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The other side of Iran's economy belongs to the Islamic foundations, which account for 10% to 20% of the nation's GDP--$115 billion last year. Known as bonyads, the best-known of these outfits were established from seized property and enterprises by order of Ayatollah Khomeini in the first weeks of his regime. Their mission was to redistribute to the impoverished masses the "illegitimate" wealth accumulated before the revolution by "apostates" and "blood-sucking capitalists." And, for a decade or so, the foundations shelled out money to build low-income housing and health clinics. But since Khomeini's death in 1989 they have increasingly forsaken their social welfare functions for straightforward commercial activities.

Until recently they were exempt from taxes, import duties and most government regulation. They had access to subsidized foreign currency and low-interest loans from state-owned banks. And they were not accountable to the Central Bank, the Ministry of Finance or any other government institution. Formally, they are under the jurisdiction of the Supreme Leader; effectively, they operate without any oversight at all, answerable only to Allah.

According to Shiite Muslim tradition, devout businessmen are expected to donate 20% of profits to their local mosques, which use the money to help the poor. By contrast, many bonyads seem like straightforward rackets, extorting money from entrepreneurs. Besides the biggest national outfits, almost every Iranian town has its own bonyad, affiliated with local mullahs. "Many small businessmen complain that as soon as you start to make some money, the leading mullah will come to you and ask for a contribution to his local charity," says an opposition economist, who declines to give his name. "If you refuse, you will be accused of not being a good Muslim. Some witnesses will turn up to testify that they heard you insult the Prophet Mohammad, and you will be thrown in jail." The Cosa Nostra meets fundamentalism.

As minister of the Revolutionary Guards in the 1980s, Rafiqdoost played a key role in sponsoring Hezbollah in Lebanon--which kidnapped foreigners, hijacked airplanes, set off car bombs, trafficked in heroin and pioneered the use of suicide bombers. According to Gregory Sullivan, spokesman for the Near Eastern Affairs Bureau at the U.S. State Department, the foundations are the perfect vehicles to carry out Iran's shadow foreign policy. (One of them offered the $2.8 million bounty to anyone who carried out Ayatollah Khomeini's fatwa to kill British author Salman Rushdie.)

The largest "charity" (at least in terms of real estate holdings) is the centuries-old Razavi Foundation, charged with caring for Iran's most revered shrine--the tomb of Reza, the Eighth Shiite Imam, in the northern city of Mashhad. It is run by one of Iran's leading hard-line mullahs, Ayatollah Vaez-Tabasi, who prefers to stay out of the public eye but emerges occasionally to urge death to apostates and other opponents of the clerical regime.

The Razavi Foundation owns vast tracts of urban real estate all across Iran, as well as hotels, factories, farms and quarries. Its assets are impossible to value with any precision, since the foundation has never released an inventory of its holdings, but Iranian economists speak of a net asset value of $15 billion or more. The foundation also receives generous contributions from the millions of pilgrims who visit the Mashhad shrine each year.