IRGC: AN ECONOMIC AND POLITICAL POWERHOUSE (C-NE6-00566)

S E C R E T SECTION 01 OF 04 IRAN RPO DUBAI 000015

SIPDIS

SIPDIS

NEA/IR; LONDON FOR GAYLE; PARIS FOR WALLER; BERLIN FOR PAETZOLD; BAKU FOR HAUGEN

E.O. 12958: DECL: 11/30/2016
TAGS: PGOV PTER ECON EPAT MCAP IR
SUBJECT: IRGC: AN ECONOMIC AND POLITICAL POWERHOUSE (C-NE6-00566)

RPO DUBAI 00000015 001.6 OF 004


CLASSIFIED BY: JILLIAN BURNS, DIRECTOR, IRAN REGIONAL PRESENCE
OFFICE - DUBAI, DEPARTMENT OF STATE.
REASON: 1.4 (D)

1.(S) SUMMARY. EXPERTS AND OBSERVERS AGREE THAT WITH THE
ELECTION OF FORMER IRGC OFFICER MAHMOUD AHMADINEJAD TO THE
PRESIDENCY IN 2005, THE POLITICAL INFLUENCE OF THE ISLAMIC
REVOLUTIONARY GUARD CORPS (IRGC) IS ON THE UPSURGE. IT HAS ALSO
AMASSED ECONOMIC POWER, PARTICULARLY SINCE AHMADINEJADS
ELECTION. UNLEASHED AFTER YEARS OF CURBS ON ITS OVERT ECONOMIC
ACTIVITIES UNDER PRESIDENT KHATAMI, IT BEGAN WINNING LARGER
CONTRACTS, WHILE CIRCUMVENTING GOVERNMENT TENDERING PROCEDURES.
THE KHATAM AL-ANBIYA RECONSTRUCTION ORGANIZATION (A COMMERCIAL
ORGANIZATION CONTROLLED BY THE IRGC AND HEADED BY IRGC GENERAL
ABDOLREZA ABED) IS REPORTEDLY THE LARGEST BUSINESS AND ECONOMIC
TRUST IN THE COUNTRY. IT RECENTLY SIGNED A DEAL WORTH $7
BILLION WITH IRAN'S MINISTRY OF OIL. ACCORDING TO GENERAL ABED,
30 PERCENT OF IRGC FORCES ARE CURRENTLY DEVOTED TO SUPPORTING
ECONOMIC AND CONSTRUCTION PROJECTS. THE VAST SUMS OF MONEY
GAINED FROM SUCH PROJECTS REPORTEDLY NOT ONLY LINE THE POCKETS
OF PAST AND PRESENT IRGC MEMBERS, BUT STREAMLINE THE ACQUISITION
OF WEAPONS SYSTEMS AND POSSIBLY FUND OF TERRORIST ORGANIZATIONS.
NONETHELESS, A PROMINENT IRANIAN ECONOMIC ANALYST INFERRED THAT
BONYADS WERE A MORE LIKELY SOURCE OF TERRORIST FUNDING, DRAWING
ON MASSIVE RELIGIOUS TAXES. END SUMMARY.

