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Iran’s Latest Corruption Scandal: Who’s to Blame?

October 25, 2016
Reza HaghighatNejad
6 min read
Shahaboddin Ghandali (second from right), CEO of the Teachers' Fund, was arrested for largescale financial corruption
Shahaboddin Ghandali (second from right), CEO of the Teachers' Fund, was arrested for largescale financial corruption

A new scandal has highlighted the levels of corruption rife in Iran’s most influential institutions and organizations, once again exposing the crippling political divisions within the Islamic Republic — and the extent politicians will go to try to shift the blame. Officials with links to the scandal have come under scrutiny, and one minister has been forced to resign.

At the heart of the scandal is Shahaboddin Ghandali, the CEO of the Teachers’ Fund  — a financial institute that teachers and employees of both the Ministry of Education and the Ministry of Culture pay into. Although members’ monthly payments amount to less than 18,000 tomans (less than $6) each, with 900,000 members, the fund is hardly insignificant. Ghandali is accused of embezzling more than 8 trillion tomans, or more than $2.5 billion — though authorities used the phrase “financial offenses” rather than “embezzlement.” In 2014, businesses with firm links to the Revolutionary Guards praised Ghandali, honoring him as a “Model Jihadi Manager” at a convention.

Ghandali’s arrest was first reported on August 25, when the Ministry of Education’s security agents turned him over to Iran’s judiciary. Ghandali denied reports of his arrest, and said he had been summoned to court to explain loans from Bank Sarmayeh, an investment bank owned by the Teachers’ Fund. He also divulged that the bank had issued large loans to five individuals who it had failed to recoup payments from because the collateral mechanisms in place were not “robust” enough. When speaking about the loan collapses, Ghandali cited monetary figures very close the alleged amount of the “offenses” of which he is currently accused.

Reports also suggest that his wife and stepson have been arrested.


Lack of Transparency and Rumors of Misconduct

The Teachers’ Fund was established in 1995. Iran’s education minister is the president of the Teachers’ Fund board of trustees and is responsible for overseeing the selection of its CEO. 

The fund owns and controls 25 large companies, including Bank Sarmayeh, a number of petrochemical companies, the Educators Investment Corporation and the Teachers’ Insurance company. Over the last two years, it has increased its investments in the petrochemical industry and has bought up stocks in Esfahan Steel and Arak Machine Sazi, the largest manufacturer of petrochemical, refinery, transportation, cement and mining equipment in Iran. The fund is estimated to be worth more than $3 billion.

But the fund's activities have never been transparent. Rumors about the suspected financial wrongdoings began in spring 2014 and have not subsided. A number of parliamentary representatives tried to investigate, but have been unsuccessful. Then, in the summer of 2015, the paystubs of the managers of two companies owned by the institute were leaked. It turned out that the CEO of Morvarid Petrochemicals had been receiving a monthly salary of close to $36,000, an astronomical sum by Iranian standards. It was also revealed that high officials in charge of the funds had been receiving a monthly salary of close to $9,500.

Violations, Calls for Impeachment, and Falling Share Prices 

The first revelations came from Jabbar Kucheckinejad, an MP from Rasht. He reported that the institution was guilty of financial “offenses” to the tune of $1.9 billion. Following this, Hossein Maghsoudi, an MP from Sabzevar, announced that “violations” amounted to more than $2.5 billion. He did not, however, characterize the violations as “embezzlement” and went on to say that Teachers’ Fund directors had accepted a breach of around $1 billion, but that the violations had not occurred during their tenure.

It was this mismanagement of $2.5 billion that was given as a reason to impeach former education minister Ali-Asghar Fani, who eventually resigned on October 19.

Following these revelations, Ghandali wrote a letter to Tehran’s prosecutor and demanded an investigation into the inner workings of the Teachers’ Fund. He said that he welcomed such an investigation and labeled those who had accused him of wrongdoing as opportunistic and self-interested.

Ghandali also claimed that some of the fund’s biggest debtors had taken advantage of the good will of MPs and that their accusations of corruption had cost the institution's companies more than $63 million at the stock market as a result of falling share prices.

A Political Tug of War

With such rumors in circulation, the downfall of key individuals involved was suddenly a genuine concern, and political rivalries became entrenched. Tasnim News Agency, which has close links to the Revolutionary Guards, published a report about the fund’s board of trustees and portrayed them, especially Ghandali, as steadfast reformists. And the MP Kucheckinejad announced that most of the violations had taken place during President Rouhani’s presidency.

But another politician, MP for Tehran Mahmoud Sadeghi, rose to Ghandali’s defence, claiming that most of the violations had taken place under the administration of former president Mahmoud Ahmadinejad, and that from 2007 to 2013, the fund had lost four trillion tomans in bad loans — with most of it going to three individuals who never repaid their debts.

The Ministry of Education confirmed Sadeghi’s claims. Naseri Zanjani, deputy minister for parliamentary affairs, said that before 2013, Bank Sarmayeh had provided five individuals with loans that had not been repaid.

On September 4, Ali-Asghar Fani, who then had yet to resign as education minister, reported that a joint commission made up of MPs and representatives from the Teachers’ Fund would be responsible for investigating the matter, together with officials from Iran’s judiciary. But the investigation never materialized, and on September 25, parliament’s Education Commission agreed to take up the investigation.

But figures close to President Rouhani’s government continued to defend the way the fund was being managed. Morteza Haji, a member of the its board of trustees and an education minister under reformist President Mohammad Khatami, also said that no embezzlement had occurred and that government critics had attempted to turn the scandal on its head and place the blame on Rouhani’s administration, when it clearly lay with Ahmadinejad and his officials. 

The Judiciary Weighs in

On September 18, reports emerged that five members of the board of trustees for the Teachers’ Fund had been dismissed. The education minister quickly denied the claim, saying that the Teachers’ Fund owned only 47 percent Bank Sarmayeh’s stocks, and that as a result, it did not have full control over the bank’s actions.

Then, on September 28, the judiciary stepped in. Tehran’s prosecutor reported that four people had been arrested in connection with the Teachers’ Fund scandal. On October 1, further arrests were announced, including that of Yaser Rezaei, deputy governor of Bank Sarmayeh and CEO of Educators Investment Corp, and Mohammad Emami, producer of the highly popular TV series Scheherazade.

Soon after the announcement of the arrests, ample support was withdrawn from the fund’s management. Several principalist parliamentarians spoke out against those responsible for it. On October 16, parliament approved an official investigation into the affair, with 200 members casting a “yes” vote. And on the same day, it was reported that the “second wife” of one the institute's officials had received a huge loan with an interest rate of only 1.5 percent — a clear reference to Shahaboddin Ghandali, the man at the center of the affair.



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