The Revolutionary Guards' Looting of Iran's
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k o No. 3 • June 2010 o l t The Revolutionary Guards’ Looting u of Iran’s Economy O By Ali Alfoneh n On June 9, 2010, the United Nations (UN) Security Council imposed the fourth round of sanctions on the r Islamic Republic of Iran in response to the Iranian leadership’s refusal to comply with its international obligations e regarding its nuclear program. The sanctions include the Islamic Revolutionary Guards Corps (IRGC) and its t engineering arm, which serves as the engine of Iran’s nuclear program. Sanctions against the IRGC, however, are likely to prove insufficient because they do not target the IRGC’s banking sector. An effective sanctions regime s against the IRGC must necessarily also target the IRGC’s financial arm. a On June 9, 2010, in response to Iran’s refusal to how to sanction it,” and continued that sanctions E comply with its international obligations regarding would “increase the Guard’s popularity.”4 With its nuclear program, the UN Security Council Kayhan preparing the public mind, Ahmadinejad e adopted Resolution 1929, imposing the fourth addressed GHORB commanders and executives l round of sanctions on Iran, including new measures February 21 and asked them to ready themselves d to limit the role of the IRGC and fifteen IRGC- to “enter high-end oil and gas activities in order related companies linked to proliferation.1 The to satisfy the domestic needs of the country.”5 d Security Council’s initiative follows the same line Sure enough, on March 15 the Oil Ministry gave i as the U.S. Treasury Department’s February 10, GHORB a contract for an $850 million pipeline 2010, designation of the Khatam al-Anbia con- project.6 The next month, after Turkish companies M struction base (Gharargah-e Sazandegi-ye Khatam al-Anbia, or GHORB), the engineering arm of the IRGC, and its commander, General Rostam Key points in this Outlook: Qasemi, as “proliferators of weapons of mass • Since President Mahmoud Ahmadinejad’s destruction.”2 Treasury based its designation upon election, the Islamic Revolutionary Guards Corps (IRGC) has used funds accumulated the U.S. government’s determination that the since the 1980s to purchase state enter- IRGC is “assuming greater responsibility” for the prises and businesses privatized through the Tehran Stock Exchange. Islamic Republic’s nuclear program.3 Tehran’s answer to the Treasury Department’s • The IRGC and its front companies have initiative was swift. On February 18, 2010, the been involved in various scandals that show the militarization rather than the privatiza- state-controlled daily Kayhan, whose editor the tion of Iran’s economy. supreme leader appoints and who acts as his unoffi- • By targeting the economic interests of the cial mouthpiece, editorialized, “The United States IRGC, the international community may be does not even know what the Guard is, let alone able to force the Guards to recalculate the risk of continuing the Islamic Republic’s Ali Alfoneh ([email protected]) is a resident fellow nuclear program. at AEI. 1150 Seventeenth Street, N.W., Washington, D.C. 20036 202.862.5800 www.aei.org - 2- said they were withdrawing from the development of the sector through which the IRGC manages its finan- third phase of the South Pars oil and gas field, GHORB cial activities. was granted—again on a no-bid basis—the $7 billion The IRGC’s financial activities began during the project.7 On May 13, Qasemi told parliamentary speaker Iran-Iraq War (1980–88) as its microbanks provided Ali Larijani that the IRGC was replacing Shell and Total interest-free loans to war veterans and their families. in South Pars.8 Larijani praised GHORB as “a model During the postwar reconstruction, IRGC-owned of development” and assured Qasemi of parliamentary microbanks laundered money from the IRGC’s illicit support.9 As the Anglo-Dutch Shell and Spanish Repsol smuggling enterprise and, in the process, accumulated withdrew from development of the thirteenth and four- vast sums. However, these financial activities were very teenth phases of the South Pars oil and gas field on limited compared with the parastatal foundations June 4, the Petroleum Ministry granted the $5 billion (bonyads) such as the Islamic Revolution’s Foundation project on a no-bid basis to a certain Khatam al-Owsia of the Oppressed (Bonyad-e Mostazafan-e Enghelab-e Consortium (Konsersiom-e Khatam al-Owsia).10 Khatam Eslami),14 Foundation of the Martyrs and Veterans Affairs al-Owsia Consortium consists of GHORB and two other (Bonyad-e Shahid Va Omour-e Isargaran),15 and Astan-e IRGC-owned companies: Iran Shipyard and Offshore Ghods-e Razavi Foundation.16 The foundations were Industries Company (Mojtama’e Kashtisazi Va Sanaye’ established by confiscating real estate, funds, and produc- Farasahel-e