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June 2019, No. 91


Economy

Smuggling & Dirty Money on Iranian Economy


Smuggling in Iran is organized and smart, and cannot be easily resolved because it has been there for many years and it has not been challenged in the right way.


The constant shift in trade policies along with the application of misguided currency policies has led to an increase in smuggling and even a reversal of the path to change. In the current situation, smuggling has expanded to such a degree that is taken for granted and, apart from the sector of energy carriers that are always smuggled out of the country it has spread to many commodities ranging from flour and pharmaceuticals to livestock and saffron. Unfortunately, our approach vis-à-vis the international community is not an approach to help achieve economic development and growth, which would eliminate these problems.
In fact, instead of negotiating with the world we have practically quarreled with them over the years. Only during the negotiations on Iran’s Nuclear Deal (Joint Comprehensive Plan of Action - JCPOA) or during former president Mohammad Khatami’s ‘Dialogue of Civilizations’ our foreign policy was such that served our interests and our economic situation also improved.

For the rest of the years, unfortunately, the use of fiery tongue of politics in relation to most of the major players in the world economy ranging from the United States and the whole of the West to the Persian Gulf states, and sometimes even states from the Middle East and Southeast Asia, have made them reluctant to work with Iran. Generally, the world’s common outlook about Iran is that Tehran is not cooperative and therefore the leverage of the global economy cannot be put aside against the country.
The potentials of interaction with the global economy is important because in the age of globalization of the economy, we can use the said instruments as a powerful lever to lift the national economy from the ground. Well, we are currently in a revolutionary situation, and given the circumstances attitudes are associated with suspicion and pessimism, and hasty, successive and varied decisions lead to persistent frustration in the society. Such an approach, naturally, cannot bring about growth, stability and tranquility for the country, and instead presents a sick economy one of the natural consequences of which is smuggling.

On the other hand, smuggling in Iran is organized and smart, and cannot be easily resolved because it has been there for many years and it has not been challenged in the right way. Of course, there are several general factors involved in its expansion. First, the government’s foreign exchange policy that has apparently been imposed on the Central Bank of Iran is the starting point for the crisis. Although criticisms of this decision are widespread, until now, the monetary policymaker insists on supply of US dollar at 42,000 rials (for one dollar) to importers of basic goods, which is, of course, due to government insistence.

The reason why this policy is involved in the spread of the smuggling phenomenon is the considerable disparity that has been created at the cost of basic commodities in the open market at their own expense after receiving US dollar for 42,000 rials and giving the importer a rent-based windfall. Of course, this is not the only issue that has prepared the ground for taking advantage of the government’s policies to gain windfall profits in Iran’s economy.

Secondly, the mandatory policy of controlling prices in the market, which leads to a drop in the price of goods to a level below the balance of supply and demand, and is to the disadvantage of the producer supports the first case and is another reason that boosts the temptation of smuggling and intermediation by changing hands and taking goods even to the other side of the borders.

Reverse trafficking is a natural consequence of the implementation of these two methods, which is ripe nowadays in the Iranian economy and has brought export of imported basic goods even to the other side of the Persian Gulf. At the same time, the ban on import of 1,400 items of goods all of a sudden and without prior notice and time table is another important factor. Given the high demand for many of the said items in the market, such as foreign cars, the motivation for domestic agents to move to smuggling is further boosted.

Corruption is the brother of smuggling. In any country where there is abundant corruption the law and regulations are easily bypassed and lack of transparency in the system will make the mechanism easier. Unfortunately, smugglers today are more professional than ever, and with regard to their organization, the expansion of facilities, their knowledge of the system and their relationships, they are well aware of the ways of bribing officers. By disrupting the control means, they succeed in abusing and engage in import or export of prohibited goods

Of course, part of the problem is related to breaking the taboo of corruption among some government officers and observers, which has obstructed the mechanism of preventing corruption and bribery in bypassing the law and smuggling takes place easier than ever. In a clear example, the existence of 40%-60% import cost, for example, in car imports sector, has led to factors in profit making from smuggling because of the organization of smuggling. The politician must understand that the justification for imports with the high tariff is eliminated, and this disrupts the economy. 

Money Laundering

Money laundering is one of the things that has a direct impact on smuggling: Whether money laundering as the cost of moving goods across borders or the proceeds from smuggling as dirty money, both have a widespread impact on the spread of corruption in the country. While accelerating and facilitating smuggling, money laundering has turned into a lucrative and productive business for some groups. Lack of transparency alongside this issue will lead to continued trafficking and smuggling as a weed that feeds at lower points of the meadow that has less oxygen for growing flowers and plants. Unfortunately, in the context of the sanctions, transparency shrinks, and when the banking relationships with foreign governments and actors are reduced or eliminated, corruption spreads.

If we had a banking relationship with other countries and the funds were transferred to foreign parties through the bank, trafficking would be more difficult and could be detected thanks to the transparency of financial transactions. Now, a situation has arisen that even for the official import and export of goods, we must use a currency exchange that does not at all have the transparency of the banking transaction.

Even when large amounts of money are circulating in the domestic accounts of individuals and are not of a largely sustainable nature, the traffickers’ concern for financial transactions diminishes and this grows spontaneously. Fortunately, in the last few months, the implemented mechanisms and directives have improved the space outlined here, but still low transparency and high money laundering are associated with mass trafficking in Iran.

 

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  June 2019
No. 91