Lawyers involved in the frozen Iranian assets issue have developed what they term the "big mullah" theory. This theory is just one legal complexity n what one banking source calls "an endless quagmitre" -- the law office and courtroom hassle developing over the more than $8 billion (Iran says $14 billion) of assets frozen by President Carter on Nov. 14, 1979, following the seizure of 52 American hostages.
The big mullah theory holds that because Iran's revolutionary government has seized or nationalized so many Iranian corporations, American banks can set off the deposits of these institutions against Iranian loans in default. In other words, any Iranian account is fungible -- usable against any Iranian loan. If Iran Air, for instance, owes money to a bank, then the bank could take the deposit of any Iranian commercial bank to pay off that loan. It would also be applied in the case of loan guarantees.
Whether such a theory would hold up in court is questionable, it is said. But it shows the keenness with which banks and contractros are trying to protect themselves from losses on Iranian loans or other business.
Right now, lawyers involved in this ussue are curious about the response of Iran to the US document indicating that it would accept "in principle" Iran's four conditions for release of the hostages. "Everybody wants to know what is in that sealed enveloped bought from Iran by the Algerians," said one lawyer.
This is an indication that the banks and other claimanta against the Iranian assets are basiclly hoping that the government will somehow come to their rescue and clean up the mess.
"The legal hassle is all over the world -- Paris, London, New York," noted a lawyer. "They are all in a different procedural status. Nobody knows where this thing is going to go."
One banker, noting that the banking community is split on the issue of attaching Iranian assets, commented: "I have little confidence in the ability of the banking sector to get its act together." He suggested that the lame duck Carter administration should "bite the bullet" -- make a decision through an executive order dealing with the assets. Then it could stand back and let interested US parties sue the government. Next it could ask Congress to set up a "claims commission" to pay valid claims, perhaps using a portion of Iranian money set aside for that purpose.
"Some variation of that will need to be taken," he argued.
Washington, in the middle of some form of negotiations with Iran, isn't saying much at all at this stage. The issue is too delicate.
One Iranian condition was return of the assets of "the cursed Shah" and his close relatives. The special commission of the Iranian Majlis (parliament) said that "the US Presdident should issue an order concerning the identification and freezing of these assts and take all the necessary admin istrative and legal measures to transfer all these assets and property to Iran."
But, as one lawyer here pointed out, the US President does not have the power to confiscate the Shah's wealth. He can only tell the Iranians to attempt to obtain that wealth through the US legal system. "Judges in this country," he added, "are likely to go against the wishes of the executive. Now this is a concept which is going to blow the minds of the Iranians."
However, it is reported, the US pledged assistance to Iran in using US courts to press claims against the Shah's money. And it has promised aid in locating the assets, perhaps by asking the banks and other financial institutions to report on any holdings of the former Shah and his family. But that request might have to be voluntary.
As for the assets, there are an estimated 300 private claims against them. For some time the government was condoning, though not specifically approving, legal attachments against these assets. More recently it sought delays on any such court action for fear it might disrupt its negotiations with Iran.
The banks themselves are split on this issue. Such banks as Chase Manhattan, Bank of America, Manufacturers Hanover Trust Company, and Citibank apparently are eager to declare Iranian loans in default in order to attach Iranian deposits or other assets to offset these debts. With large amounts involved, they figure cash in hand is better tan some money deep in the legal bushes that might be won in the distant future.
Chase Manhattan, for instance, was the lead bank on a $500 million loan to the Shah's government.
Banks with lesser involvement in Iran are more willing to leave their Iranian loans in good standing, even if pay menbusiness once Iran and the US resume better relations. All of Iran's blown-up oil installations will someday need to be replaced, offering the possibility of big loans, noted one banker.
Another complexity is that Iran has continued to make repayments to European and Japanese banking members of loan syndicates, but no money has gone to the American members of these syndicates. The legal provisions of such syndicate loans usually provide that any payments should be divided up proportionately by all members of the syndicate. The US banks thus in theory could sue their foreign partners for some of the payment money, but have not yet decided to do so, it is said.
There are also reports that some banks have hidden Iranian assets. The Treasury maintains they cannot. But the legal forms freezing the assets are sufficiently unclear that one banker suspected some money could still be stowed away legally. Whatever, as he put it," The more you look into this, the more complex it gets."