Hostage Breakthrough

In his final days as President, Carter reaches agreement with Iran

Finally, after more than 14 months of false starts and faded hopes, the breakthrough that could end America’s agonizing—and humiliating—hostage crisis came, as a dramatic climax to a pressure-packed week of high-level international bargaining. The evidence that the end was at hand could not have been more tangible: at Tehran’s Mehrabad Airport, which was suddenly closed to routine air traffic, sat a Boeing 707 Algerian airliner, poised to fly the 52 Americans to freedom.

To be sure, a final agreement on the terms for release had not yet been signed by the U.S. and Iran. But the Iranians announced publicly that all of the major differences between the negotiators had been resolved. On Sunday morning U.S. time, Behzad Nabavi, Iran’s chief hostage negotiator, declared: “The government of the Islamic Republic of Iran and the United States finally reached agreement on resolving the issue of the hostages today.” In Washington, Vice President Walter Mondale declined to go quite that far. Said he: “We’re very, very close, but we do not yet have an agreement.” President Carter, who had been spending his last weekend in office at Camp David, helicoptered to the White House, where his speechwriters were at work on a major announcement. Carter went directly from the helicopter to his Oval Office. He first summoned Secretary of State Edmund Muskie to the White House. Then they called U.S. diplomats in Algiers for a briefing on the negotiations.

Everything seemed in place for an imminent end to America’s most humbling experience since its withdrawal from Viet Nam. A team of Algerian doctors had flown to Tehran to examine the hostages. Some $2.2 billion in Iranian gold and currency had been transferred from New York to London so that it could be turned over to Iran within minutes of the Americans’ departure from Tehran. A 30-member U.S. hostage recovery team, including former Secretary of State Cyrus Vance, was ready in Washington to fly to West Germany to meet the released hostages at a U.S. military hospital. Carter also considered going to West Germany to welcome the Americans.

Still, it would take an intricate series of specific actions to set the actual release into motion. English, French and Farsi versions of the final text of the complex agreements would have to be compared. Carter would have to sign certain papers and order certain actions for the U.S. Beyond the $2.2 billion positioned for delivery, European and American bankers apparently would have to transfer other funds before that Algerian airliner could take off. Once it was in the air with the Americans, Iran’s leverage over any further cash deliveries would evaporate.

Despite all the evidence of a deal, some nagging specifics had to be worked out at the last moment. Iran’s Nabavi termed them “trivial details.” A U.S. State Department official said that the precise time at which both sides would begin to carry out the release terms still had to be decided, but he added: “For all practical purposes, there is agreement.” U.S. officials expected the Americans to be out of Iran before Ronald Reagan was inaugurated. On a top-secret document in Tehran, Iranian Prime Minister Muhammed Ali Raja’i wrote: “Transfer scheduled for Tuesday morning Tehran time.” That would be Monday night in the U.S.

If so, that would be a fitting consolation for Jimmy Carter, whose presidency became haunted by the hostage issue. His early restraint in handling Iran’s affront to America’s pride had at first earned him widespread praise for coolness under fire. But as months passed, public patience in the U.S. ebbed. The fiery failure in an Iranian desert of a U.S. military rescue mission symbolized the nation’s frustration. In the end, the lingering hostage affair did much to ensure Carter’s election defeat in November.

For the hostages, the confinement had been akin to an emotional sweatbox of unrelieved uncertainty over their ultimate fate. Would they be freed? Tried as spies? Executed? For their families at home, the months of recurring rumors of imminent release, fed by Iranian propagandists, had been painful too. Even on the verge of the actual release, noted Dorothea Morefield of San Diego, whose husband is consul general of the captive U.S. embassy: “Everybody’s walking around with their fingers crossed.” Said Susan Cooke of Memphis about her hostage son Donald: “I just want to grab him and hang on for dear life.”

Her chance of delivering that hug was made possible by the patience and persistence of the outgoing President and his tireless diplomats. They labored through marathon meetings in Washington and Algiers, as other key actors in the drama, including turbaned Iranian clerics and pin-striped international bankers, met in London, New York, Tehran and Washington. As the negotiations intensified, the gulf between the U.S. and the ever unpredictable government of Iran, ruled by the Ayatullah Ruhollah Khomeini, an 80-year-old mystic leader, had looked too wide to be breached readily.

