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F ed er a l R e s e r v e Ba n k
DALLAS, TEXAS

of

Dallas

75222

Circular No. 80-138
July 16, 1980

IRANIAN ASSETS CONTROL REGULATIONS

TO ALL MEMBER BANKS IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Printed on the following pages is a proposed amendment to the Treasury
Department's Iranian Assets Control Regulations. The purpose of the amendment
is to require th at certain types of blocked Iranian property be held in interestbearing status. Interested persons are invited to submit comments to the Acting
Director, Office of Foreign Assets Control, Department of the Treasury, Room
504, 1331 G Street, N.W., Washington, D.C. 20220. Comments must be received
by August 15, 1980.
Any questions on the proposed amendment should be directed to Dennis
M. O'Connell a t (202) 376-0395.
Sincerely yours,
Robert H. Boykin
First Vice President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

4 8 1 0 - 2 5 -M

D E P A RTMENT CF THE TREASRY
31 CFR Part 535
Iranian Assets Control

Regulations

AGENCY:
Office of Foreign Ass ets Control,
T reasury
ACTION:

D e p artment of the

Proposed Rule.

SUMMARY: The Office of Foreign Assets Control is proposing
an amendment to the Iranian Assets Control Regula tions.
The
p urpose of the amendment would be to add section 535.205,
requiring that certain types of blocked Iranian p r o p e r t y be
held in interest- bearing status.
The need for the amendment
is to ensure that blocked prop e r t y is held in a manner
consis tent with good management of the prope r t y and with the
policy objectives of the Regulations.
The effect of the
amendment
would
be
that most
types
of
blocked
Iranian
p r o p e r t y h e n c e f o r t h w o u l d be h e l d in i n t e r e s t - b e a r i n g
status.
DATE:
Comments must be received
after publication] .

on or before

[date

30 days

ADDRESS:
Send comments to the Acting Director, Office of
Foreign Assets Control, Department of the Treas ury, Room
504, 1331 G Street, NW, Washington, D.C. 20220.
FOR
FURTHER
INFO RMATION CONTACT:
Dennis
M.
O'Connell,
Acting
Director,
Office
of F o r e i g n
Assets
Control,
Department of the Treasury, Washington, D.C. 20220, (202)
376-0395.
S U P P L E M E N T A R Y INFORMATION:
Since the R egulations involve a
foreign
affairs
function,
the
provisions
of
the
A d m i n i s t r a t i v e Procedure Act, 5 U.S.C. 553, requiring notice
of
proposed
rule
making,
opportunity
for
public
parti c i p a t i o n and delay in effective date are i n a p p l i c a b l e .
Nonetheless,
because
of
the t e c h n i c a l
nature
of
the
regulations, comments are being requested.
However,
the
comment period has been limited to 30 days.
Para graph (a) of section 535.205 would require either
that prop e r t y identified in paragraph
(f) be transferred
int o an i n t e r e s t - b e a r i n g
a c c o u n t or
that
interest
be
c redited to the property in the hands of the p r e s e n t holder

