No, Iran Cannot Use Sanctions Waivers To Fund Terrorism

Note: Iran sanctions waivers are a policy that began during the Trump administration and they’ve been renewed at least 22 times. The money can only be used for humanitarian purposes and it is not fungible. This article proceeds chronologically from October 7, 2023, starting with the $6 billion waiver involving Iran and South Korea and then moving to the $10 billion waiver extensions involving Iran and Iraq that are renewed every four months, giving Republicans triannual opportunities to spread misinformation about the waivers.

False allegations that Iran funded the October 7, 2023, Simchat Torah Hamas terrorist attacks against Israel are a manufactured controversy if there ever was one.

In exchange for the release of five dual-citizen American hostages, the U.S freed Iranian nationals held for violating sanctions with Iran and released $6 billion in Iranian assets via safeguards that guarantee the money can only be used for humanitarian purposes (this won’t cost American taxpayers anything and the process complies with Trump-era sanctions). If you are against the deal President Biden made with Iran to secure the release of five American detainees, you are against Americans coming back home and you are against Iranian people having access to food and medicine.

The deal does not cost American taxpayers a dime and will not fund Iran’s nefarious activities. The deal did not involve the unfreezing of assets but rather the release of money sitting in South Korean banks owed to Iran for oil purchases but not yet paid by South Korea to Iran. The U.S. facilitated the payment that Iran would have eventually received to get the hostages released immediately. This diplomatic achievement becomes more significant when one realizes that these hostages were dual nationals. We considered them Americans — and they are Americans — but Iran considered them Iranian, which added a layer of complication and emotion.

The account in South Korea that held the $6 billion was not a frozen or blocked account under U.S. laws. The funds were in South Korea because, in 2018, the Trump administration approved certain designated countries — including South Korea, India, and Turkey — to continue to buy oil and deposit the funds in special accounts available to Iran for “bilateral non-sanctionable trade” between Iran and those countries. The accounts in India and Turkey were spent subject to those restrictions. The funds in South Korea were not spent due to administrative and logistical challenges associated with those accounts, among other reasons.

The $6 billion is Iranian money in South Korea earned from “oil sales and frozen by Seoul under pressure by the Trump administration following its unilateral withdrawal from the nuclear agreement with Iran known as the JCPOA…Iran is essentially getting access to its own money…the funds in South Korea will be transferred to a bank account in Qatar under the control of its government — a close partner of the U.S. — to ensure that the funds can be used only to purchase humanitarian goods, such as medicine and food.”

As part of the detainee deal, the U.S. allowed the funds to move to Qatar, where they will be useable in Euros, but available only for a limited category of humanitarian trade: food, medicine, and agricultural goods, consistent with U.S. sanctions. The U.S. has stringent due diligence and oversight arrangements in place to ensure the funds are used as intended. If they are not, we can stop further transactions. We have not lifted any of our sanctions on Iran, and contrary to Iranian assertions, Iran does not have the ability to spend this money for other purposes. As of October 7, 2023, none of the money had been accessed for any purpose.

On October 7, a senior administration official explained that none of the $6 billion “will ever be accessed by Iran. They can only be used, when they are used — and none have been used to date — to pay vetted, third-party, non-Iranian vendors for a limited category of humanitarian trade: food, agricultural products, medicine, medical supplies. That’s it. So, nobody in Iran will ever touch a single dinar or cent or rial from those funds. Period.”

Watch this two-minute explainer from Rep. Jason Crow (D-CO). Read this short thread from Sen. Chris Murphy (D-CT). Read Barbara Slavin’s September 13 testimony (not long) before the House Subcommittee on National Security, the Border, and Foreign Affairs.

As Secretary of State Antony Blinken said, “the monies that were freed up were Iranian funds that they had gotten from the sale of oil that were stuck in a bank and that, from day one, had been exempt from our sanctions. In other words, the Iranians have always had the right to use those funds for humanitarian purposes. We moved them from one bank account to another in another country with very clear controls on them to make sure that they could only be used for humanitarian purposes. Not a single taxpayer dollar is involved…This is all for humanitarian purposes. So I think in order to get Americans home, that was a pretty good deal.”

Does this arrangement sound familiar? It should. This program was created by the Trump administration in 2018, with no GOP pushback. Trump’s Secretary of State, Mike Pompeo, said at the time that “the revenue from Iranian oil purchased through waivers will sit in foreign accounts and can only be used by Iran to purchase humanitarian goods and non-sanctioned items.”

But isn’t the money fungible? Blinken explained that “from day one, our sanctions, the penalties that we try to impose on countries that are engaged in activities like Iran is that we profoundly object to, have always, always exempted humanitarian needs. [Regarding fungibility] the Iranians have always found a way to spend money for the nefarious actions that they’re engaged in. They’ve done it before sanctions, during sanctions, after sanctions.”

