Iran Post IRGC
With the ongoing possibility of an Iranian regime change it is worth discussing some of the challenges of change and continuity with respect to the existing power structure of the IRGC. Currently, the financial wealth of Iran is consolidated in either the IRGC or that of the Supreme Leader’s religious establishment. These two groups own and operate the majority of the country’s public and private economic institutions such as banks, oil, and construction companies. Many of these companies are in fact extra-constitutional organizations operating in the guise of private trade, but in fact, controlled by the Iranian government. Therefore the problem with reform or a soft regime change is the danger of this status quo being allowed to continue under a new form of the same old players, and this is what Iranians fear particularly with the IRGC. Taking possession of the banks and freezing account activity even for a limited amount of time could have devastating effects on the civilian population.
Recently in the online chatter surrounding the news of Trump and Putin, some discussion has acknowledged an interest to bring key players to justice who were involved in corruption going back to after the collapse of Soviet Russia when the private sector was being installed in the new Russian Federation. Putin is on a manhunt to sort out key benefactors who were selling Russia out around that time. The basic conundrum for any communist economy to suddenly privatize property is that the people of that country are too impoverished to purchase the country’s major enterprises and the opportunity to sell off these enterprises to foreign buyers would, in fact, be selling off the country to foreign interests who would ultimately have control of it. From 1989-1991 the Soviet Union was being dissolved and undergoing a soft transition to becoming the Russian Federation. Russia’s major assets were devalued artificially in order to avoid foreign control of the country’s industries. The Islamic Republic followed suit at the same time to transition from its communist economy to private trade as a postwar economy.
Privatization, the Erecting of Two Structural Columns of Power in Iran
In 1979, the Islamic Revolution in Iran took possession of all private companies and wealth nationalizing them. Foreign investors were squeezed out with astronomical losses for which they turned around and sued the Islamic Republic. These lawsuits were all settled in the Hague with the exception of a dispute over Iran’s FMS account. The Islamic Republic used a communist economy to fuel the Iran-Iraq War and during the war, as Iran was under trade embargoes from the US, it secured commodities by establishing a significant black market network which was organized in part by the IRGC. At the end of the war, it was determined that a communist economy could not support the country after all, and Iran took steps to privatize its enterprises at the same time Russia was also doing so while these two countries entered into a major contract to rebuild the Bushehr nuclear energy facility for a large sum of money from Iran which Russia desperately needed at the time. It is worth asking rhetorically here, where did essentially two nearly bankrupt states get the money for such a large construction contract?
To privatize property In Iran, major enterprises were sold off to key players of either the religious establishment or Revolutionary Guards creating 2 groups of power financially and politically. At times, these establishments have been in competition with one another and at other times have combined strength against internal or external forces. The IRGC’s vast network has made it the leading exporter of oil in Iran and has developed global ties to skirt sanctions. In the long-term, the IRGC has benefited from sanctions on Iran.
Private Companies as Extrajudicial Government Organizations in Iran
Central bank of Iran (Markazi), Tehran, Iran. July 14, 2011. Photo: Orijentolog via Wikimedia Commons.
The nuclear agreement negotiated by Rouhani for the Supreme Leader Khamenei in some respects strengthened the religious establishment by allowing trade in Iran to compete with the IRGC and slowly chip away at its financial hold on the country while in the short term strengthened its power in the region by using the frozen assets as large cash injections in tandem with delisted and freed players for the IRGC and military to gain valuable footholds in the region particularly in Syria and Lebanon cutting off Iraqi and Saudi access to the Mediterranean Sea while maintaining a constant pressure on Israel, and Yemen (cutting off Saudi and Israeli access to the Red Sea). Rouhani, brilliant as he was in handling the nuclear file to make advances in missile guidance and satellite technology under the ruse of non-enrichment, miscalculated a few things.
In order for the Islamic Republic to get around some of its trade hindrances stemming from the Islamic integrity of its constitution from its inception, it created a number of extrajudicial entities and enterprises. These were involved in credit, banking, and investment services outside the parameters of Islamic requirements in its codified law. A prime example is Bank Markazi, also known as Bank Melli, Iran’s national bank. One of the reasons it was in Iran’s interest to privatize its banks was to show these institutions as non-government and therefore protected from terrorism litigation where Iran’s defense could argue that the accused entity operated independently from the Islamic Republic and therefore the Islamic Republic could not be held accountable. Often times in terrorism litigation it was ruled that the Bank Markazi was separate from the Islamic Republic, however, that decision was incorrect, because Bank Markazi routinely drafts and enforces financial regulations for all banking institutions in the country, it could be seen essentially as a Treasury Department for the Islamic Republic of Iran.