Deputy Secretary of State Warren Christopher and other key U.S. negotiators and aides had flown to Algiers two weeks ago on an Air Force Boeing 707. They expected to stay in the U.S. embassy compound, on a hill overlooking the Bay of Algiers, for only a few days. Their mission was to be on hand to give Algerian diplomats, who were acting as intermediaries between the U.S. and Iran, a quick response to any questions raised in Tehran about the U.S. offer.

First relayed to Tehran by the Algerians on Jan. 2, this proposal placed the value of frozen Iranian assets at about $9.5 billion. Iran had claimed that it had some $14 billion deposited in U.S. banks and their branches in Europe. Of the $9.5 billion, the U.S. was willing to transfer up to $5.5 billion to Iran on the day the hostages were released. Iran would be able to recover another $1.8 billion once it had worked out separate arrangements with U.S. banks from which the Iranian government, under the Shah, had borrowed most of the money. Iran had never repudiated these loans and had been making repayments until the U.S. froze its funds. Then the American banks declared the loans in default and repaid themselves from the frozen assets. Under U.S. Government prodding, the banks apparently were willing to reinstate the loans, if Iran agreed to reassume the obligations, and then relinquish their claims against Iran’s deposits. That still would leave about $2.2 billion in Iranian funds in the U.S. This amount is tied up in suits filed by various U.S. corporations, which contend that Iran owes them money for breaches of contract and expropriated property. The Carter Administration offered to go into court to get these claims dismissed and settled instead by an international arbitration panel.

As Christopher worked in U.S. Ambassador Ulric Haynes Jr.’s residence, a stately 18th century Moorish villa, he had no way of knowing whether Iran would accept the lower American estimate of its frozen assets, or whether it would insist, as it had before, that the U.S. must turn over some $10 billion as a down payment on whatever it can recover from the late Shah’s reputed assets in the U.S. The Administration, which contends that the Shah had no such huge wealth in the U.S., had proposed instead to try to identify any of his properties in America and support Iran’s legal claims against them. Another hurdle loomed high: none of Iran’s quarreling factions wanted to get tagged at home as having compromised with the U.S. Thus the Algerians became increasingly important as a third-party buffer, arbitrator, or “guarantor,” as some Iranian officials conveniently termed them.

For the American team in Algiers, the week did not begin auspiciously. It snowed on Monday—a rarity in the city. Nor did the pace of the negotiations seem hurried. Christopher had time to pay a courtesy call on Algerian President Benjedid Chadli and later met visiting Foreign Minister Hans-Dietrich Genscher of West Germany over drinks before holding a 75-minute working session with Algerian Foreign Minister Mohamed Seddik Benyahia.

In Tehran, however, things looked briefly brighter. Officials there had portrayed the latest U.S. proposals as “Algerian” statements, which presumably would make them easier for the Iranian populace to accept. Azizi, Iran’s second-ranking spokesman on the hostages, declared that points raised by the Algerians “have been considered, in principle, acceptable,” and he predicted that they would “most likely be accepted by the Iranian government.” After talking to Christopher by telephone, Carter said cautiously in Washington: “It looks better, but I can’t predict success.”

But on Tuesday, the rising spirits sagged once again. Iran’s chief hostage negotiator, Behzad Nabavi, had urged the Majlis, the Iranian parliament, to take emergency action to pass two bills that would expedite settlement of the hostage issue. One would authorize arbitration of disputes involving Iranian assets in the U.S. The other would nationalize all assets of the late Shah, thus making Iran’s claims to his property more legally defensible. But when the Majlis met to consider the two bills, a required quorum of the twelve-man Council of Guardians, a group of six clerics and six laymen who determine whether the parliament’s actions conform to Islamic law, was not present. American diplomats feared that Iran’s hard-line clerics had boycotted the session to block any agreement.

Still, the Christopher party stayed on in Algiers. While Christopher’s staff worked in the embassy offices, he remained more secluded in the Ambassador’s residence. Despite the air of calm, something seemed to be happening. Up to 40 cables a day labeled FLASH (meaning top priority) clattered into the State Department from its envoys in Algiers.

