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October Surprise, Part 6:
Iran's hidden U.S. cash stash
by Kenneth R. Timmerman
Western Journalism Center/ WorldNetDaily
The United States government is holding several billion dollars in military spare parts and cash that belong to the government of Iran, and has lied repeatedly to the Iranians -- and to Congress -- about it.
(Accompanying this report are exclusive photographs of the warehouse where Iran claims $2 billion worth of spare parts it purchased and paid for in the late 1970s are still being stored.)
These exclusive photographs of the warehouse where Iran's spare parts are being kept were taken by the Western Journalism Center's Kenneth R. Timmerman.
In testimony before the Senate Judiciary Subcommittee on Terrorism, Technology and Government Information on Oct. 27, 1999, Deputy Secretary of the Treasury Stuart E. Eizenstat minimized the amount of Iranian assets held by the United States.
After the resolution of the hostage crisis in 1981, said Eizenstat, "we transferred all of the assets basically to Iran and what is remaining is a relatively smaller amount in the Claims Tribunal," a reference to a special court established in 1981 to settle commercial disputes between U.S. and Iranian nationals resulting from the 1979 revolution.
"Let us take the $247 million award that the Flatow family got," Eizenstat said at one point. "It exceeds the amount of assets. There would not be anything left."
In fact, Eizenstat's testimony was just flat out wrong. The U.S. was holding -- and continues to hold -- far more than $247 million in Iranian government assets. "We don't know whether he lied intentionally, or whether he was just misinformed" said one Senate aide who followed Eizenstat's testimony closely.
"I've been directly lied to by the State Department and the Treasury Department about the extent of Iranian assets," another Senate aide said. "I only learned how much was in the accounts by pure chance in discussions with low level Pentagon employees."
Queried about the charges, an administration official said the U.S. views the funds under dispute as "a U.S. sovereign fund not available for attachment," and insisted that Eizenstat was not being misleading.
Sens. Connie Mack, R-Fla., and Frank Lautenberg, D-N.J., who are both retiring in January, have sponsored yet another piece of legislation -- the third to date -- to award Iran's U.S. assets to the families of terrorist victims. When Lautenberg met earlier this year with the deputy director of the Defense Security and Cooperation Agency, which is managing one of the Iranian accounts, eight government lawyers instructed the official not to respond to his questions.
Until now, not even the Iranians have been able to visit the two warehouses outside Dulles International Airport in Washington, D.C., where their military parts have been kept.
The administration is eager to hide the true amount of the assets from Iran to maintain negotiating flexibility, as secret back-channel talks move toward the "global settlement" envisaged by Secretary of State Madeleine K. Albright in March.
They are hiding the amount from Congress to prevent the Mack-Lautenberg "Justice for Victims of Terrorism Act" from becoming law just before the November elections.
The Mack-Lautenberg legislation "has certainly created a lot of concern, since it would put a lot of constraints on what the U.S. could do" in the negotiations with Iran, said one administration official involved in the case.
If President Clinton signs the bill into law, it could scuttle the back-channel negotiations with Iran.
If he fails to sign it, however, it could doom Hillary Clinton's chances at winning the U.S. Senate seat from New York.
$17 billion in claims
Iran knows the United States owes it money -- lots of money -- and for many years has angrily insisted that it be returned as a precondition for any improvement in relations.
In April 1995, just as back-channel negotiations between Washington and Tehran were coming to a head over Iran's nuclear power plant at Busheir and a renewal of relations between the two countries, then-President Ali Akbar Hashemi Rafsanjani claimed the U.S. owed Iran $17 billion.
Speaking at a press conference in India on April 19, 1995, Rafsanjani said his country would consider strengthening relations with the United States if Washington first turned over $17 billion of Iran's money that had been frozen since the 1979 hostage crisis.
"We do not have any trust in the United States," Rafsanjani said. "We believe that they should first prove they do not have any misintentions. ... We feel one such indication of goodwill from the United States could be the release of the frozen assets of our country. That would be a good sign."
Rafsanjani's statement, which was generally ignored by media in the United States, was actually a carefully scripted reply to a request from Washington, delivered to Tehran shortly before his trip to India, according to interviews with an emissary involved in the secret back-channel negotiations.
And it was timed to reach the ears of one American who played a major role in those negotiations: Deputy Secretary of State Strobe Talbott, who had come to India shortly before Rafsanjani's statement to pitch the U.S. offer, according to intermediaries involved in the negotiations.
