Petrochemical Corruption Scandal Grips the Nation

Corruption is always big news in Iran. Most recently, news has emerged about a spate of corruption in the country’s petrochemical industry. The story, not exactly a run-of-the mill tale of corruption, has attracted more attention than usual, and has made the headlines across Persian media both inside and outside the country. It’s also caught people’s attention because of its political dimensions. Regardless of their views, activists have been extremely vocal on the subject, and predictions of more scandals to come are rife.

It would be somewhat shocking if there wasn’t corruption in the petrochemicals business in a crisis-ridden country like Iran. In fact, it would be difficult to know how anyone could make money from selling oil, gas and petrochemicals without using shady international middlemen. The financial figures involved are astronomical (though the exact amount has not been specified), so people involved are willing to risk being charged with money laundering and circumventing sanctions. They swindle the seller and squeeze the buyer, using every means at their disposal to boost their profits.

A Bird’s-Eye View

Media outlets have done their best to present a synopsis of the case based on the 700-page indictment unveiled at the court. As they report, the 14 defendants “disrupted the Iranian economy” by “mishandling” 6.66 billion euros of foreign currency resulting from the export of petrochemical products. The case, described by the daily newspaper Shargh as "the biggest scam in Iranian history," saw the embezzlement of around 55 million euros.

The guilty parties sold the products by circumventing sanctions, but what is less clear is what percentage the circumventors “legally” received for their work, or whether the amount they embezzled includes this percentage or not. A deputy to Iran's prosecutor general said at the court on Saturday, March 9 that the suspects converted the foreign currency into Iranian currency before returning it to the government, making a profit in the process. In addition to the lack of clarity regarding the exact amounts involved, the indictment contains many other vague references, so it is too soon to report definitively on the case. The unreliable claims of the Iranian judiciary add to the ambiguity.

But it’s curious that the trial has been held in public, enabling the media to cover it, especially since Reza Hamzelou, the former managing director of the Iranian Petrochemical Commercial Company (PCC) alleged that the trial had unnecessarily disclosed the identity of a number of individuals involved in circumventing US sanctions. When the judiciaries of western countries read the proceedings, the defendants will not only face corruption charges in Iran, but also serious charges of money laundering and circumventing sanctions in those countries.

A Large Cast of Characters

The indictment names 14 main defendants: Reza Hamzelou, Abbas Samimi, Mostafa Tehrani-Safa, Alireza Alaei Rahmani, Mohsen Ahmadian, Marjan Sheikholeslami, Amin Ghoreishi Sarvestani, Sam Hamed Saedian, Alireza Hosseini, Ali Ashraf Riahi, Masoumeh Dori, Abolfazl Maleki Shamsabadi, Saeed Kheirizadeh and Mohammad Hossein Shir-Ali. In particular, three names have stood out in media reports — though one of them is not on this list.

Reza Hamzelou is the former managing director of the Iranian Petrochemical Commercial Company (PCC). He was appointed to be the representative for the National Investment Company of Iran (NICI), a consortium of various businesses, in January 2010, as the unrest that followed the disputed 2009 presidential election seemed to be dying down and it looked as if the rule of the country’s conservative faction would rule unchallenged.

On February 7, 2010, the website Khabar Online followed up on a story that PCC had named four of its board members as being defendants in the case, including Reza Hamzelou [Persian link]. “The representatives from the consortium of the National Investment Company of Iran [who sit] on the board of directors of the Iranian Petrochemical Commercial Company are Mr. Abbas Samimi, representing Iranian Kala Bazaar Company, Mr. Alireza Alaei Rahmani, representing Shahin Oil and Gas Company, Mr. Mohammad Reza Amir Hasankhani, representing Third Millennium Investment Company, and Mr. Reza Hamzelou, representing Iran Investment Company,” Khabar Online reported.

Until October 2011, before economic sanctions against Iran went into effect, Hamzelou was the managing director of PCC. It has emerged over the last few days that, after leaving this job, Hamzelou was put in charge of bypassing sanctions by illegally exporting petrochemicals and returning the proceeds to Iran. By necessity, such transactions were carried out in a complex manner, giving certain people ample opportunities to skim off from the proceeds and line their own pockets.

But who was this man Hamzelou? Where had he come from and what made him qualified to manage such a profitable racket? Certainly there is not much available information regarding his past. It appears as though he started out in the petrochemical field following the controversial privatization of the industry, and when Ali-Naghi Khamoushi sat at the industry’s helm [Persian link]. Hamzelou was a trusted aid of Khamoushi, so much so that he was appointed as the managing director of PCC.

Ali-Naghi Khamoushi does not appear on the list of defendants, and yet his shadow hangs over the trial. In 2009, he bought the Iranian Petrochemical Commercial Company for 110 billion tomans, or a little over $26 million — a price that, according to critics of deal, was one-tenth of its real value. Earlier, from 1984 to 2007, Khamoushi had been the president of the Iran Chamber of Commerce Industries and Mines. In 2009, when he was no longer in the post, some in the media speculated that he wanted his old job back. Soon it became clear that Khamoushi and his friend not only planned to get their old jobs back, but they also wanted a piece of the Iranian economy for themselves. It was for good reason that he acquired the nicknamed “the godfather” of Iran's petrochemicals.

