Corruption & Management Index

Corruption in Iran is an endemic problem that persists under conservative and supposed “moderate” Presidents alike.  

Since coming to power in the revolution of 1979, the Iranian regime  has been more occupied with ensuring its own survival than devising sensible systems and policies that benefit the Iranian people. “Indeed, an Iranian economist recently estimated that “the average Iranian citizen experienced a loss of income” ranging between approximately $60,000 to $730,000 between the year of the Revolution in 1979 up to 2010.

The Iranian people also suffer from the Islamic Revolutionary Guard Corps (IRGC), pervasive and pernicious influence throughout the economy both drives and exacerbates corruption and economic mishandling.

By any measure, Iran is one of the most corrupt countries in the world. In 2005, Transparency International ranked Iran at 88th among 159 countries in its annual corruption index. Eleven years later, Iran has fallen precipitously in the rankings, having dropped to 131 out of 176 countries in the 2016 report. It.

And Rouhani, despite his campaign promises, has done little to alleviate this  culture of corruption.

In June 2016, the Guardian reported that “senior Iranian government employees were being paid astronomical salaries” despite an Iranian law which prohibits any state employee being paid ten times more than the lowest paid employee. Pay slips surfaced showing that “top executives at the state insurance company were being paid monthly wages roughly 50 times higher than the lowest government salary.” One pay slip showed a monthly salary of 870m rials ($25,000), compared to the lowest government monthly salary of around $300, and in a country where the national average is less than $500. Another report highlighted an even higher monthly salary of 2 billion rials ($58,000), paid to a senior health ministry official.

The biggest financial scandal in Iran’s history was uncovered in 2011, when it was revealed that $2.6 billion was embezzled from the country’s leading banks. This smashed the previous record in 2009, when an audit found that the Iranian Oil Ministry had failed to deposit $1.05 billion into state accounts related to surplus oil revenues.

According to Majid Rafizadeh, “Corruption in Iran is ingrained in the political and financial institutions that are the country’s backbone… ” Rent-seeking is prevalent, notably bribery, fraud, graft and other financially corrupt practices involving misuse of public funds.

The IRGC: A Corrupt Conglomerate

The IRGC is at the forefront of corruption in Iran today The IRGC is at the forefront of corruption in Iran today

The predominance of rent-seeking activities has led to a concentration of wealth in the hands of a tiny minority. Interestingly, the demographic composition of this minority, Iran’s financial elite, is atypical compared to most other nations. Not only does it constitute wealthy businessmen, it includes Iran’s military and paramilitary branch, the IRGC. Many of the IRGC’s own senior officials enjoy dual roles as military and business leaders.

In fact, the IRGC is itself the major driver and beneficiary of corruption.

Corruption in Iran is therefore uniquely entrenched, in large part due to the tentacular reach of the IRGC. According to MarketWatch, the IRGC “the regime’s terror-sponsoring Praetorian Guard, controls roughly 35% of the formal economy and wields significant influence over the black market, too.”

The IRGC also retains control over large-scale projects in Iran in the automobile, energy, civil engineering, manufacturing, shipping, and telecommunications sectors. In May 2016, at the 3rd Europe-Iran Forum, the Economist Intelligence Unit confirmed, “the IRGC are very instrumental operators on the ground… state interference in construction in the form of the IRGC…is extensive.”

Originally conceived to uphold the values of the Islamic Revolution and maintain ideological purity, the IRGC has become increasingly corrupt, moving rapidly from the spiritual to the materialistic. Within the acquisitive spectrum, Professor Ali Ansari notes that the IRGC “have moved from being beneficiaries to taking a controlling share [in businesses]. This has made many of the more senior officers rich.”

Today, the IRGC owns billions in assets and controls hundreds of shell corporations. The organization is commonly awarded no-bid contracts without independent oversight, frequently in Iran’s lucrative energy sector. Although the IRGC claims that its profits are eventually channeled into the national treasury, there are no public records to verify this.

The IRGC also manages huge international smuggling operations crossing air, land and sea borders. The IRGC has leveraged its economic and political influence to dominate Iran’s $12 billion smuggling industry by illegally importing vast quantities of goods through IRGC-controlled jetties and airport terminals that operate outside the jurisdiction of Iranian customs authorities.

