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The Minister in Iran ( Dreyfus ) to the Secretary of State

No. 21

Sir: I have the honor to acknowledge receipt of the Department’s instruction No. 527 of October 1, 1940,1 stating that the Department is not, as a rule, instrumental in attaching, for the supposed benefit of American firms, funds located in the United States belonging to a foreign government; and instructing that this Legation continue its efforts to have dollar payments effected.

In a Note Verbale dated December 12, 1940, of which a copy is enclosed,2 the Legation informed the Iranian Ministry of Foreign Affairs that the Legation knew of no instance where dollar payments had been made to American creditors through the procedure outlined in the Ministry’s Note of September 4, 1939,3 and requested that the Ministry ascertain whether or not the approved procedure will, in fact, enable American creditors to recover the sums due on old accounts.

On January 11, 1941, the Ministry of Foreign Affairs replied that all possible assistance had been given to American creditors, and that in the future, no doubt, the official Exchange Commission would lend its assistance in any possible way. A translation of the note in question is enclosed.2

The present procedure for repayment has been in effect for about sixteen months—a period which would appear to be ample for a trial of its efficacy. Although it is not possible to say that no account has been paid through this procedure, the Legation knows of none; while it knows of many accounts which were owed to American exporters before the enactment of the Foreign Exchange Control Law of March 1, 1936, and which are still unpaid.

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The Consulate estimates the total of the old accounts owed to American firms at about $50,000. There is attached to this Despatch as an enclosure a list of the American firms4 known to have such accounts outstanding, together with the names of the debtors and a statement of the sums involved. Despite the professed helpfulness of the Iranian authorities, no considerable part of these accounts has been liquidated.

On the other hand, the accounts of the Legation show that $99,336.44 in official drafts were sold to the Imperial Bank of Iran for the account of the Exchange Commission during the period from March 1, 1936 to December 31, 1940. The corresponding sales for the Consulate during the same period were $27,314.24.

It scarcely seems equitable that the Legation and the Consulate should continue to sell their official drafts to the Iranian Government each month while that Government not only fails to make possible payment to American creditors of accounts some four years old, but also has refused to permit the purchase of trifling sums in foreign (sterling) exchange by the Legation and Consulate for the payment of official expenditures outside Iran.

The Legation therefore respectfully suggests that the Department consider the advisability of devising a plan whereby the dollars to be converted into rials for the official use of the United States Government could be utilized for the liquidation of these old accounts.

Such a plan would involve the purchase of rials from American firms having Iranian currency, rather than from the official Exchange Commission; and it would necessarily be contingent upon the willingness of the American firms to accept the rate for rials obtainable at the bank, currently about 49 rials to the dollar. Thus, it would utilize a rate similar to that specified in the procedure already approved by the Iranian authorities, and would simplify and facilitate the conversion of rials into dollars for the payment of old accounts. It would not, of course, affect the responsibility of the American firm for the collection of its outstanding accounts—neither would it touch upon losses due to the lower value of the rial which will have to be borne by the American exporter or the Iranian importer, or both.

If the entire transaction with any firm were carried out in Iran, it would doubtless constitute a violation of the third paragraph of Article 2 of the Iranian Foreign Exchange Law of March 1, 1936 (quoted in a Report from the Consulate at Tehran dated March 2, 1936 and entitled “Iranian Foreign Exchange Control Law of March 1 1936”4.) Further, if the purchase were to occur in Iran and an official draft were delivered to a local bank or to the local agent of an American [Page 354]firm, the bank or agent would not be able to send the draft outside Iran without becoming liable to the punitive provisions of the Law cited above.

If the purchases were arranged by the Department, however, and if dollar payments were made to the seller of rials in the United States, such transactions would not be clear violations of the Iranian law since the foreign exchange involved would never enter Iran.

It would therefore appear that the most practicable plan—if any is practicable—would be for the Department to arrange with the American firms owning blocked funds for the delivery of such funds at such times and in such amounts as the Legation or the Consulate may require, and for the Department to reimburse the seller in dollars on receipt of a statement from the Legation showing the sums received and the rate prevailing on the date when the rials were delivered.

Respectfully yours,

Louis G. Dreyfus