Corruption in Iran
- On March 27, 2017, Ja’far Sabaqian, head of the office of the Deputy of Astan Qods Razavi, confirmed that the former deputy of this endowment, a member of its board of trustees and former CEO of its vast holding company, Mehdi Azizian was involved in theft and embezzlement of funds. Astan Quds Razavi is a charitable endowment that oversees the holy shrine of Imam Reza, the eighth Shiite imam, and reigns over an economic empire that includes numerous subsidiaries, businesses and landholdings in Iran. Since it is not subject to review, there are no specific numbers as to the total worth of the endowment. A 2004 estimate puts its wealth at 15 billion dollars, a figure that is certainly much higher today.
According to reports, Azizian managed to escape Iran with the help of one of the endowments’ senior officials, Morteza Bakhtiari. Apparently before he escaped he managed to cash in the last check of the embezzled money worth 360 million Tomans.
On May 16, 2017, Iranian President Hassan Rouhani alluded in a televised presidential election debate with Astan Qods Razavi’s current custodian, Ayatollah Raisi to the corruption in the endowment claiming that Azizian’s embezzled funds worth 12 thousand billion Tomans (USD 3.3 billion).
- On May 29, 2017, it was reported that Masoud Mehrdadi, perhaps the most influential figure responsible for the building of the IRGC’s economic empire was arrested for embezzlement. Among his many positions, Mehrdadi is a member of the board of directors in Bank Ansar, TCI, Mobile Telecommunications Company of Iran, Bonyad Sepah. According to reports, he was arrested by the IRGC along with his deputy for embezzling 1300 billion Toman (USD 360 million).
- On August 28, 2017, an employee of Bank Refah Kargaran in North Khorasan was arrested along with his partner and charged with embezzling 47 Billion Rial (USD 1.3 million) of the Bank’s money. He apparently managed to divert sums of money while they were transferred from accounts, into his own account.
- In late October 2017 it was reported that a banker working in Bank Tejarat’s branch in Babolsar (Mazandaran) was arrested after it was discovered that he had stolen money from the bank’s customers. According to reports, the said banker had managed to steal approximately 45 billion Rial (USD 1.24 million) from customers and deposited them into his account.
- On October 6, 2017, it was reported that Mehdi Jahangiri, Brother of Eshaq Jahangiri, Rouhani’s vice president, was arrested on corruption charges. Mehdi Jahangiri heads the Tehran Chamber of Commerce and is also the founder of the Tourism Bank and the bank’s financial group, Tourism Financial Group. Two days after his arrest, a judicial spokesperson, without mentioning Jahangiri by name, stated that ‘the central bank’s report shows that this person is linked to fourteen banks and has more than 30 thousand Billion Rial (USD 825 million) in debt of which around 16 thousand billion Rial has been frozen.’ The spokesperson went on and criticized the banks and the government and added that ‘a person who has this amount of debt definitely has power, rents and influence that have enabled him to receive services from 14 banks.
In recent years, loan delinquency had turned into a major crises for Iranian banks. It seems that according to several Iranian officials most of these loans have been granted through private or political connections, ignoring due process. For example, Eshagh Jahangiri, Rouhani’s deputy announced in 2014 that delinquent loans to Iranian banks exceed 20 billion dollars.
In February 2017, the Central Bank of Iran’s director of legal affairs stated that 3,850 Iranian individuals had been put on the no-fly list due to debts and in light of the difficulty Iranian banks have of recovering non-performing loans. According to the latest CBI directive, natural persons with debts exceeding 3 billion rials ($82,000) and legal entities with debts higher than 5 billion rials ($138,000) that do not possess a valid guarantee, will be placed on the no-fly list if demanded by the banks’ CEOs.
According to a report from Radio Farda from early December, ‘a few hundred people in Iran have borrowed billions of dollars from the country’s financial institutions and refuse to meet their obligations toward the lending institutions’. Moreover, according to a statement by the judiciary, one of Sarmayeh Bank’s debtors is himself a CEO of a private bank. Despite these steps, the Iranian judiciary has so far largely failed at truly addressing this issue, apparently, because so many of the debtors are linked to various power groups in the country.
- In January 7, 2018, Morteza Alviri, a member of Tehran’s city council, told reporters that corruption in the city has become ‘institutionalized’ and is prevalent in all of the city’s dealings. Including tender offers and the administrators. As an example, Alviri referenced a corruption scandal that was exposed on August 2016 where high end assets in Northern Tehran were given to some of Tehran’s administrators, members of the city’s council, a members of the Iranian parliament, members of law enforcement and security services, at half price.
- In January 9, 2018, Kurosh Parvizian, CEO of Bank Parsian, in a meeting of the representatives of the Tehran Chamber of Commerce expressed his concern regarding the activity of unauthorized credit institutions in the country saying that they disrupt its financial system. Parvizian further stated that over 20 thousand billion Toman (USD 550 million) are circulating in such institutions without any supervision.
In the past two years, the Central Bank of Iran had taken steps to try and regulate such institutions that do not adhere to its regulations. In 2015 the Central Bank’s estimated that nearly 20% of the country’s liquidity was handled by unauthorized institutions. According to some experts, the fact that such institutions enjoy the protection of powerful elements in Iran makes it difficult for the Central Bank to deal with them.
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While this reports focuses only on the year 2017, some conclusions can be drawn as to the inherent problems of the Iranian economy. First, the lack of transparency in the Iranian economy has become a norm. It is apparent in the lack of proper supervision and enforcement over the activities of charitable institutions, such as Astan Qods Qazavi, that maintain a vast economic empire or other unauthorized credit institutions that enjoy the protection of power groups with Iran. The same is also true when it comes to the Iranian banking system that not only has problems to collect its debts but, also keeps providing service to some of Iran’s largest debtors due to their political connections. While steps have been taken, since Rouhani’s election to deal with corruption and lack of transparency, it seems that dealing with corruption, lack of supervision and lack of transparency in Iran is a matter of selective enforcement. Especially when dealing with corruption in the higher echelons which seems to be almost always a function of political struggles within the country and not the result of a wholesome governmental policy (for example, even though rumors and indications of corruption in Tourism bank have been circulating for a number of years, some claim that the timing of Jahangiri’s arrest was meant also to embarrass Rouhani’s government that promised to root out corruption as part of its plan to improve the state of the country’s economy).
These inherent flaws in the Iranian economy have a disastrous effect on the stability and integrity of the Iranian economy and, especially, over the Iranian banking system. There seems to be a viscous cycle in which the banks are not able, or in some cases unwilling, to properly regulate their activity, especially when it comes to providing loans and collecting debts. This state constantly weakens the banks standing and independence and forces them to constantly rely on the support of the central bank. More importantly, for the foreign investor, this spells trouble. Foreign investors should be aware that when they engage in any economic activity in Iran they are entering into an unstable and weakened economy. Those investing money in Iran should know that they have no way of tracking where their money will go whether it will be invested in bad elements or used to default debts of others or simply end up in the coffers of unauthorized and unregulated financial institutions.