Who controls today's Iran?
By Paul Klebnikov
July 7, 2003
A nuclear threat to the
rest of the world, Iran is robbing its own people of prosperity.
But the men at
the top are getting extremely rich.
It's rumble time in Tehran. At dozens of intersections
in the capital of Iran thousands of students are protesting on
a recent Friday
around midnight, as they do nearly every night, chanting pro-democracy
slogans and lighting bonfires on street corners. Residents of
the surrounding middle-class neighborhoods converge in their cars,
honking their horns in raucous support.
Suddenly there's thunder in the air. A gang of 30
motorcyclists, brandishing iron bars and clubs as big as baseball
through the stalled traffic. They glare at the drivers, yell
threats, thump cars. Burly and bearded, the bikers yank two men
auto and pummel them. Most protesters scatter. Uniformed policemen
watch impassively as the thugs beat the last stragglers.
These Hell's Angels are part of the Hezbollah militia,
recruited mostly from the countryside. Iran's ruling mullahs roll
whenever they need to intimidate their opponents. The Islamic
Republic is a strange dictatorship. As it moves to repress growing
to clerical rule, the regime relies not on soldiers or uniformed
police (many of whom sympathize with the protesters) but on the
bullies of Hezbollah and the equally thuggish Revolutionary Guards.
The powers that be claim to derive legitimacy from Allah but
remain on top with gangsterlike methods of intimidation, violence
Who controls today's Iran? Certainly not Mohammad
Khatami, the twice-elected moderate president, or the reformist
Not even the Supreme Leader Ayatollah Ali Khamenei, a stridently
anti-American but unremarkable cleric plucked from the religious
ranks 14 years ago to fill the shoes of his giant predecessor,
Ayatollah Khomeini, is fully in control. The real power is a
handful of clerics and their associates who call the shots behind
and have gotten very rich in the process.
The economy bears more than a little resemblance to the crony
capitalism that sprouted from the wreck of the Soviet Union.
The 1979 revolution
expropriated the assets of foreign investors and the nation's
wealthiest families; oil had long been nationalized, but the
virtually everything else of value--banks, hotels, car and chemical
companies, makers of drugs and consumer goods. What distinguishes
Iran is that many of these assets were given to Islamic charitable
foundations, controlled by the clerics. According to businessmen
and former foundation executives, the charities now serve as
slush funds for the mullahs and their supporters.
Iran has other lethal secrets besides its nuclear
program, now the subject of prying international eyes. Dozens of
with businessmen, merchants, economists and former ministers
and other top government officials reveal a picture of a dictatorship
run by a shadow government that--the U.S. State Department suspects--finances
terrorist groups abroad through a shadow foreign policy. Its
is dominated by shadow business empires and its power is protected
by a shadow army of enforcers.
Ironically, the man most adept at manipulating this
hidden power structure is one of Iran's best-known characters--Ali
Rafsanjani, who has been named an ayatollah, or religious leader.
He was the speaker of parliament and Khomeini's right-hand man
in the 1980s, president of Iran from 1989 to 1997 and is now chairman
of the powerful Expediency Council, which resolves disputes between
the clerical establishment and parliament. Rafsanjani has more
or less run the Islamic Republic for the past 24 years.
He played it smart, aligning himself in the 1960s
with factions led by Ayatollah Khomeini, then becoming the go-to
guy after the
revolution. A hard-liner ideologically, Rafsanjani nonetheless
has a pragmatic streak. He convinced Khomeini to end the Iran-Iraq
war and broke Iran's international isolation by establishing trade
relations with the Soviet Union, China, Saudi Arabia and the United
In the 1990s he restarted Iran's nuclear program.
He is also the father of Iran's "privatization" program.
During his presidency the stock market was revived, some government
companies were sold to insiders, foreign trade was liberalized
and the oil sector was opened up to private companies. Most of
the good properties and contracts, say dissident members of Iran's
Chamber of Commerce, ended up in the hands of mullahs, their associates
and, not least, Rafsanjani's own family, who rose from modest origins
as small-scale pistachio farmers.
