Despite State Department Assurances, $6B in Iran Funds Leaves White House Vulnerable

When the White House agreed to include $6 billion in Iranian assets frozen in South Korean banks as part of a deal to win the release of five hostages last month, they surely would have calculated how the cash infusion to a known sponsor of terrorism would reflect on them when the next deadly attack inevitably occurred.

What seems highly unlikely is that they thought it would come so soon.

In the days after the Iranian-backed militant group Hamas launched a sudden attack that killed hundreds in Israel, Republicans leveled searing criticism at the Biden administration decision to release such a hefty sum – even with strings attached governing how it would be spent. Some even dubiously overreached for political effect, suggesting that it was “taxpayer” money or that Iran directed that it be used to aid Hamas in its brutal Oct. 7 attack.

To be sure, no serious observer believes the money ordered released by the administration – accumulated oil revenue withheld from Tehran under a Trump administration financial restriction – was used for that purpose. Iran is known to play a major role in funding, supporting and training the militant group and has for decades, but U.S. officials have said early intelligence does not indicate Iran helped Hamas plan, train or otherwise carry out the assault and added that it appeared to have taken some senior Iranian leaders by surprise. While a Hamas spokesman told the BBC that Iran did assist in the attack, officials in Tehran have denied responsibility while praising the outcome. So any direct link remains tenuous.

With regard to the money, planning of the sophisticated operation appears to have been underway for far longer than the funds were available to Iran, for one thing. For another, Treasury Department controls mandate that the funds cannot be drawn down by Iran for anything other than humanitarian needs provided by third-party vendors. But mostly – as the administration’s one-note response emphasizes at every turn – the most obvious indication it wasn’t used for the attack was because Iran hasn’t yet touched the money after it was sent from South Korea to a bank in Qatar.

“None of the funds that have gone to Qatar have actually been spent or accessed in any way,” Secretary of State Anthony Blinken said on Thursday, speaking from Tel Aviv, where he met with Israeli Prime Minister Benjamin Netanyahu as part of a multi-country diplomatic deployment across the Middle East.

Beyond the conspiracy theorists, though, another group of critics raises a related concern: that Iran could find – or could have found – a way to manipulate the system by, for example, diverting millions or even tens of millions of dollars earmarked for medical supplies to other purposes with the knowledge that it could still acquire such supplies from the pool of recently released funds.

“If you give Iran access to more money it frees up access to domestic funds for nefarious purposes,” former Trump administration official Richard Goldberg, who oversaw Iran policy and became a senior adviser at the Foundation for Defense of Democracies, told The Wall Street Journal at the time the money was released.

Matthew Kroenig, a Georgetown University professor of government and foreign service, touted the premise more recently in comments to PolitiFact.

“If you had a large end-of-year bonus payment coming your way, might you start spending more money in the meantime? Of course. Money is fungible,” he said.

The GOP presidential candidates have attached some version of that theory in attacks on President Joe Biden in recent days.

“I mean, let’s be honest with the American people and understand that Hamas knows and Iran knows they’re moving money around as we speak because they know $6 billion is going to be released,” former U.N. Ambassador Nikki Haley said this week. “That’s the reality.”

Iran itself muddled the understanding of the deal by insisting last month that no agreement had restricted its use of the funds.

“This money belongs to the Iranian people, the Iranian government, so the Islamic Republic of Iran will decide what to do with this money,” Iranian President Ebrahim Raisi told NBC News.

The concerns echoed those of many Republican politicians when the deal was reached to release the funds: that the White House was paying a “ransom” for the return of hostages, that it was emboldening other countries to engage in hostage diplomacy and that it was providing billions to a state sponsor of terrorism.

But the Biden administration has made the return of hostages held on manufactured or trumped-up charges a priority and perhaps didn’t see the $6 billion as a substantial enough sum to fund much beyond immediate and long overdue humanitarian concerns – even for a country that is routinely believed to prioritize spending on militant groups like Hamas and Hezbollah over the basic needs of a population suffering under crippling economic sanctions.

“As we have said from the outset, what is being pursued here is an arrangement wherein we secure the release of 5 wrongfully held Americans,” White House spokesperson Adrienne Watson said at the time.

Former State Department adviser Aaron David Miller when the deal was announced acknowledged the risk while also noting the high stakes and the dearth of options.

“There are no good deals w/Iran. Only various degrees of bad ones. If you want to free 5 Americans some unjustly imprisoned for years, what’s alternative? It’s easy for some in Washington to hang tough, especially if they’re not rotting in Evin prison,” he said on social media, referring to the notorious site where Iran holds political prisoners.

Nevertheless, the transfer evoked a politically divisive recent era during which the Obama administration – in which Biden served as vice president – looked to negotiate with Iran and relieve economic pressures in exchange for certain guarantees that Iran would not pursue a nuclear weapons program.

The Obama administration in 2016 paid some $1.7 billion to Iran in a combination of foreign currencies – most of which was the settlement of a decades-old financial dispute – to secure the release of four detained Americans with no restrictions on how the money would be spent. Photographs of the first installment of $400 million in cash, packed on a wooden palette for transport, were notoriously leaked and fueled the outrage of GOP critics.

The nuclear deal is believed to have resulted in a roughly $50 billion influx of cash for Iran from its implementation in 2016 to 2018, when President Donald Trump withdrew the U.S. from the agreement – a significant amount but a far cry from the $150 billion that Trump estimated had reached Iran.

While the Biden administration renewed talks with Iran to reenter the pact, the discussions have led nowhere and U.S. negotiators publicly walked away. Though not believed to be directly connected, some analysts have speculated that the Biden administration move to free up the $6 billion could have been an incentive to continue talking even as Tehran slowed the pace of development of a nuclear weapon.

To be sure, Iran no longer has access to the $6 billion, according to reports that emerged Thursday based on a decision by U.S. and Qatari officials to freeze Iran’s access to the funds.

But the decision – however well intentioned – has left the Biden administration vulnerable at a critical moment.