Iran Feature: So How Big is the Bank Fraud?

Iranian politics, as well as the financial sector, has been rocked since September by the revelation of a $2.6 billion bank fraud. The line is that a businessman, Amir Mansoor Khosravi, used lines of credit from eight major Iranian banks to set up or buy dozens of companies in sectors such as steel manufacturing. The head of Bank Melli, Mahmoud Reza Khavari, resigned and has apparently fled to Canada; the head of Bank Saderat, Mohammad Jahromi, resigned. The Iran Prosecutor General has declared that dozens of people have been arrested in the connection with the case.

But is there more?

An EA reader wrote us this week to ask about chatter that the fraud was $12 billion and took in even more leading Iranian institutions. Then we saw this on the website VERITY:

The on-going investigation into the $2.8 billion Amir Mansour Aria Group embezzlement scandal has so far seen the removal of the heads of Banks Melli, Saman, and Saderat. VERITY can now reveal that a further two cases are being investigated, one involving embezzlement of up to $7 billion at Bank Tat, and the other involving around $2 billion at Bank Parsian. Set against the market capitalisation of Bank Tat ($1 billion) and Bank Parsian ($3.2 billion), VERITY is concerned about the financial viability of both banks. It is highly unlikely that either bank will be able to recover these losses from retained earnings, or from raising new money in the capital markets.

The owner of Bank Tat, Ali Ansari, has been dismissed from his position following extensive questioning. Another bank in which Ansari owns a stake, Sarmayeh Bank/S-Bank, may also be implicated for reportedly raising letters of credit on false invoices.

The Managing Director of Bank Maskan, Ghodratollah Sharifi, was arrested in early October and subsequently released on a bail of $1.6 million. In addition, VERITY understands that the Managing Director of Bank Tejarat, Majid Reza Davari, is under investigation on corruption charges.

VERITY did not identify its sources, so an EA correspondent took up the chase for information. Here is what she found:

1. The news about the claimed $7 billion embezzlement involving Bank Parsian dates from 2008. It concerns 70 billion Toman (now about $5.3 billion) used for developments on Kish Island.

2. In September, the reformist newspaper Shargh listed the eight major banks in the $2.6 billion fraud as Melli, Saderat, Sepah, Saman, Refah, Pasargad, Mellat, and Parsian. Bank Mellat denied any involvement. 

Bank Tat was not named by Shargh.

3. Iran Inspector Mostafa Pourmohammadi hinted that Bank Tat might be implicated, saying it was "founded on the same principles" as the Arya financial concern, at the centre of the $2.6 billion fraud, because it borrowed capital from the banking system for its establishment.

4. Bank Tejarat has not been named in the $2.6 billion fraud, but there have been several arrests involving the institution over other embezzlements. 

5. Managing Director Majid Reza Davari of Bank Tejarat and Managing Director Ghodratollah Sharifi of Bank Maskan) were named by the Central Bank in October for possible connection with fraud. 

Davari was interviewed by the Iranian Labor News Agency this week; however, Entekhab claimed Sharifi was arrested on 27 October.

6. Ali Ansari was forced to resign as managing director of Bank Tat. Indeed, Shargh reported on 5 November that the heads of 11 banks have recently left, and three institutions --- Saman, Maskan, and Sarmayeh --- still have no managing director.

So, while there is no direct confirmation of the scope of VERITY's claims and while one has to note that this case goes back years rather than months, there are clear signals that the $2.6 billion bank fraud is only part of a much larger story.

How large --- both financially and politically? That is a very good question....