ASSUMING GREATER POLITICAL POWER
--------------

2.(S) IN JUNE 2004, THE ECONOMIST REPORTED THAT THE ISLAMIC
REVOLUTIONARY GUARD CORPS (IRGC) OR "SEPAH-YE PASDARAN-E
ENQELAB-E ISLAMI" MAY BE "QUIETLY TAKING CONTROL," WITH THE
CONSERVATIVES' BLESSING IN THE FACE OF WANING CLERICAL PRESTIGE.
THE ECONOMIST NOTED THAT THE IRGC SUCCESSFULLY HELPED
AHMADINEJAD BECOME MAYOR OF TEHRAN IN 2003 AND SOME 90 FORMER
IRGC MEMBERS GET ELECTED INTO THE 2004 7TH PARLIAMENT OUT OF A
TOTAL OF 290 MEMBERS. OTHER INDICATIONS OF IRGC INFLUENCE
RECEIVED INTERNATIONAL MEDIA ATTENTION AS WELL. THE TIMES 2004
ARTICLE ASSERTED THAT THE IRGC HELD THE KEY TO THE NUCLEAR
DISPUTE AS IT CONTROLS THE IRIG'S STRATEGIC TECHNOLOGIES,
INCLUDING THE SHAHAB MISSILE PROGRAM AND VITAL PARTS OF THE
NUCLEAR TECHNOLOGY EFFORT. THE ARTICLE ALSO NOTED THAT THE IRGC
GREATLY INFLUENCED THE LAW ENFORCEMENT FORCES (LEF) AND NOTED
CONTROL OF T NATIONAL TV AND RADIO BY FORMER IRGC MEMBER ALI
LARIJANI. THE TIMES ARTICLE CLAIMED THAT THE IRGC DOMINATED THE
MINISTRIES OF DEFENSE AND INTELLIGENCE AS WELL. (COMMENT: THIS
MAY HAVE BEEN THE CASE WELL INTO THE LATE NINETIES UNTIL FORMER
PRESIDENT KHATAMI'S REFORMISTS WERE ABLE TO WREST CONTROL OF THE
MINISTRY OF INTELLIGENCE AWAY FROM THE HARDLINERS. END
COMMENT.) SINCE HIS ELECTION, AHMADINEJAD HAS BROUGHT BACK MANY
OF THE SAME IRGC VETS THAT KHATAMI WORKED SO HARD AT GETTING RID
OF FROM THE MINISTRY OF INFORMATION, AS WELL AS NAMING NUMEROUS
OTHER RETIRED IRGC MEMBERS TO GOVERNMENT OFFICE.

GAINING ECONOMIC CLOUT
--------------

3.(S) THE IRGC HAS BEEN AMASSING ECONOMIC POWER SINCE THE
CONCLUSION OF THE IRAN-IRAQ WAR. THIS TREND GREATLY ACCELERATED
DURING THE 1990S, WHEN THE IRGC PROFITED FROM BRIBES FROM THE
LUCRATIVE IRAQI OIL SMUGGLING TRADE DURING THE OIL-FOR-FOOD
PERIOD. ACCORDING TO NUMEROUS CONTACTS, THE IRGC COMMAND GREW
TO RESENT THE LUXURIOUS LIFESTYLES AND ENDEMIC CORRUPTION OF THE
POST-REVOLUTIONARY CLERICAL CLASS DURING THESE YEARS, AS
EMBODIED BY FORMER PRESIDENT HASHEMI RAFSANJANI. THE IRGC
REPORTEDLY FELT THEIR SACRIFICES WERE BEING SQUANDERED BY OTHERS
AND MOVED TO CAPTURE A GREATER SLICE OF IRAN'S WEALTH AND POWER.


4.(U) THE FIRST MAJOR PUBLIC INDICATION OF IRGC ASSERTIVENESS IN
THE COUNTRY'S ECONOMY CAME WHEN IT SUCCESSFULLY CLOSED DOWN THE
NEWLY-BUILT IMAM KHOMEINI INTERNATIONAL AIRPORT IN MAY 2004,
AFTER CITING "SECURITY CONCERNS" WITH THE FOREIGN OPERATOR,
TURKISH FIRM TAV. THE REAL REASON WAS SUPPOSEDLY RELATED
INSTEAD TO CONTRACT ISSUES. THE 2004 ECONOMIST ARTICLE
MENTIONED FAILED ATTEMPTS BY THE PREVIOUS REFORMIST PARLIAMENT
TO INVESTIGATE ALLEGED MISUSE OF IRGC JETTIES TO SMUGGLE IN
EMBARGOED GOODS. IN THE ARTICLE, TRADE ANALYST KHOSRO
NASIRZADEH ESTIMATED THAT SOME 72 JETTIES WERE OPERATING
ILLEGALLY, BRINGING IN $9.5 BILLION ANNUALLY. THE NEW YORK
TIMES ARTICLE, WRITTEN BY VALI NASR AND ALI GHEISSARI, CLAIMED
THAT THE IRGC HAD A MONOPOLY OVER BLACK MARKET TRADE IN
EMBARGOED GOODS, INCLUDING CONSUMER ELECTRONICS, WESTERN
CLOTHING, AND CONSTRUCTION MATERIALS. PARIS INTELLIGENCE ONLINE
CLAIMED JULY 7, 2006 THAT THE IRGC IS GIVEN AN ANNUAL QUOTA OF

