Sanctions have been part of Iran’s economic reality since the very beginning of the Islamic Republic. Even so, the ruling elite never developed regulations or introduced legislation to clarify how the economy should actually function under sanctions. The latest scandal in Tehran, in which the government paid US$88 million for an oil rig that never arrived, demonstrates just how economic transactions operate under sanctions — and the fact that sanctions have routinely been used to facilitate black market activities and other types of corruption. The key players involved were not so much expert in getting around sanctions as very experienced in bypassing normal established procedures for such purchases — and they were also extremely animated when giving interviews to the media about the deal.
What has actually happened is very simple. An Iranian public company, the Iranian Offshore Engineering and Construction Company (IOEC), paid US$88 million for an oil rig from Romania, the original price of which was $66 million. The CEO of IOEC signed a receipt confirming that the rig had been delivered. But in reality, no rig ever arrived in Iran, or even left Romania or Turkey for Iran. The following information is known about the case:
· The recipient of the supposed oil rig is an Iranian national.
· The original seller is a Romanian company, and the oil rig was inspected in Turkey by Ali Taheri, then the CEO of IOEC, and his advisor, Murad Sheibani.
· Dean, a company registered in one of the United Kingdom's territories, most likely in the Isle of Man, was the brokerage firm. The company was registered 22 days prior to the completion of the contract and took a commission for facilitating the IOEC’s first installment ($17 million) to the seller.
· There are three individuals connected with Dean: Two Iranians, both from families with political connections in Iran, and one United Arab Emirates citizen. The Iranians are Reza Mostafavi Tabatabyi and Seyyed Mohammad Mohsen Mohajerani, whose father was a reformist minister during the presidency of Mohammd Khatami.
· Reza Mostafavi Tabatabyi lives in Monaco and works out of Dubai in the UAE. He has admitted publicly he has received €3 million in connection with the oil rig deal. He alleges that Mr. Sheybani, who advised Ali Taheri as CEO of IOEC, and had been involved in previous transactions, had received $13 million as part of the deal. Ali Taheri oversaw the process, deciding how much each individual’s commission should be.
· A Chinese bank processed payments in connection with the deal, charging eight percent of the total final deal of $88 million. In secret negotiations, the bank made it possible for Iran to use its deposits abroad in the transaction, illegally lifting barriers and restrictions put in place by sanctions against Iran. The bank opened up a financial channel to transfer the money to the seller without being traced back to Iran.
Iran is an oil rich country with several oilfields inland and at sea. The Iranian oil industry conducts substantial amounts of drilling to increase its capacity and to manage its reserves. According to an official statement by the National Iran Drilling Company (NIDC), the industry carried out 399,372 meters of drilling in 2013. This included the drilling out of 185 different types of wells, from exploratory wells to service and monitoring wells.
This volume of drilling activities requires a diverse set of equipment and oil rigs. NIDC alone owns a fleet of 74 drilling rigs in a variety of different types and sizes. However, companies active in the oil sector often need to purchase or to lease new equipment. The price of oil rigs and drilling rigs varies greatly. Land rigs range from $350,000 USD to $30 million. Oil rigs for drilling in maritime oilfields are priced from $10 million to $400 million.
Taking the Experts out of the Equation
It is estimated that economic activities and financial transactions can be aggregated at $50 billion annually in this sector in Iran — a volume of financial transactions that offers great opportunities to the parties involved. To carry these transactions out efficiently requires an enormous deal of expertise across a range of different fields. Even without sanctions, the acquisition process is a lengthy and complicated one, bringing together financial managers, legal advisors and engineers who must work cohesively and efficiently to avoid further complications.
But, in Iran, the political leadership has used sanctions as an excuse to eliminate experts from the process. The establishment argues that trustworthy individuals are needed. Thus, family members and political lackeys have been appointed to fill these positions in the industry.
Historically, Iran’s oil industry has always been the domain of the political elite. The IOEC is no exception. Before Mahmoud Ahmadinejad assumed power in 2005, Mehdi Hashemi Rafsanjani, the former president’s son, was CEO of the IOEC. During his administration, Ahmadinejad took the opportunity to appoint his associates to head up the profitable entity. As the United Nations Security Council enforced new sanctions on Iran’s oil industry from 2010 to 2012, the IOEC leadership prioritized purchasing new rigs to show that that the sanctions had been ineffective.
