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ARI SHAPIRO, HOST:

This is MORNING EDITION from NPR News. I'm Ari Shapiro.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne. In Iran, a huge scandal over bank fraud is shaking domestic politics. Several of Iran's largest banks have been swindled out of an estimated $2.6 billion. The scandal has sparked a widening investigation and so far, more than 30 arrests. It has also led to charges that some of President Ahmadinejad's closest advisers were involved. NPR's Mike Shuster has more.

MIKE SHUSTER, BYLINE: On its face, it appears it was easy for some of Iran's most important bankers to steal so much money. All they did was secure falsified letters of credit from several key banks, and money started flowing into the accounts of an investment firm and out of Iran, notes Muhammad Sahimi who writes for the website Tehran Bureau.

MUHAMMAD SAHIMI: Bank Melli and Bank Saderat, which are two important banks in Iran, were used to open huge lines of credit without presenting any assets to, you know, back up those line of credits, and these line of credits were played against each other to get in some sort of Ponzi scheme.

SHUSTER: Apparently the scheme had been operating for several years, but it was discovered just last month. In Iran, the widening scandal has taken on political dimensions, says Sahimi. It is now coloring the struggle for political preeminence between President Ahmadinejad and Iran's Supreme Leader, Ayatollah Ali Khamenei.

SAHIMI: The hardliners around Ayatollah Khamenei have been trying to link this to Ahmadinejad's group.

SHUSTER: The link, according to the Khamenei camp, is the president's chief adviser Rahim Mashaei, who has often been the lightning rod for criticism from conservative hardliners, notes Abbas Milani of Stanford University.

ABBAS MILANI: The argument is that he is somehow responsible and that the president's office is responsible, although no one has yet accused Ahmadinejad.

SHUSTER: This is not the first time that Ahmadinejad and his inner circle have been accused of corruption. Earlier in his term as president, several billion dollars of oil revenues disappeared. Although little evidence exists to back up any allegations against Ahmadinejad, Muhammad Sahimi argues there is some basis for these suspicions, looking forward to next March's parliamentary election.

SAHIMI: What is most important, and they don't talk about, is the fact that these are Ahmadinejad supporters that have amassed a lot of resources, a lot of fortune, a lot of cash, a lot of money. And they are afraid that they will be (unintelligible) to people, to groups and so on, basically buy their votes and their loyalty for the election. That's the real issue here.

SHUSTER: It's not just the hard line conservative camp that believes Ahmadinejad has his eye on extending his political power beyond 2013, when his second and final term ends. Some argue that Ahmadinejad would like see his supporters take control of the parliament, then engineer victory for his hand-picked successor in 2013. Ahmadinejad underscored his own role as president when he was asked about his accomplishments at a recent press conference in New York. He spoke through an interpreter.

MAHMOUD AHMADINEJAD: The gauging of the relationship between the presidency and the people, the president is among the servants of the people, on the side of the people, among the people. This is something that has been established in Iranian history, and of course, the president must love his people, his nation.

SHUSTER: At the same time, Ahmadinejad has hinted he would like to see relations improve with the United States, which he certainly would benefit from, says Nader Hashemi, an Iran analyst at the University of Denver.

NADER HASHEMI: He made a number of statements that suggested that he wanted to resolve tensions with the United States. Doing so, in the context of Iranian politics, would be an extremely popular move and would, sort of, increase his support going toward a parliamentary election next year.

SHUSTER: So the claim that Ahmadinejad and his supporters may be accumulating a multi-billion dollar slush fund - stemming in part from the recent fraud - is not beyond the realm of the possible. That prospect has clearly got Ayatollah Khamenei and his camp worried, says Abbas Milani.

MILANI: He is not sure about how much of an arsenal Ahmadinejad might have. There is increasing talk about impeachment. There is talk of doing away with the whole office of the presidency, replacing it with a prime minister, who would be elected by the parliament and dismissed by the parliament, essentially making Khamenei the unrivaled head of state.

SHUSTER: Just a few days ago, Khamenei himself suggested in public that Iran might not retain the presidential system forever. It's not clear just how serious the impeachment effort is yet, but it's safe to say, the divisions in Iran's government just keep getting deeper and deeper. Mike Shuster, NPR News.

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