RPO DUBAI 00000015 002.3 OF 004


OIL PRODUCTS TO SMUGGLE INTO NEIGHBORING COUNTRIES (IRAQ,
TURKEY, PAKISTAN AND AFGHANISTAN),NETTING ANOTHER $1 BILLION
PER YEAR. NASR AND GHEISSARI ASSERTED THAT THE BILLIONS OF
DOLLARS REVENUE REMOVED BUDGETARY CONSTRAINTS OVER ITS SPENDING
ON WEAPONS AND AID TO FOREIGN TERRORIST GROUPS.

KHATAM AL ANBIYA RECONSTRUCTION ORGANIZATION - IRGC'S MAIN
ECONOMIC ENTITY
-------------- --------------
--------------

5.(U) ON JUNE 26, 2006 SHARQ (NOTE: REFORMIST IRANIAN PAPER
CLOSED IN OCTOBER 2006. ENDNOTE) INTERVIEWED IRGC BRIGADIER
GENERAL ABDOLREZA ABED, THE ACTING COMMANDER OF THE IRGC'S
KHATAM AL ANBIYA RECONSTRUCTION ORGANIZATION. THIS ENTITY WAS
ESTABLISHED AFTER THE IRAN-IRAQ WAR TO ADVANCE RECONSTRUCTION OF
THE COUNTRY AND ECONOMIC EFFORTS. ABED, AS QUOTED BY SHARQ,
CITED ARTICLE 47 OF THE CONSTITUTION STIPULATING THAT THE
GOVERNMENT IS REQUIRED TO EMPLOY ARMED FORCES IN RECONSTRUCTION
AND CONSTRUCTION EFFORTS DURING TIMES OF PEACE. HE CLAIMED THAT
30 PERCENT OF IRGC FORCES ARE CURRENTLY EMPLOYED IN ECONOMIC
ACTIVITIES. HE FURTHER ASSERTED THAT EVEN IN THE CASE OF WAR,
THE IRGC'S ECONOMIC ARM COULD CONTINUE TO MEET ITS DEADLINES AND
ENGAGE IN CONSTRUCTION ACTIVITIES THROUGHOUT THE COUNTRY.

6.(S) ABED STATED THAT SINCE ITS INCEPTION IN 1989, THE KHATAM
AL ANBIYA RECONSTRUCTION ORGANIZATION HAS COMPLETED 1,220 SMALL
PUBLIC WORKS PROJECTS WORTH A TOTAL OF $2.7 TO $3.2 MILLION. AT
THE TIME OF THE JUNE 2006 INTERVIEW, HE SAID THE IRGC WAS
INVOLVED IN 247 PROJECTS WORTH AROUND $2 BILLION AND WAS ABOUT
TO SIGN SEVERAL LUCRATIVE DEALS IN THE ENERGY SECTOR. WHEN
ASKED WHY THE IRGC WAS STARTING TO MOVE AWAY FROM MORE
TRADITIONAL CONSTRUCTION AND INDUSTRIAL PROJECTS - AND MOVE
TOWARD THE ENERGY SECTOR - ABED SAID, "OUR STRATEGY IS TO SERVE.
WE MUST STEP IN WHEREVER THERE IS A MONOPOLY." HOWEVER, AN
IRANIAN ECONOMIC ANALYST TOLD ECONOFF THAT INSTEAD, PRESIDENT
KHATAMI HAD THWARTED IRGC ATTEMPTS TO ENTER THE OIL AND GAS
SECTOR, A PROHIBITION THEN LIFTED BY HIS SUCCESSOR. AND RATHER
THAN PROMOTING COMPETITION, THE CONTACT SAID, THE IRGC IS ABLE
TO UNDERBID COMPETITORS BECAUSE OF THE COMPARATIVELY LOWER WAGES
IT PAYS ITS SOLDIER-EMPLOYEES. THE ANALYST ALSO NOTED THAT THE
BEST AND THE BRIGHTEST OF DRAFTEES ARE OFTEN FUNNELED INTO
IRGC'S ECONOMIC ACTIVITIES. AN IRANIAN CONSTRUCTION SECTOR
CONTACT EXPRESSED THE BUSINESS COMMUNITIES GROWING FRUSTRATION
TO IRPOFF WITH THE IRGC'S INSIDER ACCESS TO LUCRATIVE GOVERNMENT
CONTRACTS IN MANY FIELDS AND ACCUSED THE IRGC OF UNFAVORABLE
PERFORMANCE ON LARGE CONTRACTS. IN A CLAIM THAT CANNOT BE
VERIFIED, ANOTHER IRANIAN BUSINESSMAN MAINTAINED THAT THE IRGC
SKIMS 10 PERCENT OFF OF ALL FOREIGN CONTRACTS.

