Introduction
The reimposition of U.S. sanctions on Iran in 2018 profoundly reshaped the country’s political economy. While these sanctions were intended to exert pressure on the Islamic Republic’s ruling elite and curb its regional influence, their most tangible impact has been felt by ordinary citizens through spiralling inflation, currency collapse, and widespread economic hardship.
Yet, paradoxically, the same sanctions have opened vast new channels for state-affiliated institutions—particularly those linked to the Islamic Revolutionary Guard Corps (IRGC) and other semi-governmental entities—to exploit Iran’s opaque financial system.
As Western restrictions pushed the Iranian economy further into informality, networks of corruption, rent-seeking, and embezzlement have expanded to unprecedented levels. This paper explores the mechanisms through which sanctions have unintentionally strengthened the grip of state-orchestrated corruption, leading to massive capital flight, deepening inequality, and the consolidation of wealth and power among regime insiders.
While U.S. sanctions have severely worsened living conditions for ordinary Iranians, they have simultaneously opened unprecedented opportunities for state-affiliated economic and commercial entities to engage in large-scale, organised corruption and multi-billion-dollar embezzlements.
According to Transparency International, Iran’s corruption perception index has dropped by 13 points since the reimposition of U.S. sanctions in 2018, ranking the country 151st out of 180 nations last year. The situation is expected to deteriorate further this year amid Washington’s return to its “maximum pressure” policy under Donald Trump, as well as the reinstatement of UN sanctions on September 27 at the request of the three European members (the UK, France, Germany) of the 2015 nuclear deal, called the Joint Comprehensive Plan of Action (JCPOA).
Just 10 days after the dissolution of a bankrupt, nominally private bank, Ayandeh on October 25, with $7 billion in debt—and revelations about its owners’ extensive assets abroad—Hossein Samsami, the parliament’s representative at the Headquarters for Combating Smuggling of Goods and Currency, disclosed on November 5 that one-third of Iran’s export revenues, amounting to $95 billion since 2018, has not been repatriated.
According to the Central Bank of Iran (CBI), the capital flight from the country has surged dramatically. Last year, outflows exceeded $20.7 billion—three times the level of 2018—and in just the first quarter of the current Iranian fiscal year (starting March 21), capital flight hit a record $9 billion. If this trend continues, total capital outflows could reach $36 billion this year, roughly 10% of Iran’s GDP.
The CBI report shows that the cumulative capital foreign from Iran during 2018-2024 was about $78 billion, very close to the $95 billion figure mentioned by Hossein Samsami. It shows that the majority of capital flight is related to exporters, while the state and semi-government entities’ share in exports is 85%.
Put more simply, it seems that institutions and individuals close to or affiliated with the government and semi-governmental bodies, such as the Islamic Revolutionary Guard Corps (IRGC), blacklisted by the US, play a fundamental role in capital flight from the country.
State Institutions at the Core of Financial Corruption
To better understand the scale of this corruption, it’s worth revisiting the case of the recently dissolved Ayandeh Bank. Ordered shut by the Central Bank of Iran (CBI) and merged into the state-owned Bank Melli, Ayandeh’s debts to the CBI alone amounted to about $5 billion—equal to the combined borrowing of 26 other Iranian banks. The rest of its liabilities were deposits belonging to ordinary citizens.
Remarkably, the bank had extended around $2 billion in loans to its own subsidiaries, despite owning non-financial assets worth just $10 million. Altogether, Iranian banks have lent about $4 billion to their own affiliates or partially owned companies—half of which was issued by Ayandeh Bank alone.
Central Bank data show that the largest borrowers from Ayandeh were none other than the government and state-owned enterprises.
Since U.S. sanctions were reimposed in 2018, the rial has lost roughly 90% of its value, with the U.S. dollar now trading at around 1.1 million rials. This means that the real value of Ayandeh’s massive rial-denominated loans—disbursed to its subsidiaries, the government, and the Islamic Revolutionary Guard Corps (IRGC)—has effectively halved over the past few years. Yet the bank still owes about $7 billion even at current exchange rates.
The bank’s merger partner, Bank Melli, itself owes about $300 million to the Central Bank. Despite revelations about Ayandeh’s owners holding luxury real estate abroad, no arrests have been made.
