Setad

History

The organization was launched on April 26, 1989, when the first Supreme Leader of Iran, "The Imam" Ruhollah Khomeini, issued a two-paragraph order directed three of his aides to manage, maintain or sell properties confiscated or "supposedly abandoned during the chaotic years following" the 1979 Islamic Revolution. The order called for the implementation of Article 49 of Constitution of Iran under which the government had the right to confiscate all wealth accumulated through illegal means, restore "it to its legitimate owners"; and if those owners could not be identified, entrust it "to the public treasury".

Aides of Khomeini — Habibollah Asgaroladi, Mehdi Karroubi and Hassan Sane'i — were appointed by him in the order, to take over all "sales, servicing and managing" of assets "of unknown ownership and without owners." The aides were to help "as much as possible" seven bonyads and charities specified by Khomeini, such as the Foundation of Martyrs and Veterans Affairs, State Welfare Organization of Iran. The "families of the martyrs, veterans, the missing, prisoners of war and the downtrodden" were to be given aid. The three aides were to partially pass their control to Ministry of Economic Affairs and Finance (Iran).

According to Reuters, one of the three co-founders of Setad, Mehdi Karoubi, wrote in 2009 that the organization was originally intended "to operate for no more than two years". (Karoubi has been under house arrest in Iran since 2011.) Khomeini died about a month after giving his order, and the organization did not disband but developed and grew for more than two decades into a vast parastatal known as the Setad Ejraiye Farmane Hazrate Emam - "the Headquarters for Executing the Order of the Imam" — under the second Supreme Leader, Ali Khamenei.

One the group's earliest steps to move beyond holding property took place in 2000 when an investment management firm called Tadbir Investment Co. was set up. By 2006, the organization "had amassed billions of dollars" in property seized from Iranian citizens, and sanctions against the Islamic Republic by the US and UN were intensifying. The organization determined that large diversified conglomerates, such as the South Korean Chaebol, helped developing economies such as Iran's grow faster. To make a conglomerate out of Setad, the organization expanded its corporate holdings, assisted by helpful bureaucratic and judicial orders. By 2008 one managing director in Setad declared the group had been transformed "from a collective that sells property into an economic conglomerate".

According to Reuters new agency the organization acquired a stake in "a major bank" (Parsian Bank) in 2007 and in "Iran's largest telecommunications company" in 2009. In 2010 it took control of Rey Investment Co, valued by the US Treasury Department at $40 billion at the time.

By 2013, Setad had real estate, corporate stakes and other assets worth an estimated $95 billion (in comparison, Iran's oil exports for 2012 were worth only $68 billion). It was able to evade the US and UN sanctions with "complex network of front companies and subsidiaries" in foreign countries. In June 2013 the US Treasury Department imposed sanctions on Setad itself, which it called "a massive network of front companies hiding assets on behalf of … Iran's leadership." (The 2015 Geneva interim agreement on Iranian nuclear program eased sanctions and may benefit sectors of Setad.)

Among Iranians who have served in running of, or overseeing of, Setad are Mohammad Javad Iravani, who took over as head of Setad in 1997. In 2007, Mohammad Mokhber began acting as CEO. In 2009, Mohammad Saeedikia, a former Iranian minister of housing and urban development, was named chairman of the Setad subsidiary Tadbir Construction Development Group. Aref Norozi, served on the board of Tadbir Investment and was head of Setad's real-estate division. As of 2013, Ali Ashraf Afkhami was "identified" as head of Tadbir Economic Development Group. Mohammad Shariatmadari served on Setad's board of directors sometime before that. As of June 2013, Mohammad Reyshahri, a former intelligence minister, was chairman of Rey Investment Co, appointed by Khamenei. According to International Business Times, Reyshahri reportedly was appointed by Khamenei "as a reward" for helping to remove the original candidate for Supreme Leader, Grand Ayatollah Hossein Ali Montazeri, "from consideration as the successor to Ayatollah Ruhollah Khomeini".

Economic activities

In expanding its corporate holdings, Setad has acquired dozens of Iranian companies and stakes in other companies both private and public. Information of its doings is limited as the organization is "secretive" and "little known".

As a Bonyad (Iranian charitable foundation), Setad has been involved in charitable activities including the building of schools, roads and health clinics, the providing of electricity and water in rural and impoverished areas, and the assisted of entrepreneurs in development projects. Setad officials state that their assets have been acquired legitimately, and part of the profits from acquisition go to charity. How much of Setad's activities are philanthropic is unknown as its books are "off limits" to the public and even to the Parliament of Iran. (In 2008 Iran's parliament voted to "prohibit itself from monitoring organizations that the supreme leader controls, except with his permission".)