(Talbott's office refused to provide an itinerary of his April 1995 India trip, or a list of officials he met with, but did not deny that he had been in India shortly before Rafsanjani's press conference. "I don't see any point in going out of my way to help you after some of the things you've written," said Talbott spokesman, John Norris. He referred a reporter's questions to the Department's Freedom of Information Office, where requests can take upwards of four years to be processed.)
At the time, Talbott was toying with the notion of a "grand strategic bargain" with Iran of Kissingerian proportions. Talbott's partners in the scheme were Vice President Al Gore and National Security Advisor Tony Lake.
To woo Iran away from buying nuclear technology from Russia that could advance Iran's clandestine nuclear weapons program, the U.S. would offer to resume diplomatic and full trade relations, while sweetening the pot with the return of Iran's frozen assets in the U.S.
Never mind that Rafsanjani quoted a figure -- $17 billion -- that was a good $6 billion higher than any previous Iranian government estimate of the monies frozen in the United States since the time of the shah. It was a negotiating position. And more importantly, it was a reply to Talbott's question: What would it take to get the ball rolling?
The Iran-U.S. Claims Tribunal
Iran's extensive assets and financial holdings in the United States were frozen in an unprecedented overnight action ordered by President Carter on Nov. 14, 1979, in retaliation for the seizure of the U.S. embassy in Tehran by Islamic "students" loyal to Ayatollah Khomeini.
Carter made the move to gain leverage over Khomeini's revolutionary government as rumors circulated within the international financial community that Iran was preparing to withdraw its financial holdings from the United States.
The asset freeze not only affected billions of dollars of direct deposits in the United States used by the government of Iran to finance arms purchases in the U.S., but all Iranian government accounts with branches of U.S. banks overseas, where income from Iran's vast oil income was deposited.
Rafsanjani's claim of $17 billion was not far from the mark -- in 1979. (U.S. Treasury Department official Richard Newcomb estimated in 1997 that the asset-freeze affected $12 billion in 1979 dollars).
But once Iran agreed to release the U.S. hostages on Jan. 19, 1981, President Carter unblocked Iran's U.S. assets. In Executive Order 12294, President Reagan on Feb. 24, 1981, suspended all litigation against Iran in U.S. courts and referred them to the Iran-United States Claims Tribunal in The Hague. The Tribunal was established as part of the hostage settlement agreements (known as the Algiers Accords) to handle all claims resulting from the revolution.
The two warehouses used for Iran's military parts have a combined surface area of 160,000 square feet. This building measures more than 600 feet long -- the length of two football fields.
Over the years, the Tribunal has adjudicated close to 600 cases, "the majority of which have been in favor of U.S. claimants," according to the most recent available White House report. As of Sept. 30, 1998, Iran had been awarded to pay more than $2.5 billion to U.S. claimants.
The Tribunal had been relatively inactive from 1990-1995. But once the U.S. rejected Rafsanjani's offer to reopen direct, government-to-government negotiations to determine the final sum of Iran's claims against the U.S. and imposed a total ban on U.S. trade with Iran in May 1995, the Iranians filed a flurry of new cases and motions at The Hague.
In September 1995, the Tribunal heard new claims by Iran alleging U.S. violations of the Algiers Accords, "the first Tribunal hearing on a government-to-government claim in five years," according to a White House report to Congress later that year.
Iran's biggest claims stem from three main cases:
Case A/11: Iran is suing the U.S. for $10 billion, its estimate of the amount of property belonging to the former shah and his close family, which the U.S. had pledged to help locate and turn over to Iran as part of the Algiers Accords.
Case B/1: Iran's claim to a blocked Defense Department account, used to finance foreign military sales to Iran in the 1970s. Dollar amounts vary from $400 million, the current U.S. estimate, to more than $2 billion.
Case B/61: Iran is demanding $2 billion in compensation for weapons it claims the shah's government paid for in the late 1970s, but were never delivered.
Iran is also demanding an estimated $1 billion to compensate for U.S. military action against Iranian oil platforms in the Persian Gulf in 1987-1988, in a separate case filed with the International Court of Justice. The U.S. has rejected Iran's demands on the grounds that Iran was using the platforms to conduct acts of war against international shipping during the Iran-Iraq war.
