Monopoly of the Guards: How Does a Military Organization Control the Iranian Tech Sector?

Iranwire – It began as a rumor but has now been confirmed: according to Iran’s own official media, Emad Edward Sharqi, vice-president of the holdings company and noted tech investor Sarava, was arrested while attempting to leave the country.

The reports didn’t say when the arrest took place. But the rumors about it had begun a month earliy. Sharqi was previously convicted of with “espionage and collecting military information” and had now been sentenced to ten years in prison. After serving around six months, he was released on bail and was awaiting an appellate trial when he tried to flee from Iran, according to two sources who spoke to IranWire.

The humiliating arrest of a leading figure in the country’s digital investment scene is the latest blow to a sector that used to inspire hope and promise. The heady days following the 2015 nuclear feel like a distant memory now. Back then, a carnivalesque mood prevailed as the lifting of  economic sanctions promised to benefit the entire Iranian business sector. “We were so, so full of hope,” says Fatemeh, 32, an executive at a tech start-up company in Tehran (like some others in this report, her name has been changed for her safety).

“We were not naive,” Fatemeh adds. “We knew things wouldn’t change overnight. But there was a buzz: a hope that with the lifting of sanctions, new foreign capital would flow into Iran and people’s standards of living would rise. We were all set to benefit.”

Ashkan Roozani, an Iranian-born tech entrepreneur now based in Germany, had not lived in Iran since childhood. But he spoke Persian, had years of experience in the tech sector and maintained connections with Iranians in the diaspora. He noticed that he had something he could use as leverage.

“Everybody wanted to go to Iran,” he says from his office in Berlin. “Economically speaking, the opportunity sold itself. Iran had a significant population, high levels of smartphone ownership,  internet penetration, and internet usage. And an absolute dearth of entrepreneurs with experience in the tech sector.”

More than 60 percent of Iranians use the internet regularly and a similar percentage of families own laptops or tablets. Seventy-four percent of Iranians live in cities but even among the rural minority, up to 40 percent of households own devices that can connect to the internet. 

The Vienna deal had been achieved after intense diplomatic talks, the last round of which lasted for more than two years. It was heralded as the biggest opening-up to foreign trade by a single economy since the fall of the Berlin Wall in 1989.

The arrivals hall of Tehran’s Imam Khomeini International Airport was suddenly filled with business travelers (not to mention German backpackers). In September that year, Accor, the French chain that owns the biggest hotel company in Europe, signed a contract to open two of its signature Novotel and Ibis hotels at the airport. In a symbolic move, McDonalds sought job applications for a potential opening of a franchise in Iran. Thousands applied.

Ashkan was contacted by a friend in Dubai who wanted to explore the possibility of launching a start-up in Iran. “We all knew that Iran was not a Dubai yet,” he says. “Let alone a Japan or a South Korea. There were political and social obstacles. But this was still an amazing opportunity.”

Ashkan had an innovative idea for a start-up and was able to quickly assemble a capable team from the many educated young people in the country. Early on, he made a decision to avoid getting involved in factional fights that pitted different parts of the Iranian regime against one another. He’d stay clean, he thought, by making sure he didn’t have to rely on money or connections linked to the regime. “I didn’t want to raise capital from Iran,” he says. “We were going to get our capital from Europe.”

Fatemeh, the tech executive, also remembers the excitement that came with Ashkan’s entry into the Iranian tech market itself. “He was young, he had connections in Europe, and his team was efficient and knowledgeable,” she says. “They were really A-grade. But we also thought, they’re naive if they think they can avoid working with the authorities’ mafia.”

Iran had experienced successive waves of privatization efforts since the 1990s which had made many regime officials rich, including many of the commanders of the Islamic Revolutionary Guards Corps (IRGC). During the Iran-Iraq war of 1980 to 1988 the IRGC came to dwarf the country’s conventional armed forces and later played a key role in postwar construction. By the time the 2015 agreement was finalized, the Revolutionary Guards controlled huge swathes of the Iranian economy, a situation that persists today.

Far from the only major regime-linked player, however, the IRGC both worked and competed with a range of mammoth parastatal foundations whose tentacles extend throughout the Iranian economy. The IRGC was not necessarily keen on the 2015 accords, since sanctions could help them cement their hegemony over the Iranian economy by evading the scrutiny that came with more open foreign trade. Sanctions-busting in itself — using illegal methods to convey goods or capital into Iran — has long been a multi-million dollar business.

