December 11, 2015 | Business Insider

How Iran’s Mafia-Like Revolutionary Guard Rules The Country’s Black Market

The revolutionary children of the Ayatollah Khomeini, the Pasdaran, were the poor, marginalized thugs of the Shah's era, people with a huge appetite for violence. They founded the Islamic Revolutionary Guard Corps, the IRGC, and became the main tool of oppression in the hands of Iran's theocratic regime.

Over the past three decades, the Guard has evolved and built a powerful military-industrial-financial complex. And they have not limited themselves to the normal economy. The IRGC has expanded Iran’s underground economy and its own control over it, building a mafia cartel in the process. Consequently, it is not surprising that in its 2011 plot to assassinate the Saudi ambassador in Washington, the Quds Force, the IRGC's external operations wing, sought the help of Mexican drug cartels.

A close look at the IRGC’s involvement in Iran’s underground economy shows that the Guards are no strangers to the underworld. They control it.

Globally, the underground economy covers a considerable portion of the world's economic activities. As the IMF explains, deficient rule of law in a country is correlated with a larger underground economy.

Iran has notably weak rule of law — and its underground economy is thriving. The IRGC is the major player in this shadow economy. For the IRGC, the underground is an unobservable source of wealth that is nevertheless important to understanding the Guard's abilities and behavior.

The underground economy, as the IRS defines it, “represents income earned under the table and off the books.” It can include legal income laundered to avoid taxation, and also the trade in explicitly illegal goods, like drugs or weapons.

The value of the underground economy is not known and the estimation process is much more difficult than for other economic metrics, like GDP. The IMF’s study suggests that the value of an underground economy for developing countries is an amount equivalent to between 35 and 44 percent of their stated GDP. There are different measurements of the size of Iran’s underground economy, with some estimations of illicit activity reaching a total that's equivalent to 36 percent of Iran’s GDP.

One can assume that the amount increased during Mahmoud Ahmadinejad's presidency (2005-2013), an era in which international sanctions crippled Iran’s economy and sanctions-busting became central to Iran’s import-export operation. Reports and court cases on corruption and off-the-record deals that happened during Ahmadinejad’s presidency reveal the importance of the underground economy during that time.

Iran’s Ministry of Finance recently estimated that the businesses accounting for 20-25% of Iran’s GDP do not pay taxes. Assuming a conservative 25% estimate for the ratio of Iran’s underground economy to its GDP, the value of Iran’s shadow economy, based on Iran’s current GDP level, is estimated to be $100 billion. If we calculate based on the the 35% ratio suggested by the IMF’s study, the value of Iran’s underground economy would be around $140 billion.

It is impossible to precisely estimate how much of this $100-140 billion goes to the IRGC. However, a close look at the IRGC’s activities strongly suggests that the Guard reaps a substantial benefit from illicit trade.

The IRGC is Iran's chief smuggler. In the early 2000s, Mehdi Karroubi, the former speaker of parliament, complained about unauthorized ports under IRGC control that are used to smuggle goods. Ahmadinejad, who is Karroubi's arch politically enemy, also called the IRGC “our smuggler brothers.”

The IRGC controls Iran's sea, air, and land borders. It controls ports, airports, and roads, and does not shy away from using them to smuggle goods and line its pockets.

The value of smuggled imported goods in Iran is between $20-30 billion, according to various sources such as Iran’s Custom Administration and the Parliament. Iran, which is one of the world's major oil producers, also suffers from the illegal export of fuel, caused by the lower price of fuel in Iran compared with its neighbors. Iranian officials believe that at least 20 million liters of fuel are smuggled out of the country per year.

Over the last few years, the dollar value of oil smuggling in Iran estimated to be around $7 billion per year. The IRGC is also the main producer of arms in Iran — and, at the same time, Iran's main smuggler, channeling weapons to Iranian proxy groups like Hezbollah.

Drug trafficking is another major area of the underground economy that the IRGC controls. Iran’s long border with Pakistan and Afghanistan is one of the the world's busiest drug smuggling corridors.

Iran’s interior minister recently declared that the value of narcotic  drug sales in Iran is $3 billion per year, not including commission from transporting the drugs from Afghanistan to other transit points, like the Balkans. The US Department of the Treasury has placed Quds Force Commander Esmail Baghbani on the US sanctions list for his role in drug trafficking. The IRGC also has close ties with the drug cartels in the South and Central America through Hezbollah. 

The IRGC is the main player in Iran’s underground economy, which is a valuable source of income for the Guards. This income provides the Guards with financial independence from Iran's civil politicians. It also puts the IRGC in charge of Iran’s underworld and its criminal gangs.

For example, General Hossein Hamedani, who was recently killed in Syria  explained in an interview how the IRGC organized criminal gangs during the “Green Revolution” anti-regime uprising in 2009 in order to crack down on street demonstrations.

The IRGC’s involvement in the underground economy allows the Guards to expand their financial, political, and operational capabilities in Iran and around the world. The IRGC, which is perhaps the most equipped and sophisticated terrorist group of our time, has the will and capability to build a worldwide illicit network.

The US government must treat those helping the IRGC and its business empire as members and accomplices of a terrorist entity — and make sure the IRGC cannot recruit from the US underworld.

Saeed Ghasseminejad is an associate fellow at the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance. Follow him on Twitter @SGhasseminejad

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