Iranian President Mahmoud Ahmadinejad has faced growing criticism from the Iranian parliament regarding an ongoing banking scandal. In an email interview, Farideh Farhi, a researcher on Iran at the University of Hawaii at Manoa, discussed the Iranian banking scandal.
WPR: What is the background of the ongoing Iranian banking scandal?
Farideh Farhi: The background to the banking scandal is a combination of outright fraudulent activities, policies that have encouraged loose lending practices and speculation, and political cronyism that has allowed the use of borrowed money to gain control of recently privatized companies. The scandal came to light when it was revealed that the Amir Mansour Arya Investment Group, which was established in 2004 with merely $50,000 worth of capital, had managed to acquire nearly 140 forged or unregistered letters of credit worth approximately $2.8 billion from a particular branch of a semi-privatized bank. It then exchanged them at a discounted rate at other banks and used the acquired cash to buy four large privatized factories, including the National Industrial Steel Group. The government has stepped in to confiscate the company’s assets, reportedly now worth more than $4 billion, and prevent large-scale layoffs in factories owned by the group.