“In many respects, the Central Bank of Iran functions similar to the Treasury Department in the United States. It issues licenses for private banks, including foreign banks, it deals with the ‘modality and conditions for inflow of capital endowed by foreign banks.’” Dr. John Vavai.
The nuclear agreement further delisted this and other organizations as state sponsors of terrorism and actors engaged in illicit weapons and other trafficking and removed sanctions. However, banking and investment practices continued to form major stumbling blocks for Iran’s international trade with Europe under the nuclear agreement. While the nuclear agreement lifted some sanctions, it did not remedy legal shortcomings in Iran’s legal and banking systems that would present problems for international trade. A symptom of this can be seen in the volume of arbitration that occurs between Iran based companies and foreign companies outside of Iran.
How Iranian Opposition Could Prevent IRGC Continuity in Form of New Regime
Even with IRGC military and economic entrenchment in Iran and the region, there may still be a way for Iranian factions inside who want regime change from within to counter this force. This would require Iranian opposition to the regime to put pressure on the UN to initiate asset freezes and travel bans among other sanctions and military intervention through R2P doctrine would be a crucial step in paralyzing the regime and assist with regime change. While most Iranians are against any form of sanctions, sanctions could actually work in their favor in the event of an attempt at regime change and pave the way for an IRGC free Iran in which assets, as well as its FMS account, could then be restored to the Iranian people.
An update from Archival Fellow Dr. Vafai
Corruption in the Islamic Republic of Iran is not only pervasive but is also institutional and politically organized. Two credible studies indicate the degree of Iran’s institutional corruption.
First, “The Money Laundering Index” (AML Index Point),annually prepared by the Switzerland’s Basel Institute, indicates that at the end of 2017, of all the 146 countries of the world under evaluation, Iran’s money laundering index was 8.60—the highest in the world (The lowest rate for the same year was Finland with 3.04 index point).
Second, according to Transparency International– an international think tank organization which does research on corruption throughout the world–the rank of Iran’s corruption in 2017, was 130. This rank was equivalent to countries such as Gambia, and Ukraine. Of the 135 countries in the world subject to research in 2017, only four countries (Honduras, Mexico Kyrgyzstan and the Dominican Republic ) were recognized as more corrupt than the Islamic Republic of Iran. Iran’s corruption became institutionalized at the beginning of the Islamic Revolution and through the Islamic Revolutionary Guards (IRGC).
The Islamic Revolutionary Guard started at the beginning of Khomeini’s uprising. Ayatollah Khomeini did not trust the Iranian conventional military.
Thus, the Islamic Revolutionary Guards (at the time one thousand in total) were established primarily for maintaining security. The Iran Iraq war was the beginning of the economic blossoming of the IRGC. The Construction Jihad, also known as the Crusade for Reconstruction of Iran, developed exponentially. The IRGC originally served as combat engineers and built roads, bridges, buildings for Iran’s strategic operations and defensive emplacement. At present, the IRGC’s activities are both military and commercial. According to a study by Rand National Defense Research Institute, “from laser eye surgery and construction to automobile manufacturing and real estate, the IRGC has extended its influence into virtually every sector of the Iranian market. The subtext of this apparent economic populism is the IRGC’s control of Iran’s shadow economy. Further, A substantial degree of Iran’s illicit smuggling networks, kickbacks, no-bid contracts and accumulation of wealth by the commanders and administrators of the IRGC remains largely unseen by the Iranian public. According to a study by the Foundation for Defense of Democracies, a Washington think tank organization, in recent years “the risks for foreign investors in Iran ….. risks of exposure to money-laundering, and terror finance ……have only increased. The Revolutionary Guard lies at the heart of these risks. The IRGC launders money from the “legitimate” business to fund its illicit activities; it finances terrorist groups across the world; and it enriches itself at the expense of the Iranian people through corruption and kleptocracy”.
The fact is that, contrary to common belief, the imposition of sanctions against Iran could result in substantial profits in terms of economic rent, for the IRGC or its affiliated groups. This point needs an explanation. As a result of President Trump’s decision to discontinue the nuclear deal with Iran and subsequent re-imposition of the U.S. sanction, Iran will not have the customary and institutionally recognized credit access to large global banks. In the past, that is, prior to lifting the sanctions by the Obama administration, the IRGC’s affiliates such as Quds Force engaged in bartered commodity transactions with various countries. For example, the Iranian supplier, would export crude oil to countries such as Bangladesh or Pakistan, and in turn would receive manufactured products such as computers and electronic gadgets. Transactions on part of the Iran were arranged and implemented by the IRGC or one of its affiliated “nonprofit” organizations. Thus Iran’s corruption in institutional in nature.
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