7.(U) A JULY 4, 2006 ROOZ ONLINE ARTICLE CALLED THE KHATAM AL
ANBIYA RECONSTRUCTION ORGANIZATION THE LARGEST BUSINESS AND
ECONOMIC TRUST IN IRAN. AS REPORTED BY ROOZ, IT SIGNED A $7
BILLION AGREEMENT WITH THE MINISTRY OF OIL, AND IT PURCHASED
SHARES OF ORIENTAL OIL KISH (ONE OF IRAN'S LARGEST PRIVATE OIL
COMPANIES). PARIS INTELLIGENCE ONLINE REPORTED JULY 7, 2006
THAT THE IRGC SIGNED THREE ADDITIONAL CONTRACTS: $2.09 BILLION
TO DEVELOP THE 15TH AND 16TH PHASES OF SOUTH PARS GAS FIELD, $2
BILLION TO BUILD A SUBWAY IN TEHRAN, AND $1.3 BILLION TO
CONSTRUCT A 900 KM PIPELINE BETWEEN PARS JONUBI AND THE CITY OF
IRANSHAHR.

8.(U) ACCORDING TO THE JUNE SHARQ INTERVIEW, THE PIPELINE
PROJECT WAS AWARDED VIA A NO-BID CONTRACT. WHEN SHARQ
QUESTIONED GENERAL ABED AS TO WHY THE DEAL DID NOT GO TO TENDER,
ABED REPLIED "THEY HAVE SEEN OUR WORK. WE MUST HAVE DONE
SOMETHING FOR THEM TO BE WILLING TO AWARD US THE CONTRACT
WITHOUT BIDDING." VARIOUS NEWS SOURCES ALSO REPORTED THAT THE
SOUTH PARS PROJECT AND SUBWAY CONSTRUCTION WERE HANDED OVER TO
THE IRGC WITHOUT A TENDERING PROCESS - A MOVE THAT EVEN ANGERED
THE REGULAR ARMY. REACTING TO THESE NO-TENDER CONTRACTS, ARMY
COMMANDER-IN-CHIEF SALEHI REPORTEDLY COMPLAINED THAT WHILE THE
IRGC HAS "ECONOMIC PRIVILEGES," THE REGULAR ARMY IS FACING
DWINDLING BUDGETS AND OBSOLETE ARMAMENTS, ACCORDING TO THE JULY
7 PARIS INTELLIGENCE ONLINE ARTICLE.

OTHER OPPORTUNITIES
--------------

9.(S) IRANIAN BUSINESS CONTACTS REPORT THAT AHMADINEJAD'S
PROGRAM OF TRANSFERRING GREATER POWER TO PROVINCIAL GOVERNMENTS
IS ANOTHER VEHICLE FOR EXPANDING IRGC ECONOMIC AND POLITICAL
POWER. (NOTE. DESPITE STRONG CRITICISM, AHMADINEJAD RECENTLY
TRANSFERRED CONTROL OF THE PREVIOUSLY CENTRALIZED MANAGEMENT AND
PLANNING ORGANIZATION BUDGET TO THE PROVINCES. ENDNOTE.) FOR

RPO DUBAI 00000015 003.3 OF 004


EXAMPLE, THE GOVERNOR OF ISFAHAN PROVINCE WAS REPORTEDLY ORDERED
RECENTLY TO IMMEDIATELY DIVERT CONSIDERABLE PUBLIC FUNDS TO
"DEVELOPMENT PROJECTS," ACCORDING TO A SOURCE WHO HAD RECENTLY
VISITED IRAN. CLAIMING AS HIS CONTACT A HIGH LEVEL OFFICIAL IN
THE GOVERNOR'S OFFICE, HE SAID THE GOVERNOR WAS ANGRY AT BEING
ORDERED TO PRODUCE MONEY OUT OF HIS OWN COFFERS FOR THESE
PROJECTS, WHICH WERE BEING IMPLEMENTED WITHOUT PROPER PLANNING.
THE IRGC WAS REPORTEDLY SET TO RECEIVE SOME OF THESE PROJECT
CONTRACTS.

