Dirty Money and the Black Economy in Iran

Recently, the Minister of Interior of the eleventh government raised the issue of dirty money in elections for the first time and warned against its use in upcoming elections. Although this minister later retracted his position, the issue of dirty money is undeniable in Iranian society, with at least two former presidential assistants imprisoned for using dirty money, and it is likely that more individuals will be summoned for questioning in court. But the question is, what is the relationship between dirty money and the political process? Why is addressing dirty money important in a politically and economically underdeveloped society? What impact does the use of dirty money have on political and economic development? What sector of the economy is the source of dirty money? Generally, dirty money refers to money obtained through illegal, criminal means, or from transactions that are unregistered and untaxed. Such money lacks oversight due to its nature and, despite its impact on the economy, politics, and social affairs, is in the hands of groups that are not accountable to society. There is a clear link between dirty money, management corruption, political corruption, and electoral corruption. In some countries suffering from underdevelopment, money obtained through drug trafficking, human trafficking, luxury goods smuggling, bribery, tax evasion, or circumvention of laws becomes a tool for gaining social and political power. Dirty money enables groups that do not represent public opinion and citizens' interests to buy votes and officials, seizing political power and controlling the fate of society. Consequently, the legitimacy of the political system erodes, creating the potential for conflict among social groups and unpredictable political developments. This is why the volume of dirty money is extensive in countries suffering from underdevelopment and political instability in Africa and South America. The main context for obtaining such money is the widespread black economy in Iran. The black economy, or underground economy, refers to sectors of the economy that are not transparent and not subject to public oversight, or whose transactions are unregistered and untaxed. Some economic activities in these sectors may be criminal, while others may not be criminal but merely non-compliant or unregistered. For example, drug trafficking is a criminal economic activity, while the black market for coins and currency is a legal violation. Informal transactions between individuals are legal but often unregistered and not covered by tax authorities. It is difficult to provide accurate statistics on Iran's black economy. Some studies estimate the black economy in Iran to be between 7% and 13% of the gross domestic product. However, there are indications that this hidden sector of Iran's economy is larger than these estimates. The Strategic Studies Office estimated the average size of the underground economy for the years 1979-1991 to be about 37% of the gross domestic product, while some academic research has estimated the black economy in Iran to be as high as 50%. Mohammad Mahdi Mohtasham, the spokesperson for the Joint Commission of the Parliament, portrays Iran's economic problems differently, stating that "60% of the country's economy does not pay taxes, which includes tax exemptions for 40% of the economy, including the agricultural sector, and there is tax evasion in 20% of the economy that the tax administration must collect." International research shows that the volume of the black economy in underdeveloped African and Latin American countries is extensive, while it is limited in advanced European and North American countries. Therefore, with economic, social, and political development, the informal and black economy shrinks. According to some studies, the underground economy has expanded since the revolution, and due to its opaque and hidden nature, it has evaded oversight by rules and regulations. The most significant sign of this is the emergence of the informal financial-credit sector in the country. Recently, a member of the Iranian Parliament's Economic Commission stated that "there are about 5,000 unauthorized financial institutions in the country, of which six institutions have captured 20% of the country's financial market." Such trends have created an unfavorable competitive environment for the transparent and formal economy, making investment in Iran insecure. The primary reason for the expansion of Iran's black economy since the revolution is government and quasi-government monopolies, an unfavorable business environment, insecurity, political and economic instability, complex laws, and a rent-seeking economy. Consequently, some economic actors prefer to transfer their capital from the formal sector to the hidden and informal economy. In the specific economic context of Iran, the black economy makes oversight and management of the economy and liquidity difficult, preventing economic policies from achieving their defined goals. Furthermore, the expansion of the black economy signifies massive tax evasion and simultaneously limits tax revenues. With reduced tax revenues, the government's budget dependency on oil revenues increases. Additionally, since the black economic sectors are unaccountable, there is no guarantee that their activities comply with laws, accepted standards, and norms of society. Income inequality among social groups is also one of the consequences of the expansion of the black economy. Some government officials believe that limiting the black economy requires strict measures and crackdowns. The cost of such actions is much higher than their positive outcomes, and such measures are also not effective in the long term. The problem of the black economy is a structural issue compounded by political, social, and cultural economic factors. Preventing the emergence and expansion of the black economy in society fundamentally depends on the accumulation of social capital and public trust, economic and political stability, the growth of civil society, and the free oversight of independent media. Furthermore, unless governance becomes transparent and accountable and accepts organized civil society and citizen oversight in the distribution of social resources, it is unlikely that the black economy will be limited. The level of accountability of power and political institutions is itself dependent on the realization of other conditions, such as the level of political competition, how political party activities are financed, political transparency, and the existence of precise laws and regulations, effective oversight, and tax institutions.