Iran - Corruption
Iran is characterized by high levels of official and institutional corruption. The continuing problems of corruption and ideologically-driven appointments to key positions are factors often cited by the regime’s critics that Iran fails to meet Islamic standards of integrity.
Iran's serious deficiencies with respect to anti-money laundering / countering the financing of terrorism (``AML/CFT'') controls have long been highlighted by numerous international bodies and government agencies. Starting in October 2007, the Financial Action Task Force (``FATF'') has issued a series of public statements expressing its concern that Iran's lack of a comprehensive AML/CFT regime represents a significant vulnerability within the international financial system. The statements further called upon Iran to address those deficiencies with urgency, and called upon FATF-member countries to advise their institutions to conduct enhanced due diligence with respect to the risks associated with Iran's deficiencies.
The Iranian government’s reliance on corruption and nepotism in business further limitsopportunities for all Iranians. The Transparency International Corruption Perceptions Index of 2008 ranked Iran 141st out of the 180 countries. The Iranian government has increasingly awarded no-bid government contracts to companies associated with the IRGC – a group that counts Iranian President Ahmadinejad and many senior government officials as former members. These companies, some of which have been designated by the United States and the UN Security Council for their role in Iran’s illicit missile program, operate under names that obscure their IRGC affiliation, so many unwitting non-Iranians are in fact doing business with the IRGC.
In the name of “privatization,” the IRGC has taken over broad swaths of the Iranian economy. Former IRGC members in Iranian ministries have directed millions of dollars in government contracts to the IRGC for myriad projects, including developing the South Pars gas field, managing the Imam Khomeini International Airport in Tehran, and expanding Tehran’s metro system. Furthermore, the IRGC seeks to monopolize black-market trade of popular items, funneling the proceeds from these transactions through a patronage system and using them to help subsidize the government’s support for terrorist groups.
One startling case of corruption at the exploration-production awards phase involved Statoil, Norway’s national oil company, and Iran. In June 2002 and January 2003, Statoil paid bribes to an Iranian government official - Mehdi Hashemi Rafsanjani - in order for him to use his influence to: (i) assist Statoil in obtaining acontract to develop three phases of the South Pars oil and gas'field in Iran and (ii) open doors to additional projects in the Iranian oil and gas exploration industry. The Iranian Official was the head of the Iranian Fuel Consumption Optimizing Organization ("IFCOO"), a subsidiary of the National Iranian Oil Company ("NIOC"). At the time Statoil employees made contact with the Iranian Official, Statoil employees knew of publicly reported accusations of corruption against the Rafsanjani family, but did not perform any due diligence to investigate the accusations.
Mehdi Hashemi Rafsanjani's father was Hashemi Rafsanjani, the former president of Iran who led the Expediency Council, the body that mediated between the politically-elected and the clerically-controlled parts of Iran's government. After meeting with the Iranian Official, Statoil tested and assessed the Iranian Official's influence by, among other things, having the Iranian Official send a message back to Statoil through the Iranian Oil Minister. A Statoil employee described the test as demonstrating that the Iranian Official was "powerful" and was the "link" to opportunities to obtain business in Iran. After the initial contacts, Statoil determined that the Iranian Officialwas an advisor to the Oil Minister, and that the Iranian Official's family was powerful and highly influential in the oil and gas business in Iran. At the time,internal Statoil memoranda described the Iranian Official's family as "control[ling] all contract awards within oil and gas in Iran."
Statoil agreed to pay the Iranian Official through a consulting contract with an intermediary company organized in the Turks and Caicos Islands and nominally owned by a third party located in London, England. The Contract obligated Statoil to make initial payments of $200,000 and $5 million, and ten subsequent annual payments of $1 million each. In October 2002, Statoil obtained the contract to develop theSouth Pars Project. In June 2004, Statoil was fined the equivalent of $2.9 million after paying substantial consultancy fees, aimed at securing oil and gas contracts in Iran, to a politically well-connected investment firm.
In November 2011 the Government of Iran accused a network of Iranian state-owned and private banks of forging documents and issuing fictitious and fraudulent loans with an estimated value of approximately $2.6 billion to politically-connected individuals for the purchase of stakes in state-owned companies. The scandal has thrown into sharp relief the Iranian government’s abiding weakness in the supervision of its financial sector and echoes the extensive fraud and corruption that exists in many sectors of the Iranian economy.
While the regime tried to distance itself from the scandal as much as possible, the Minister of Economy and Finance, Shamseddin Hosseini, who narrowly survived an impeachment vote by the Iranian Parliament, publicly conceded that “we need to have a multi-level oversight system so institutions can control the loans they disburse,” acknowledging that had such safeguards been in place, “such a huge fraud could not have happened in the banking system.” The scandal, implicating the highest levels of the Iranian government, including the Deputy Governor of the CBI, reinforces persistent doubts about the integrity of Iran’s financial sector.
The billionaire businessman who was the mastermind behind Iran's biggest fraud case was hanged 24 May 2014. Mahafarid Amir Khosravi was put to death at Tehran's notorious Evin Prison. Khosravi was found guilty of having used forged documents to obtain credit at Iran's top financial institutions in the $2.6 billion scam. He bought numerous assets, including a steel company. At least 20 other people were arrested in connection with the scheme. Most faced lengthy prison sentences, but at least three received death sentences.
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