The Organised Crime and Corruption Reporting Project (OCCRP), a UK-based investigative consortium, reported on November 5 that Ali Ansari—the founder of Ayandeh Bank, sanctioned by the UK government for financing the IRGC—owns a £33.7 million mansion in north London, along with 12 other properties registered under his companies on the same street. In October 2025, the UK sanctioned Ansari for corruption and financial support of IRGC activities, freezing his assets and imposing a travel ban.
The evidence indicates that Ayandeh’s debt—equivalent to roughly 2% of Iran’s entire economy—was primarily driven by its owners, the government, and the IRGC.
Institutions under the oversight of Ali Khamenei, the Supreme Leader of the Islamic Republic, are exempt from taxation and publish no financial reports, while the government itself has refrained over the past four years from releasing any reports on its revenues, expenditures, or budget deficits. In recent years, numerous cases of embezzlement by senior regime officials have leaked to the public, and in some instances, these revelations have been so extensive that the regime has been compelled to arrest and prosecute the perpetrators.
A notable example is the trial and sentencing of Javad Sadatinejad, the former Minister of Agriculture, and the trade minister Reza Fatemi-Amin in prison in March, in an embezzlement case involving the importation of food products worth $3.7 billion; in collusion with a domestic company, they obtained subsidized foreign currency from the Central Bank intended for food imports, but diverted portions of it to import machinery and animal feed, which they then sold at free-market prices—at a time when the U.S. dollar’s open-market rate in Iran was double the subsidized government rate for food imports.
Foreign Trade
According to Iran’s Economy Minister, the genuine private sector accounts for only about 15% of the country’s non-oil exports; the rest is controlled by the government and powerful institutions such as the IRGC.
Hossein Samsami, the parliament’s representative at the Headquarters for Combating Smuggling of Goods and Currency revealed that between 2018 and the end of last year, Iran exported $273 billion worth of non-oil goods, but $95 billion of the corresponding foreign currency revenues were never returned to the country.
Central Bank data show that Iran’s net capital account has been negative by a cumulative $78 billion since 2018—clearly indicating that most capital flight has been conducted by regime insiders benefiting from political and economic privilege.
These figures cover only non-oil exports. A report published by the parliament’s Research Centre on October 13 also criticized the government for its lack of transparency in the oil and gas sector. According to the current budget law, one-third of Iran’s oil exports are handled by the IRGC, and the remaining two-thirds by the government. However, no official institution releases data on export volumes or revenues. The Central Bank only provides figures for oil, petroleum products, and gas export values—without specifying how much revenue was received in hard currency, how much was bartered with imported goods, or how much was lost in the complex sanction-evading process.
The government routinely cites sanctions as an excuse for withholding oil export data. It has not published a single annual budget performance report in the past four years.
Nevertheless, the growing budget deficit is evident. Government debt has risen more than eightfold since 2018 and now equals over one-third of Iran’s GDP—about $120 billion. Tehran continues to force the Central Bank to print money, enabling state borrowing from domestic banks and sovereign funds such as the National Development Fund of Iran.
Money supply has expanded more than fivefold since 2018, fueling runaway inflation. Global comparisons consistently place Iran among the world’s five most inflationary economies.
The outcome has been devastating for the Iranian population: soaring poverty, collapsing purchasing power, and shrinking household wealth. Meanwhile, regime-connected profiteers—known among the public as “sanctions traders”—have accumulated vast fortunes. Unsurprisingly, many of these powerful figures and institutions oppose any negotiations with the West that could lead to the lifting of sanctions.
According to the International Monetary Fund, Iran’s inflation rate exceeds 42% and is projected to continue its upward trajectory, while Iran’s Statistical Centre estimates food inflation at 64%. Over the past several years, Iran has consistently ranked among the top five countries worldwide with the highest inflation rates, severely deteriorating household living standards.
Conclusion
The evidence presented underscores a critical paradox at the heart of Iran’s sanctions economy: while punitive measures were designed to constrain the state’s financial resources, they have instead entrenched a system in which state and quasi-state actors dominate economic activity through corruption and illicit trade.
The merger of sanctioned financial institutions, the disappearance of billions in export revenues, and the growing influence of military-controlled enterprises collectively reveal how economic isolation has fueled rentier behaviour rather than reform. As long as transparency, accountability, and institutional independence remain absent, and as sanctions continue to limit legitimate international engagement, Iran’s economic structure will remain vulnerable to elite capture and systemic corruption. Ultimately, the victims of this cycle are ordinary Iranians—bearing the costs of a system that transforms sanctions from a tool of external pressure into a domestic instrument of profiteering and repression.