Arrest of billionaire highlights political divisions in Iran

By Babak Dehghanpisheh 

BEIRUT (Reuters) - While international sanctions have made life a struggle for many Iranians, they were a big break for businessman Babak Zanjani, who made a fortune helping the government evade the restrictions on oil sales. He also made enemies.

A $40,000 watch on his wrist and a Tehran football club for a plaything, Zanjani shuttled to meetings on private jets, arranging billions of dollars of oil deals through a network of companies that stretched from Turkey to Malaysia, Tajikistan and the United Arab Emirates, he said last autumn.

"This is my work - sanctions-busting operations," he told Iranian current affairs magazine Aseman.

Under the conservative presidency of Mahmoud Ahmadinejad, the 39-year-old Zanjani was good enough at his work to amass a fortune of $10 billion - along with debts of a similar scale, he told Aseman - until he was arrested late last month. 

He is being held in Tehran's notorious Evin prison, accused of owing the government, under moderate new President Hassan Rouhani since August, more than $2.7 billion for oil sold on behalf of the oil ministry.

Rouhani's government, which has struck a preliminary deal with the West to ease some sanctions in return for curbs on its nuclear activities, has not said what specific charges are being investigated. But two days before Zanjani's arrest, Rouhani had written to his first deputy demanding action against sanctions profiteers.

When announcing the arrest, a judicial spokesman said "he received funds from certain bodies ... and received oil and other shipments and now has not returned the funds" and that any violations would be addressed after the investigation.

Zanjani has always denied any wrongdoing and says he only tried to do a service for the country. His office did not immediately return requests for comment.

Analysts say Zanjani's connections with senior officials in Ahmadinejad's administration and in the Revolutionary Guards - a powerful branch of Iran's military with extensive business interests - have made him a political target. 

"The arrival of the new government played a big role in the downfall of Zanjani," said Fereydoun Khavand, an Iran expert and economist at the Paris Descartes University.

"The issue of Zanjani and the broader issue of corruption has become a factional war between the reformists on one side and the conservatives on the other side."

RAGS TO RICHES

Zanjani's rise from market trader to billionaire middleman has become for many ordinary Iranians not a rags-to-riches inspiration but evidence of cronyism.

"This is not about an individual. This is a collective where Babak Zanjani is the facade," said a factory owner in Tehran, to explain what he called the businessman's "unnatural growth".

The collective that gave Zanjani his big opportunity was the Revolutionary Guards, which expanded its social, political and economic influence under Ahmadinejad, playing a major role during the 2009 presidential election and the suppression of protests after two defeated moderate candidates claimed the vote was rigged. The two have been under house arrest since 2011. 

In 2010, Zanjani began helping Khatam al Anbia, one of the largest companies controlled by the Guards, to evade financial sanctions. Zanjani says that the following year, when Rostam Qassemi, a former senior commander in the Guards, became oil minister, he asked Zanjani to sell oil and transfer money back to Iran.

"Zanjani solved the problems of the Revolutionary Guards and Khatam al Anbia to a degree," said Esmail Gerami-Moghaddam, a reformist former member of parliament.

If his proximity to the Guards discomfited the moderates, a political tussle in February last year made outright enemies of some of them when Ahmadinejad accused the brother of the Speaker of Parliament Ali Larijani, a long-time rival, of offering political favors in exchange for an introduction to Zanjani for business ventures.

The brother denied the charges, and Ahmadinejad's rivals accused Zanjani of complicity in trying to smear Larijani and his family.

In late December, with Ahmadinejad out of office, a dozen parliamentarians, most of them critics of the previous government, wrote a letter to Rouhani, Larijani and the head of the judiciary, accusing Zanjani of initiating an illegal $5.4 billion business deal, hanging on to money from oil sales to the oil ministry and demanding that corruption charges be pursued against him. 

Zanjani was arrested days later, and within a week a senior aide was also arrested.

"Zanjani's arrest will probably be used as a vehicle by the faction supporting the Rouhani government to expose files against their opponents," Khavand said.

That could explain why Zanjani's erstwhile supporters have kept their heads down since his arrest.

"The hardline politicians and those affiliated with the former government who supported him behind the scenes cut their support," said Gerami-Moghaddam.

If Zanjani has become a political target, he is also now a lightning rod for anger at the perceived corruption and economic mismanagement of the previous administration.

But Zanjani is a symptom of a wider, systemic problem, said Khavand.

"That we want to summarize the issue of corruption in the Islamic Republic to Zanjani or people like Zanjani is wrong," Khavand said. "The economic structure of Iran, along with its political structure and the lack of a free press, have allowed for the roots of extensive corruption to spread."

(Reporting By Babak Dehghanpisheh, Editing by William Maclean and Will Waterman)