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FEDERAL RESERVE BANK OF NEW YORK Fiscal Agent of the United States Circular No. 8875 July 14, 1980 PROPOSED AMENDMENT TO IRANIAN ASSETS CONTROL REGULATIONS Requirement That Certain Blocked Iranian Assets Be Held in Interest-Bearing Status T o A l l B a n k in g I n s titu tio n s in th e S e c o n d F e d e r a l R e s e r v e D is tr ic t: T h e O f f ic e o f F o r e ig n A s s e t s C o n t r o l o f th e U n ite d S ta te s T r e a su r y D e p a r tm e n t h a s in v ite d c o m m e n t o n a p r o p o s e d a m e n d m e n t t o th e Ir a n ia n A s s e ts C o n tr o l R e g u la tio n s th a t w o u ld r eq u ire th a t c e r ta in Ira n ia n a s s e ts b lo c k e d in th e U n it e d S ta te s b e h e ld in in te r e s t-b e a r in g s ta tu s . O n a c c o u n ts o f $ 1 0 0 ,0 0 0 o r m o r e , in te r e st w o u ld b e r e q u ir e d t o e q u a l o r e x c e e d th e 3 0 -d a y in te r e st ra te o n b a n k c e r tific a te s o f d e p o s it s as p u b lis h e d in th e F e d e r a l R e se r v e B o a r d ’s w e e k ly r e le a se H -1 5 . O n s m a lle r a c c o u n t s , th e r e q u ir e d m in im u m in te r e s t ra te w o u ld b e 5 p e r c e n t. T h e r e q u ir e m e n t t o c r e d it in te r e st w o u ld b e r e tr o a c tiv e to D e c e m b e r 1, 1 9 7 9 , th e e f f e c t iv e d a te o f th e a m e n d m e n t. Vi T h e a m e n d m e n t w o u ld n o t req u ire in terest to b e p a id o n n o n -in te r e st-b e a r in g d e p o s its in fo r e ig n b r a n c h es a n d su b sid ia r ie s o f U n ite d S ta te s b a n k s. In a d d itio n , U n ite d S ta te s c o r p o r a tio n s th at h a v e o p e n e d b lo c k e d a c c o u n ts o n th eir b o o k s u n d e r sta n d b y letters o f cred it w o u ld b e req u ired to p a y in terest o n ly w h e n , a n d to th e e x te n t th a t, th e se c o r p o r a tio n s are u ltim a te ly d e te r m in e d to h a v e an o b lig a tio n to Iran or a n Ira n ia n e n tity . H o ld e r s o f Ira n ia n d e p o s its a sse r tin g a righ t t o set o f f a sse ts a g a in st th eir c la im s o n a n Ira n ia n d e p o s ito r w o u ld b e req u ired to m a k e p a y m e n ts o f in te r e st to th e e x te n t o f th e c la im e d s e t o f f o n ly if th eir righ t to set o f f is fin a l ly d e n ie d in c o u r t o r u n d e r a n y o th e r m e c h a n ism fo r se ttlin g U .S . c la im s a g a in st Iran. Federal Register T h e te x t o f th e p r o p o s e d a m e n d m e n t h a s b e e n r e p r in te d b e lo w fr o m th e o f J u ly 7 , 1 9 8 0 . C o m m e n t s o n th e p r o p o s e d a m e n d m e n t s h o u ld b e se n t t o th e A c t in g D ir e c to r , O f f ic e o f F o r e ig n A s s e t s C o n t r o l, D e p a r tm e n t o f th e T r e a su r y , R o o m 5 0 4 , 1331 G S tr e e t, N W , W a s h in g t o n , D .C . 2 0 2 2 0 , a n d m u st b e r e c e iv e d o n o r b e f o r e A u g u s t 6 , 1 9 8 0 . A nthony m . Solomon , President. DEPARTMENT OF THE TREASURY d a t e : C o m m e n t s m u s t b e r e c e i v e d o n or b e f o r e A u g u s t 6, 1980. ADDRESS: S e n d c o m m e n t s to th e A c t in g Foreign Assets Control Office 31 CFR Part 535 Iranian Assets Control Regulations D ir e c to r , O f f ic e o f F o r e ig n A s s e t s C o n tr o l, D e p a r tm e n t o f th e T r e a s u r y , R o o m 5 0 4 ,1 3 3 1 G S tr e e t, N W , W a s h in g t o n , D .C . 2 0 220. AGENCY: O f f ic e o f F o r e ig n A s s e t s FOR FURTHER INFORMATION CONTACT: C o n tr o l, D e p a r t m e n t o f th e T r e a s u r y . D e n n is M . O ’C o n n e ll, A c t in g D ir e c to r , O f f ic e o f F o r e ig n A s s e t s C o n tr o l, D e p a r t m e n t o f th e T r e a s u r y , W a s h in g t o n , D .C . 