In 2013, Reuters news agency published a three-part investigative series on Setad — " Assets of the Ayatollah" — arguing that contrary to its claim of being a "custodian" of "property without owners," the conglomerate has been built on "the systematic seizure of thousands of properties belonging to ordinary Iranians", not only the officially condemned Bahais, but "Shi'ite Muslims, business people and Iranians living abroad". Owners of confiscated property complain that Setad is a "methodical moneymaking scheme" using court orders obtained "under false pretenses to seize properties". The owners of the property are then pressured "to buy the property back or pay huge fees to recover them". (Reuters questions whether the practices of the Setad do not belie one of the fundamental claims for the Islamic Republic. Founder of Setad and the Islamic Republic—Ayatollah Ruhollah Khomeini—asserted in his work Islamic Government that contrary to the un-Islamic monarchy of the Shah he would later overthrow, his Islamic government would "not [be] a tyranny, where the head of state can deal arbitrarily with the property and lives of the people, making use of them as he wills." Ali Khamenei himself described the era of the monarchy as one where, "Our people were living under the pressure of corrupt, tyrannical and greedy governments for many years, [The shah's father] grabbed the ownership of any developed piece of land in all parts of the country ... They accumulated wealth. They accumulated property. They accumulated jewelry for themselves.")

Acolytes of the man who controls the conglomerate, the Supreme Leader, emphasize his spartan lifestyle, his modest wardrobe and furnishings in his Tehran home. The Reuters investigation of Setad "found no evidence that Khamenei is tapping Setad to enrich himself". What critics do accuse the Supreme Leader of is using the great wealth of Setad for political power. Serving the Supreme Leader, Setad helps to fund his Beite Rahbar, ("Leader's House"). Whereas the first supreme leader, Khomeini, had a small staff, under Khamenei Beite Rahbar has grown to "about 500 people ... many recruited from the military and security services".

As of 2008 Setad's real estate holding were reportedly worth about $52 billion. The organization regularly conducts large auctions of its real estate - at least 59 as of November 2013. In one auction in May 2013, "nearly 300 properties" where for sale, "the required opening bids totaled about $88 million".

Setad's stakes in publicly traded companies totaled nearly $3.4 billion as of 2013. It controls many businesses in which it holds very small stakes. In one case, it "transformed" the formerly liberal, privately-owned Parsian Bank—Iran's largest non-state bank in 2006—with new managers, a new strict dress code, etc. despite having only a small stake (estimated to be 16%) in ownership. Rey Investment Co., a Setad subsidiary, has been accused of pressuring Iran’s biggest dealer of German automobiles to sell its sell his stake in his auto dealership. To evade sanctions, Setad has maintained a complex network of front companies and subsidiaries abroad in places like Germany, Croatia, South Africa, the UAE, Turkey and beyond.

According to an unnamed former employee of Setad who spoke to Reuters, Khamenei appoints the board of directors but delegates management of Setad to others, having himself just one primary interest—Setad's "annual profits, which he uses to fund his bureaucracy".

Iranian authorities have stated the findings of the Reuters investigation lack "any basis", are "far from realities" and "not correct," but have given no further details.

As an organ of the Supreme Leader, Setad is not overseen by the "Islamic Consultative Assembly" (Iranian Parliament). It is, however, an important factor in Khameni's power, giving him financial independence from parliament and the national budget, and thus "insulating him from Iran's messy factional infighting". According to Reuters news agency, the "revenue stream" provided by Setad, "helps explain" why Khamenei has not only held on to power for 24 years but also "in some ways has more control than even his revered predecessor" Khomeini.

According to sources critical of the Supreme Leader, members of Khamenei's family have deposited large sums in foreign bank accounts. In 2009, British banks froze $1.6 billion in funds belonging to Ali Khamenei's son (Mojtaba Khamenei) according to payvand.com. According to leaked reports in 2011, Ali Khamenei had $36 billion in bank accounts abroad, and his son Mojtaba $21 billion. Various other Khamenei family members are also alleged to have hundreds of millions of dollars deposited in a wide array of foreign banks and financial institutions. According to a 2015 report, Khamenei claims to have a personal net worth of only $150 million.

Organization structure and holdings

The following companies are among some entities affiliate to EIKO (aka Setad):

An organigram for EIKO (Setad) as of 2002-3 produced The U.S. Department of the Treasury is as follow:

Protection from oversight

Khamenei, judges, and parliament have issued a series of bureaucratic edicts, constitutional interpretations and judicial decisions over the years bolstering Setad. In addition to a 2008 vote by the Iranian parliament to prohibit itself from monitoring organizations controlled by the supreme leader without his permission. Should parliament change their mind, the powerful Guardian Council (whose clerics and jurists "directly or indirectly appointed" by Khamenei), has issued a declaration that Setad was beyond parliament's authority, Prior to these decisions, Reuters reports that in 1997 after reformist Mohammad Khatami was elected president, a government "legal commission" declared that the Iranian anti-corruption body known as the General Inspection Office "had no right to inspect Setad unless the supreme leader requested it to do so" in order to "shield Setad from scrutiny".