In January 2013, when arguments over the price of gas that had been sold to the petrochemical industry were raging, Yahya Al-e Eshagh, the president of Tehran’s Chamber of Commerce and a friend of Khamoushi — both of whom were members of the principlist conservative Islamic Coalition Party — warned: “If the government does not act correctly [when setting] the prices for petrochemicals, tax exemptions and insurance and [if it continues] its treatment of economic activists, economic stability will be disrupted.” In other words, Eshagh wanted the government to continue subsidizing Khamoushi’s petrochemicals business.

Khamoushi must have known about the corruption that was going on behind the scenes. There are many who believe that his absence from the court is not because he had no knowledge about the corruption, but because he had been involved in covert deals that helped protect influential political figures.

The Mysterious Lady

One figure who has been the subject of much speculation is Marjan Sheikholeslami, a mysterious figure who owned two trading companies in Turkey. Even though Iranian journalists have mentioned Sheikholeslami in passing, it is not clear why she has escaped the attention of investigative journalists, especially after an unconfirmed report claimed that she owed the Revolutionary Guards a substantial amount of money.

Regardless of whether she is guilty or not, Sheikholeslami is a very interesting figure. She seems to have her mark on quite a few parts of the story. Nobody knows if her name would have been raised at all if it were not for the current trial or the political activities of her husband Mehdi Khalaji — a former cleric, a critic of the Islamic Republic, journalist and writer who has worked as a researcher at the Washington Institute for Near East Policy since 2005. Reports are still emerging about her, but so much is still unclear, from her sudden political U-turns and her shady deals with the close associates of former President Ahmadinejad to her financial connections to the Revolutionary Guards to her bypassing of sanctions and her work with the Persian-language, Istanbul-based GEM satellite TV (which is much-despised by the Islamic Republic) to her marriage to a vocal supporter of sanctions against Iran.

On March 10, Khalaji published a defense of his wife, questioning the credibility of the court [Persian link]. The credibility of that and many other courts in Iran are of course questionable, and there can be no doubt that the settling of political accounts has played a decisive role in this trial. But it also seems obvious that uncovering Marjan Sheikholeslami’s suspicious role in these political and economic intrigues would reveal vital details about the bypassing of sanctions, money laundering, the Revolutionary Guards’ financial involvement and about the corruption going on behind the scenes of the petrochemicals industry.

Inevitable Corruption

The corruption has clearly led to large scale waste of Iran’s natural resources and played a role in the country’s dire economic situation.

Iran has been entangled in economic sanctions since 2012, apart from the eighteen months following the signing of the nuclear agreement. One of the key problems of the crisis is figuring out how to sell petroleum and then transfer the money back to Iran. Estimates show that in 2017, the income from oil sales was around $47 billion [Persian link]. In the same period, Iran’s non-oil exports, including petroleum products, totaled around $35 billion. With the return of sanctions, Iran must first find a way to sell its products and then ensure the money enters Iran through bypassing banking sanctions.

Of course, part of this money is spent on imports even before it reaches Iran. The official volume of Iranian imports is around $50 billion per year and something like $12 billion worth of merchandise is smuggled in annually. However, the government is the official supplier of Iran’s much-needed hard currency. But how does the government procure this currency?

Under normal conditions, currency enters Iran through the sale of oil, petrochemicals and other products, but under sanctions, this is not possible. As a result, there is no other option but to resort to shortcuts, meaning that the government gives Iranian importers an equivalent in rials for the hard currency that it holds in banks outside Iran but which it cannot directly transfer to Iran because of banking sanctions.

But sometimes it is not as simple as that. The price of currency in Iran’s market often fluctuates and when the government panics there are two or more prices for hard currency. In such a situation, exporters are tempted to convert their dollars to Iranian rials at the floating rate so that they make a bigger profit.

Transferring money in and out of Iran is only part of what’s required to circumvent sanctions. The other part concerns selling sanctioned products including oil, gas and petrochemicals. To this purpose, a vast network of international middlemen is set up to find customers who are willing to pay cash. Of course, no foreign customer is willing to risk being found guilty of money laundering and circumventing sanctions — unless the customer finds the possible earnings tempting enough. This means that both national resources are undersold and the door is left wide open for corruption and hidden deals between the middlemen and the buyers.

With this in mind, the defendants in this case whose behavior and risk-taking helped bring back sanctions have been supported by many of Iran’s leaders. These leaders have stubbornly resisted the normalization of relations with the international community and empowered shady Iranian and foreign middlemen to rob Iran of natural resources and a thriving economy.

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Corruption in Iran and the Fishermen Who Lose Out, March 4, 2019

Iran’s Medicine Shortage: More About Corruption and Mismanagement Than Sanctions, September 7, 2018

Corruption is Here — Get Used to It, July 26, 2018

Is Iran Becoming More Corrupt?, March 12, 2018

Currency Plummets as Corruption and Incompetence Continues, April 18, 2018

Iran’s Latest Corruption Scandal: Who’s to Blame?, October 25, 2016

Journalist Arrested After Reporting on Corruption, September 19, 2016

Iran Blocks News Sites Following Corruption Reports, September 5, 2016

What the People Say: Banks are the Most Corrupt Institutions in Iran, January 28, 2016

Corruption Scandals Hit North Khorasan, May 20, 2015

Judicial Chief Threatens to Censor Corruption Reporting, October 28, 2014

Battling Corruption: Interview with Transparency International, October 8, 2014