They were not rich people, so they worked hard and always tried
to help their relatives get ahead," remembers Reza, a historian
who declines to use his last name and who studied with one of Rafsanjani's
brothers at Tehran University in the early 1970s. "When they
were in university, two brothers earned money on the side tutoring
theological students and preparing their exam papers."
Disaffected, denied opportunity and just plain bored, Iran's
youth have taken their frustrations with the clerics' regime
to the streets.
Sources: U.S. Census Bureau;
U.S. Department of Labor; Atieh Bahar Consulting; Forbes estimates.
1979 revolution transformed the
Rafsanjani clan into commercial pashas. One brother headed
the country's largest copper mine; another took control of the
TV network; a brother-in-law became governor of Kerman province,
while a cousin runs an outfit that dominates Iran's $400
million pistachio export business; a nephew and one of Rafsanjani's
sons took key positions in the Ministry of Oil; another son heads
the Tehran Metro construction project (an estimated $700 million
so far). Today, operating through various foundations and
companies, the family is also believed to control one of
Iran's biggest oil engineering companies, a plant assembling Daewoo
automobiles, and Iran's best private airline (though the Rafsanjanis
they do not own these assets).
None of this sits well with the populace, whose
per capita income is $1,800 a year. The gossip on the street, going
well beyond the
observable facts, has the Rafsanjanis stashing billions of dollars
in bank accounts in Switzerland and Luxembourg; controlling huge
swaths of waterfront in Iran's free economic zones on the Persian
Gulf; and owning whole vacation resorts on the idyllic beaches
of Dubai, Goa and Thailand.
But not much of the criticism makes its way into
print. One journalist who dared to investigate Rafsanjani's secret
dealings and his alleged
role in extrajudicial killings of dissidents is now languishing
in jail. He's lucky. Iranian politics can be deadly. Five years
ago Tehran was rocked by murders of journalists and anticorruption
activists; some were beheaded, others mutilated.
Some of the family's wealth is out there for all
to see. Rafsanjani's youngest son, Yaser, owns a 30-acre horse
farm in the super-fashionable
Lavasan neighborhood of north Tehran, where land goes for over
$4 million an acre. Just where did Yaser get his money? A Belgian-educated
businessman, he runs a large export-import firm that includes
baby food, bottled water and industrial machinery.
Until a few years ago the simplest way to get rich
quick was through foreign-currency trades. Easy, if you could get
greenbacks at the
subsidized import rate of 1,750 rials to the dollar and resell
them at the market rate of 8,000 to the dollar. You needed only
the right connections for an import license. "I estimate that,
over a period of ten years, Iran lost $3 billion to $5 billion
annually from this kind of exchange-rate fraud," says Saeed
Laylaz, an economist, now with Iran's biggest carmaker. "And
the lion's share of that went to about 50 families."
One of the families benefiting from the foreign
trade system was the Asgaroladis, an old Jewish clan of bazaar
traders, who converted
to Islam several generations ago. Asadollah Asgaroladi exports
pistachios, cumin, dried fruit, shrimp and caviar, and imports
sugar and home appliances; his fortune is estimated by Iranian
bankers to be some $400 million.
Asgaroladi had a little help from
his older brother, Habibollah, who, as minister of commerce in
the 1980s, was in charge of distributing lucrative foreign-trade
licenses. (He was also a counterparty to commodities trader and
then-fugitive Marc Rich, who helped Iran bypass U.S.-backed sanctions.)
The other side of Iran's economy belongs to the
Islamic foundations, which account for 10% to 20% of the nation's
last year. Known as bonyads, the best-known of these outfits were
established from seized property and enterprises by order of Ayatollah
Khomeini in the first weeks of his regime. Their mission was to
redistribute to the impoverished masses the "illegitimate" wealth
accumulated before the revolution by "apostates" and "blood-sucking
capitalists." And, for a decade or so, the foundations shelled
out money to build low-income housing and health clinics. But since
Khomeini's death in 1989 they have increasingly forsaken their
social welfare functions for straightforward commercial activities.
