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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 firms 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 Ameri

'Not printed.

can 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


No. 20

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

WASHINGTON, April 17, 1941. SIR: Reference is made to the Legation's despatch No. 21 of January 23, 1941, suggesting the advisability of considering a plan whereby dollars to be converted into rials for the official use of the United States Government could be utilized for the payment of old accounts owing to American firms for goods delivered prior to the enactment of the Iranian Foreign Exchange Law of March 1, 1936.

While the Legation's suggestion is appreciated, the Department considers it advisable as a matter of general policy to confine the financial transactions of its offices abroad to the usual banking and commercial channels. Although the plan suggested by the Legation technically might not be in violation of Iranian exchange regulations, it would be likely to be regarded by the Iranian Government as an evasion of such regulations. It is desired, therefore, that the Legation continue its policy of pressing for the release of blocked funds of American firms by following up, where practicable and advisable, individual cases and pointing out to the appropriate authorities specific difficulties encountered by American firms endeavoring to effect the release of such funds.

Very truly yours,

For the Secretary of State:
A. A. BERLE, Jr.

891.5151/211: Telegram

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

TEHRAN, December 17, 1941-noon. [Received December 18-9: 52 a. m.]

258. Referring to Department's instruction No. 31, August 12, the Iranian Exchange Commission has agreed in principle to the settlement of old accounts owed to American exporters and offers to authorize individual remittances at prevailing official rate of about 35 rials to the dollar. It has been learned informally that $50,000 have been set aside for this purpose.

The Department may wish to give appropriate publicity to the facilities now offered. American firms known to the Department or to the Department of Commerce might be advised that their Iranian debtors should apply directly to the Iranian Exchange Commission for exchange permits. In addition to the firms named in Legation's despatch No. 21, January 23, 1941, and in the instruction above cited, the Consulate has learned that the Imperial Bank of Iran holds rial deposits for the credit of (1) Vulcan Spring Company, Chicago (2) McCord Radiator and Manufacturing Company, Cleveland (3) Neatherhead Company, Cleveland and (4) Perrine Quality Products Company, Waltham, Massachusetts.

Where a rial deposit is now held by an attorney or a bank the creditor should signify his willingness to accept payment at the official rate, preferably by wiring the Consulate here.

The Consulate will circularize known local debtors while the Legation will supply a list of known old accounts to the Exchange Commission to facilitate the issuance of exchange permits.

American creditors should take advantage of such favorable terms without delay since it has been intimated that present facilities will continue no longer than deposit.




Memorandum of Telephone Conservation, by the Chief of the Division of Controls (Green)

[WASHINGTON,] January 4, 1941. The Iranian Minister called me by telephone half a dozen times the day before yesterday requesting urgently that arrangements be

6 Not printed.

For previous correspondence on the subject of Iranian requests for aid from the United States, see Foreign Relations, 1940, vol. III, pp. 638 ff.

"Mohammed Schayesteh.

made to permit the departure by the SS Utahan, scheduled to leave New York yesterday, of the machine guns referred to in my memorandum of January 2.9

Pursuant to the Secretary's oral instructions that nothing should be done at this time to permit the shipment by American vessels of the arms mentioned in my memorandum of January 2, I called the Iranian Minister by telephone this morning and told him that his request had been given the most careful consideration but that, in view of the provisions of Section 2 (a) of the Neutrality Act,10 it had not been found possible to grant his request.

The Minister expressed great disappointment. He said that he was particularly distressed because if Section 2 (a) of the Neutrality Act were interpreted to prevent shipments of arms by American vessels to a neutral port via a belligerent port, his Government would not be able to obtain the airplanes which it had recently purchased in this country. He argued at some length that we were misinterpreting Section 2 (a) of the Neutrality Act.

I told the Minister that there seemed to be some room for alternative interpretations of Section 2 (a) but that the interpretation which we had been constrained to adopt prevented us from complying with his request. I suggested that he should investigate the possibility of shipping arms to Basra by neutral or belligerent vessels.

The Minister said that he would adopt my suggestion but that his Government had already investigated the matter and that as far as he knew the only vessels sailing from American ports to Basra were American vessels following the Atlantic route and touching at Capetown and American vessels following the Pacific route and touching at Bombay.



No. 23

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



TEHRAN, January 24, 1941. [Received March 29.]

SIR: I have the honor to refer to my telegram No. 276 of December 24, 4 p. m.,11 the Department's telegram No. 125 of December 30, 9 a. m. [p. m.],12 and previous correspondence regarding the desire of the Iranian Government to purchase aviation material in the United States and to establish an airplane factory in Iran.

"Not found in Department files.

10 54 Stat. 4. Section 2 (a) reads: "Whenever the President shall have issued a proclamation under the authority of section 1 (a) it shall thereafter be unlawful for any American vessel to carry any passengers or any articles or materials to any state named in such proclamation."

"Foreign Relations, 1940, vol. III, p. 658.

12 Ibid., p. 659.

It was with the greatest reluctance on my part that I injected myself into this matter, knowing full well that it was being handled in Washington. I did so only because of the persistence of the Acting Minister of Foreign Affairs 13 in stressing to me the paramount importance to the Iranian Government of securing the desired material which is needed in connection with the preparations for the national defense of this country against possible military aggression. Mr. Amery urged me to such an extent to take up the matter with the Department that I considered it best to do so if only to keep him from getting the idea that I might be unwilling to cooperate with him.

On each occasion that I have seen the Acting Minister, he has brought up this same question and, notwithstanding that he has been confined to his home by illness for the past ten days, only a day or so ago he telephoned the Legation from his sick bed to say that he would like to see Interpreter Saleh. When the latter called upon him at his home, Mr. Amery explained that he had gained the impression from the telegrams of the Iranian Minister in Washington that the Curtiss Wright Aviation Corporation was willing to go ahead with this matter, but that the Department was still holding out and that without its authorization it was impossible to obtain the desired material. Mr. Saleh, thereupon repeated to Mr. Amery as I had done previously, the present great need of the United States for aviation equipment for defense purposes and the necessity of making war material available to the British in these critical times. Notwithstanding all these explanations, today a further note has been received from the Foreign Office renewing the request. As soon as the Acting Foreign Minister recovers from his illness I will call upon him and reiterate the existing difficulties which make it virtually impossible to obtain aviation material from the United States at this time.

From Mr. Amery's insistence, it is evident that he is being forced to act by some higher authority, and this can only be the Shah 14 himself who has in mind the great necessity for Iran to have sufficient planes for its defense in the event of war.

I realize full well that the Iranian Legation in Washington has had the question constantly before the Department and that therefore there is no excuse whatever for any participation on the part of this office. I do feel, however, that it is of interest to the Department to know of the indefatigable efforts made by the Iranian Government at this end to bring to a successful conclusion the negotiations with American firms of war material.

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