In 1992-1993, S.K. was a Tehran University law school student working at the Planning and Budget Organization, a governmental body tasked by then-President Akbar Hashemi Rafsanjani to oversee the reconstruction of Iran’s moribund post-war economy. As a fluent English speaker with “no political baggage”, he was selected by a former professor to adapt international best practices in market competition and consumer protection to the Iranian reality. He had access to classified information about the oversight and business holdings of major bonyads, and worked alongside individuals hand-picked by the regime to become Iran’s new economic stewards. His testimony provides unique insight into the dynamics of Iran’s economy–and where it all went wrong.

In 1992, S.K.’s politically disgraced law professor recruited him to work at the PBO. The organization’s head tells him he needs a fluent English speaker with “no political baggage” to reach out to Western embassies.

Dr. Hadi Esmaeilzadeh was my research project professor.1 In September 1992, he calls me to the faculty office and tells me that ‘we know that your English is impeccable. We need someone at the Planning & Budget Organization (PBO). I was dumbfounded that he, with his political record, with his jail record, was actually working in the faculty in PBO. He gave me an address, told me to show up at a certain time. It was late Sept by this time. I met Mahmoud Alizadeh Tabatabaie (MAT)2, the head of the legal department of the whole PBO.

I told him: Are you telling me that in the whole body of the government there is nobody else who can go to these embassies and talk to them? And this is basically what they said: First of all, you are a younger person. We know that you don’t have any baggage. We know that you don’t have any certain backgrounds. Those people who do know the language and or who have been educated abroad, we can not trust them. That was the first and foremost thing. The second thing was that if they would send the typical Hezbollahi employees with some language institute translator or interpreter or something — they had done that actually — but the embassies had not received them.

Up against the radical base

SK accepted the job offer, and sought out the help of the French, Italian, British and Swedish ambassadors. Political problems mired his mission from the outset. Engagement with the Westerners resulted in hours of interrogation in the basement of the PBO herasat.3

I would ask MAT when I would go to these embassies to get model laws for our work, “Why don’t you ask [Iran’s] French embassy? Why don’t you ask [Iran’s] Brussels embassy, where all the European stuff is? Or Iranian embassy in Britain? He told me, “They do not work with us. They report to Beyt-e Rahbari [the Supreme Leader’s Office].”

I worked three days a week on an hourly basis. I did most of the work at home. When I came to work… when I was entering the building I was stopped by the Herasat and taken to the basement and I was told that I was a British spy basically.

I was there for six hours. I was interrogated about everything I had ever done in my life. And at the sixth hour I went to the basement elevator, came upstairs, took the other elevator. I went directly to the office of Rouhani Zanjani, and lo and behold I realized it was completely cordoned off. Unbeknownst to me, Rafsanjani was visiting the director.

I sat in the office. I was really shaken by the whole experience. I tried to find Alizadeh Tabatabaie, I couldn’t find him. That’s why I went to where Tabatabaie was in the meeting–I don’t remember these parts. I could hear Rafsanjani sitting in that office talking with them.

The conversations revealed that the economic interests of the Supreme Leader’s Office and the bonyads conflicted with those of Rafsanjani’s cash-strapped government. While the former wanted to access public coffers to fund the foreign projects of unelected revolutionary organizations, the Rafsanjani government wanted to focus on domestic economic stimulus.

I can remember what was being discussed….That the economic situation was really really bad. They were about to borrow a lot of money.4 I could remember all of these things. The oil prices were very low in those years, 1992-1993. And Rafsanjani was trying to brainstorm with these people. How they could make money. I also heard the word Lebanon a few times. That they were under pressure through the Jihad-e Sazandegi to help Lebanon.5 But Jihad-e Sazandegi was getting money from the government because it was part of the government and Rafsanjani was arguing–I vividly remember this part–was arguing that Lebanon was the supreme leader’s project. The money has to come directly from the SL’s own foundations. I heard several times “Daramadeh bonyadha barahyeh Lobnan kafieh, daramadeh bonyadha barahyeh Lobnan kafieh.”6 I could hear that.