10.(U) ROOZ ONLINE CLAIMED ON JULY 11, 2006 THAT IRGC COMMANDERS
REQUESTED THAT COMPANIES UP FOR PRIVATIZATION UNDER THE NEW
PRIVATIZATION LAW BE DIRECTED TOWARDS IRGC MEMBERS AND THEIR
RELATIVES. SOME OF THE COMPANIES CITED AS TARGETS INCLUDE:
MOBARAKE STEEL PLANT IN ISFAHAN, IRAN KHODRO CAR MANUFACTURING
PLANT, SAIPA CAR MANUFACTURING, KHUZESTAN STEEL CORP, TEJARAT
BANK, MELLAT BANK, SADERAT BANK, REFAH BANK, ALL SHIPPING
COMPANIES, HOMA AIRLINES, ASSEMAN AIRLINES, ASIA INSURANCE
COMPANY, DANA INSURANCE COMPANY AND ALBORZ INSURANCE COMPANY.
FURTHERMORE, ROOZ ALLEGED THAT THE MINISTRY OF POWER
"UNLAWFULLY" GRANTED ALL ITS POWER AND WATER DEVELOPMENT
PROJECTS TO THE IRGC WITHOUT FOLLOWING WRITTEN PROCEDURES FOR
SUCH TRANSFERS. (NOTE: ROOZ CLAIMS THAT AHMADINEJAD'S MINISTER
OF POWER IS A FORMER IRGC MEMBER AND CONTRACTOR FOR THE KARKHEH
DAM. HE HAS ALSO SERVED AS THE MANAGING DIRECTOR OF AN
ELECTRICITY DEVELOPING COMPANY AND AS CHAIRMAN OF IRGC OWNED
MALEK-E ASHTAR UNIVERSITY. ENDNOTE)

USE OR LOSE
--------------

11.(U) IN THE JUNE INTERVIEW WITH SHARQ, GENERAL ABED ADMITTED
THAT THE MAJORITY OF THE $2 BILLION FUNDING FOR THE SOUTH PARS
PROJECT WOULD COME FROM THE FOREIGN CURRENCY RESERVE ACCOUNT.
THE FOREIGN CURRENCY RESERVE WAS ORIGINALLY ESTABLISHED WITH THE
UNDERSTANDING THAT 50 PERCENT WOULD REMAIN AS RESERVES AND 50
PERCENT WOULD BE LOANED TO THE PRIVATE SECTOR. THE SHARQ
REPORTER QUESTIONED HOW THE IRGC OBTAINED FUNDS EARMARKED FOR
PRIVATE INVESTORS. ABED REPLIED SIMPLY, "THE FUNDS EXIST TODAY,
THEY MIGHT NOT TOMORROW." ECONOMIST BAHMAN ARMAN WARNED IN AN
AFTABNEWS ARTICLE NOVEMBER 21, 2006 THAT IRAN'S CURRENT
INFLATION WOES ARE A DIRECT RESULT OF GOVERNMENT WITHDRAWALS
FROM THE FOREIGN EXCHANGE RESERVE FUND TO MEET THE COSTS OF ITS
CURRENT EXPENDITURES.