2 0 2 2 0 , (2 0 2 ) 3 7 6 -0 3 9 5 . ACTION: P r o p o s e d r u le. SUMMARY: T h e O f f ic e o f F o r e ig n A s s e t s C o n tr o l is p r o p o s in g a n a m e n d m e n t to th e I r a n ia n A s s e t s C o n tr o l R e g u la t io n s . T h e p u r p o s e o f t h e a m e n d m e n t w o u ld b e to a d d § 5 3 5 .2 0 5 , r e q u ir in g th a t c e r t a in t y p e s o f b l o c k e d I r a n ia n p r o p e r ty b e h e ld in in t e r e s t - b e a r in g s t a t u s . T h e n e e d for th e a m e n d m e n t is to e n s u r e t h a t b l o c k e d p r o p e r ty is h e ld in a m a n n e r c o n s i s t e n t w it h g o o d m a n a g e m e n t o f th e p r o p e r ty a n d w it h th e p o l i c y o b j e c t i v e s o f th e R e g u la t io n s . T h e e f f e c t o f th e a m e n d m e n t w o u ld b e th a t m o s t t y p e s o f b l o c k e d I r a n ia n p r o p e r ty h e n c e f o r t h w o u ld b e h e ld in in t e r e s t - b e a r in g s t a t u s . SUPPLEMENTARY INFORMATION: S in c e th e R e g u la t io n s in v o l v e a fo r e ig n a f f a ir s f u n c t io n , th e p r o v i s i o n s o f th e A d m in is t r a t iv e P r o c e d u r e A c t, 5 U .S .C . 553, r e q u ir in g n o t ic e o f p r o p o s e d ru le m a k in g , o p p o r tu n ity fo r p u b lic p a r t ic ip a t io n a n d d e l a y in e f f e c t iv e d a t e a r e i n a p p lic a b le . N o n e t h e l e s s , b e c a u s e o f th e t e c h n i c a l n a tu r e o f th e r e g u la t io n s , c o m m e n t s a r e b e in g r e q u e s t e d . H o w e v e r , th e c o m m e n t p e r io d h a s b e e n lim it e d to 30 d a y s . P a r a g r a p h (a ) o f § 5 3 5 .2 0 5 w o u ld r e q u ir e e it h e r th a t p r o p e r ty i d e n t i f ie d in p a r a g r a p h (f) b e tr a n s fe r r e d in to a n in t e r e s t - b e a r in g a c c o u n t or th a t in t e r e s t b e c r e d it e d to th e p r o p e r ty in th e h a n d s o f t h e p r e s e n t h o ld e r o r o b lig o r . T h e r e q u ir e m e n t to c r e d it in t e r e s t w o u ld b e e f f e c t iv e a s o f D e c e m b e r 1, 19 7 9 . P e r s o n s w h o h e ld b l o c k e d p r o p e r ty a s o f th a t d a t e w o u ld b e s u b j e c t to th e r e q u ir e m e n t. In c e r t a in c a s e s , b lo c k e d b a n k a c c o u n ts m a y a lr e a d y h a v e b e e n tr a n s fe r r e d a t th e r e q u e s t o f th e d e p o s it o r fr o m d e m a n d to in t e r e s t b e a r in g s t a t u s . S e c t io n 535 .4 2 0 , p u b lis h e d D e c e m b e r 2 8 ,1 9 7 9 , m a k e s c le a r th a t t r a n s f e r s o f s u c h d e p o s it s fr o m d e m a n d to i n t e r e s t - b e a r in g s t a t u s a t th e r e q u e s t o f th e a c c o u n t o w n e r a r e a u t h o r iz e d b y § 535 .5 0 8 , p u b lis h e d o n N o v e m b e r 2 0 ,1 9 7 9 . In a d d itio n , d e p o s it a r y i n s t it u t io n s m a y h a v e m a d e s u c h tr a n s f e r s o n th e ir o w n in it ia t iv e , in v i e w o f th e i n e q u it y o f c o n t in u in g to h o ld th e f u n d s in d e m a n d s t a t u s a n d e a r n in g i n c o m e o n th e fu n d s w h il e th e d e p o s it o r h a s n o t h a d th e e f f e c t iv e p o w e r to d e m a n d e it h e r w it h d r a w a l or p a y m e n t o n h is o r d e r. (Over) T h e D e c e m b e r 1 , 1 9 7 9 e f f e c t iv e d a t e p r e v e n t s a n y h o ld e r o f b l o c k e d a s s e t s s u b j e c t to th e in t e r e s t r e q u ir e m e n t from d e r iv in g a n y u n ju s t e n r ic h m e n t fr o m th e f a c t th a t th e e m e r g e n c y b lo c k in g a c t io n b y th e P r e s id e n t , a s a p r a c t ic a l m a tte r , c o n v e r t e d o b li g a t io n s p a y a b