In 1979, Ayatollah Ruhollah Khomeini and his followers overthrew Iran’s Western-backed monarchy in favor of a system of “social justice” and Islamic governance. This year, as millions of households struggle against increasingly oppressive economic problems, many Iranians are asking themselves what happened. With major banks facing bankruptcy, and inflation at its highest since the 1980s, the country’s leaders have blamed U.S. sanctions and a few isolated cases of corruption. But the real economic threat to the Islamic Republic lies at the heart of the system itself.
Khomeini’s republic is ailing because the institutions it created to uphold principles of Islamic justice are in fact predatory capitalist conglomerates. Its founding father set up these organizations, or bonyads, to perform religious, military and charitable activities on behalf of the state. In Khomeini’s distrust of the Western-inspired governmental bodies inherited from the previous regime, he allowed the bonyads to operate in financial obscurity. Today, Iran’s largest bonyads operate as an unchecked economic power that paralyzes enterprise and allows public funds to flow out of the country and into private pockets.
This lack of checks and balances appears messy at first. However, a scrupulous examination of the bonyads and their assets reveals an intentionally designed system that benefits a chosen circle of individuals, making it difficult to determine where bonyads end and the government begins. The largest bonyads are managed by leading clerics, politicians and generals, while members of the Islamic Revolutionary Guards Corps (IRGC) sit on the boards of important bonyad-run companies in nearly all economic sectors.
Though government-funded, bonyads are completely independent of state oversight. They evade taxes and refuse to publish financial reports. One such case is Mostazafan Foundation (MF), a bonyad with nearly $1 billion in annual exports to several continents. Even its director, Mohammad Saeedikia, has admitted to state-run media outlets that he lacks documentation on the total volume of MF’s wealth. Indeed, the only institution with any formal oversight of the bonyads’ operations is the office of the supreme leader, Ali Khamenei, whose role in Iran’s economic activities is frequently overlooked. Yet he presides over a system that appears willfully unregulated.
Since their inception in post-revolutionary times, bonyads have faced allegations of corruption and mismanagement. In public tenders, lawmakers explicitly favor bonyad-run companies over other bidders. Despite frequent lip service to the “private sector” by President Hassan Rouhani, 99 of Iran’s top 100 companies are linked to the bonyads, the government, or both.
Most of the services and products that Iranians consume on a daily basis benefit the bonyads, though the average Iranian consumer is unaware of this. For example, MF owns Iran’s equivalent of both Pepsi and Coke, while the Execution of Imam Khomeini’s Order (EIKO) and Sepah Cooperative Foundation (BTS) dominate the pharmaceutical market. The bonyads manufacture the local equivalent of Advil, Tylenol and Zantac, as well as 12 of the 15 most purchased prescription drugs–a market that has incidentally boomed since U.S. sanctions limited Iranians’ access to imported medicine. Bonyads are also similarly taking over private banks.
Because the bonyads receive generous tax exemptions, the state’s financial benefit from these enterprises is marginal. In Iran’s most recent national budget, it is the state that owes money to the bonyads–up to $2.5 trillion, roughly one-third of the 2015 U.S. national budget.
All bonyads are involved in activities well beyond their constitutional purview. Astan Qods Razavi, the organization set up to administer an important shrine in the holy city of Mashhad, is the largest real estate owner in the province. The bonyads do not publicize their expenditures, so the only institution with any idea of how much of this revenue is actually being spent on religious or charitable activities is, again, Khamenei’s office.
Part of the money is also used to fund Iran’s involvement in regional conflicts. Following last year’s devastating earthquake in the west of the country, Iranians accused the IRGC of diverting aid from the afflicted region and sending it farther west to Syria. During Ramadan, Imam Khomeini Relief Foundation stoked public ire when it was inadvertently revealed that it was sending food to the Gaza strip instead of feeding needy Iranian families.
So far, Iran’s judiciary, which is close to Khamenei, have blocked all parliamentary attempts to bring the bonyads under government regulation. In fact, Khamenei’s sole notable act against the bonyads came last year, when he reportedly rejected the bonyads’ suggestion to take over the national government. But if the Islamic Republic is to survive, the bonyad leviathan must be tamed before it consumes its whole economy and everything else with it. Making their accounts a matter of public record would be a good place to start.
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