US paid Iran an additional $1.3bn just two days after $400m cash payment

A new revelation about large amounts of cash changing hands between the US and Iran earlier this year has emerged. US officials have now admitted that $1.3bn (£982.6m) was delivered to Iran just two days after $400m in cash was paid to Tehran.

The $1.3bn payment was reportedly "interest" owed to Iran as part of an old deal that the US had reneged on to deliver military equipment to the former shah of Iran, the White House said.

The US has insisted that the $400m sum was not a ransom. It is against US policy to pay money to terrorists or other lawbreakers. However officials did concede that the payment was "contingent" on releasing the captives.

No other details about the $1.3bn payments in January 2016 could be revealed, because of diplomatic "sensitivities," State Department spokeswoman Elizabeth Trudeau said. The money was transferred in 13 separate payments of $99,999,999.99, and a final payment of about $10m, the Associated Press (AP) reported.

The money settled a dispute over a $400m payment for US military equipment made in the 1970s by the shah's government. The equipment was never delivered nor the money repaid because the 1979 Islamic Revolution overthrew the shah and diplomatic relations between the US and Iran were severed.

The first $400m paid by the US covered the principal owed and was paid in pallets of euros, Swiss francs and other foreign currency to Iran, according to the Obama administration. The $1.3bn covered what Iran and the US agreed would be the interest on the $400m owed over the decades. Obama has said the initial payment was made in cash because the US and Iran did not have a banking relationship.

The following payments, however, just two days later were made in a "fairly above-board way," using a foreign central bank, a senior source told journalists, according to the AP. But he did not specify which form the payments were made in.

The money came from a little-known fund administered by the US Treasury Department for settling litigation. The Judgment Fund is taxpayer money Congress has permanently approved, allowing the president to bypass direct approval to make a settlement.

The controversial payments to Iran have become a key issue with Republicans who have characterised the money as ransom or as some other secretive deal to curry favour with the Iranians.

GOP presidential candidate Donald Trump has attacked the initial $400m as ransom. He derisively talked at rallies of seeing the money delivered by a plane to the Iranian military on a video, but later said he had been mistaken about the video.