l e i m m e d ia t e ly o r o n d e m a n d in to e it h e r d e f e r r e d o b l i g a t io n s o r tim e d e p o s it s . T h is r e q u ir e m e n t is in fu r th e r a n c e o f th e p r e s e r v a t i o n o f th e a s s e t s to e n s u r e s a t i s f a c t i o n o f c la im s o f A m e r ic a n s a g a in s t th e G o v e r n m e n t o f Iran , a p r im a r y o b j e c t i v e a n n o u n c e d in th e P r e s i d e n t ’s N o v e m b e r 1 4 ,1 9 7 9 , r e p o r t to th e C o n g r e s s . It w o u ld b e in e q u it a b le to p e r m it th e r e t e n t io n b y h o ld e r s o f w i n d f a ll p r o fits d e r iv e d fr o m th e in t e r e s t - f r e e u s e o f b l o c k e d fu n d s . H o ld e r s w o u ld h a v e 30 d a y s to c o m p ly w it h th e i n t e r e s t r e q u ir e m e n t. P a r a g r a p h (b ) w o u ld d e f e r th e i m m e d ia t e e f f e c t o f th e i n t e r e s t r e q u ir e m e n t a s to th e a m o u n t o f a n y s e t o f f w h ic h w o u ld h a v e b e e n c la im e d a g a in s t th e o w n e r b y th e h o ld e r o f th e b l o c k e d p r o p e r ty a b s e n t th e b lo c k in g o f th e a s s e t s . H o w e v e r , u s e o f th is e x e m p t i o n is s u b j e c t to a d u ty to p a y in t e r e s t fr o m th e e f f e c t iv e d a t e o f th is s e c t i o n i f th e s e t - o f f is u lt im a t e ly n o t r e c o g n iz e d , e it h e r b e c a u s e it is d e t e r m in e d to b e w it h o u t m e r it u n d e r a p p l ic a b l e l a w o r is o t h e r w i s e d i s a l l o w e d a s p a r t o f a c la im s s e t t le m e n t . 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 account would be subject to the interest requirement on the same basis as any other blocked bank account. (See paragraph (c)(1).) S econ d , w h ere no dem and h as yet b e e n m a d e u n d e r th e le t t e r o f c r e d it, th e r e w o u ld b e n o m a tu r e d o b lig a t io n s u b j e c t to th e in t e r e s t r e q u ir e m e n t. (P a r a g r a p h (c )(2 ) e x c l u d e s u n m a tu r e d o b li g a t io n s fr o m th e i n t e r e s t r e q u ir e m e n t.) T h ir d , w h e r e th e r e h a s b e e n a d e m a n d , b u t a s u b s t it u t e b l o c k e d a c c o u n t , in lie u o f p a y m e n t b y th e b a n k , h a s b e e n e s t a b l i s h e d b y th e U.S. a c c o u n t p a r ty p u r s u a n t to a s p e c i f ic l i c e n s e i s s u e d u n d e r th e p r o v is io n s o f § 5 3 5 .5 6 8 , th a t a c c o u n t is e x e m p t. H o w e v e r , in t e r e s t s h a ll b e d u e fr o m th e e f f e c t iv e d a t e o f th e s e c t i o n o n a n y liq u id a t e d o b lig a t io n o f th e U.S. a c c o u n t p a r ty to a n I r a n ia n e n t it y o n its u n d e r ly in g c o n t r a c t , p e r f o r m a n c e o f w h ic h is s e c u r e d b y th e s t a n d b y le t t e r o f c r e d it. L ia b ilit y fo r in t e r e s t w i l l b e lim it e d to in t e r e s t o n th e o b lig a t io n w h ic h is u lt im a t e ly d e t e r m in e d to e x i s t a n d w h ic h is r e c o g n iz e d , e it h e r b y j u d ic ia l o r q u a s i- j u d ic ia l d e t e r m in a t io n o r fo r p u r p o s e s o f a c la im s s e t t le m e n t . 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 property subject to the interest requirement: currency, bank deposits and bank accounts, and undisputed debts, claims or obligations which are either liquidated or matured. However, the provisions 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 determined 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 agency or instrumentality thereof, except as otherwise licensed by the Office. Paragraph (h) defines the term “effective date” solely for purposes of this section to mean December 1,1979. 