For the Iranian government, oil-related business is so significant that Iran’s Intelligence Ministry has established a separate directorate or department to deal with the oil and energy sectors. Its task is to combat corruption, counter-intelligence and other crimes in the industries.
Ironically, for the past six years, the director of this department has always been promoted to be the deputy minister for economic affairs at the Intelligence Ministry. Recently, a source close to Iranian officials revealed to IranWire that Ali Taheri, the former CEO of IOEC, was also a member of the naval unit of the Revolutionary Guards, with close connections to the Directorate of Energy at the Ministry of Intelligence. One of his contacts there now is the anti-corruption advisor to the head of Iran’s judiciary. And his connections do not end there. Taheri’s niece lives in the Netherlands and started up her own commercial operations there, launching a company that worked with the IOEC. Taheri’s family also has connections to a staff member of the Supreme Leader’s Office (known as Beyt in Iran) via marriage. As a result, Ali Taheri frequently introduces himself as a member of Supreme Leader’s Office, thus acquiring a certain level of protection from scrutiny.
“Bypassing sanctions in theory was simple,” an oil expert who worked with Iran’s Oil Ministry and the IOEC told IranWire. Iranian companies hired agents and brokers to open offices in third countries to purchase the required equipment in their own name and then deliver them to Iran. To guarantee this process the Iranian side always asked for financial guarantees and other assurances. However, in this case, no such guarantee was received. When a surprised oil minister Bijan Zangeneh asked Ali Taheri how this was possible, the former CEO responded: “We did everything, trusting God that it would be okay.”
It appears that Iranian officials keen to bypass sanctions had to ignore the enormous benefits emerging from black market activities. They also failed to notice that Iranian executives and mid-level managers would want a cut for themselves. This is exactly what has happened in the recent oil rig scandal. There is little doubt now that two officials from the company have been involved in all stages of the financial transactions, taking their cut before the rig was delivered.
Currently, Iranian officials in the Oil Ministry, particularly Bijan Zangeneh, allege that the official procedure was not observed at all during this acquisition. No board meeting took place, there was no review of the purchase order and the IOEC’s legal department did not vet the contract. A huge amount — $88 million — has been paid and no oil rig has arrived. And yet, Mr. Taheri has signed a receipt, a document that legally makes it impossible for the IOEC to sue. In an interview with Shargh newspaper, he calmly told reporters that it is up to the “new management” to bring the oil rig to Iran, since there is a contact for it, which he had negotiated. He denies any wrongdoing.
Ali Taheri is not alone in benefitting from the deal, or in denying any wrongdoing. Mostafavi Tabatabayi confirms that he has received €3 million as a broker, but he does not reveal what kind of brokerage service he has provided to deserve a five percent commission. He considers himself to be an entrepreneur, and, as he said in an interview with BBC Persian television, a “business partisan who had defied sanctions”. Mohajerani has issued an official statement denying any misconduct and threatening to sue for defamation. He asserts that the accusations against him are politically motivated, while Mostafavi Tabatayi blames the media and IOEC’s mismanagement for the whole affair.
But IranWire’s sources allege that Mostafavi Tabatabyi’s name has been mentioned in several other corruption cases in Iran over the past 10 years. Two of his former partners have been prosecuted on corruption charges in different cases. Mr. Taheri is relying on his connections in the Revolutionary Guards to stay out of jail — and he has been successful for the time being. One person has been arrested so far in this case: Ali Taheri’s advisor, Murad Sheibani. At the moment, Sheibani suffers from not having any close connections in the Intelligence Ministry or the Judiciary.
In the meantime, the Iranian people are $88 million short, with no oil rig. They paid for sanctions twofold by enduring hardships and suffering from corrupt officials and businessmen whose claim to bypass sanctions. For the men who made it happen, this was a rallying cry, a way of showing how easily they could bypass any authority or piece of legislation. And it is clear is that the only people to profit from the deal were the corrupt businessmen. As usual, the Iranian people lost out.
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