Iran International
The bickering of political rivals in Iran has brought to light the role of “trust companies” in funneling back proceeds from sanctioned crude oil sales and the corruption involved in such operations.
During the international sanctions of the first half of the 2010s and the US sanctions imposed since 2018, Iran faced restricted access to the international banking system. To circumvent these limitations, it relied on an extensive network of so-called ‘trust companies’ and foreign exchange outlets.
Through these channels, Iran covertly transferred proceeds from its sales of crude oil, petroleum, and petrochemical products worldwide for a range of purposes, including funding its proxies.
The Revolutionary Guards (IRGC) and its global oil laundering network are heavily involved in establishing and operating such clandestine networks.
These complex networks usually operate in the United Arab Emirates, Turkey, Singapore, Hong Kong, Iraq, Malaysia, Cyprus and Malta, as well as some Western countries as indicated by the US Treasury’s sanctions lists.
Last week a controversy over Tehran Mayor Alireza Zakani’s secretly concluded agreement with a Chinese construction firm to import transport and traffic surveillance equipment, worth nearly two billion euros, opened a pandora box that included, among other things, inadvertent references to the use of trust companies.
Under fire from critics who said the Chinese company, Poly Changda Overseas Engineering (PLCD), was ill-equipped for procurement of the equipment needed by the city, the mayor and his supporters argued that the agreement would help funnel back the funds accrued in China.
The funds, they said, could otherwise not be repatriated due to global sanctions that have blocked Iran's access to the international banking system so this was a “golden opportunity” that had to be urgently utilized.
As professional enablers of financial secrecy, trust companies also orchestrate the crude oil sales to overseas buyers while concealing its origins and the involvement of the Iranian government by rebranding products and falsifying documents.
Trust companies registered abroad, which represent the interests of the Iranian government and sanctioned entities, report their ownership by unrelated, nominal parties. They are often given vast legal powers to be able to administer and manage the financial assets of the beneficiary, that is the Iranian government, including accepting payments from buyers of Iranian oil and using it to make purchases on its behalf.
To prove the association with these entities and individuals with the Iranian government is very hard or even impossible. In many cases the trustees are not even Iranian nationals.
The role and influence of these intermediaries declined somewhat after the 2015 JCPOA nuclear deal with the West, which allowed oil revenues to be repatriated through the official banking system.
The situation changed when in 2018 the Trump administration withdrew from the JCPOA and re-imposed oil export sanctions on third parties and Iran’s banking system. Subsequent attempts by the Biden administration to restore the agreement have failed.
Those in favor of a nuclear deal with the United States in Iran have always accused their opponents of profiteering from sanctions-busting operations and dubbed them as “sanctions profiteers”. This is mainly because IRGC circles organize the secret financial networks, which can manipulate oil exports and money laundering to enrich themselves.
Officials of the government of President Ebrahim Raisi often boast of their success in circumventing sanctions that has provided enough foreign currency to the Islamic Republic to survive.
The country is now exporting nearly 1.5m barrels of oil per day most of which goes to China whereas it could barely export 200,000 bpd after the full re-imposition of US sanctions in 2019.
The government’s recent budget bill shows that it is currently outsourcing some of its oil sales to military and religious entities, and real persons representing them, rather than selling it through the National Iranian Oil Company (NIOC) which according to the Iranian Constitution should have a monopoly in oil exports.
Whistle-blowers have revealed some cases in which the trustees of the government amassed the funds being paid into their accounts for some time but later delayed payments to the government, using the funds for their own investments, or embezzling billions of dollars.
During his high-profile corruption trial in 2019, for instance, the former CEO of Mellat and Parsian banks, Ali Divandari, said one such company used to bypass sanctions operating out of the United Arab Emirates had moved around $70b for the bank. He accused several other individuals of embezzlement, one of whom he said had fled Iran with 220m UAE dirhams.
“It was not possible to register our names in trust companies because these companies were foreign and would be exposed if this was done,” he told the court.
The Iranian government is unable to take legal action against the trustees in these circumstances due to the secrecy involved in such operations.
In relation to the latest controversy and rising to Mayor Zakani’s defense, hardliner lawmaker Malek Shariati revealed in a tweet on May 3 that the anti-sanctions committee of the secretariat of the Supreme National Security Council (SNSC) had secretly blessed the deal.
Referring to the Chinese company as a “trust company”, Shariati said in response to one of the critics, former Communications Minister Mohammad-Javad Azari-Jahromi, that the Chinese side of the agreement was to provide access to hard currency for imports of basic goods, medicine and other things including subway cars and buses.
