It must have been embarrassing for President Karzai of Afghanistan to have to admit in front of a fellow president, Emomali Rahmon of Tajikistan – that he receives "bags of money" in donations from Iran. "This is a relationship between neighbours," he said, making it sound as though it is customary for neighbours to walk around carrying bags of handouts.
A few aspects are intriguing. First, President Karzai claimed that "this is transparent". He said once or twice a year Iran provided as much as €700,000 (£615,000) and that money was handled by Omar Daudzai, his powerful chief of staff, who is known for his anti-western views.
However, transparency should surely be for the benefit of the people of Afghanistan and the funds thus received should be declared and registered at the Afghan treasury. Yet that was not what the president said. Instead he explained the transparency vis-à-vis some distant meeting at Camp David with the former US president, George Bush.
Karzai confirmed "cash payments", which he described as usual. However, official bank transfers would be the norm for transparency. It is true that in previous years, when Afghanistan lacked a functioning banking system, cash was the main means of exchange. However, banks are now fully functional. Iran is one of the main reconstruction donors to Afghanistan and we cannot expect that all $700m-plus of Iran's donations has been given in bags of money.
The New York Times, which originated the story, claimed that Daudzai was given the euros in bags by Iran's ambassador to Afghanistan, Feda Hussein Maliki. The Iranian embassy in Kabul denied this and Mehr news agency in Iran said the report was fabricated. "How could a diplomat do such things in public view?" Mehr news agency said.
Daudzai has been President Karzai's chief of staff since 2003, apart from a couple of years as ambassador to Iran. During the Afghan civil war he is believed to have supported the notorious Hezb-e-Islami, led by Gulbuddin Hekmatyar, funded by the Pakistani military intelligence, ISI. Hekmatyar who was given refuge in Iran after the US-led invasion of Afghanistan, is one of the mediators in talks with the Taliban. All these elements make Daudzai an unusual ally for Iran – but, then, they all share Iran's anti-American sentiment.
Iran's interest in Afghanistan should be seen in the context of its ambitions as a major regional power and as part of Iran's ongoing regional competition with the US. Iran's main aim is to undermine American interest in the region. Its alleged anti-US operations in Iraq were described in documents recently published by WikiLeaks.
We have also seen over the past two weeks how Iran has influenced the formation of a government in Iraq through persuading its allies, the Sadrists, to form a coalition with Nouri al-Maliki, the prime minister.
In its efforts to compete with the US, Iran uses state and non-state actors as proxies for manipulating a range of political, economic, and military outcomes to gain influence.
In Afghanistan the aim is political influence through the Shia, Hazara and Tajik population, sometimes referred to as the Persian-speaking population who account for more than 58% of the country's inhabitants. They have close bonds with Iranians through language, history and culture. Iran keeps a close eye on the political progress of these groups and donates money to their political campaigns.
Parliamentary elections held in Afghanistan in September were marred by fraud and the results may not be known for a while. However, among more than 100 Hazara and Shia candidates who took part, 25-30 are expected to win seats in the 249-seat lower house of parliament. Journalist Vahid Mojdeh says most of these candidates "are believed to be supported by Iran". He says: "Shias have never before had so much power as they do now."
The Tajik success is even more significant. Dr Abdullah, one of the main leaders of Afghanistan's Tajiks, says his supporters are likely to have won 88 seats. While Tajiks form 27% of the population, this result would indicate a significant shift in their favour from around 40-50 seats in the previous parliament.
Thus, if the estimated 125 seats are occupied by potential allies of Iran in the 249-seat parliament this could give them the edge, and significantly increase Iran's power in influencing politics in Afghanistan.
True, it is not just Iran that uses cash payments to buy political and military support. The US has done the same in Iraq and Afghanistan to encourage insurgents to switch sides. Yet, that was announced as a military strategy. Whatever the excuses, and whoever enters into these backhand methods of buying political support, they are all guilty of deceiving the public.
President Karzai's explanation makes a mockery of transparency, and Iran's method of passing bags of money between its ambassador and the president's chief of staff flouts all diplomatic norms.
Massoumeh Torfeh, a research associate at SOAS specializing on the politics of Iran, Afghanistan and Central Asia.