-2 -

or obligor.
The provision would not require any holder to
break an existing certificate of deposit or to sell a bond
or other interest-bearing instrument to conform to the rules
go verning the relevant rate of interest.
However, it would
mean that, at any time when a holder of blocked assets is
required to account for those assets, it will be responsible
for accrued interest.
The requirement to credit interest would be effective
as of December 1, 1979.
Persons who held blocked property
as of that date would be subject to the requirement.
In
certain cases, blocked bank accounts may a l r e a d y have been
transferred at the request of the depositor from demand to
interest-bearing
status.
Section
535.420,
published
December 28, 1979, makes clear that transfers of such
depo s i t s
from demand
to
interest-bearing
status
at
the
request of the account owner
are authorized
by section
535.508,
published on November
20,
1979.
In addition,
d e p o s i t a r y institutions may have made
such transfers on
their own initiative, in view of the inequity of continuing
to hold the funds in demand status and earning income on the
funds while the depositor has not had the effective power to
demand either withdrawal or payment on his order.
The December 1, 1979 effective date prevents any holder
of blocked assets subject to the interest requirement from
deriving
any
unjust
enrichment
from
the fact
that
the
e m ergency blocking action by the President, as a practical
matter,
converted
obligations payable
immediately or on
demand into either deferred obligatons or time deposits.
This requirement is in furtherance of the p r e s e r v a t i o n of
the assets to ensure
satisfaction of claims
of Americans
against
th e
Government
of
Iran,
a primary
objective
announced in the President's November 14, 1979 report to the
Congress.
It would be inequitable to permit the retention
by
holders
of
windfall
profits
derived
from
the
interes t-free use of blocked funds.
Holders would have 30
days to comply with the interest requirement.
Paragraph (b) would defer the immediate effect of the
interest requirement as to the amount of any set-off which
would have been claimed against the owner by the holder of
the blocked property absent the blocking of the assets.
However, use of this exemption is subject to a duty to pay
interest from the effective date of this section if the
set-off is
ultimately
not recognized, either because it is
determined to be without merit under applicable law
or is
ot herwise disallowed as part of a claims settlement.
With respect to
standby letters of credit
opened in
favor of Iranian entities by U.S. account
parties, three
distinct situations should be noted.
First, where there has
been a demand and payment has been made by the bank into a
blocked account in the name of the Iranian entity, this

-3-

account would be subject to the interest requirement
same
basis
as
any
other
blocked
bank account.
paragraph (c) (1).)

on the
(S e e ,

Second, where no demand has yet been made under the
letter of credit,
there would be no matured ob l i g a t i o n
subject to the interest requirement.
(Paragraph
( c ) (2)
excludes
unmatured
obligations
from
t he
interest
r e q u i r e m e n t .)
Third, where there has been a demand, but a substitute
blocked account, in lieu of payment by the bank, has been
established by the U.S. account party pur suant to a sp ecific
license issued under the provisions of section 535.568, that
account is exempt. However, interest shall be due from the
e ffective date of the section on any liquidated o b l i g a t i o n
of the U.S. account party to an Iranian e ntity on
its
underlying contract, performance of which is secured by the
standby letter of credit, to the extent of any obl i g a t i o n to
an Iranian entity which is ultim ately determined to exist
and
which
is
recognized,
either
by
judicial
or
quasi-j udicial determinat ion or for purposes of a claims
settlement.
Paragraphs (d) and (e) set forth the rates of interest
to be credited on various types of blocked property.
Paragraph (f) identifies the types of blocked pro perty
subject
to the
interest requirement:
currency,
bank
deposits
and bank accounts, and undisputed debts,
claims or
obligations which
ar e
either
liquidated
or
matured.
However,
the pr ovisions of section 535.205 do not
apply to
blocked Iranian property held by foreign affiliates of U.S.
firms.
The duty to credit interest will be d e t e rmi ned by
the law of the host country of the foreign affiliate.
Paragraph
(g) states that the requirement to credit
interest applies to the United States Government and any
a g e n c y or i n s t r u m e n t a l i t y t h e r e o f , e x c e p t as o t h e r w i s e
licensed by the Office.
31 CFR Part 535
535.205 as follows:

is amended

by

the

addition

Section
535.205
Holding of certain
p roperty in interest-bearing accounts!

of

section

types of blocked

(a)
Except as otherwise provided or as licensed under
this part,
any person holding any property
included
in
paragraph (f) , or who held such property at any time on or
since
December
1,
1979,
is p r o h i b i t e d
from
holding,
withholding,
using,
transferring,
engaging
in
a ny
transac tion involving, or exercising any right, power, or
privilege with respect to any such property, unless it is