31 CFR Part 535 is amended by the addition of § 535.205 as follows: § 535.205 H old in g o f certain typ e s o f blocked property in Interest-bearing accou nts. (a) Except as othewise 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 prohibited from holding, withholding, using, transferring, engaging in any transaction involving, or exercising any right, power, or privilege with respect to any such property, unless it is held in an interest-bearing account, or unless interest is credited on the property by the holder in accordance with the provisions of this section. Persons subject to this requirement have thirty days from the date of publication of this section in the Federal Register to comply with the requirement. (b) Persons who, absent the prohibitions of § 535.201, normally would have claimed a set-off against property which is subject to the provisions of paragraph (a) of this section are exempt from paragraph (a) to the extent of the set-off, provided however, that interest shall be due from the effective date of this section if the claim to a set-off is ultimately not recognized. (c) The interest requirement of paragraph (a) applies to obligations under standby letters of credit, as defined in $ 535.568, as follows: (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 reguirement of paragraph (a), in accordance with paragraph (f)(1). (2) Where no demand has been made under the letter of credit, the contingent obligations 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 scope of the interest requirement. (3) Where there has been a demand, but a substitute blocked account, in lieu of payment by the bank and reimbursement by the account party, has been established by the U.S. account party pursuant to a specific license issued under § 535.568, the substitute blocked account is exempt from the interest requirement of paragraph (a), provided however, that interest shall be due from the effective date of this section if any liquidated obligation of the account party to an Iranian entity on the underlying contract between the parties is ultimately determined to exist and is recognized. (d) The rate of interest required by paragraph (a) on interest-bearing account or other obligations subject to the interest requirement shall be calculated as from December 1,1979, and shall be not less than 5V4%, provided however, that on amounts of $100,000 or more, the rate payable on 30—day certificates of deposits, as stated in Federal Reserve Board weekly release H.15, shall apply. (e) Any account subject to the provisions of this section may be held at a higher rate than specified in paragraph (d) upon instruction of the account owner. (f) The following types of property are subject to paragraph (a): (1) currency, bank deposits and bank accounts subject to the provisions of § 535.201; and, (2) property subject to the provisions of § 535.201 which consists, in whole or in part, of undisputed 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 property subject to the provisions of § 535.201 which, as of the effective date of this section, was held by a foreign branch or subsidiary of a U.S. person shall be determined in accordance 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 instrumentality thereof, except as otherwise licensed by the Office of Foreign Assets Control. (h) Solely for purposes of this section, the term "effective date” shall mean December 1,1979. (Secs. 201-207, 91 Slat. 1626. 50 U.S.C. 17011706; EO No. 12170, 44 FR 65720; EO 12211, 45 FR 26685) July 2 ,198a M. O ’Connell, Dated: Dennis Acting Director. Approved: Richard J. D a v is , Assistant Secretory. [FR Doc. 80-20399 Filed 7-3-80 11:59 am] BILLING COOE 4810-2S-M
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