US paid $1.3bn in interest on debt to Iran left over from Shah’s time, critics call it ‘ransom’

© Carlos Barria
Two days after delivering $400 million in cash to Tehran to pay off a decades-old debt, the US paid $1.3 billion more to cover the interest, but Obama administration critics say the payment was essentially ransom for the release of US prisoners in January.

The debt dates back to the 1970s when the government of Iran paid the United States $400 million for military equipment that was never delivered because the revolution of 1979 ousted Iran’s US-friendly Shah, turning Tehran and Washington into bitter enemies. Amid the nuclear deal negotiations, the two countries agreed that the US would return the money – with interest. The total amounted to $1.7 billion.

READ MORE: Washington Post reporter Jason Rezaian & 4 others freed in Iran prisoner swap deal

The Wall Street Journal reported last week that the $400 million was delivered to Tehran in cash on January 17 – the same day Iran released three American prisoners. Critics claimed that the White House had essentially paid ransom for the hostages. The US State Department confirmed the link between the prisoner release and the payment, but insisted that the US had simply withheld the payment until the US citizens were set free in order to keep leverage over Tehran in case it tried to bail on the deal.

State Department spokeswoman Elizabeth Trudeau confirmed on Wednesday that, two days after the cash delivery, the interest on the debt was paid as well. The $1.3 billion was transferred in 13 separate payments of $99,999,999.99, with the final payment amounting to about $10 million.

“The $1.3 billion payment has been made. It was made through a transaction involving central banks but obviously not the US central bank because there are extensive restrictions on the financial relationship between the United States and Iran,” White House Press secretary Josh Earnest said earlier this week.

US officials offered no explanation as to why the Treasury Department kept the individual transactions under $100 million, but Trudeau said the debt was considered settled by Iran, despite being 13 cents short.

According to AP, the money went through a third nation’s central bank, although Trudeau would not confirm this, citing the confidentiality of America’s international partners. The US has no banking relationship with Iran and cannot make financial transactions with Iranian institutions directly. President Obama cited this obstacle when explaining why the $400 million payment had been made in cash, though it was apparently not a problem when paying the interest on the debt.

The money came from the so-called Judgment Fund, which the Treasury Department uses for settling litigation claims and doesn’t require direct congressional approval for the president to tap.

The US is not the only nation with debts due to Iran that have lingered since the Shah’s times due to poor relations. Earlier this month, Switzerland’s highest court ordered Israel to pay Iran around $1.1 billion plus interest to settle a debt related to an oil pipeline company that the two nations had set up in the 1960s.