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Thursday, February 22, 2024
TEHRAN, Oct 5 2011 (IPS) - A banking scandal, identified by Iranian authorities as the “largest embezzlement in the country’s banking history”, has further shaken confidence in the government whose legitimacy was already under question after the contested results of the 2009 presidential election.
Various banking officials, including the governor of the Central Bank of Iran (CBI), Mahmoud Bahmani, have scrambled to explain the failure of the oversight system by blaming each other. But the resignation of the chief of the Melli Bank, Iran’s largest government-owned bank, his apparent flight to Canada, and the firings of his counterparts at the Saderat and Saman banks have confirmed the seriousness of the scandal.
Even the Supreme Leader Seyed Ali Khamenei felt compelled to weigh into the political blame game. On Monday, he demanded resolute action in punishing violators while sidestepping his own responsibility as the country’s religious guide and moral compass by claiming that, had his advice been correctly implemented, “the recent economic corruption would not have occurred.”
But important questions regarding how a relative newcomer to Iran’s economic scene was able to access approximately 2.8 billion dollars worth of credit and then use it to establish a bank and buy privatised companies through no-bid processes remain unanswered.
At the centre of the controversy is the Amir Mansour Arya Investment Development Corporation established by the Amir-khosravi family. According to Prosecutor General Mohseni Eje’i, who has been appointed by the chief of the judiciary to investigate the case, a total of 22 individuals have been arrested, and 15 others are have been summoned for questioning.
The fraud began with the issuing of forged letters of credit by branches of Saderat Bank, Iran’s second-largest bank, in Khouzestan Province and Melli Bank on Kish Island.
The issue is how exorbitant letters of credit were issued by small bank branches without adequate collateral and without being registered in the banking system. More questions revolve around why the family’s credit history was not properly checked by other Iranian banks that are known for following very stringent rules when extending small loans to ordinary citizens.
Charges of political cronyism have been hanging over the case from the beginning, with accusations going as high up as President Mahmoud Ahmadinejad’s inner circle. On Oct. 3, Eje’I announced that “in this case influence has been exercised and those in positions of power have given support and facilitated the (loan) amounts.” However, whether this was done with the intent to promote entrepreneurship and job creation or for personal gain is to be determined, he went on to say.
Others charge that cronyism was not limited to banks. Mohammadreza Khabaz, a reformist member of the Parliament from Kashmar, suggested that the Amir-khosravi family was able to buy a privatised company – Traverse Railways – from the government in a no-bid process with less than a 10-percent down payment.
To critics, such conduct explains the spectacular rise of Amir Mansour Arya Investment Development Corporation. It was established only five years ago and now has assets that include a steel conglomerate, an agricultural services company, food and beverage factories, and even a soccer club. Its rise has been precipitous: from the 122nd largest company in 2009 to 34th largest last year, according to the Ministry of Industries and Mines.
Even more problems are attributed to the Arya Bank established by the Amir-khosravi family. According to the head of the General Inspectorate Organisation, Mostafa Pourmohammadi, the Tehran Stock Exchange authorised the initial public offering of approximately 100 million dollars worth of shares in March 2011, despite the fact that the bank lacked the necessary license from the Central Bank of Iran. Currently, shareholders have no information regarding their investment.
The multiple irregularities have provoked two reactions in the country. One critique comes from economic experts who focus primarily on the structural deficiencies of Iran’s economic system as revealed by the scandal. The second focuses on the apparent corruption that made it possible.
Criticisms of banking laws and regulations, the privatisation regime, and the lack of transparency in the government apparatus have become rampant. Pourmohammadi, for instance, identified the government’s policy of forcing banks to drop their interest rates well below inflation as a structural source of economic corruption.
The way in which privatisation is being carried out has also come under fire. One manager of a private company active in Assaluyeh, the centre of Iran’s natural gas production, argues that privatisation in Iran has been more like the “government manufacturing of the private sector”.
It is a phenomenon of “pseudo-state companies entering the private sector in order to access economic rents”, he said. These companies continue to be run by managers who are either appointed by or closely linked to the government.
Iran “has stepped in the direction of crony capitalism that has taken shape in Russia,” one economics professor, who asked not be identified, told IPS.
The outcry against cronyism and corruption, rather than policies and regulations, is even more pronounced in Tehran’s streets. “The country is being plundered by the newly rich,” said Farhad, a taxi driver. “We don’t even know how many zeros billions have, and they say all this money was misplaced in merely six months.”
“Mongols have re-invaded and are intent on plundering the country again,” joked a woman lined up to buy bread at a Tehran bakery in a reference to the foreign invasions of Iran that began in the 13th century.
“One person can borrow billions without sufficient collateral, and I have to have two co-signatories along with a deposited check to borrow only a thousand dollars,” said Ali, an architecture student at the University of Tehran.
Information about the case has leaked almost daily, as knowledgeable politicians and officials jockey for position in what has rapidly become a very damaging scandal. The flight of Melli Bank’s chief to Canada was revealed by the Saderat Bank chief after he was fired by a committee that included CBI chief Bahmani and the minister of economy and finance, Shamseddin Hosseini.
The public, however, remains generally sceptical about whether justice will be served. Seyed Javad, a retired employee of the economy ministry, says that “the government does not want the names of higher officials involved to be revealed” despite calls by some members of Parliament for Bahmani’s resignation and Hosseini’s impeachment.
“This scandal has created even more problems for the government than the 2009 post-election protests since the issue is not merely the theft of people’s money,” a University of Tehran sociology professor told IPS. “Rather, it reflects the complete anomie in institutions, such as the Tehran Stock Exchange, banks, and (the government) Privatisation Organisation, as well as in laws and policies which oversee the privatisation process. To expect people to believe what officials are saying is a totally stupid expectation.”
According to a psychology professor at Tehran University, the scandal has broken the last link between the society and government. He states that people are constantly comparing themselves with those engaged in the misappropriation of funds and feel bitterly alienated from them.
“The extent of alienation was less during the 2009 protests since at that time there was some sort of interaction, but in this sordid affair there is a profound psychological and ethical rupture,” he said.
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