Unlike other foundations in Iran, Setad does not include it logo or full name in newspaper advertisements listing auctions of confiscated property. Its large gray concrete headquarters in Tehran is unidentified.

Reuters notes that while critics complain that these protections are "why no one knows what is going on inside" organizations like Setad", Khamenei maintains that "No one is above supervision," in the Islamic government, not "even the leader ... let alone the organizations linked to the leader," and "I welcome supervision, and I am strongly opposed to evading it. Personally, the more supervision I receive, the happier I will be."

Management and disposal of confiscated assets

There is ambiguity and contradiction in Iranian laws for confiscation assets and asset forfeiture, particularly who has jurisdiction over it. Under Article 49 of the constitution, the government is obliged to confiscate illegal wealth and return to its owner, "and if no such owner can be identified, it must be entrusted to the public treasury". The Ministry is overseen by the parliament and president, rather than the Supreme Leader (although the Supreme Leader is ultimately the ruler of Iran).

However, in 1984 an implementation of Article 49 of the Iranian constitution ratified by Parliament of Iran (when Akbar Hashemi Rafsanjani was speaker of the parliament) transferred the right to control huge part of public assets, replacing the Treasury with another entity (Setad) outside the government and in direct control of Supreme Leader of Iran.

In apparent conflict with this decision, another law was ratified by the parliament in 1992 (when another politician, Mehdi Karroubi was speaker of the parliament), calling for the transfer of confiscated assets to the government and establishing an Organization for Collection and Sale of State-owned Properties of Iran under the Ministry of Economic Affairs and Finance to deal with those assets. Despite clearly transferring control of confiscated assets to the government, this law was never implemented mainly due to circulars issued by chief justice Mahmoud Hashemi Shahroudi in 2009, and by his successor, chief justice Sadeq Larijani in 2013. (The Chief Justice in Iran is appointed by Supreme Leader of Iran based on Article 110 of Iranian constitution.)

Destination of proceeds

The key actors involved in the confiscation in Iran are:

In contradiction to common practice Setad not only manages the disposal of confiscated assets, but is the destination of the proceeds.

Setad and the Revolutionary Guards

Setad and Army of the Guardians of the Islamic Revolution (IRGC) are both under control of Supreme Leader of Iran and have cooperated in different fields in recent decades.

In 2011, a consortium known as Mobin Trust Consortium (TEM) purchased of 51% of shares of Telecommunication Company of Iran (TCI). The acquisition was among the biggest in Iran's history. The largest stakeholder of the consortium "was a company controlled by the Revolutionary Guards", and Setad controlled another 38%. The terms of payment were very favorable—TEM was required to make a down payment of only 20% and had eight years to pay the rest of the price. Board of managers of TCI has members from both Setad and IRGC. For example Dr. Ali Baghaei is CEO and Vice Chairman of Tadbir Economic Development group (a subsidiary of Setad) and at the same time he is president of MCI which is subsidiary of TCI. Also Mr. Seyed Asadollah Dehnad who is member of IRGC is member of board of MCI.

The takeover of the TCI by the Setad and Revolutionary Guard was assisted by a government regulator, the Iranian Privatisation Organisation (IPO), which eliminated a competing bid for the TCI (by a telecom company called Pishgaman Kavir Yazd Cooperative Co.) the day before the sale of TCI. In 2010, the man responsible for the elimination of the bid—the head of IPO at the time of the sale, Gholamreza Heydari Kord Zanganeh—was appointed managing director of Tose'e Eqtesad Ayandehsazan Co, or TEACO—a "giant holding company" owned by Setad. He was later named chairman of a large pharmaceutical holding company also owned by Setad (Sobhan Pharma Group). Both examples of the "revolving door between Setad and Iran's government", according to Reuters.

Sanctions

In July 2010, the European Union added the president of Setad, Mohammad Mokhber, to its list of individuals and entities being sanctioning for alleged involvement in "nuclear or ballistic missiles activities." Two years later, it removed him from the list without explanation, but allegedly in "an attempt to fend off a broader Iranian legal challenge to financial sanctions on Iran's banks and bank directors".

United States Department of the Treasury took action on 4 June 2013 to "expose" EIKO (Setad) -- what it called a " Massive Network of Front Companies" -- and declare it subject to sanctions pursuant to Executive Order 13599, which "blocks the property of the Government of Iran", (prohibiting "U.S. persons from engaging in most transactions" with people "meeting the definition of Government of Iran").

A January 16, 2016 US government document stated EIKO was not on the SDN List (Specially Designated National) nor "subject to Secondary Sanctions", but that "US persons" were required to continue to "Block the Property and Interests in Property" of EIKO (Setad) in accordance with Executive Order 13599.

(The 2015 Geneva interim agreement on Iranian nuclear program which eases sanctions may benefit petrochemical companies belonging to Setad according to Reuters.)