Iran) and Iran Marine Industrial Company tion units of exiled Iranians connected with the Pahlavi (Sherkat-e San’ati-ye Daryayi-ye Iran), along with Oil regime, which enabled the foundations to dominate the Industries Engineering and Construction (Sherkat-e Iranian economy during the first two decades of the Sakhteman-e Sanaye’ Naft) and Iranian Offshore Engineer- Islamic Republic.17 Since Ahmadinejad’s election, the ing and Construction Company (Sherkat-e Mohandesi Va Guards have used funds accumulated since the 1980s Sakht-e Ta’sisat-e Daryayi).11 to purchase state enterprises and businesses privatized through the Tehran Stock Exchange. As long as the Guards’ financial institutions remain outside the sanctions Washington has turned a blind eye regime, the IRGC can expand its control over Iran. to the Guards’ parallel banking sector Three-Card Monte through which the IRGC manages its financial activities. According to Article 44 of the Islamic Republic’s consti- tution, Iran should have a planned economy in which “the state sector is to include all large-scale and mother Ahmadinejad’s defiance and Larijani’s attempt to industries, foreign trade, major minerals, banking, insur- ingratiate himself with the IRGC signal the Guards to ance, power generation, dams and large-scale irrigation stay the nuclear course since the Iranian government— networks, radio and television, post, telegraph and tele- as the above examples demonstrate—is ready to compen- phone services, aviation, shipping, roads, railroads and sate the Guards for any sanctions-related losses. The the like; all these will be publicly owned and adminis- Iranian leadership can also be expected to demonstrate tered by the state.”18 Beyond the state sector, Article 44 a similar pattern of behavior in the wake of the June 9 also defines a so-called cooperative sector, which includes UN Security Council resolution. In his first reaction “cooperative companies and enterprises concerned with to the fourth round of sanctions against the Islamic production and distribution, in urban and rural areas,” as Republic, Ahmadinejad said, “These resolutions are well as a private sector, which consists of “those activities not worth a nickel to the Iranian nation. I sent the concerned with agriculture, animal husbandry, industry, message to one of them that the resolutions you issue trade, and services that supplement the economic activ- are like a used tissue which must be dumped in a trash ities of the state and cooperative sectors.”19 can.”12 Also Brigadier General Hossein Salami, an IRGC Just over a month before Ahmadinejad’s 2005 elec- deputy, said the Guards were not concerned about the tion victory, Khamenei issued a decree reinterpreting sanctions.13 There may be a reason for Ahmadinejad Article 44 to abrogate the constitution by calling for a and the IRGC commanders’ self confidence: Washington smaller government and a 20 percent annual reduction has turned a blind eye to the Guards’ parallel banking in public-sector economic intervention over five years. - 3- Khamenei’s directive called for the privatiza- Figure 1: Value of Privatized State-Owned tion of large-scale industries to include large- Enterprises in Iran, 1991–2008 scale oil and low-end gas industries, mines, 250,000 ) s foreign trade, many banks, shareholder-owned l a i cooperatives, power generation, many postal R n o 200,000 i l l services, roads, railroads, aviation, and ship- i M n i ping. Khamenei’s directive obliged the govern- ( 150,000 n o i ment to transfer ownership of 25 percent of t a z i t Iran’s economy to the cooperative sector by a 100,000 v i r P the end of the five-year plan and to support f o e 50,000 u expansion of cooperatives with tax rebates and l a loan guarantees with the aim of encouraging V 0 7 6 5 4 3 2 1 1 0 9 7 6 5 4 2 3 8 8 9 9 9 9 9 9 9 0 0 0 9 0 0 0 0 0 0 cooperatives to participate in all spheres of the 9 9 9 9 9 9 9 9 9 0 0 0 9 0 0 0 0 0 0 1 1 1 1 1 1 1 1 2 2 2 1 2 2 2 2 2 20 2 economy, including banking and insurance. Year Khamenei’s directive, codified into law on SOURCES: “Vagozari-ye 1991 Ela 2007” [Privatizations from 1991 through 2007], Sazeman-e January 28, 2008,21 effectively meant the priva- Khosousisazi-ye Keshvar [Iranian Privatization Organization] (Tehran), n.d., available in Persian at www.ipo.ir/index.aspx?siteid=1&pageid=149 (accessed April 19, 2010); and “Amar-ha-ye tization of $110–$120 billion worth of public Asasi-ye Amalkard-e Moghayseh-i-ye Sazeman-e Khosousisazi” [Basic Comparative Statistics on assets.22 Iranian economists worried, however, the Privatization Organization’s Performance], Sazeman-e Khosousisazi-ye Keshvar [Iranian Priva- that the domestic private sector would be tization Organization] (Tehran), January 20, 2010, available in Persian at www.ipo.ir/ index.aspx?pageid=497&siteid=1 (accessed May 27, 2010).