Corruption scandal in Iran’s Central Bank

Article Highlights

  • President Ahmadinejad’s legacy in Iran may well revolve around economic failings. @MRubin1971

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  • Throughout the first decades of the Islamic Republic, war and revolution took its toll on the Iranian rial.

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  • Discussion in Iran of high level corruption blunts the government’s attempt to blame economic failings on sanctions.

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Editor's Note: FMSO’s Operational Environment Watch provides translated selections and analysis from a diverse range of foreign articles and other media that analysts and expert contributors believe will give military and security experts an added dimension to their critical thinking about the Operational Environment.

Source:  کشف فساد و اختلاس مجدد، این بار در بانک مرکزی” Kashaf-e Fisad va Ekhtelas Mojaded, In Bar dar Bank Markazi (Another Discovery of Corruption and Embezzlement, This Time at the Central Bank),” Rah-e Sabz [Jaras] (Green Path), 6 September 2012. 

Mahmoud Ahmadinejad’s final term as president will end in 2013. While Western audiences remember the Iranian president for his blustery rhetoric, his legacy in Iran may well revolve around economic failings.

Throughout the first decades of the Islamic Republic, war and revolution took its toll on the Iranian rial. Unable to stem its devaluation, Iranian officials imposed an official bank exchange rate, which differed from the black market rate offered by traders in the traditional Tehran bazaar. When this author visited Iran in the late 1990s the discrepancy between the bank rate and the black market rate for dollar exchange was almost 300 percent. A hotel room, therefore, might cost three times as much for foreigners as it would for Iranians, even if they were paying the same rial price. The black marketing was so blatant that Iranian financial newspapers would print the current black market currency exchange rates openly.

As the currency declined further, Iranians began informally charting prices in toman, a unit of ten derived from Mongol times, to which the selected article also makes reference. In effect, the toman amount was the rial cost divided by ten.

In the beginning of the last decade, however, the Iranian government sought to diminish the discrepancy between the official and unofficial rates, and largely succeeded. With the ratcheting up of both international sanctions and unilateral U.S. banking sanctions, however, the value of the rial again hemorrhaged, declining more than 70 percent against the dollar. The Ahmadinejad administration again imposed official exchange rates, which assumed a far greater rial value than currency traders accepted.

The selected article, from the main news portal of Iran’s reformist “Green Movement,” hints that Iranian authorities are seeking to restore order to the currency market by exchanging rials in the open market. At the same time, corruption looms large. The article reports the arrest of two senior Central Bank officials, their specific portfolios and histories suggesting close affiliation to Ahmadinejad, for using inside bank information to profit from currency speculation. That one of the officials also allegedly played a role in last year’s $3 billion Bank Sedarat embezzlement scandal, the largest in the history of Iranian banking and a case which has resulted in death sentences for those who did not have immunity, highlights the cronyism and impunity for which Ahmadinejad’s inner circle has a reputation.

Public discussion inside Iran of such high level corruption also blunts Iranian government attempts to blame its economic failings on sanctions and international isolation.

 

 

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Michael
Rubin


  • Michael Rubin is a former Pentagon official whose major research areas are the Middle East, Turkey, Iran and diplomacy. Rubin instructs senior military officers deploying to the Middle East and Afghanistan on regional politics, and teaches classes regarding Iran, terrorism, and Arab politics on board deploying U.S. aircraft carriers. Rubin has lived in post-revolution Iran, Yemen, both pre- and post-war Iraq, and spent time with the Taliban before 9/11. His newest book, Dancing with the Devil: The Perils of Engagement examines a half century of U.S. diplomacy with rogue regimes and terrorist groups.


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