12.(U) IN AUGUST 2006, THE IRGC PLAYED A ROLE IN A HOSTILE
SEIZURE OF A ROMANIAN OIL RIG WORKING OFF THE COAST OF IRAN.
THE RIG WAS OWNED BY A ROMANIAN, SUPPOSEDLY RENTED BY A FORMER
IRGC MEMBER AND DUBAI-BASED BUSINESS OWNER OF ORIENTAL OIL
COMPANY, LEASED TO THE IRANIAN GOVERNMENT, WITH THE DEAL
FINANCED BY BANK SADERAT AND CREDIT SUISSE. WHEN THE ROMANIAN
OWNER ATTEMPTED TO RECLAIM HIS RIG AFTER A DEFAULT ON THE
PAYMENT, IRANIAN MILITARY VESSELS, ALLEGEDLY CONTAINING IRGC
MEMBERS, PULLED ALONGSIDE IT, JUMPED ON, AND TOOK CONTROL. NOW
TANGLED IN LEGAL BATTLES, IT IS UNCLEAR WHAT THE FATE OF THE RIG
WILL BE. AN OCTOBER 14, 2006 WALL STREET JOURNAL ON IRGC
INVOLVEMENT IN THE IRANIAN ECONOMY CONCLUDED THAT A "FEARED
FORCE ROILS BUSINESS IN IRAN." IT CLAIMED THAT THE BANK DEFAULT
MAY HAVE BEEN CONNECTED TO USG EFFORTS TO PRESS INTERNATIONAL
BANKS TO STOP DOING BUSINESS WITH SADERAT.

13.(S) COMMENT. OUR OVERALL LACK OF ACCESS TO PEOPLE WITH
DIRECT KNOWLEDGE OF IRGC ECONOMIC ACTIVITY MEANS IT IS DIFFICULT
TO FIND RELIABLE INFORMATION, SUCH AS WHAT PERCENTAGE OF IRGC
PROFITS GOES INTO INDIVIDUAL POCKETS, WHAT PERCENTAGE IS SPENT
SUPPORTING WEAPONS ACQUISITIONS, AND WHAT PERCENTAGE GOES TOWARD
SUPPORT FOR TERRORISM. A LONG-TIME CONTACT, AN ECONOMIC
ANALYST, INFERRED THE DEEP, MURKY POCKETS OF BONYADS ARE A MORE
LIKELY SOURCE OF FUNDING FOR TERRORISM THAN THE IRGC. HE SAID
THE KHATAM AL-ANBIYA BEARS SOME SIMILARITY TO THE US ARMY CORP
OF ENGINEERS. HE MAINTAINED THAT IT WAS A NATURAL EXTENSION IN
PEACETIME TO USE THE TECHNICAL EXPERTISE ACCRUED DURING WARTIME
FOR THE COUNTRY'S RECONSTRUCTION. FURTHERMORE, DESPITE ITS IRGC
TIES, IT IS A COMMERCIAL ORGANIZATION AND THEREFORE IS AUDITED.
SOME OF ITS INCOME IS REINVESTED, SOME OF IT LINES POCKETS, AND
A SMALL PORTION MAY BE USED FOR NEFARIOUS PURPOSES. THE
ECONOMIST IMPLIED, HOWEVER, THAT THE RELIGIOUS TAX REVENUES
GOING TO BONYADS IS "MUCH MORE SIGNIFICANT THAN MOST PEOPLE
REALIZE."

14.(S) COMMENT CON'T: A FEW OF OUR CONTACTS HAVE REFERRED TO THE
IRGCS GROWING POWER OVER THE PAST FEW YEARS, WHICH THEY VIEW AS
INSTRUMENTAL IN DELIVERING THE PRESIDENTIAL VICTORY TO
AHMADINEJAD, AS A "CREEPING MILITARY COUP," AIMED AT TAKING
POWER OUT OF THE HANDS OF THE CLERICS. THE SPECIFIC IMPACT OF

RPO DUBAI 00000015 004.3 OF 004


THIS POWER SHIFT ON US INTERESTS REMAINS UNCLEAR. WE WOULD NOTE
THAT THE WORLDVIEW OF TODAYS SENIOR IRGC OFFICIALS WAS FORGED
IN THE IRAN-IRAQ WAR, WHICH ENGENDERED STRONG RESENTMENT TOWARDS
THE US AND THE ARAB WORLD FOR THE ASSISTANCE GIVEN IRAQIS
AGAINST THEM. FURTHERMORE, ONE CONTACT MAINTAINED THAT
AHMADINEJAD AND THE SUPREME LEADER DRAW THEIR POWER FROM THE
500,000 WAR VETERANS AND THEIR FAMILIES AND THEREFORE GEAR THEIR
POLICIES TO SATISFY THEM.
BURNS