguing the decision to grant the license adhered to the spirt of the deal, which included allowing Iran to regain access to foreign reserves that had been off-limits because of U.S. sanctions. They said the public assurances that Iran would be kept out were intended to dispel incorrect reports about nonexistent proposals that would have gone much farther by letting Iran actually buy or sell things in dollars.
The former Obama officials disputed that the momentary access to U.S. banks to convert funds through the dollar constituted “access to the U.S. financial system.” What’s more, they dismissed the report as another example of a faulty approach to Iran policy by Republicans and by President Donald Trump, who last month withdrew the U.S. from the landmark 2015 nuclear accord.
“They continue to malign the deal in an effort to justify President Trump’s unjustifiable decision,” said Ned Price, who was Obama’s White House National Security Council spokesman, referring to GOP lawmakers.
Still, the report by the Senate Permanent Subcommittee on Investigations sheds light on the delicate balance the Obama administration sought to strike after the deal, as it worked to ensure Iran received its promised benefits without playing into the hands of the deal’s opponents. Amid a tense political climate, Iran hawks in the U.S., Israel and elsewhere argued that the United States was giving far too much to Tehran and that the windfall would be used to fund extremism and other troubling Iranian activity.
The Treasury Department license, issued in February 2016 and never disclosed, would have allowed Iran to convert $5.7 billion it held at Oman’s Bank of Muscat from Omani rials into euros by exchanging them first into dollars. If the Omani bank had allowed the exchange without such a license, it would have violated sanctions that bar Iran from transactions that touch the U.S. financial system.
The situation resulted from the fact that Iran had stored billions in Omani rials, a currency that’s notoriously hard to convert. The U.S. dollar is the world’s dominant currency, so allowing it to be used as a conversion instrument for Iranian assets was the easiest and most efficient way to speed up Iran’s access to its own funds.
“Yikes,” one former Treasury official told colleagues in an email, as described by the report. “It looks like we committed to a whole lot beyond just allowing the immobilized funds to settle out.”
The Obama administration approached two U.S. banks to facilitate the conversion, the report said, but both refused, citing the reputational risk of doing business with or for Iran.
Issuing the license was not illegal. Still, it went above and beyond what the Obama administration was required to do under the terms of the nuclear agreement, in which the U.S. and world powers gave Iran billions of dollars in sanctions relief in exchange for curbing its nuclear program.
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.
Yet almost immediately after the sanctions relief took effect in January 2016, Iran began to complain that it wasn’t reaping the benefits it had envisioned. Iran argued that other sanctions – such as those linked to human rights, terrorism and missile development – were scaring off potential investors and banks who feared any business with Iran would lead to punishment. The global financial system is heavily intertwined with U.S. banks, making it nearly impossible to conduct many international transactions without touching New York in one way or another.
As the Obama administration pondered how to address Iran’s complaints in 2016, reports in the Associated Press and other media outlets revealed that the U.S. was considering additional sanctions relief, including issuing licenses that would allow Iran limited transactions in dollars. Democratic and Republican lawmakers argued against it throughout the late winter, spring and summer of 2016. They warned that unless Tehran was willing to give up more, the U.S. shouldn’t give Iran anything more than it already had.
At the time, the Obama administration downplayed those concerns while speaking in general terms about the need for the U.S. to live up to its part of the deal. Secretary of State John Kerry and other top aides fanned out across Europe, Asia and the Middle East trying to convince banks and businesses they could do business with Iran without violating sanctions and facing steep fines.
“Since Iran has kept its end of the deal, it is our responsibility to uphold ours, in both letter and spirit,” Treasury Secretary Jack Lew said in March 2016, without offering details.
That same week, the AP reported that the Treasury had prepared a draft of a license that would have given Iran much broader permission to convert its assets from foreign currencies into easier-to-spend currencies like euros, yen or rupees, by first exchanging them for dollars at offshore financial institutions.
The draft involved a general license, a blanket go-ahead that allows all transactions of a certain type, rather than a specific license like the one given to Oman’s Bank Muscat, which only covers specific transactions and institutions. The proposal would have allowed dollars to be used in currency exchanges provided that no Iranian banks, no Iranian rials and no sanctioned Iranian individuals or businesses were involved, and that the transaction did not begin or end in U.S. dollars.
Obama administration officials at the time assured concerned lawmakers that a general license wouldn’t be coming. But the report from the Republican members of the Senate panel showed that a draft of the license was indeed prepared, though it was never published.
And when questioned by lawmakers about the possibility of granting Iran any kind of access to the U.S. financial system, Obama-era officials never volunteered that the specific license for Bank Muscat in Oman had been issued two months earlier.
According to the report, Iran is believed to have found other ways to access its money, possibly by exchanging it in smaller quantities through another currency.
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