As a result of the IRGC’s financial penetration, IRGC control of the economy “range[s] from a third to nearly two-thirds of Iran's GDP – amounting to tens of billions of dollars.” The IRGC is believed to own at least half of Iran’s government-owned companies and control 68 percent of Iran’s total exports. With this wealth, the IRGC imports sundry luxury items, such as expensive cars.

The IRGC’s involvement is facilitated by the enormity of the Iranian state. According to one source, around 80% of Iranians’ needs are fulfilled by the state. Due to the “weakness of domestic banks, [which are] undercapitalized [and] politically compromised,” as noted by FT journalist David Gardner at the FT Iran Summit in March 2016, financing is often provided by the IRGC itself or its myriad front and shell companies. Moreover, the Iran Central Bank is itself a non-independent entity. The World Bank has also highlighted Iran’s “large public and quasi-public enterprises dominating to some extent the manufacturing and commercial sectors.”

The current administration has promised to continue giving the IRGC a big slice of the pie. In March 2016, the Minister of Petroleum Bijan Zanganeh vowed to be “accommodating of IRGC interests … [and] has repeatedly sought to publicly assure the IRGC generals that they will not be cut out of upcoming oil and gas projects, promising to find formulas in which foreign investors and IRGC-tied local companies can co-exist while together lifting Iranian oil, gas, and petrochemical production and revenue.”

Supremely Corrupt

Ayatollah Khamenei is at the heart of Iranian regime corruption, notably through his “close control” of his Setad conglomerate, “one of the most powerful and secretive organizations in Iran.” Setad’s penetration of the Iranian economy mirrors that of the IRGC – its reach is tentacular, “[w]ith stakes in nearly every sector of Iran’s economy.” According to Reuters, Setad’s wealth was accumulated by “the systematic seizure of thousands of properties belonging to religious minorities, business people, and Iranians living abroad…” In 2013, Setad was estimated to control $95 billion in holdings. Khamenei himself therefore “has access to resources that allow him to bypass rivals and other branches of government.” According to former Undersecretary for Terrorism and Financial Intelligence David Cohen, Setad controls “massive off-the-books- investments” concealed from Iranian authorities. Khamenei exercises complete control over Setad through sole discretion in choosing its directors.

Economic Mismanagement

Aside from the deleterious effects of corruption, inept decision-making has also severely dented Iran’s economy. 

In July 2013, for instance, it was revealed that “four million tons of food and medicines [was] stranded in Iranian customs because of disagreements between the central bank and the Commerce Ministry over access to a preferential currency exchange rate for importers of essential goods.” Indeed, food insecurity has been a recurrent feature in recent years. The Iranian people have often paid a heavy price for the regime’s bureaucratic squabbling and incompetence.

Other examples abound.

At the height of inflation during 2013, the central bank reported an official annual rate of 39%, a shockingly high figure. However, independent economists judged it to be “much higher, at 60 to 100 per cent.” Iranian economists attributed a large part of the blame to “the populist policies of former president Mahmoud Ahmadi-Nejad, such as cash distributions to the poor and other expansionary monetary policies.”

Furthermore, in order to combat rising house price inflation, which hit 30% in February 2013, the government spent over $20 billion over five years.  Ultimately, however, the project was “plagued by mismanagement, including building apartments in areas that lack services and infrastructure.”

Parliamentary Speaker Ali Larijani has blamed government mismanagement for 80% of Iran’s economic troubles, particularly “the maladroit application of the plan to suppress subsidies.” Loose monetary policy, subsidy cuts and populist cash-handouts helped precipitate the ongoing currency crisis and inflationary spiral. Even the Supreme Leader has acknowledged that “mismanagement may even increase these problems” attributed to sanctions.

Plainly, Rouhani has proved a less inept custodian of the Iranian economy than his firebrand predecessor, whose administration exhibited economic incompetence of shocking magnitude. However, all decisions are nonetheless hamstrung by the continuing influence of the IRGC and the overriding authority of the Supreme Leader. As with corruption, mismanagement is regrettably calcified within the economic structures of this authoritarian regime.