-4-

held in an interest-bearing account, or unless interest is
credited on the prop e r t y by the holder in ac c o r d a n c e with
the provisions of this section.
Persons subject to this
requirement have thirty days from the ef fe c t i v e date of this
section to comply with the reauirement.
(b)
Persons who would have claimed a set-off against
proper ty subject to the provisions of par a g r a p h (a) of this
section but for the prohibitions of s e c tio n 535.201 are
exempt from paragraph
(a) to the extent of the set-off,
provided
however,
that
interest
shall
be du e
from
the
effective dat-e of this section if the claim to a set-off is
ultima tely not recognized.
(c) The interest requirement of par a g r a p h (a)
to obliga t i o n s under standby letters of credit, as
in section 535.568, as follows:

applies
defined

(1) Where there has been a demand under the letter of
credit and payment has been made by the bank into a blocked
account in the name of the Iranian entity, that account is
subject to the interest requirement of p a r a g r a p h
(a) , in
ac cordance with paragraph (f) (1) .
(2) Where no demand has been made under the letter of
credit,
the contingent obli gations of the bank
and
the
account party are not subject to the interest requirement of
paragraph
(a) , in accordance with paragraph
(f) (2) which
excludes unmatured
obligations
from
the s c o p e of
the
interest requirement.
(3) Where there has been a demand, but a substitute
blocked
account,
in l i e u of p a y m e n t b y t h e b a n k
and
reimbur sement by the account party, has been e s t a b lished by
the U.S. account party pursuant to a specific license issued
under section 535.568,
the substitute blocked account is
exempt
from
the
interest
requirement of p a r a g r a p h
(a) ,
provided
however,
that
interest
shall
be due
from
the
effective date of this section if any liquidated obli gation
of the account party to an Iranian entity on the underlying
cont r a c t between the parties is ultimately d e t e r m i n e d to
exist and is recognized.
(d) The rate of interest required by par a g r a p h (a) on
interest-bearing accounts or other o b l i g a t i o n s subject to
the i n t e r e s t
r e q u i r e m e n t s h a l l be c a l c u l a t e d
as
from
December
1,
1979,
and
shall
be
not
less
than
5-1/2%,
provided however, that on amounts of $100,000 or more, the
rate payable on 30-day certificates of deposits, as stated
in Federal Reserve 3oard week ly release H.15, shall apply.
(e)
Any account subject to the p r o v i s i o n s of this
section may be held at a higher rate than specified
in
para g r a p h (d) upon instruction of the account owner.

-5-

(f) The following
paragraph (a) :

types

of

property

(1) currency, bank deposits and bank
to the provision s of section 535.201; and,

are

subject

accounts

to

subject

(2)
pro perty
subject
to the pro visions
of
section
535.201 which consists, in whole or in part, of undisp uted
and either liquidated or matured debts, claims, obligations
or other evidences of indebtedness, to the extent of any
amount that is undisputed and liquidated or matured;
Provided however, that the duty to credit interest on any
prop e r t y subject to the provisions of section 535.201 which,
as of the effective date of this section, was held outside
the United States by a foreign branch or s ub s i d i a r y of a
U.S. per son shall be determined in acco rdance with the local
law of the host country of the foreign branch or subsidiary.
Property in the form of a debt is not held outside the
United States if the funds intended to pay that debt are
held inside the United States.
(g) The provisions of this section apply to the United
States Government and any agency or i n s trumentality thereof,
except as other wise licensed by the Office of Foreign Assets
Control.
(h)
Soley
for purposes
of
this
section,
"effective date" shall mean December 1, 1979.

the

Datec :

uennis w. C *Connell
Acting Director

A p p r o v e d :_____________________________
Richard J. Davis
Assistant Secretary
[Authority: Secs. 201-207,
1701-1706; E.O. No. 12170,
FR 26685.]

91 Stat. 1626, 50 U.S.C.
44 FR 65720; E.O. 12211,

45

term


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102