This article is written by the Transparency Lab Project.
In the previous article on this topic, we explained the roots and the significance of semi-state organizations in Iran and particularly foregrounded their links to state-related corruption within the country. In this part, we will explain the shortcomings of Iran’s legal framework pertaining to these Semi-Governmental institutions. Finally, we will offer potential solutions to address and overcome the issue.
The Existing Legal Framework Pertaining to Semi-Governmentals and their Shortcomings
Transparency-related laws and regulations applicable to these institutions and companies are worryingly limited and inadequate. As late as 2012, nearly a decade after the widespread establishment of these entities, there was still no legal framework to address this fundamental category of institutions. This absence was officially confirmed by Rouhani’s legal advisor, Fatemeh Bodaghi, in response to an inquiry from Iran’s Minister of Economic Affairs and Finance regarding the ‘definition and legal status of ‘quasi-governmental or quasi-private’ organizations in laws and regulations. She simply stated that such entities, ‘although commonly referred to in general discussions,’ had not been addressed in Iranian law, meaning that no laws applied to these critical entities at that point.
Subsequently, in response to a scandal in the mid-2010s concerning tax relief and astronomical salaries, a clause (Clause 5) was added to Article 6 of the 2008 ‘Law for Executing General Policies of Article 44 of the Constitution’ in 2014. This note mandated Non-Governmental Public organizations’ (NGPIs) to disclose complete financial information to the Securities and Exchange Organization of Iran (SEO) and act in accordance with the relevant laws and regulations. Nevertheless, the potency of the law was typically significantly reduced by the addition of notes 4 and 5 to this clause, giving it a de facto null-and-void status in relation to many institutions/organizations. Note 4 states that individuals engaged in specific government missions can be exempted from the provisions of the clause if approved by the Supreme National Security Council. Note 5 is even more problematic as it establishes that there is a provision for non-enforcement of the law for institutions under the supervision of the Supreme Leader, with his permission. This essentially ensures that a large number of these hybrid NGPIs, which are under the supervision of the Supreme Leader, can easily and without reservation, be exempted from the law, albeit only with the permission of a single, non-elected individual.
In addition, in 2016 this clause was rephrased, and the general term ‘NGPIs’ was withdrawn, only leaving in examples of such institutions. This potentially made the law even less effective, since some un-named institutions, including some Bonyads and other Supreme leader-led institutions, could fall through the legal loophole.
So, although companies have technically been obligated to provide their financial information to the Iran’s Security and Exchange Organization (SEO), and make it available on SEO’s official online platform, CODAL, given the previously explained legal hurdles and exemptions, it is not hard to see why, as of 2018 (1397), only 430 financial units had provided such information. As such, at least 97 per cent of such organisations have refused to do so. In 2018, the Chair of the Iranian Association of Certified Public Accountants (IACPA) revealed that 600 companies that had avoided providing audit reports continued to receive subsidised currency provided by the state.
It is evident that Iran’s regulatory and judicial bodies are incapable and perhaps unwilling to enforce these legal requirements for financial transparency. Even in the best-case scenario, if the law were enforced at some point and the majority of these organizations declared their financial information, this would only address the issue of financial transparency, at best leading to more tax being collected. However, the question of accountability would remain unresolved. These entities utilize public resources and are managed by state-linked directors. They should therefore be monitorable and accountable to the public through clear, transparent, legally sanctioned procedures, an issue that would not be resolved even if they declared their financial reports for audits.
It is essential to mention that since 2018 there have been efforts in the Majles to add additional notes to the aforementioned ‘Law for Executing General Policies of Article 44 of the Constitution’, imposing penalties on companies that refuse to disclose financial information and report to the Securities and Exchange Organization. As of autumn 2023, these amendments have not yet been drafted. Even when drafted, they are, similarly to the previous 2014 amendment, planning to exempt certain entities from the law at the discretion of the Supreme Leader and the Supreme National Security Council. The main shortcoming of the previous law will thus remain unaddressed. This point has been confirmed by Farid Mousavi, a former member of the Majles’s economic commission and the man who drafted the proposed amendments. This typical exemption of tutelary, Supreme Leader-led, and military and security-related entities would essentially neutralize any potential effects of the law, allowing entities connected to money laundering and illegal activities to continue their operations without transparency.
Conclusion and Potential ‘Solutions’
The intricate web of semi-governmental institutions in Iran stands as a stark testament to the challenges posed by a lack of financial transparency, accountability, and a deliberate evasion of legal frameworks. The direct correlation between the absence of financial transparency and state affiliations is not just coincidental. In a concerning revelation, it becomes apparent that not only do law-breaking units escape prosecution, but some even receive financial support from the state, perpetuating a cycle of opacity and unaccountability.
Crucially, the absence of financial transparency in these organizations is not an isolated or sporadic instance of mismanagement, but rather an intentional and innate structural feature. The glaring lack of law enforcement further serves as compelling evidence of the systematic nature of this absence, highlighting the need for urgent intervention. Among the diverse array of institutions within the IRI, this category of semi-governmental entities emerged as one of the least transparent and egregiously under-researched. This fact alone underscores the imperative to prioritize research efforts in unveiling the intricacies and implications of these semi-state entities.
It is disconcerting to note that this critical issue appears to be fading from the media landscape within Iran. The limited updates and scarce coverage raise concerns, particularly in light of the IRI’s history of pressuring media outlets to dodge certain issues. Even internal organizations and think tanks dedicated to transparency, such as ‘Transparency for Iran’, appear to have omitted this issue from their focus, further deepening concerns about the deliberate concealment of vital information.
Finally, let us turn to potential solutions. Unlike some transparency and corruption-related issues deeply rooted in Iran’s laws and political practices, the specific problem of the hybrid nature and lack of legal clarity of these institutions can have an effective mid-term solution. Advocating for the legal treatment of these organizations/companies as state entities, which is essentially what they are, is a viable solution. They are founded by segments of the state, led and directed by state actors, and use public/state funds. However, when it comes to accountability and transparency expected of state institutions, they do not conform to any rules. Applying the state institutions laws to these entities would at least subject them to well-developed auditing and information legislation, providing official bodies such as the National Inspection Organization, the State Audit Court, and the Audit Organization the opportunity to monitor their activities and address complaints raised against them.