Until recently they were exempt from taxes, import
duties and most government regulation. They had access to subsidized
and low-interest loans from state-owned banks. And they were
not accountable to the Central Bank, the Ministry of Finance or
other government institution. Formally, they are under the jurisdiction
of the Supreme Leader; effectively, they operate without any
oversight at all, answerable only to Allah.
According to Shiite Muslim tradition, devout businessmen
are expected to donate 20% of profits to their local mosques, which
money to help the poor. By contrast, many bonyads seem like straightforward
rackets, extorting money from entrepreneurs. Besides the biggest
national outfits, almost every Iranian town has its own bonyad,
affiliated with local mullahs.
"Many small businessmen complain
that as soon as you start to make some money, the leading mullah
will come to you and ask for a contribution to his local charity," says
an opposition economist, who declines to give his name. "If
you refuse, you will be accused of not being a good Muslim. Some
witnesses will turn up to testify that they heard you insult the
Prophet Mohammad, and you will be thrown in jail." The Cosa
Nostra meets fundamentalism.
Other charities resemble multinational conglomerates.
The Mostazafan & Jambazan
Foundation (Foundation for the Oppressed and War Invalids) is the
second-largest commercial enterprise in the country, behind the
state-owned National Iranian Oil Co. Until recently it was run
by a man named Mohsen Rafiqdoost. The son of a vegetable-and-fruit
merchant at the Tehran bazaar, Rafiqdoost got his big break in
1979, when he was chosen to drive Ayatollah Khomeini from the airport
after his triumphal return from exile in Paris.
Khomeini made him Minister of the Revolutionary
Guards to quash internal dissent and smuggle in weapons for the
In 1989, when Rafsanjani became president, Rafiqdoost gained
control of the Mostazafan Foundation, which employs up to 400,000
and has assets that in all probability exceed $10 billion. Among
its holdings: the former Hyatt and Hilton hotels in Tehran; the
highly successful Zam-Zam soft drink company (once Pepsi); an
international shipping line; companies producing oil products and
of farmland and urban real estate.
Theoretically the Mostazafan Foundation is a social
welfare organization. By 1996 it began taking government funds
to cover welfare disbursements;
soon it plans to spin off its social responsibilities altogether,
leaving behind a purely commercial conglomerate owned by--whom?
That is not clear. Why does this foundation exist? "I don't
know--ask Mr. Rafiqdoost," says Abbas Maleki, a foreign policy
adviser to Ayatollah Rafsanjani.
A picture emerges from one Iranian businessman who
used to handle the foreign trade deals for one of the big foundations.
like the Mostazafan serve as giant cash boxes, he says, to pay
off supporters of the mullahs, whether they're thousands of peasants
bused in to attend religious demonstrations in Tehran or Hezbollah
thugs who beat up students. And, not least, the foundations serve
as cash cows for their managers.
It usually works like this," explains this businessman. "Some
foreigner comes in, proposes a deal to the foundation head. The
big boss says: ‘Fine. I agree. Work out the details with
my administrator.' So the foreigner goes to see the administrator,
who tells him: ‘You know that we have two economies here--official
and unofficial. You have to be part of the unofficial economy if
you want to be successful. So, you have to deposit the following
amount into the following bank account abroad and then the deal
will go forward.'"
Today Rafiqdoost heads up the Noor Foundation, which
owns apartment blocks and makes an estimated $200 million importing
sugar and construction materials. He is quick to downplay his personal
wealth. "I am just a normal person, with normal wealth," he
says. Then, striking a Napoleonic pose, he adds: "But if Islam
is threatened, I will become big again."
Implication: that he has access to a secret reservoir
of money that can be tapped when the need arises. That may have
Ayatollah Rafsanjani had in mind when he declared recently that
the Islamic Republic needed to keep large funds in reserve. But
who is to determine when Islam is in danger?
