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Finally Dealing with Corruption?

August 14, 2018
Behrouz Mina
7 min read
Ayatollah Amoli Larijani, the head of the judiciary, requested permission to create tribunals to process cases of corruption, and Ayatollah Khamenei has approved it
Ayatollah Amoli Larijani, the head of the judiciary, requested permission to create tribunals to process cases of corruption, and Ayatollah Khamenei has approved it

Iran’s judiciary is setting up special courts to deal with corruption cases, and it has the Supreme Leader’s blessing. But will it have the public trust?

Ayatollah Khamenei has agreed to the judiciary’s proposal to prosecute “the corrupt and profiteers.” In a letter published on Saturday, August 11, Ayatollah Amoli Larijani, the head of the judiciary, requested permission to set up three-member tribunals in the Revolutionary Court for the next two years to process the cases of corruption and to deal with people who illegally disrupt and distort the economy. These tribunals will include three judges from the Revolutionary Court and their verdict must be carried out without delay, except in the cases of capital punishment. In the majority of cases, the accused will have only five days to appeal the verdict; the death penalty can be appealed within 10 days. Amoli Larijani (also known as Sadegh Ardeshir Larijani) has suggested that the judges make the decision to whether the proceedings should be public, permitting the media to report on them.

For the last several years, Iranians have demanded, requested and begged authorities to introduce measures to fight corruption. Some have even asked why the Supreme Leader had not interfered directly to battle corruption. Ironically, only last week, Shafaghna, a conservative media outlet, answered the question by quoting the Supreme Leader himself: “I addressed [corruption] firstly by outlining the problem and uniting the public [against it] and secondly by demanding the government agencies work against it. I have required both branches [executive and judiciary] to deal with [corruption cases] and they are addressing it”. The speech dates back to spring 2003. Fifteen years later, corruption is the norm.

It is fair to say that the judiciary has been unable to prosecute corruption cases in a timely fashion or to discourage illegal activities. Legal proceedings are so slow that many believe criminals actually work them into their business model. If after several years a judge dares to order the return of embezzled funds or properties, the criminals have already pocketed significant profits. If they have taken their funds in rials, Iran’s currency, inflation will have reduced the real value of the funds significantly. They would be returning a fraction of what they had brazenly taken. The victims’ losses have accumulated to new levels and can never be compensated. This has increased the risk of doing business in Iran, discouraging investment, new ventures or the implementation of new ideas. Now Amoli Larijani is taking on the task of reducing the processing time and combating widespread corruption, which is costing Iran’s economy much-needed investment and jobs. However, it seems he might be alone in fighting corruption.

The judiciary’s willingness to fight corruption does not represent the attitudes of the wider political establishment. As recently as Tuesday, August 7, Iran’s parliamentarians in Majlish, led by Ali Larijani, Amoli-Larijani’s brother, refused to support a request to investigate Tehran Municipality. This was the second time Iran’s legislative branch refused to look into the corruption allegations against the municipality. Under former mayor Mohammad Bagher Ghalibaf — also a recent presidential hopeful and Revolutionary Guards General — the municipality of Iran’s capital had sold 1200 properties at significantly discounted prices to those close to the mayor or his political allies. It is estimated that these assets were underpriced in the neighborhood of US$700 million. The judiciary had planned to review 200 out of the 1200 cases. After three years, no verdict has been issued, no one has been prosecuted and no property has been repossessed. The parliament, which has the constitutional power to investigate, has refused multiple times even to consider the allegations. Many believe its members do not want to risk their own interests by angering other interest groups.

The parliament’s refusal to investigate Tehran Municipality is not the exception, it is the norm. In all corruption and embezzlement cases, the courts and the security apparatus move so slowly that in many cases the victims stop following up their cases. And new corruption cases are discovered on a monthly basis, leading the public to forget about the old cases. The criminal elements enjoy their pillage benefiting from a security buffer created by the political establishment’s inaction and passivity. The economy, the entrepreneurs and Iranians bear the true cost of corruption.

 

The Scandal of Lost Savings

Unlicensed financial institutions and credit unions are another example of the macroeconomic impact of corruption in Iran. Some of these institutions had received permission from the Central Bank of Iran to operate in the financial market. Some did not, however — having a license was considered an insignificant formality for many of these institutions. They opened branches and accepted deposits. Thousands of ordinary Iranians put their savings into these institutions. Caspian Financial and Credit Institute opened 120 branches nationwide and collected billions of rials. A 46-year-old named Shahin opened an account and deposited his savings with it. “No one asked for any documentation, they took the cash and opened the account,” Shahin told me. Caspian was declared as insolvent soon after it emerged its assets and reserves are worth much less than its liabilities. The difference was a whooping 56 trillion rials. Now the authorities are demanding that people like Shahin provide the evidence and necessary documentation to prove the legitimate source of their money in order to receive compensation. At the moment, the real value of Shahin’s deposit has dropped by two-thirds. Several other institutions announced either bankruptcy or insolvency. Thousands lost their savings.

To save the day, the Central Bank of Iran transferred the accounts at these illegal and illegitimate operations to Iranian banks. Iranian banks were forced to reduce their reserves and required reserve ratios to cover their new liabilities. The increase in the money supply increased inflation and weakened the national currency. Iranian banks, already burdened by toxic assets and irrecoverable loans, lost their ability to issue credit even further. Their assets barely cover their liabilities and they had to borrow from the Central Bank. In other words, the Iranian government permitted a higher inflation rate to cover the losses of illegal activities instead of trying to recover the embezzled funds or to punish those responsible.

The emerging pattering is frightening. Consumers and producers are punished and penalized for the crimes that a few politically-affiliated individuals commit. Criminals seeking to advance at the expense of others feel secure in their plots, enjoying the security promised and created by a passive government and a sluggish judiciary. As the circle of corruption completes in Iran, the cycle of economic activities is broken. Producers do not trust the workers, the workers do not trust their employers, the businesses do not trust the investors and the investors do not trust the executives. People would rather leave their money in the banks or under their mattresses. For many, starting a business venture means risking the loss of their capital and years of suffering and pain dealing with corrupt judges and crooked officials.

Discouraged by the widespread corruption and the government’s lack of action, many have abandoned their businesses and enterprises. Mohsen Jalalpour, former head of Iran Chamber of Commerce, Industries and Mining observed in a tweet: “Today Iran’s economy is a lab for experimenting all kinds of criminal gameplays, from Ponzi schemes to money laundry and tax evasion”. Many Iranian businessmen share his sentiment. They cannot comprehend why the government and its know-it-all security agencies let corruption run wild. They are growing increasingly disillusioned by President Rouhani’s administration’s lack of action, as well as disappointed by the judiciary’s lack of vigor in prosecuting those responsible. However, they cannot afford to remain the victims.

Many businesses are folding, and the people who run them are abandoning the economy all together. In their opinion, corruption is sinking Iran’s economy, not the United States-imposed sanctions. The legal framework and its procedures are broken. The average Iranian cannot trust the government or the regime to protect his or her property or business. They know for certain that combating corruption is not a priority, despite the head of judiciary trying to make it so, or appearing to do so. But many people wonder if he shares the public understanding of corruption, or if this is another excuse to prosecute the opposition and the innocent? For now it seems the Supreme Leader and the head of judiciary agree on one point: something must be done to revive Iranians’ confidence in the state institutions — and in prospects for their economy.

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