Hostage Breakthrough

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The Iranians had by now dropped their previous demand that specific sums be set aside as a guarantee against failure by Tehran to locate and recover the assets of the Shah. Tehran's response also raised no major objections to U.S. estimates of the amount of Iranian funds that had been frozen by Carter and that should be made available to Iran once the hostages were released. The reply, moreover, showed a willingness to work with American banks in resolving differences over Iran's past loans. The text suggested that "past and future loan installments" could be deducted from any hostage-linked return of Iranian assets. Apparently anticipating the possible need for future borrowing, the Iranian officials seemed eager to regain a good credit relationship with American bankers.

There were some refinements of Iran's cash demands, however, in the message. It asked for immediate transfer to a trusted third party of roughly $2.2 billion in Iranian gold and securities held by the Federal Reserve Bank of New York. The gold weighs nearly 60 tons. Iran also wanted the return of the estimated $4.8 billion in Iranian funds that American banks hold in their branches in Europe. When these funds were frozen, the U.S. banks seized about $1.8 billion worth of "setoffs" against past Iranian loans—an action that was technically illegal under international currency laws. The Iranians agreed to leave enough on deposit in foreign branches of U.S. banks to cover the loans, deferring a final settlement until the hostages are home. Iran also agreed that about 300 private claims by U.S. corporations against some $2.2 billion of its assets held in a variety of U.S. banks can be reviewed and settled by an international tribunal. From its original demand for some $24 billion, Iran thus had reduced its asking price to $9.5 billion and was insisting on getting a down payment of just $5.2 billion on the day the Algerians confirmed that the hostages had been released.

All that looked relatively simple in principle, but the technical details were still complex. Iranian negotiators and U.S. banks disagreed on the amount of the loans and the interest accrued by the frozen Iranian deposits. Anticipating such knotty problems, representatives of the U.S. banks that hold the largest amounts of Iranian cash, including the Bank of America ($1.8 billion), Manufacturers Hanover Trust Co. ($416 million) and Chase Manhattan ($369 million), had been meeting quietly in New York and London for several days. Consulting with them were officials of the Bank of England and the U.S. Federal Reserve System. Once they heard the outlines of the latest Iranian proposals, twelve of them flew immediately in a U.S. Air Force jet to Algiers to help advise Christopher and the Algerian intermediaries.

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