Geopolitics

South Korea Owes Iran Billions But Won't Cough Up The Cash

While some countries stopped doing business with the Islamic Republic, others keep engaging in commerce but refuse to pay what they owe. What gives?

A bank in Seoul, South Korea
A bank in Seoul, South Korea

LONDON — Pressed by ongoing sanctions, and with the coronavirus complicating matters even more, Iran could use all the money it can get. Little wonder, then, that it is keeping a close eye on South Korea, which owes the Islamic Republic a hefty sum for unpaid oil purchases. There's just one problem: South Korea won't pay up.

The outstanding debt is no trifling matter. Hossein Tanhay, head of Iran-South Korea Trade Chamber, estimates that South Korea owes somewhere in the range of $6.5 and $9 billion. So far, though, it won't honor that debt, and Iran believes that U.S. pressure is to blame.

In response, Iranian lawmakers are considering a ban on South Korean imports until monies are paid. In addition, the Iranian Foreign Ministry is mulling legal action.

The two countries have had several rounds of talks in recent months, but so far the only benefit to Iran has been a shipment of pharmaceutical drugs from South Korea valued at approximately $500,000. Lawmakers from the two countries are due to talk again.

South Korea owes somewhere in the range of $6.5 and $9 billion.

On July 30, a member of the parliamentary Economic Committee, Mohsen Alizadeh, said that Iran must adopt a "diplomacy of resistance," and a "firm position" against western nations trying to squeeze it from outside. "The fact that Korean officials have said they are ready to negotiate shows we have been successful with our choice of discourse and conduct with that country," he said.

But Alizadeh also said that if South Korea "fails to honor the commitments in its negotiations with Iran," he would propose a priority motion for parliament to vote to ban South Korean imports. "I am certain given the current atmosphere in parliament, that it would be approved," he added.

This is not the first time Iran has threatened to ban such imports, which include sought-after household durables and audiovisual equipment. The country has never, however, followed through on such threats, perhaps because many South Korean goods are imported or smuggled in by gangs and enterprises with ties to regime officials or their relatives. For some people in Iran, this is a huge source of revenue.

Abdolreza Faraji-Rad, a political commentator and former ambassador, told the website Iranian Diplomacy (Diplomasi-e irani) that South Korea is not the only state engaging in such "damaging diplomacy." Japan has engaged in similar behavior, and for the same reason: because of close ties to the United States, he explained. South Korea's harmful conduct "is entirely in line with U.S. pressures," Faraji-Rad said.

South Korea-Iran summit in 2016 — Photo: Yonhap News/Newscom/ZUMA

While Faraji-Rad supports taking legal action against South Korean banks — which apparently are the ones refusing to forward Iran's oil payments — he also believes Iran must avoid further tensions or any deterioration of ties with South Korea. Another Iran-based observer, Fereydoun Majlesi, told the ISNA news agency that South Korea is utterly dependent on Washington because without the United States, "it would be a poorhouse like North Korea."

Iran is not at a dead end.

Majlesi explained that for now, there is little Iran can do against South Korean banks. "These are war conditions and Korea is on the U.S. side," he said. "Even if the issue is raised in international courts, there's no solution because legal affairs have become subservient to politics."

Javan, a newspaper reputedly close to the Revolutionary Guards, recently blamed the government's "careless" relations with Western states and their allies for worsening Iran's financial predicament. Officials working under President Hassan Rouhani prefer to claim that U.S. pressures designed to isolate Iran have effectively failed.

The situation with South Korea, but also Japan, Great Britain and other states, indicate otherwise. Iran's regional relations, both commercial and political, have also deteriorated. Trade has declined, for example, with the United Arab Emirates, which was its number two trading partner in terms of volume after China.

Perhaps the fault does not lie with the Rouhani government, which won't move a finger without the Supreme Leader's assent, but with the overall nature and policies of the Islamic Republic led by Ayatollah Ali Khamenei. And yet, in spite of stagnation in its diplomacy and the economy, the leader insists Iran is not "at a dead end."

Ayatollah Khamenei told South Korean President Park Geun-hye in a meeting in Tehran in May 2016 that ties between the two countries should not be influenced by U.S. "hostility," and he was pleased by Geun-hye's response: that her country had a "favorable" attitude to working with Iran. It turned out not to be true at all.

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Economy

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.


Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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