The shah's secret fortune
If Iran were 100 percent successful in all four claims, the U.S. would be liable to pay Iran something in the neighborhood of $15 billion. But that is an unlikely outcome. For one thing, despite hiring dozens of lawyers and spending large sums in legal fees over the past 20 years, Iran has never succeeded in locating more than a few million dollars in property belonging to the family of the former shah of Iran. Most of that belonged to the shah's sister, Shams Pahlavi.
On Aug. 1, 1989, the Islamic Republic of Iran, Bank Melli Iran and Bank Mellat filed suit in Los Angeles County Superior Civil court against Shams Pahlavi, demanding reimbursement of $34 million she allegedly transferred out of Iran during the final months of the shah's reign. The case was dismissed in March 1992.
According to Ahmad Ansary, a former financial adviser to Crown Prince Reza Pahlavi and a cousin of the shah's widow, the shah left an estate valued at $22 billion at the time of his death on July 27, 1980. All but $70 million of that amount, however, had been carefully hidden in a network of secret offshore trusts, controlled by a pair of Swiss lawyers.
Reza Pahlavi sued Ansary in U.S. Circuit court in Fairfax, Virginia in 1991 for allegedly mismanaging his estate, and won a $7 million claim against him stemming from trading losses during the 1987 stock market crash. After losing an appeal, Ansary published a Persian-language expose last year in Iran that included documents purportedly signed by the Shah that detail the secret trust funds.
While the Tehran regime would love to get its hands on the former shah's secret fortune, if indeed it exists, the Iran-U.S. Claims Tribunal is the wrong place to turn since the money was placed offshore, not in the U.S.
That leaves the claims against the U.S. government.
In January 1996, Iran filed "20 volumes of exhibits and affidavits" in support of its claim that the U.S. owed it $2 billion for weapons spare parts Iran paid for but never received, according to a May 16, 1996, White House report.
A U.S. government official tracking the case, speaking on condition of anonymity, said the Iranians have been "combing through millions of documents, challenging billings that go back to 1974 and 1975, claiming that equipment they paid for never reached them."
The official added: "The U.S. shipped Iran everything that was necessary to ship them at the time. They probably had a hard time tracking things coming into the country during the revolution. This is a huge accounting exercise. We're combing through millions of documents."
The U.S. denies that it holds $2 billion worth of parts. In his 1991 book on alleged Reagan campaign efforts to prevent the hostage release, called "October Surprise," author Gary Sick estimates the total stockpile of Iranian spare parts frozen in the U.S. at $300 million. (Sick was the Iran desk officer at the National Security Council during the 1979-1981 hostage negotiations for President Carter).
Iran's parts have been stored at the Victory Van warehouse complex in Sterling, Va., according to individuals engaged in the secret back-channel negotiations between the U.S. and Iran.
A visit to the warehouse, located near Dulles International Airport, found a large secured facility catering to U.S. government clients and military contractors. Victory Van serves as a freight forwarder for U.S. military personnel stationed overseas, and handles weapons shipments and secure document storage.
The company's two warehouses at Dulles airport offer 160,000 square feet of secure storage space. Prominently posted in the warehouse front office is a notice warning visitors they are entering a "Secure Facility."
Contacted by telephone, a vice president of Victory Van, Steve Henniger, said that the facility does "less than 15 percent" of its business with the Department of Defense, but cut off the conversation when asked about the contract to store the Iranian spare parts.
"I'm not at liberty to discuss that," he said. "I'm going to have to terminate this conversation."
Asked whether a reporter needed an authorization from the Department of Defense to tour the warehouse containing Iran's spare parts, he said no. "The U.S. Department of State would have to authorize that, not DoD."
With 30-foot ceilings, the Victory Van warehouse can store everything from office equipment to helicopter rotors.
Inside the warehouse, everything from office parts to spare parts for military helicopters, military jets, and missile systems is stored, crated up and ready to be loaded onto commercial containers.
The FMS account
Even if there were military spare parts worth $2 billion in the Victory Van warehouse in 1979, how much would they be worth today? Many of the weapons systems they were made to service are now considered obsolete, such as TOW anti-tank missiles, HAWK air-defense systems and Cobra attack helicopters. In the 20 years since Iran and the U.S. severed military and diplomatic ties, Iran has replaced the bulk of its U.S. weaponry with Russian and Chinese equipment.
U.S. officials say that most of Iran's 20-year-old spare parts have been "diverted" -- sold off for cash -- with the proceeds deposited to Iran's Foreign Military Sales (FMS) account.