Ashkan’s first introduction to working with the “mafia” came when his firm registered with a system called E-Namad, which enabled the company to receive online payments. “When you get E-Namad, they define certain conditions for you,” he explains. “Where are your servers? They all have to be in Iran. And as part of this process, your case is also reviewed by the Cyber Police.”

Founded in 2011 as part of the national police force, the Cyber Police had developed a reputation for censorship and attacking people for their online activities. It kept a tight grip on Iran’s growing internet sector. It had been established on the orders of Iran’s national police chief, Esmail Ahmadi Moghaddam, himself a founding member of the IRGC and a former advisor to President Mahmoud Ahmadinejad.

The requirement that all servers be based in Iran created technical difficulties. It meant Ashkan’s start-up couldn’t use the cloud services run by Google or Amazon and had to operate on an internet speed that was a quarter of what its European counterparts relied on. But more importantly, this amounted to Ashkan becoming involved with the world he had wanted to avoid.

There are only a handful of data centers in Iran and Ashkan’s start-up had to go through one of them, so he settled on the best-known, Afranet. Founded in 1997, Afranet was the first of its kind in Iran. Its founder and president, Fereydoon Ghasemzadeh, holds a PhD from Canada’s McMaster University and had developed something of a cult following. His disciples in the tech sector love to quote his management guru lines, and in 2014, a book was published about his entrepreneurial style.

Ghasemzadeh met with Ashkan and offered him something beyond Afranet’s basic data center. Instead, he offered to partner with him, and to give Ashkan access to significant financial capital. In their meetings, Ghasemzadeh was often accompanied by Mahmoud Jarahi: a deputy head of massive parastatal conglomerate the Mostazafan Foundation, otherwise known as the Foundation for the Oppressed.

The Foundation was established in 1980, officially as a charity. It took over the management of most assets stripped from the deposed monarchy’s charity the Pahlavi Foundation, which is well-known by some for its signature building on New York’s Fifth Avenue. The Mostazafan Foundation is now one of the largest commercial enterprises in the Middle East, with declared asserts running to billions of dollars, and it operates everything from mobile networks to energy companies to hotel chains. The Foundation is also closely tied to the IRGC. Its current head, Parviz Fattah, has openly admitted into using its funds to provide hard currency to Ghasem Soleimani, the former commander of the IRGC’s expeditionary Quds Force.

“Jarahi was a smooth talker and it was very clear that he called the shots,” Ashkan recalls. “He was very knowledgeable and sharp. And we knew he had been a key person in IranCell [the country’s biggest cellphone provider] and some well-known start-ups.” He adds: “Even though he clearly had the last word, I never once saw his name on any documents.”

Unwittingly and indirectly, Ashkan was now dealing with the regime and Ghasemzadeh made it clear that they were ready to invest in Ashkan’s company to a significant degree.

Through another channel, Ashkan had also met with another leading name in Iran’s start-up scene. The charismatic Saeed Rahmani was a former employee at IBM and the South Africa-based internet firm Naspers. In some ways he was similar to Ashkan. He had spent most of his life outside of Iran and had only come back in 2012 to found a company called Sarava.

Rahmani had had a meteoric rise. He now was a major investor in some of Iran’s best-known apps, including the e-commerce firm Digikala (often compared to Amazon), online marketplace Divar, Iran’s premier android marketplace Cafe Bazaar and the travel agent app Ali Baba (unrelated to the Chinese company). A few kilometers outside Tehran, Iran’s answer to Silicon Valley is the Pardis Technology Park, a hub of incubators and start-ups, and Rahmani was a regular participant in events and activities there. This investor had also quickly made a name for himself among Iranians abroad who wanted to invest in the growing tech sector in their home country. Ashkan knew of investors in Britain who had invested tens of millions of dollars in Sarava.

Early on in the life of his own start-up, Ashkan had now enjoyed lucrative offers of significant investment from both Rahmani’s Sarava and Ghasemzadeh himself. There were others too.

Shiva, 41, currently an executive at a start-up in Tehran, says promising start-ups do often receive offers from multiple sources. “The Mostazafan Foundation would give directly, then there are private banks and holdings that all go back to an entity controlled by this or that parastatal entity.”

