How the Corruption Mafia Took $30 Billion out of Iran in One Year

As much as 90 percent of the money Iran made from exports last year was taken out of the country and not used to benefit Iran’s economy or boost its business industry and the millions of people who rely on it, according to a Ministry of Economic Affairs and Finance official.

The adviser, Hossein Mir Shojaeian, said that during the Iranian calendar year 1397 (March 21, 2018-March 20, 2019), approximately $30 billion of the $40 billion revenues from exports did not remain in Iran. Shortly after his statement, the head of the Ministry of Industry’s Trade Promotion Organization denied the accusations, saying that such a financial scandal was not possible. Instead, he suggested the money had been delivered to the country, but not through the usual channels.

So who is telling the truth?

What is the approximate volume of money that has been taken out of the country by authorized exporters? Exactly who are these exporters? And, if they are under the supervision of government agencies as they should be, why have they been allowed to get away with not pouring back into the country? 

 

Capital Flight from Iran

“$30 billion from a total of $40 billion of Iran’s revenue from [non-petroleum] exports has not been returned to Iran — neither as goods nor in any other shape or form,” Hossein Mir Shojaeian, an advisor to the Minister of Economy, told Iranian Students’ News Agency (ISNA) on May 11 [Persian link]. “This is the same as capital flight.”

His claim can be verified by data from NIMA (the Persian acronym for “Integrated Currency Transactions System”), which the Iranian Central Bank set up in early 2018 to manage and secure foreign currency transactions, and by tracing the activities of “Commercial ID Cards. “ These cards have been issued by chambers of commerce in various cities and are required for any import or export activity by an individual or company. This data, however, is not available to the public and Mir Shojaeian’s claims cannot be independently verified. Nevertheless, his statements are worth noting to build an understanding of what might have happened to the revenue.

“The statistics of failure to return currency gained through exports comes from NIMA and shows how much exporters have exported and how much currency they have returned,” he said. “Some claim that they have used the currency from exports to import raw material. But what is clear that the $30 billion from non-petroleum exports was not included in any imports of raw material.”

 

What do Those who Deny the Accusation Say?

Mohammad Reza Modavedi, the head of the Trade Promotion Organization, denies these reports of capital flight. He says that critics who accuse exporters of “treason” are doing an injustice to them, and that these people and businesses are trying to compensate for the drop in Iran’s oil exports.

“I am not saying that the figure of $30 billion is wrong but we believe that this money has not been returned through the channel under the supervision of the Central Bank,” he told Tasnim News Agency on May 17 [Persian link].  “But this does not mean that the currency has not been returned to Iran. The money has undoubtedly been returned but through other channels.”

But what are these channels and what is his proof?

Modavedi claims that the proof is in the country’s “active production lines” and the hard work of exporters.

“If there has been capital flight, then how do producers produce goods for export?” he asked. “In the situation that we now find ourselves, we must kiss the hands of exporters. Today they must compensate for the shortfall in the currency revenues from oil. So we must not discourage them and give them the idea that, despite their work under such difficult conditions to produce, export and bring currency into the country, they have been accused of treason because they are not bringing back currency.”

Speaking on May 20,  Abdolnaser Hemmati, the Governor of the Central Bank, said: “In the year 1397 approximately $18.7 billion currency from exports was returned to Iran.”[Persian link].

Deducting the number Hemmati cited from the total value of non-petroleum exports in 1397 will give a calculation for the amount of currency that has not been returned to Iran. According to the latest figures published by the Iranian Custom Administration, the total value of Iran’s non-petroleum exports in 1397 was $44.3 billion [Persian PDF]. Of this amount, $4.9 billion can be attributed to liquid gas exports sold by the Petroleum Ministry,  but the Custom Administration regards it as a non-petroleum export. Subtracting that amount from the total results in approximately $39.4 billion for non-petroleum exports.

If it can be assumed that the figure of $18.7 announced by the Central Bank’s governor is correct, then somewhere around $25.6 billion of export revenues has not been returned to Iran.

 

How Currency Transactions for Export Revenue Work

Exporters have different options of bringing foreign currency into Iran and converting it to Iranian currency. If the currency has a single price, the exporters convert the currency in the free market. But in Iran, the government has set different prices and has rules about who can convert currency at what price.

After the currency crisis began in 2018, the government announced that it would give all importers foreign currency at the government’s low price. But after the initial chaos, the government decided that only importers of essential goods could benefit from this discount price. Then, following the steep rise in currency prices, including wild fluctuations of currency prices in the open market, the Central Bank established NIMA. The system works as a consensual market where importers and exporters, but not ordinary people or speculators, can trade and the currency prices are set by demand and supply.

Authorized importers and exporters with Commerce ID cards who buy and sell currency through NIMA are officially obligated to offer the currency gained through exports on this market. But now it appears that close to 60 percent of revenues from exports have not come back to NIMA.

 

Where Did the Money Go?

It is unclear where the $25.6 billion has gone. Either the revenues have not been brought back to Iran’s economy or it has bypassed NIMA and gone to the unofficial network of money changers outside the country.

By way of example, let us assume that an exporter has exported a million dollars’ worth of agricultural products. If this one million is entered into NIMA at the base price of 8,000 tomans per dollar, this amounts to eight billion tomans, money that could be invested into the production of new goods for export. And importers can buy the same one million dollars at the same price of eight billion tomans from NIMA so that they can use it to import goods.

But now let’s assume that this exporter does not put this money into NIMA and sells it in the open market for, say, 12,000 tomans per dollar. The difference is more than four billion tomans.

Perhaps in a healthy and free economy, the exporter has the right to sell his hard currency anywhere and at any price he wants, but it is important to remember that most exporters are importers as well. This means that they buy currency from NIMA at the price of 8,000 tomans per dollar and then sell the proceeds from their exports at 12,000 tomans on the open market, pocketing the difference.

But who pays for this unearned profit? The answer is the Iranian people. To control the price of currency for imports, the government must compensate the shortfall in NIMA. But from where? By dipping into its currency reserves or by borrowing, both of which lead to misery for the people because it means yet another rise in inflation.

Considering all this, it is quite justified to label the disappearance of these billions of dollars as “capital flight” because the dollars that should go to finance imports are converted to tomans in the open market and leave the country forever through the vast network of Iranian money changers.

So, after all, it appears that the advisor to the minister of economy is correct. Authorized exporters who have accepted the rules imposed by Iranian authorities and benefit from the official low-price currency are guilty of capital flight and the legal and moral repercussions of that crime. And this assessment only looks at authorized businesses and individuals. It does not take into account the many corrupt mafias who play a role in this situation too.  

A look at the make-up of Iran’s non-petroleum exports clearly reveals the main players [Persian PDF]. Petrochemical products make up more than $14 billion of these exports, and manufactured goods and agricultural products total $20 billion, a major portion of which belongs to big industrial entities that became centers of corruption after they were privatized.

In fact, the people who are now accused of capital flight are powerful entities, not ordinary merchants. In different ways, these powerful people sit on top of Iran’s commercial and productive sectors and have done enormous damage to the Iranian economy and the Iranian people. The loss of $30 billion, a considerable amount of money in Iran’s brittle economy, is going to bring even more misery.

 

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