The Obama administration secretly sought to give Iran brief access to the U.S. financial system by sidestepping sanctions kept in place after the 2015 nuclear deal, despite repeatedly telling the opposite to Congress and the public, according to an investigation by Senate Republicans released Wednesday.
The probe revealed that the Treasury Department issued a license in February 2016 that would have allowed Iran to convert $5.7 billion it held at a bank in Oman from Omani rials into euros by exchanging them first into U.S. dollars.
The plan failed when two U.S. banks refused to participate.
Still, the report by the Senate Permanent Subcommittee on Investigations sheds light on the delicate balance the Obama administration tried 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.
Two years later, the revelation is reigniting the bitter debate over the nuclear deal and whether former President Barack Obama was too eager to grant concessions to Iran.
"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), chairman of 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."
Former Obama administration officials said this was not so, saying the decision to grant the license adhered to the spirit 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 officials disputed that the momentary access to U.S. banks to convert funds through the dollar constituted "access to the U.S. financial system."
They also 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 [Republican lawmakers] continue to malign the deal in an effort to justify President Trump's unjustifiable decision," said Ned Price, National Security Council spokesman in the Obama administration.
The 2015 deal was struck amid a tense political climate, with Iran hawks in the United States, Israel and elsewhere arguing that the U.S. was giving far too much to Iran 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 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 came about because Iran had stored billions in Omani rials, a notoriously hard-to-convert currency. As the U.S. dollar is the world's dominant currency, 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.
According to the report, one former Treasury official wrote to colleagues in an email: "Yikes. 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 but both refused, citing the reputational risk of doing business with or for Iran, the report said.
Issuing the license was not illegal. But 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 the Omani bank stood in stark contrast to repeated public statements from the Obama White House, the Treasury and the State Department denying that the administration was contemplating allowing Iran access to the U.S. financial system.
Almost immediately after the sanctions relief took effect in January 2016, Iran began to complain that it was not 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 that 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 the U.S. in one way or another.
As the Obama administration pondered how to address Iran's complaints, media reports 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 this throughout 2016. They warned that unless Iran was willing to give up more, the U.S. should not give it any 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. Then-Secretary of State John Kerry and other top aides fanned out across Europe, Asia and the Middle East trying to convince banks and businesses that 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 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 such as the euro, yen or rupee, 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. The proposal would have allowed U.S. dollars to be used in currency exchanges provided that no Iranian banks, no Iranian rials and no Iranian individuals or businesses under sanction were involved, and that any transaction did not begin or end in U.S. dollars.
Obama administration officials assured concerned lawmakers that a general license would not be coming. But the Senate panel's report showed that a draft of the license was prepared, though it was never published.
When questioned by lawmakers about the possibility of granting Iran any kind of access to the U.S. financial system, Obama officials never volunteered that the specific license for Bank Muscat had been issued two months earlier.
According to the report, Iran is believed to have found other ways to access its funds, possibly by exchanging smaller quantities through another currency.
