The International Legal Status of Foreign Government Deposits in Overseas Branches of U.S. Banks

Political as well as economic forces can lead governments to default on their obligations to foreign banks. For example, the demand of the revolutionary government of Iran that the United States return he former Shah and his wealth to Iran and the subsequent seizure of American embassy personnel in Tehran on November 4, 1979, were political events which quickly resulted in a default on Iranian obligations to U.S. banks. Following the embassy seizure, the status of the Iranian Government\u27s huge deposits in overseas branches of U.S. banks quickly came into question. In an effort to coerce the United States to yield to its political demands, the Iranian Government threatened to repudiate its obligations to U.S. creditors, to withdraw its vast deposits from U.S. banks, and to refuse to accept the U.S. dollar as payment for Iranian oil. In response, on November 14, 1979, President Carter issued an order which blocked or froze all Iranian Government assets in the hands of persons subject to the jurisdiction of the United States, whether in the United States or abroad. The Bank Markazi Iran, Iran\u27s central bank and the principal depositor, promptly sued in London and Paris, demanding that U.S. branch banks allow Iranian depositors their ordinary right to withdrawal under domestic law. These suits placed the legal validity and enforceability of the freeze order squarely in issue. This article discusses the public international law issues raised, actually or potentially, in the ensuing foreign litigation. The article analyzes the application of the freeze order to overseas deposits and reviews the role to be played by foreign courts in applying international law in such controversies. Although the courts involved did not reach the merits of the dispute, the issues had enormous potential importance in the context of the hostage crisis and could have broad ramifications for the future