Iran's `Frozen' Assets Aren't Easy to Thaw

SIGNALS of varying clarity and from different sources continue to come from Iran and Lebanon regarding the conditions for the release of the US hostages. Such statements frequently make reference to ``blocked Iranian assets in the United States.'' The leader of Lebanon's Shiite fundamentalists, Sheikh Mohammad Hussein Fadlallah, in an interview Sept. 2 with the Washington Post, said that ``the release of the assets would be an indication of America's distancing itself from hostile policies.''

In Teheran on Sept. 3, the Islamic Republic News Agency attributed to Iran's Deputy Foreign Minister Ali Mohammed Besharati a statement that the hostages might be freed if the US unblocked the frozen assets.

A review of the history of the Iranian assets under US jurisdiction suggests that an effort to release any of these funds under extraordinary circumstances would probably be futile.

On Nov. 14, 1979, 10 days after American Embassy personnel in Teheran were taken hostage, President Carter froze all Iranian assets in US banks and subsidiaries overseas. The move added to the complications of dismantling the previous US connections with Iran.

The US's pre-revolutionary presence in Iran had been enormous. Military sales had ballooned to $2.6 billion in 1978. Substantial aid programs and some direct investment added to the involvement. In 1978 some 40,000 Americans lived in Iran, engaged in official and private-sector projects in both the civilian and military fields. The overthrow of the Shah in 1979 shattered these ties, leaving a network of threatened or canceled contracts and claims and counterclaims that ran to billions of dollars. These included US government claims resulting from the suspension of Iranian payments on official loans, demands for compensation for contract cancellations, and indemnity under performance bonds. After the hostage crisis developed, the fear existed that a massive withdrawal of Iranian assets would seriously damage any possibility of the recovery of claims.

The freeze, undertaken in response to a threat by Iran to withdraw its US accounts, was justified in part by the need to protect the rights of US claimants.

Because of the difficulty of taking inventory of private accounts, the US Treasury could only estimate the total of the assets frozen in 1979 at between $10 billion and $12 billion. These included deposits, securities, and gold at the Federal Reserve Bank of New York totaling $2.4 billion; deposits amounting to $5.6 billion at overseas offices of US banks and $2.1 billion at domestic branches; and an estimated $1 billion to $2 billion in individual assets.

In the agreement in Algiers in January 1981 that ended the hostage crisis, however, Iran agreed to the sum of $8 billion distributed as follows: to pay off US bank loans to the shah's government, $3.7 billion; to meet disputed claims between US banks and Iran, $1.4 billion in escrow; and to be returned to Iran, $2.9 billion. Of the latter amount, $1 billion was placed in an escrow account (to be periodically replenished by Iran) to settle private claims through an arbitration tribunal established at the Hague. The tribunal has functioned well during its eight years, but many claims remain to be settled and others are complicated by separate suits filed in US and foreign courts.

Iranian statements also refer to two other claims: $12 billion in military orders outstanding at the time of the revolution, and personal assets of the shah that Iranians value as high as $24 billion. The US considers that less than $500 million in undelivered military equipment remains; the other contracts were liquidated in a 1981 agreement. The Iranians pressed constantly through the hostage crisis for the ``return of the shah's assets.'' In the Algiers agreement, the US encouraged the use of American courts to locate and claim such assets. The Iranians have not as yet done so.

The Iranian failure to follow up in the US courts and the most recent Iranian statements illustrate a problem that plagued those who sought to resolve the 1979-81 crisis. Although Iranian bankers and economists who participated in the negotiation of agreements and claims work in a highly professional manner on the claims tribunal, many of the Iranian revolutionary leaders do not understand the US system. Proposals that the frozen assets be returned not only ignore agreements that were reached in the past, but clearly minimize the problems that would be inherent in any effort to renegotiate these past agreements.

Any resumption of formal relations between the US and Iran will require a further sorting out of the web of financial claims and counter claims. To suggest that this process can take place quickly neglects history, underestimates the complexity of the present situation, and obstructs an examination of other possible solutions to the hostage issue.