The argument that the money is fungible is a red herring because humanitarian exemptions have been part of all sanctions regimes even under the most hawkish presidents, including Trump and including with respect to Iran. If you don’t like this deal because money is fungible you are saying that you oppose humanitarian exemptions for any sanctions on any country. That doesn’t mean you’re wrong but it does mean that you would be arguing for a policy the U.S. has never adopted. You might want to ask yourself why.

As a practical matter, Iran’s previous behavior has shown that it will spend what it needs to spend on nefarious activities regardless of sanctions, no more and no less. We didn’t see a spike in nefarious spending after the JCPOA was negotiated and hundreds of millions of dollars were sent directly to Iran in cash. We saw a spike in nefarious Iranian spending and activity after Trump walked away from the JCPOA and imposed what he called “maximum pressure” with increased sanctions.

Rep. Jason Crow (D-CO) explained that the “fungibility” argument is misguided because:

1. oppressive regimes are … oppressive. They want people to suffer. It’s how they maintain control.
2. History shows providing aid actually helps people resist oppression & builds goodwill towards U.S.
3. Aid doesn’t “backfill” oppressive regime budgets. These regimes always choose terror over the needs of their people.

Diplomacy requires negotiation and compromise with bad actors. Saying no prisoner deal unless Iran gives up its nuclear program and stops its other deleterious activities is the same as saying no prisoner deal at all.

The question is whether we are better off with this prisoner deal or with no deal, not whether this deal solves all the world’s problems and gives everyone ice cream cones. Benjamin Netanyahu traded over 1,000 Hamas prisoners, 280 of whom had been sentenced to life in prison for planning and perpetrating attacks against Israeli targets, for Gilad Shalit. Was Bibi soft on terrorism? Was he so naive that he did not realize that negotiating with terrorists might encourage more terrorism? Or did he weigh the risks and make a hard choice? The U.S. and Israel have long histories of negotiating with terrorists and other malign actors. That’s life in the real world.

On November 14, 2023, the administration extended by four months a sanctions waiver that will allow Iraq to continue to purchase electricity from Iran and gives Iran limited access to the proceeds to buy humanitarian goods. According to the AP, “there is roughly $10 billion in Iraqi payments for Iranian electricity currently being held in escrow accounts in Iraq, and the waiver will allow Baghdad to maintain its energy imports without fear of U.S. penalties for violating sanctions on Iran.”

The November waiver for Iraq to use its own funds to pay for Iranian electricity imports was previously renewed 20 times and continues a practice that began under the Trump administration. On March 15, 2024, the administration again extended the same waiver, for the 21st time, for another four months.

Without a waiver, Iraq would not be able to pay for electricity imports. Trump issued the same waivers for Iraq to buy electricity from Iran under his “maximum pressure” sanctions regime, but I don’t recall the Republicans criticizing Biden today criticizing Trump back then. Who said elephants never forget?

Under these waivers, no money is permitted to enter Iran. These funds, which are held abroad in restricted accounts, never enter Iran and can only be accessed for transactions for the purchase of food, agricultural commodities, medicine, medical devices, and other non-sanctionable transactions. We have always had humanitarian carve-outs in our sanctions regime — U.S. policy for decades has been that our sanctions do not prevent humanitarian goods and services from flowing to ordinary citizens, no matter how objectionable their governments.

On March 14, 2024, State Department Spokesperson Matt Miller said, “no money is permitted to enter Iran under the terms of this waiver. All of these funds are held in restricted accounts and they can only be used for transactions for the purchase of food, medicine, medical devices, agricultural products, and other non-sanctionable transactions. And that it is part of our broader goal to wean Iraq off of dependence on Iran for the provision of electricity, because that’s what these waivers relate to, which is that Iraq continues to have to get its electricity from Iran…

“What we have seen — and this is borne out time and time again — is that Iran is always going to fund terrorism. It’s always going to fund destabilizing activities — that is the first item it commits to when Iran is going through whatever budget process it is that Iran goes through — and that this money helps the Iranian people, because it can only be used for humanitarian purposes and other non-sanctionable goods. In other words, it is additive money that would otherwise not be spent to address the Iranian people’s legitimate needs as opposed to the Iranian Government’s illegitimate purposes.

“And with respect to those illegitimate activities by the Iranian Government, you have seen this administration respond to those. We have imposed sanctions on more than 500 Iranian entities since the outset of this administration. We have held Iran accountable for its support of terrorism and its funding of dangerous proxy groups around the region, and we’ll continue to do so.”

The waivers were again extended, on schedule, on July 11, 2024.

Last updated on July 18, 2024.

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