The IRGC, the Mostazafan and other foundations in play all have one thing in common: they are controlled directly by Ayatollah Ali Khamenei, Iran’s Supreme Leader. They are not accountable to the country’s official government and operate in the shadows. For instance, Iran’s freedom of information (FOI) legislation explicitly prohibits citizens from making FOI requests to any organization controlled by Khamenei. The unaccountable leader doesn’t give media interviews or face rigorous scrutiny of any sort.

“Attacked by the Wolves”

Ashkan’s start-up found rapid success in Iran, greater than even the most optimistic forecast. “I remember it being talked about all over the start-up scene as a phenomenal achievement,” Fatemeh says.

“We were growing very quickly,” Ashkan says, for his part. “But this also meant we needed more funds. We ran out of our initial capital in six months.”

Developments far away from Iran then struck a heavy blow to Ashkan and everyone else who had high hopes for the start-up scene in the country. Donald Trump was elected to the United States presidency in November 2016. Taking a combative stand against Iran was one of Trump’s top foreign policy priorities. His inauguration in 2017 dampened the mood in Iran’s bullish market and even before the US officially withdrew from the nuclear deal in May 2018, the writing was on the wall. A particularly harsh blow came in the summer of 2017 when both Apple and Google stopped hosting most Iranian apps.

“Right after Trump’s victory, all our foreign investors started to pull out,” Ashkan remembers. “Not just the Europeans. Asians, Russians, Chinese. They were all going. All my plans were disrupted; I was left with a growing company that had no money. It was flying like a rocket that had no more fuel to keep going.”

Ashkan had come to Iran hoping not to have to rely on any domestic sources of capital. But with foreign investment drying up, he now faced the prospect of not being able to pay his staff. He went to both Sarava and Ghassemzadeh and brought them onboard as minority shareholders.

It soon became clear that the apparent diversity of capital sources was a smokescreen masking the many ways different companies that were linked to each other. During a meeting with Jarahi and Ghasemzadeh, he was startled to see Ahmad Fayazbakhsh, who happened to be also a board member at Sarava. Fayazbakhsh had previously been secretary general of Iran’s Chamber of Commerce and had also headed Shasta, a holding company owned by Iran’s social security organization with investments worth billions of dollars.

Ashkan’s worst fears were quickly confirmed as his start-up became more and more dependant on Ghasemzadeh and Sarava. They both forced demands on the company, took issue with the presence of non-Iranians on the board, attempted to change the company’s internal culture and opposed board meetings being held in English (even though they all spoke it fluently). They organized their shares to gain a majority on the board. They were not averse to dirty tactics.

“A very strange event occurred when they accused me of embezzlement and forced us into a lengthy audit,” Ashkan says. “It was clear that they had one intention: Driving me and the founders out and taking control of the company.”

“They attacked Ashkan like wolves,” Shiva remembers. “They were clearly out to get him. People like him, people with experience, were an obstacle from their point of view.”

In 2019, Rahmani left Iran, having apparently decided that the country was no longer suitable for business. Although he still hasn’t given up control of his company, Ashkan also left Iran in early 2020, no longer sure about his safety. Given what happened to Rahmani’s colleague, Emad Edward Sharqi, he clearly had good reason. Ashkan now says he wishes the alarming phenomenon of the IRGC’s control over the Iranian tech sector could be better-recognized abroad.

Fatemeh and Shiva are still in Iran and hold prominent positions in the companies they work for, but both are planning to leave. “The sad thing is we were as successful as we could ever have imagined,” Fatemeh says. “People are using our products, we are making money, we are making lives better. Were we in any other country, we’d be richly rewarded. But in Iran, what do we get? The fruits of our labor being controlled by other people, and living with constant harassment and threats.”

In the days to come, as Joe Biden is inaugurated, we are likely to again see a major shift in the US’s foreign policy stance toward Iran. Biden has already expressed an interest in returning to the deal that was struck in 2015. Like many others, Fatemeh and Shiva believe the lifting of sanctions and normalization of Iran’s relations with the US may potentially increase the autonomy of Iranian start-ups and challenge the domination of the IRGC. They are therefore in favor of this outcome, while at the same time harboring no illusions about its chances of success. Ashkan’s cautionary tale and many similar stories demonstrate the stranglehold of the military and other parastatal bodies controlled by Khamenei over the start-up scene, and indeed, the rest of the Iranian economy.