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In January 2016, the Obama administration transferred $1.71 billion to Iran from the U.S. Treasury. Of that money, the equivalent of $400 million in cash was directly flown to Iran in an unmarked Iranian cargo plane, predominantly in the form of small denomination Euros and Swiss francs that had been bundled and stacked on wooden pallets. Upon receipt of that money, Iran released three American citizens that it had imprisoned on false or trumped up charges.
While that dramatic story has gained quite a lot of attention, the story of how the U.S. Department of Justice’s Judgment Fund at the U.S. Treasury was used to fund an additional $1.31 billion to Iran’s accounts at other nation’s central banks would appear to involve a similar level of intrigue.
Specifically, the Obama administration obtained the full $1.31 billion it ultimately transferred to Iran was done through 13 withdrawals of $99,999,999.99 and one payment of $10,390,236.28 from the DOJ’s Judgment Fund.
The 13 separate withdrawals of $99,999,999.99, or rather, 13 separate withdrawals of one penny less than $100 million each, appear to have been structured to specifically allow the U.S. Federal Reserve to directly transfer the funds to foreign central banks as cash items. The Associated Press’ Bradley Klapper reports:
On Jan. 17, the administration paid Iran the account’s $400 million principal in pallets of euros, Swiss francs and other foreign currency, raising questions about the unusual payment. The $1.3 billion covers what Iran and the U.S. agreed would be the interest on the $400 million over the decades….
Briefing reporters last week, a senior U.S. official involved in the negotiations said the interest payments were made to Iran in a “fairly above-board way,” using a foreign central bank. But the official, who wasn’t authorized to be quoted by name and demanded anonymity, wouldn’t say if the interest was delivered to Iran in physical cash, as with the $400 million principal, or via a more regular banking mechanism.
The money came from a little-known fund administered by the Treasury Department for settling litigation claims. The so-called Judgment Fund is taxpayer money Congress has permanently approved in the event it’s needed, allowing the president to bypass direct congressional approval to make a settlement.
Economic analyst Tom Blumer describes why these payments actually represent a transfer of cash to Iran.
The reference to a “foreign central bank” by the “senior U.S. official” Klapper quoted appears to be a classic case of misdirection. That’s because the default reason for the 13 payments of one penny less than $100 million has to be that any amount larger than that would not have been processed by the U.S. central bank, aka the Federal Reserve, as a “cash item.”
Section 3.0 of the Fed’s Operating Circular No. 3 relates to “Items We Do Not Handle as Cash Items” (emphasis: “Not”). That section includes the following dollar threshold:
We reserve the right to charge back an item if in our discretion we judge that circumstances require that it should not be handled as a cash item. We reserve the right to return an item payable by, at or through a bank that has been reported closed. We do not handle an item in the amount of $100,000,000 or more, and we reserve the right to return items in amounts of less than $100,000,000 that in our judgment are intended to avoid the $100,000,000 limit. The Reserve Bank may reject a purported electronic item and reverse any provisional credit that may have been given for it.
Thus, the payments, all but one kept just under $100 million, were from all appearances deliberately structured to ensure that the Fed would treat them as “cash items.” Additionally, the supposedly “independent” Fed failed to reject the payments, even though they clearly were “intended to avoid” the $100 million limit.
The sub-$100 million size of these 14 payments enabled them all to be processed as “cash items.” Thus, it appears that the Fed could have sent the funds after processing to the unnamed “foreign central bank” the AP’s source mentioned as immediately disbursable “cash items.”
As such, it would then appear that the Obama administration directly transferred some $1.71 billion from the U.S. Treasury to Iran or to its bank accounts in cash, the equivalent of $400 million in physical cash and $1.31 billion in electronic payments purposefully structured to ensure its delivery in ready-to-spend form to the Iranian government’s accounts at as yet unidentified foreign central banks.
One of the reasons this portion of the story is so interesting is because it is a crime for U.S. citizens to structure withdrawals from their private bank accounts this way. Writing at the New York Times, Josh Barro describes how the U.S. law prohibiting such structured withdrawals was used to prosecute former U.S. Speaker of the House of Representatives Dennis Hastert.
Dennis Hastert has not been indicted on a charge of sexual abuse, nor has he been indicted on a charge of paying money he was not legally allowed to pay. The indictment of Mr. Hastert, a former House speaker, released last week, lays out two counts: taking money out of the bank the wrong way, and then lying to the F.B.I. about what he did with the money.
Does that make sense? Conor Friedersdorf of The Atlantic, for example, is worried that the indictment constitutes government overreach, punishing Mr. Hastert for concealing payments whose disclosure he may have thought would be damaging to his reputation, but which were not illegal.
Federal prosecutors allege Mr. Hastert was paying hush money in exchange for wrongdoing that happened long ago. But Mr. Hastert is charged with structuring: making repeated four-figure cash withdrawals from his bank in order to avoid the generation of cash transaction reports, which banks are required to send the government about every transaction over $10,000. These reports have been required since 1970, with the intention of helping the federal government identify organized criminals and tax evaders.
The contrast between the Obama administration’s actions to transfer $1.71 billion to Iran and the prosecution of Dennis Hastert brings to mind the self-indictment of former President Richard Nixon’s unlawful, pardoned conduct that came to light through his 1977 interviews with David Frost:
“If the president does it, that means it’s not illegal.”
The U.S. House of Representatives’ Financial Services Committee will begin an inquiry into the Obama administration’s transfer of U.S. taxpayer funds to Iran’s government this week. It will be interesting to see what determinations will be made, since right now, answers to the questions raised by the irregularities of the whole transaction are not forthcoming from the administration.