In the years S.K. was employed at the PBO, the regime had lost nearly all its foreign reserves and was on the cusp of economic collapse. The Rafsanjani Administration was left with a host of confiscated properties and dilapidated factories. The president saw privatization as the only way to save these holdings from ruin, but the entrance of foreign capital was a politically unsavory move for the revolutionary elite–furthermore, it was explicitly prohibited by the Constitution.

Rafsanjani wanted to give it back to [politically] cleared industrialists. He lobbied Khamenei to decide what form privatization would take, because he wanted a finger in the pie. He wanted to keep out the industrialists with access to U.S. dollars, and he also didn’t want to upset the radical base.

‘Like a Frankenstein monster’

The PBO also grappled with structural obstacles to privatizing state-owned enterprises in which the bonyads owned competing stakes. Before the revolution, Iran’s major industries were organized, fairly neatly, into vertical monopolies run by the “One Thousand Families,” wealthy industrialists and landowners loyal to the Shah. When Khomeinists confiscated these properties on ideological grounds, they did so without considering how they would be managed in the future. This led to the “syndrome of overlapping monopolies” that plagues the Iranian economy to this day.

SK: “The fundamental problem was this… The Revolution court, when they confiscated everything, they didn’t know what to do with all of this so they started handing things over depending on whatever they decided to different foundations.

So the [Martyrs and Veterans Affairs Foundation]7 could have gotten part of the industries or businesses of a certain individual or a certain enterprise [that operated] in Iran under the Shah. Bonyad Shahid could have got some of that, but then Mostazafan Foundation could have gotten the other side of that same business….So there will be problems. One of the reasons that EIKO was created was that now we had horizontal monopolies that had been created like a Frankenstein monster. There were several Frankenstein monsters created out of the body organs of different monopolies that existed as coherent cohesive organic entities before the revolution.

Here, S.K. explains that the bonyad EIKO was not set up to gobble up conglomerates, but rather to arbitrate between the other bonyads under the direct control of the Supreme Leader: Mostazafan (BM), Bonyad-e Shahid and Imam Khomeini Relief Foundation (IKRF).8

SK: EIKO was effectively at the time a judiciary headquarters for the resolution of disputes, mainly between Komiteh Emdad, Shahid and BM. That’s all that they did. In the later years of course, Beyt-e Rahbari [the Office of the Supreme Leader], which was expanding even then, assigned to EIKO all the other things that it could do. But…EIKO does not appoint the directors of the Bonyads. The [Supreme Leader] appoints the directors. The only thing that Setad Ejraee does is act as some kind of coordinating headquarters, as an arms-length entity for Beyt-e Rahbari.

The Origins of Khatam al-Anbia

Working within the framework of these nascent “monsters” was a certain paramilitary organization whose economic writ had yet to be institutionalized.

The IRGC had already started investing in building dams. I think that 1993–that’s I think the turning point of the IRGC starting to really get involved through its Khatam al-Anbia headquarters. There were also discussions that the IRGC’s resources have to be used, that they had to use the conscripts’ power, that Azad University was now churning out so many engineers. They were churning out these engineers who could get experience and offer services for free as IRGC conscripts, and started being involved in all these reconstruction projects. Roads and dams and ports were a major portion of the discussion. I did not hear anything about oil in those days.

And so Iran’s industries were torn apart, often illogically, by the clashing interests of the country’s ruling political factions. Adding to the internal disputes were the claims of politicians who represented elected governmental bodies. This led to an effort to move shares of state-owned companies to the Bank of Industry and Mine and the partial privatization of the holdings of Iran’s Social Security Organization (Tamin). Though set up to finance necessary state expenditures into welfare and reconstruction, these mechanisms also fell victim to the predatory interests of various political actors.

SK: From the outset, it looked like everybody was trying to use these entities in order to use them as instruments of devouring the newly privatized public sector and make inroads for the purposes of money laundering and tax evasion by various investments in their subordinate enterprises.

The anti-monopoly, consumer protection and competitive market policy provisions S.K. researched were eventually included in the 2004 amendment to Article 44 of Iran’s constitution, which continues to govern privatization practices to present day.9 However, the institutions overseen by the Supreme Leader’s Office, as well as certain charities, religious and paramilitary endowments are exempt from many regulations.