With little public notice, a judge in Switzerland, responding to claims lodged by Swiss lawyers representing Iran’s central bank, ordered the Shah’s villa in the ski resort of St. Moritz to be held under a writ of attachment barring its sale or alteration. The Shah had paid some $2 million for it in 1968. Iranian officials claimed that they have gained similar court sanctions against 13 other assets of the Shah’s family in Switzerland, including a $440,000 Geneva apartment owned by Princess Ashraf, the Shah’s sister.

On Wednesday, Iran’s erratic parliament finally provided a public flash of decisive action that illuminated the long hostage tunnel. Now members of the Council of Guardians settled into their front-row, red leather seats to observe the historic four-hour debate. Ostensibly at issue was the outside arbitration bill, but the real quarrel was over whether to resolve finally the hostage problem.

The advocates of ending the affair portrayed the pending agreement—inaccurately—as a complete capitulation by the U.S. “Politically, we have got a fantastic victory,” claimed Nabavi. “A superpower has been pushed to the conclusion that it promised not to interfere in Iranian affairs any more. We have made such a great power confess and put it to paper.” Summed up Nabavi: “The hostages are like a ripe fruit from which all the juice has been squeezed out. Let them all go.”

Still, there were catcalls and jeers as the argument raged on. “Is this the end of the revolution?” asked Amin Nasseri, an opponent of the bill. “Don’t we say there is no difference between Carter and Reagan?” Hassan Ayat, an Islamic fundamentalist, raised a flurry of detailed questions in objecting to the pending agreement. The tart-tongued speaker, Hojatolislam Ali Akbar Hashemi Rafsanjani, asked anyone who agreed with Ayat to stand up. No one did. Scoffed one supporter of the legislation: “This Mr. Ayat thinks he is the scholar of all the parliaments in the world. The things that he is talking about, all these small details, it means months and months we can sit in parliament.”

At long last, the lawmakers were ready to end the months of inaction and delay. Argued Hojatolislam Mahallati in backing the bill: “We have let the government start negotiations with a third country and we cannot go against the government.” The majority seemed to side with Nabavi when he contended: “We have rubbed America’s nose in the dirt. The government wants to get rid of the problem in the next two or three days—either freedom or a trial.”

The arbitration bill was passed, but action on the less urgent measure nationalizing the Shah’s assets was postponed. The Guardians filed out of the assembly, met solemnly in private and emerged to declare the legislation to be in keeping with Islamic law. Learning of the decision, U.S. State Department Spokesman John Trattner said only: “It’s a step in the right direction.” Also dampening any euphoria, Secretary of State Edmund Muskie suggested that the Administration would work at the problem right up to the moment that Reagan is inaugurated. “The real deadline is the 20th, not the 16th,” he told reporters, thus abandoning an earlier publicly stated termination date for positive action by Iran.

By Thursday, however, the impression of substantial new progress could not be concealed. In Tehran, Iranian Prime Minister Muhammed Ali Raja’i looked drawn and uneasy as he and Nabavi walked into an austere two-story house in Jamaran, a village north of Tehran, presumably to advise Khomeini of the parliament’s action, the latest offers from Algeria and a proposed Iranian response. Raja’i emerged much more relaxed and cheerful. He had received the Ayatullah’s consent to send a positive reply. Not only were the negotiations now rushing toward a likely conclusion, but the worried Prime Minister no longer could be accused of selling out to the Americans. He had Khomeini’s blessing.

It did not take long for the Algerians to relay the Iranian response to Christopher. Even as he began studying it, a copy of the four-page text was rushed by coded radio communication to the computer printer near Secretary Muskie’s office on the State Department’s seventh floor. Muskie, however, had just gone off to make a luncheon speech to the World Affairs Council. On his return, he read the message slowly, picked up a telephone to summarize the cable first to the President and then to National Security Adviser Zbigniew Brzezinski. With that, Muskie returned calmly to another problem: an interdepartmental squabble over U.S. policy in El Salvador. Said a surprised aide: “He showed no emotion.”

The Administration’s initial public response was equally low-key. The Iranian reply was “substantive,” said State’s Trattner. “It warrants close and intensive study. We cannot yet predict whether it will enable the parties to resolve their remaining differences.” In fact, the reply was more constructive—at least on its face—than U.S. diplomats had expected. Observed a senior State Department official: “The response included provisions that are advantageous. They offered prescriptions for dealing with the banks that are improvements over our positions.”

