Iran Pulse

How do Iran’s 'corrupt networks' operate?

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Article Summary
The fight against corruption in Iran will remain a key challenge until new ways are devised to address this challenge.

On Jan. 28, at an event celebrating 50 years of capital markets in Iran, the head of the Central Bank of Iran, Valiollah Seif, publicly stated, “The formidable power of illegal stakeholders on Iran's economy has rendered reforming the economy difficult.” These illegal stakeholders, who have also been referred to as shady interest groups, are most accurately described as “corrupt networks.”

One key question is why no Iranian government has managed to push back against these networks. Officials such as Seif only refer to “people who are addicted to free rides on the Iranian economy” without disclosing who they actually are. Occasionally, some corrupt businessmen have emerged, such as Babak Zanjani, but even in their trials, names of officials involved in the corrupt schemes in question are treated as confidential. This is a process that gives a certain degree of immunity to corrupt officials.

Recently, in light of the massive protests in Iran, there has been a greater admission by top officials that corruption has reached unprecedented levels in the country. On Feb. 8, Supreme Leader Ayatollah Ali Khamenei said, “Corruption is like the seven-headed dragon — it is difficult to eliminate, but it has to happen!” Once again, he urged all branches of power to fight this scourge.

Even Mohammad Ali Jafari, the commander in chief of the Islamic Revolutionary Guard Corps (IRGC), has pointed to corruption and poverty as the main sources of grievance against the regime. President Hassan Rouhani himself had admitted the existence of massive corruption at the beginning of his first term in 2013 and had declared corruption a “national security threat.”

Looking at these statements and apparent resolve, it is difficult to conceive that the entirety of Iran’s top leadership wishes to combat corruption and fails miserably. The corrupt practices in Iran are not invisible and, in fact, can be traced clearly. Stakeholders openly speak about mafia structures in various parts of the economy, such as the automotive sector, sugar imports, football clubs and hard currency.

For instance, in December 2017, Abolfazl Aboutorabi, a member of parliament’s judicial commission, said, “Unfortunately, a very complex and interwoven mafia has been shaped in the automotive industry and the incompetence of officials has facilitated their works. … There is unbelievable corruption and rent-seeking in automotive imports and production.” One of the most recent endeavors of this corrupt network was reportedly related to the import tariffs on cars and the opportunistic windfalls. One investigative report indicates that a group of nine merchants made a windfall simply by knowing that the government was about to introduce an additional 50% customs duty for imported cars. By using their insider information, they imported the cars prior to the introduction of new tariffs and hoarded them in domestic warehouses.

Such interests don’t just flow into the pockets of merchants, but into those corrupt networks that have dominated Iran’s deep state in the past two decades. In fact, Vice President and Department of Environment chief Issa Kalantari believes that such mafias are “so strong that even the president is powerless against them.”

Regular meetings between the heads of the three branches of power that have taken place since the early 2000s have not produced anything beyond new laws and regulations that are added to the long list of past laws and decrees that have never been fully implemented.

Each of these so-called mafias consists of networks that include family members of high-profile politicians, members of parliament, businesspeople, judicial officials, IRGC and intelligence officials, and other sector-relevant stakeholders. The term “aghazadeh” (“child of an important person”) has been coined to describe some of the members of these networks. This does not mean that every child of Iran’s top officials is engaged in corrupt business practices, but that each of the existing interest groups includes such aghazadehs, who give the groups a degree of immunity. In other words, if an official decides to act against the interests of one of these networks, he or she would risk embarrassing one of the top political families. Furthermore, each of these networks consists of a web of interests where the illegitimate interests of diverse networks are interwoven. In other words, many of these networks depend on each other and, hence, refrain from exposing the shady interests of the other groups in fear of being exposed themselves.

Another reality that facilitates the operation of such corrupt networks is the vulnerability of the executive branch to the judiciary and the parliament. All it takes for the corrupt networks is to have a few judges and intelligence officials on their payroll to harass any politician, businessman or journalist who attempts to expose them. The government is absolutely powerless against such judicial campaigns. Furthermore, it only takes 10 signatures in the 290-seat parliament to introduce impeachment procedures against ministers. Even if a minister survives the impeachment motion, the process is costly and distressing. As such, few clean government officials have had the courage to pursue the real fight against corruption, which would be to expose these networks and their corrupt practices.

In the meantime, the Iranian people are the main losers due to the costs of corruption. Economist Ali Dini said one catastrophic impact is the lack of needed investment, and especially foreign investment. Dini believes that “institutional interrelationship” of corrupt practices is the main reason why it has been difficult to push back against it. He stated that the current level of corruption can only be mitigated through reforming the administrative and governance structures in Iran.

According to prominent economist Hossein Raghfar, the three steps that will knock out corruption in Iran are transparency, divestment of military organizations from economic activities and a concerted effort by all three branches of power to root out corruption.

The core problem is that some of the above steps will have to be taken by the very corrupt elements that are well-positioned inside the power structure. The efforts of the past decades have shown that those corrupt networks will push back against any effort that may undermine their illegitimate interests. The methodology to undo the impact of anti-corruption efforts is to keep domestic tensions high so that any effort could be dismissed as a political agenda rather than a real move against shady interests. As such, the only possible path is to create an independent organization that is not vulnerable to any of the other branches of power. If such an organization is headed by a powerful and clean politician, there may be a small opening for exposing these corrupt networks. Otherwise, they will continue to abuse their grip on the Iranian power structure and engage in corrupt practices that will keep Iran below its actual economic potential and still detached from global economic processes.

Bijan Khajehpour is an economist and a managing partner at Atieh International, a Vienna-based international strategic consulting firm.

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