Last week, I pointed out that those arguing that the U.S.’s $400 million cash payment to Iran was in violation of U.S. sanctions had failed to appreciate the fact that U.S. sanctions programs contained not just sanctions prohibitions, but also exemptions and license exceptions. In order to correctly appraise the applicable law in any given situation, then, it is necessary to discern those exemptions and license exceptions in tandem with the sanctions prohibitions. And, as I noted, in doing so, we’d soon discover that the U.S. payment to Iran as part of a settlement of claims pending before the U.S.-Iran Claims Tribunal was likely a generally authorized transaction pursuant to 31 C.F.R. § 560.510(d)(2), which authorized “all transactions necessary to payments pursuant to settlement agreements entered into by the United States Government in [] a legal proceeding [to which the USG is a party].”

Gratefully, I am no longer alone in making this argument public. On August 12, Senators Ted Cruz (R-TX) and Mike Lee (R-XX) sent a letter to members of the Obama administration seeking further information about “the unusual circumstances surrounding the administration’s payment of $400 million to the Government of the Islamic Republic of Iran…” But, as part of this letter, the two Republican Senators acknowledged that the transaction may have been “explicitly permitted under another regulation – for instance, the regulation authorizing ‘[a]ll transactions necessary…to payments pursuant to settlement agreements entered into by the United States Government…’” (i.e., 31 C.F.R. § 560.510(d)(2)).

Despite acknowledging this license exception, however, the Senators went on to express their skepticism that this license authorization was utilized, as the “[Obama] administration structure[d] the transaction as a cash payment in non-U.S. currency;” and, the Senators argued, if the transaction was indeed undertaken pursuant to 31 C.F.R. § 560.510(d)(2), “that [particular structure] would have been entirely unnecessary.” In other words, the Senators claimed that the Obama administration could have just provided U.S. dollars to Iran via this license exception, but instead chose to transfer U.S. dollars into other foreign currencies before providing the cash to Iran. The “unusual” choice of exchanging U.S. dollars for foreign currencies hints at something illicit, according to the Senators.

In all fairness to the Senators, no one has publicly identified the reasons why the Obama administration might have chosen to structure the transaction the way that it did – a transaction that would remain subject to the license authorization at 31 C.F.R. § 560.510(d)(2) no matter the currency in which such payment was made to the Government of Iran. Nonetheless, I believe the transaction was structured for a simple and readily apparent reason, provided that we understand certain of the surviving U.S. sanctions targeting Iran.

Surviving U.S. sanctions – including on the provision of financial services by U.S. and U.S.-based financial institutions – would make it difficult for Iran to utilize funds denominated in U.S. dollars in international payments. U.S. banks would be prohibited from engaging in the provision of financial services for or on behalf of Iran or Iranian persons, and major global financial institutions would display the same kind of reluctance to help process funds transfers involving Iran as is clearly evident these days, as most U.S. dollar payments are routed through the United States and that could subject non-U.S. financial institutions to civil and criminal penalties for “causing” a sanctions violation. Under these conditions, it would seem likely that Iran would ask for payment in a currency other than U.S. dollars, as a U.S. dollar payment would limit the uses to which Iran could put the funds.

Unfortunately, neither Sen. Cruz or Sen. Lee first considered how remaining sanctions targeting Iran led to the decision to send Iran non-U.S. dollar currency as part of the $400 million payment. Rather than implying that the transaction was not authorized pursuant to 31 C.F.R. § 560.510(d)(2) and was instead undertaken illicitly – which would be a bizarre choice considering the license exception, as well as the discretion of the Obama administration to license otherwise prohibited transactions – Sens. Cruz and Lee could have instead performed a thought experiment to consider the reasons why Iran would not want U.S. dollars as payment for the settlement of claims. The answers, I believe, were none too hard to find.