The Iranians had by now dropped their previous demand that specific sums be set aside as a guarantee against failure by Tehran to locate and recover the assets of the Shah. Tehran’s response also raised no major objections to U.S. estimates of the amount of Iranian funds that had been frozen by Carter and that should be made available to Iran once the hostages were released. The reply, moreover, showed a willingness to work with American banks in resolving differences over Iran’s past loans. The text suggested that “past and future loan installments” could be deducted from any hostage-linked return of Iranian assets. Apparently anticipating the possible need for future borrowing, the Iranian officials seemed eager to regain a good credit relationship with American bankers.

There were some refinements of Iran’s cash demands, however, in the message. It asked for immediate transfer to a trusted third party of roughly $2.2 billion in Iranian gold and securities held by the Federal Reserve Bank of New York. The gold weighs nearly 60 tons. Iran also wanted the return of the estimated $4.8 billion in Iranian funds that American banks hold in their branches in Europe. When these funds were frozen, the U.S. banks seized about $1.8 billion worth of “setoffs” against past Iranian loans—an action that was technically illegal under international currency laws. The Iranians agreed to leave enough on deposit in foreign branches of U.S. banks to cover the loans, deferring a final settlement until the hostages are home. Iran also agreed that about 300 private claims by U.S. corporations against some $2.2 billion of its assets held in a variety of U.S. banks can be reviewed and settled by an international tribunal. From its original demand for some $24 billion, Iran thus had reduced its asking price to $9.5 billion and was insisting on getting a down payment of just $5.2 billion on the day the Algerians confirmed that the hostages had been released.

All that looked relatively simple in principle, but the technical details were still complex. Iranian negotiators and U.S. banks disagreed on the amount of the loans and the interest accrued by the frozen Iranian deposits. Anticipating such knotty problems, representatives of the U.S. banks that hold the largest amounts of Iranian cash, including the Bank of America ($1.8 billion), Manufacturers Hanover Trust Co. ($416 million) and Chase Manhattan ($369 million), had been meeting quietly in New York and London for several days. Consulting with them were officials of the Bank of England and the U.S. Federal Reserve System. Once they heard the outlines of the latest Iranian proposals, twelve of them flew immediately in a U.S. Air Force jet to Algiers to help advise Christopher and the Algerian intermediaries.

Back in Washington, White House Adviser Lloyd Cutler left a farewell party at which he was co-host for President Carter at the F Street Club and went to the office of Deputy Treasury Secretary Robert Carswell. From 11 p.m. Thursday until 2 a.m. on Friday, the two worked on ways to speed the transfer of funds. Carswell was back in his office at 7 a.m., talked to Christopher by telephone, then rushed off to a 7:30 a.m. breakfast at the White House. There, in a meeting described by one participant as “unusually upbeat,” the President approved an order to “preposition” some of the Iranian money.

The first actual shifting of assets took place a few hours later on Friday morning. Acting on a transfer contract signed by Treasury Secretary William Miller, officials placed a label on some 4,000 gold bricks stored in a federal building in Manhattan, denoting the Bank of England as the new owner. Simultaneously, other new labels in the Bank of England switched an identical amount of British gold into U.S. possession under instructions that it be ready to turn the gold over to Iran once the hostages were free.

At about the same time, Carter ordered the New York Federal Reserve Bank to begin converting the $1.2 billion in U.S. Treasury securities owned by Iran into cash. Although this process would normally require several days to accomplish, the U.S. could in effect simply loan itself the equivalent cash and then sell the securities later. All of the initial cash transfers were meant to show that the U.S. was acting in good faith—especially in view of the arbitrary deadline set by Iran’s Nabavi, who mysteriously threatened to break off the whole deal if the Americans failed to take some concrete action by the end of Friday’s business day. State Department officials viewed this as mostly a bluff, but could not ignore it entirely.

The movement of Iranian money from the various European branches could not be executed quite so quickly. Still, the task apparently could be handled mainly by telephone once each bank determined the precise amounts to be credited to Iran. Said a banker in Frankfurt: “All I need is a phone and a key to get in the front door. It’s not a complicated thing.” Most of the branches keep funds on deposit at their home offices in the U.S., and each bank’s top officials apparently could order them transferred to the Federal Reserve System. The Fed, in turn, could order the funds held in escrow by the Bank of England. Iran seemed likely to trust the English bank, which had loudly protested the freezing of Iranian funds in the first place.