The lawmaker also argued that disclosing the contents of the SNSC’s directive would be “treason”. Zakani himself had earlier protested to the disclosure of the company’s name by a whistle-blower and claimed that the Chinese side may decide to withdraw from the agreement due to the failure of the Iranian side to preserve its anonymity.
Azari-Jahromi’s counterargument was a brusque reference to the case of the oil tycoon Babak Zanjani as a reminder of the massive corruption often involved in such clandestine financial dealings.
Zanjani sold Iran's oil in the oil black markets through a host of “trust companies” and banks in various countries such as the Malaysia-based International Safe Oil (ISO), Dubai-based Sorinet Commercial Trust Bankers (SCT Bankers), and Malaysia-based First Islamic Investment Bank (FIIB) he had established.
He was sentenced to death in 2016 for withholding $2.7bn of the proceeds of oil sales. His request for clemency was approved by Supreme Leader Ali Khamenei last week and his sentence was commuted to twenty years in prison.
Zanjani is likely to be freed soon as he has served almost half of the twenty-year sentence. Authorities claim he “cooperated” in locating his assets abroad, which he had refused to do until now, and the assets were recovered to pay all his debts to the government.
Their remarks mainly target the government's handling of issues related to compulsory hijab and financial misconduct. They question why individuals like Tehran Friday Prayers Imam Kazem Sedighi, who confessed to appropriating a $20-million land in Tehran, remain unprosecuted and at large.
However, many such critics, fearing reprisal, opt to direct their criticism not at the Supreme Leader, but towards other officials, such as Judiciary Chief Gholamhossein Mohseni Ejei, appointed by Khamenei, who is perceived as merely executing the Supreme Leader's directives.
The most prominent cleric speaking about corruption was Grand Ayatollah Abdollah Javadi Amoli , who warned the government, or in fact Khamenei, that "the problem of hijab cannot be solved using bayonets."
Speaking about the violent crackdown on Iranian women who defy compulsory hijab, Javadi Amoli said teasingly: "Adjusting the headscarf to cover more of the hair does not guarantee chastity and will certainly not prevent financial corruption."
Meanwhile, Khabar Online website quoted the ayatollah as having said in an older tweet: "Sometimes people write to me and ask why I do not say anything about the hijab." He continued that the problem of hijab cannot be solved with harsh measures. "The only thing that kind of measures can do is to encourage people to adhere to the appearance of the hijab rules. Otherwise, the problem remains unresolved."
In another development, Jamaran news website quoted Muslim scholar Ayatollah Yadollah Douzdouzani Tabrizi as having said in reference to the land grab by Tehran Friday Prayer Imam Kazem Sedighi who apologized to Khamenei for his wrongdoing: "We cannot make such mistakes and simply apologize to make it up to others."
He reminded that whatever clerics do or say is done or said in the name of Islam. He warned that taking one wrong step by a cleric will go a long way to discredit Islam. The ayatollah said this as part of peaching to his pupils at his ethics class at the seminary.
Elsewhere, in a letter to Judiciary Chief Gholamhossein Mohseni Ejei, the centrist Ntional Development Party, asked him why he is silent in the face of organized violations of the law. According to the letter: "The re-emergence of the ‘morality police’ in the streets simultaneously with the missile attack on Israel means taking advantage of an international issue to further a domestic factional matter."
The party told Ejei: "You have deeply hurt the sentiments of our nation by equating adherence to compulsory hijab with chastity, and by urging the police to treat Iranian women who defy compulsory hijab as if they were dealing with enemy agents."
The letter further stated that "It is a shame that while the country is facing its worst economic crisis in 45 years and it is at war with Israel, authorities have assigned the police force to confront the women. What makes you think that it is part of your responsibilities to harass people's wives and daughters in the streets?"
Khabar Online published a statement by Ahmad Abdollahi, a cleric at the "Promotion of Virtues and Prohibition of Vice Headquarters as saying that: "Some 2,000 women who have been arrested for hijab, have said in interviews with officials that the introduction of the morality police has had no positive impact on the way Iranian women dress."
Along the same lines, Ayatollah Mostafa Dousti Zanjani pointed out that "The people are against the government's order to enforce compulsory hijab," adding that this has been counterproductive. The Friday Prayers Imam of Gorgan Kazem Nourmofidi also said that "In the same way that the government failed to force Iranian women to remove their headscarves in the 1930s, it is impossible to force Iranian women today to wear headscarves."