As minister of the
Revolutionary Guards in the 1980s, Rafiqdoost played a key role
in sponsoring Hezbollah in Lebanon--which kidnapped
foreigners, hijacked airplanes, set off car bombs, trafficked
in heroin and pioneered the use of suicide bombers. According to
Sullivan, spokesman for the Near Eastern Affairs Bureau at the
U.S. State Department, the foundations are the perfect vehicles
to carry out Iran's shadow foreign policy. (One of them offered
the $2.8 million bounty to anyone who carried out Ayatollah Khomeini's
fatwa to kill British author Salman Rushdie.)
of complicity in a terrorist incident--in Saudi Arabia, Israel,
Argentina--turns to Iran, the Tehran government has denied
involvement. State Department officials suspect that such operations
sponsored by one of the foundations and semiautonomous units
of the Revolutionary Guards. If anyone in Iran is aiding al Qaeda,
that may be the best place to look.
Iran's foundations are a law
unto themselves. The largest "charity" (at
least in terms of real estate holdings) is the centuries-old Razavi
Foundation, charged with caring for Iran's most revered shrine--the
tomb of Reza, the Eighth Shiite Imam, in the northern city of Mashhad.
It is run by one of Iran's leading hard-line mullahs, Ayatollah
Vaez-Tabasi, who prefers to stay out of the public eye but emerges
occasionally to urge death to apostates and other opponents of
the clerical regime.
The Razavi Foundation owns vast tracts of
urban real estate all across Iran, as well as hotels, factories,
farms and quarries.
Its assets are impossible to value with any precision, since
the foundation has never released an inventory of its holdings,
Iranian economists speak of a net asset value of $15 billion
or more. The foundation also receives generous contributions from
the millions of pilgrims who visit the Mashhad shrine each year.
What happens to annual revenues estimated in the
hundreds of millions--perhaps billions--of dollars? Not all of
it goes to cover the maintenance
costs of mosques, cemeteries, religious schools and libraries.
Over the past decade the foundation has bought new businesses
and properties, established investment banks (together with investors
from Saudi Arabia and the United Arab Emirates), funded real
projects and financed big foreign trade deals.
The driving force
behind the commercialization of the Razavi Foundation is Ayatollah
Tabasi's son, Naser, who was put in charge of the
Sarakhs Free Trade Zone, on the border with the former Soviet
republic of Turkmenistan. In the 1990s the foundation poured hundreds
millions of dollars into this project, funding a rail link between
Iran and Turkmenistan, new highways, an international airport,
a hotel and office buildings. It even paid $2.3 million to a
Swiss firm to erect a huge tent for the ceremonies inaugurating
Then it all went wrong. In July 2001 Naser Tabasi
was dismissed as director of the Free Trade Zone. Two months
later he was arrested
and charged with fraud in connection with a Dubai-based company
called Al-Makasib. The details of the case remain murky, but
four months ago the General Court of Tehran concluded that
had not known that he was breaking the law and acquitted him.
Few receive even a slap on the wrist. A rare exception:
Hard-line cleric Hadi Ghaffari, who specialized in seizing expropriated
like Star Stockings (maker of sexy lingerie), and reselling them
at a nice profit. He was convicted of embezzlement in the early
Iran's most distinguished senior clerics are disgusted
by the mullahcrats. Ayatollah Taheri, Friday prayer leader of the
city of Isfahan,
resigned in protest earlier this year. "When I hear that some
of the privileged progeny and special people, some of whom even
don cloaks and turbans, are competing amongst themselves to amass
the most wealth," he said, "I am drenched with the sweat
Meanwhile the clerical elite has mismanaged the
nation into senseless poverty. With 9% of the world's oil and 15%
of its natural gas,
Iran should be a very rich country. It has a young, educated
population and a long tradition of craftsmanship and international
But per capita income today is actually 7% below what it was
before the revolution. Iranian economists estimate capital flight
Dubai and other safe havens) at up to $3 billion a year.
so many students turn to the streets in protest. The dictatorship
tells them what to think, what to wear, and what
to eat and drink. It has also been robbing them of their future.
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