Corruption a way of life in Iran

#InsideIran

Only a few politicians have expressed concern over corruption, arguing its continuation could lead to social unrest and the system's collapse

Shahir Shahidsaless's picture
Monday 14 March 2016 9:10 UTC
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Iran’s billionaire tycoon Babak Zanjani has been sentenced to death for corruption. He is accused of fraudulently pocketing $2.8bn. The 41-year-old acted as a middleman who organised oil deals for then-president Mahmoud Ahmadinejad’s government, evading sanctions while accumulating a great deal of wealth for himself in the process.

Reacting to the news, Iran’s President Hassan Rouhani said: “What people want to know is, who were the people who supported him … [and] where did all the money go?” As implied in Rouhani’s statements, Zanjani ostensibly did not act alone in the embezzlement. Rather, he represents just the tip of the business involved in those dealings.

After the announcement of the court verdict, Amir Abbas Soltanifar, a member of a parliamentary commission tasked with overseeing Zanjani’s case, said: “For sure those who have been behind him have assured him [that he will not be executed]. … Had Zanjani taken the court’s verdict seriously, he would have disclosed the behind-the-scenes realities.”

Corruption is inevitable; it exists in all countries, yet varies in scale. It can be rare, widespread, or systemic. Ahmad Tavakoli, an economist and outspoken member of parliament, recently warned about Iran’s “systemic corruption” and added that “it could lead to the collapse of the nezam [establishment]”.

Iran’s supreme leader, complaining about the persistence of corruption and while questioning high-ranking officials, said: “Some years ago I talked about fighting against corruption. I wrote a letter to the heads of three branches of government … What is done? What did you really do in practical terms?”

The concept of economic rent is central to the subject of corruption and is widely discussed in the Iranian media on a daily basis. Economic rent arises when a person has something unique or special in his or her possession and decides to take advantage of that position by extracting material gains from consumers. “Rent-seeking activities” are prevalent in Iran, among them bribery, fraud, graft and other shady dealings involving misuses of the public sector.

Causes of corruption

The Iranian government is large. From oil and gas to a wide assortment of industries – including but not limited to the auto, health, food, retail, banking and airline industries – the government’s presence is visible in every corner of life.

According to some estimates, 80 percent of Iranians’ living needs are fulfilled in some part by the public sector. This reliance has given rise to a faction of public sector employees that is considerable in size because the government is large. This faction has the opportunity to seek rents proportionate to the importance of their position in terms of the profit they are able to create for their clients.

The corrupt behaviour of a significant section of those employees is attributable to their low pay, which puts them in a position of necessity to meet their families’ living expenses. While a minor portion of that faction is well paid, greed is considered the motivating factor behind such corrupt behaviour.

Accountability is another key factor in keeping corruption in check. For proper observance of rules and regulations, those administering the rules must be held responsible and accountable for their actions. But a number of factors have made enforcing accountability difficult in Iran.

Take restrictions on civil liberties, for example. Given these restrictions, watchdog organisations that could provide information leading to the detection and enforcement of anti-bribery actions – investigators, independent accountants, the media, civil society organisations, etc – have not been developed. Meanwhile, legal institutions charged with enforcing laws and principles are ill-prepared to address this complex task because they are infected with nepotism, cronyism and influence-peddling.

Behind the scenes

Zanjani’s situation is a case in point. It has not been revealed who the behind-the-scenes players who ran the show within the government were, as Rouhani also has suggested. During his trial, Zanjani, referring to a man as M.S. (initials of his first and last name), said that he had not repaid $5bn of oil money that he kept in his possession. Interestingly enough, even Ali Larijani, the speaker of the parliament, has said: “Ultimately, we did not learn who this M.S. is.”

Adding to the hurdles of enforcing accountability is the large discretionary powers of administrators as a result of poorly defined and ever-changing rules and regulations.

In 2015, Iran was ranked 130 in the Corruption Perceptions Index (CPI) among 168 nations as ranked by Transparency International. A major factor affecting the CPI is transparency, or lack thereof. By providing civil servants with opportunities to entertain the advantages of their position and win bribes, lack of transparency is another major factor empowering corruption.

It should be seriously taken into consideration that the corruption problem cannot be looked at only from the public office side. Doing so provides the impression that the ones who give bribes are all innocent victims who are forced by corrupt officials to make payoffs to go about their own legitimate businesses. In fact, that is not usually the case in Iran. In reality, the bribery deals were initiated from the supply side.  

Soon after the conclusion of the Iraq-Iran war (1980-1989), then Iran president Ali Akbar Hashemi Rafsanjani’s reconstruction efforts and liberalisation policies were followed by the vast expansion of bureaucracy and the rise of rentier capitalism.

Many white-collar workers became involved in foreign trade. They rushed to sign contracts with foreign companies to represent them in Iran. Competition over securing purchase orders from governmental organisations was fierce and lacked transparency. There was broad speculation that commissions received by Iranian representatives from foreign companies were in foreign currency – offering the recipient significant purchasing power when exchanged at the black-market rate –  and part of that went to some of the corrupt government employees who had helped them in getting the orders.

Consequences of corruption

Under a corrupt system, the well-connected enjoy economic rent. The inevitable consequence of the emergence of such a system is the concentration of wealth in the hands of a tiny minority of the population. Income distribution becomes highly uneven, inequality widens, while the burden of corruption falls heavily on the poor because they cannot afford paying bribes.

While it is true that underground economic activities exist in all countries, such activities become pervasive where corruption is widespread. When a large portion of the economy is run underground, almost all of the traditional macroeconomic data and indicators become unreliable.

For example, because of a large volume of unrecorded and illegal movements of goods across borders, official numbers do not reflect Iran’s true volume and export-import values. The result is that in the absence of reliable data, economic planning and meaningful economic reform become nearly impossible. In addition, economic reform faces another major challenge. The rich and the powerful, the main winners of a corrupt system, would heavily oppose reforms.

Paying bribes to reduce taxes, fees, dues and custom duties are routine practices in Iran, all of which exert immense pressure on the government.

Another adverse effect of corruption in Iran is that a large portion of the talents of the country, an army of highly educated youth, participate in rent-seeking activities rather than productive work.

Can Iran rein in its corruption?

Ali Larijani, the influential head of Iran’s parliament, the majlis, once remarked: “I have no hope that fighting against corruption works.”

When systemic corruption takes hold of a country, the institutions and peoples’ behaviour and attitudes adapt to the corrupt status quo. Corruption becomes a way of life. In Iran, the majority of the people live and work under such a system and feel destined to adapt themselves to the system. They simply try to make the best of the bad situation.

Sure, it is undesirable. But when one cannot find a way out, one becomes resigned and refrains from spending effort to eliminate corruption. After all, Iranians view this as the government’s task. And the government as a whole does not appear to have the necessary will to fight corruption.

Only a few politicians have expressed their real fear that the continuation of the current trend could lead to social unrest and even the collapse of the system.  

- Shahir Shahidsaless is a political analyst and freelance journalist writing primarily about Iranian domestic and foreign affairs. He is also the co-author of “Iran and the United States: An Insider’s View on the Failed Past and the Road to Peace”. 

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Eye.  

Photo: Iranian 500,000-rial notes are displayed in Tehran on 21 August, 2008 (AFP).