In a Friday filled with crisis-atmosphere meetings in Washington, London and Algiers, the money mechanics got the most intense attention. But at the same time an American response to the latest Iranian package was carefully drafted by Christopher after frequent consultations with Washington. It was sent to Tehran through the Algerians in time to be on the desks of Iranian officials on Saturday morning.

All day Friday, the White House tried to tread a narrow line between the obvious U.S. joy at signs of substantial progress and the still prevalent fears that something might yet go awry. Said Press Secretary Jody Powell in response to the barrage of inquiries: “It is certainly everyone’s hope there will be an agreement, but it is not a certainty. We do not have an agreement yet. Once they see our response, if they agree with it, we will have an agreement.” Conceded a senior White House official: “The outstanding issues are not questions of principle. Those have been resolved.”

Hopes for a quick agreement faded after the U.S. text reached Iran on Saturday morning. Prime Minister Raja’i canceled a scheduled press conference and a meeting with foreign ambassadors without explanation. He and Iran’s top hostage negotiators then sent a request for clarifications, apparently on the money question, through the Algerians to Christopher. The Iranians seemed to be dissatisfied with the limited movement of cash and gold made by the U.S. Still, no insurmountable obstacles were raised anew by Iran. At the White House, Powell declared: “I am not aware of anything that changes the relative mix of optimism and pessimism.”

With negotiations at such a delicate stage, the Carter Administration was outraged to find that the Soviet Union was trying to stir up new trouble for the U.S. with Iran. Powell and State Department Spokesman Trattner berated the Kremlin over a charge in the official Soviet newspaper Pravda that the U.S. was getting ready to use military force in Iran. On instructions from President Carter, Muskie took the unusual step of summoning Soviet Ambassador Anatoli Dobrynin for a scolding, terming the newspaper account “scurrilous propaganda” and warning that it could have “lasting effects on U.S.Soviet relations.” Speaking for Carter, Powell called the Soviet meddling “a despicable manner of behavior.”

Meanwhile, the plans for carrying the Americans out of Tehran were being completed. In Tehran, where there has long been considerable public hostility toward the hostages, officials planned to move the Americans to the airport during the night, when there would be little traffic or crowds along the highways. The Algerian airliner, perhaps escorted by U.S. fighter planes, would take them to Algiers, thus confirming the Americans’ release and setting the exchange of money into motion. Two U.S. C-9A Nightingale hospital planes from Rhein-Main Air Base in West Germany would then pick up the ex-hostages in Algiers for the roughly two-hour flight to Frankfurt, near the U.S. Air Force’s 235-bed hospital in Wiesbaden, West Germany, America’s best military hospital in Europe. Said a surgeon there: “Officially, we still don’t even know if the hostages will be coming here. Unofficially, a wing is reserved, beds are made, fresh flowers are ordered, and we’re expecting 52 new patients any day now.”

The released hostages will be given thorough medical examinations, including checks by neurologists and psychiatrists. Said a specialist at the hospital: “We haven’t heard of any major physical health problems. But long confinements, even in comfortable circumstances, can do strange things to people.” Added a staff psychiatrist: “I’d like to see each of them sent back home just as soon as we’re satisfied that they can handle what awaits them in the U.S.” The doctors hope that the Stateside welcomes will be quiet affairs because they fear that some of the former captives might not be ready for emotional ceremonies or speeches.

The relatives of the hostages have been asked by the State Department not to travel to Germany. But if any of the Americans require long-term hospitalization, a 400-room hotel just outside the hospital compound is ready to house their families. Louisa Kennedy, a leader of the Family Liaison Action Group in Washington, says that most of the relatives have agreed to wait in the U.S. The State Department has promised that, within a few hours of their release, the freed hostages may telephone anyone they wish, anywhere in the world, at government expense. Hospital officials in Wiesbaden believe that the healthiest of the Americans might be ready to return home within 72 hours, setting off an emotional binge of welcome from Americans who have been waiting impatiently for the hostages’ return for more than 440 days.

—By Ed Magnuson. Reported by Christopher Ogden and Gregory H. Wierzynski/Washington