The FMS account was a revolving credit established in the 1960s to finance Iranian arms purchases. Today, it constitutes the mother lode of Iran's financial holdings in the United States.
Throughout the 1970s, the Iranian treasury regularly replenished the FMS account to cover arms deliveries as they occurred. The account was held in trust for the government of Iran by the Defense Security Assistance Agency (now known as the Defense Security and Cooperation Agency) with the United States Treasury.
At the end of the shah's reign, in January 1979, Iran had $12 billion worth of weapons orders in the pipeline. Iran had a positive balance of $400 million in the FMS account when President Carter froze Iran's assets in November 1979.
Until very recently, the Clinton administration has failed to inform Congress about the FMS account. Although the U.S. Treasury had been holding the cash the past 20 years, the government simply forgot about it -- or so it seemed.
When Sen. Frank Lautenberg first inquired about Iran's frozen assets on April 24, 1998, Assistant Secretary of State for Legislative Affairs Barbara Larkin replied in writing on June 10, 1998: "There are currently no Iranian assets held by or under the control of the United States Government which could be used to pay claims against Iran."
Asked specifically about the FMS program, Larkin was even more misleading:
"Whether the United States owes anything to Iran from this fund, and if so, how much, is in dispute and being arbitrated before the Iran-U.S. Claims Tribunal," she said.
In a motion submitted to the court of Judge Royce Lamberth on June 29, the Flatow family attorneys delivered a stinging rebuke.
The U.S. government has "admitted holding assets only after counsel for the Plaintiff discovered their existence. The Foreign Military Sales account holding Iranian funds was disclosed only after a writ was served upon the Secretary of Defense. An earlier writ served upon the Secretary of the Treasury did not result in disclosure of the FMS account," said the motion.
Two years after that writ demanding that Treasury produce documents on Iran's U.S. assets, the Justice Department finally replied on June 23, 2000, that the Treasury Department had been caught destroying an estimated 800-900 relevant files, as was first reported by the Western Journalism Center last week. According to the letter, the documents destroyed had been carefully protected for more than 20 years. They were only destroyed after they had been subpoenaed by Judge Lamberth.
Deputy Secretary of the Treasury Stuart Eizenstat revealed the balance of the FMS account for the first time in congressional testimony on June 21, directly contradicting his assertion just eight months earlier that the U.S. did not have enough Iranian funds to pay the victims of terrorism.
"The United States will have to pay Iran whatever amount in the Iran FMS account is held by the Iran-U.S. Claims Tribunal to be owed to Iran," Eizenstat said in June. "The current balance of the Iran FMS account, which is approximately $400 million, is the subject of Iran's multi-billion-dollar claim against the United States before the Tribunal, arising out of the Iran FMS program."
In fact, Iran's "multi-billion-dollar claim" in this case relates in part to a fundamental question most teenagers would understand. Iran was demanding interest -- 20 years worth of interest -- on its $400 million.
The U.S. was claiming instead that the $400 million had been placed in an interest-free revolving cash account. Worth $400 million in 1979, Iran's money was still worth $400 million in 2000 -- minus administrative and warehousing fees for Iran's remaining spare parts.
The second warehouse at the Victory Van site at Dulles Airport.
Even if the U.S. Treasury calculated interest on Iran's money at government rates, it would be worth at least $1.6 billion by now. That is almost precisely the amount of punitive damages the Flatows and other families of Iran's terrorist victims have won in U.S. courts.
An administration official explained Eizenstat's earlier failure to disclose the FMS account.
"It wasn't until Feb. 23, 2000 that the writ of attachment was filed and the FMS became an issue," said the official. Before the Flatow attorneys attempted to attach the account, the administration held that it could not be attached because it was controlled by the U.S. government, not Iran.
In effect, the Clinton administration has been looking to the FMS account as a slush fund to bribe Iran into renewing diplomatic and trade relations before Clinton's term expired. If the Mack-Lautenberg legislation becomes law, that money could be freed up to compensate the victims of Iranian government terrorism.
Contrary to the administration's claims that the legislation was impeding a "global settlement" with Iran, the prospect of losing that $1.6 billion in cash, while being held legally responsible for murdering Americans to boot, brought the Iranian government to the negotiating table.
NEXT -- Down to the wire: To show how serious it has become at restoring ties with the United States, Iran dispatched a senior government lawyer to Washington this summer to present new proposals aimed at reaching a "global settlement." And for the first time in 20 years, Tehran was interested.
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