May 26, 2016 | Real Clear World
Obama Administration Helps Iran Get Its Money Back
On March 19, the FBI arrested Turkish-Iranian businessman Reza Zarrab upon his arrival in Miami for evading sanctions against Iran, money laundering, and bank fraud. Zarrab, who pleaded not guilty in Manhattan’s District Court, is now awaiting trial. The Zarrab trial may look like proof that the Obama administration — even after last year’s nuclear deal with Iran — is serious about upholding its sanctions policy. In fact, much like Secretary of State John Kerry’s recent efforts to assuage European banks about doing business with Iran, the Zarrab trial might end up helping Iran recover assets lost during a decade of sanctions evasion.
Zarrab allegedly worked with Babak Zanjani, the ringleader of one of the most prominent sanction-evasion and money-laundering networks ever established on behalf of the Iranian regime. Zanjani, along with an associate, is currently on death row in Tehran for having embezzled $2.8 billion from that operation. The Obama administration sanctioned Zanjani in 2013, but missed the other two. A key question Zarrab’s court case may reveal is why the U.S. failed to pursue them until after the Iran nuclear deal, given that their illicit corporate schemes kept Tehran’s economy afloat at the height of the sanctions era.
Turkish prosecutors already arrested Zarrab in December 2013 for allegedly buying off Turkish government officials to grease the wheels of Iran’s money laundering schemes. Turkish media had also linked him to Zanjani, with whom Zarrab allegedly worked to turn illicit oil sales into gold through Zanjani’s companies in Dubai, Turkey, Tajikistan, and Malaysia. Zanjani’s London-based associate Mehdi Shams helped invest those revenues.
Eventually, all three drew Tehran’s ire for keeping huge sums to themselves. In September 2013, Iranian authorities arrested Zanjani for embezzling nearly $3 billion. Tehran was also likely behind leaked news to the press that the Turkish low-cost airline Onur Air, which Shams had bought in May 2013, was a Zanjani asset.
Three months after Zanjani’s arrest, Zarrab was detained in Istanbul as part of a massive graft probe. Prosecutors accused him of running a large gas-for-gold money-laundering scheme that reportedly facilitated the transfer of 87 billion euros ($120 billion) in gold to Iran. Luckily for Zarrab, the corruption scandal also included high-level Turkish officials.
Ankara promptly intervened, replacing law-enforcement officials involved in the probe with loyalists who put it to rest. The entire case was dropped within months. Zarrab was released without charges, and none of the ring of companies named by Turkish investigators — now implicated by his U.S. indictment — was ever sanctioned. Turkey’s ruling Justice and Development Party doubled down on its effort to exonerate him, and last year gave Zarrab a “top exporter” award from the Turkish Exporters Assembly, a pro-government business group.
The Turkish government’s cover-up might have been harder to accomplish had its heavy-handed efforts to silence the law not dovetailed with Washington’s desire to pave the way to an Iran nuclear deal. The Obama administration’s coveted détente with Tehran had removed any incentive for new sanctions. With Zanjani already designated by the European Union in 2012, Washington had no choice but to follow suit and blacklist him the following year.
Targeting his accomplices would have been natural but impolitic while nuclear negotiations with Iran were underway, especially if it meant spoiling America’s relations with Ankara. Pressure from Turkey’s ruling party quashed the investigation. Zarrab was eventually let free in March 2014. U.S. authorities could have confirmed those allegations while he was in Turkish custody, but in doing so, they would have revealed Zarrab’s complex corporate scheme to do Tehran’s bidding. In the process, they might have undermined Turkey’s government and compromised negotiations with Iran, neither of which seemed desirable to Washington at the time.
Ironically, Iran — anxious to recoup Zanjani’s embezzled money — would not let either Turkey or the United States bury the story. In February 2014, Tehran requested that Ankara turn over Zarrab’s assets, but to no avail. The following May, Iran sent a delegation to Turkey to investigate the Zarrab-Zanjani connection. Eventually, failed diplomatic efforts led to lawsuits. Then, in October 2015, Iran’s Oil Ministry sued Onur Air, claiming it as one of Zanjani’s hidden assets. Corporate filings for the airline available from Turkey’s Official Gazette confirm that Zanjani’s associate Shams was a significant stakeholder in its shares until as recently as February 2015.
It is astounding that Shams too avoided U.S. sanctions. Shams (who changed his name from Shamszadeh) worked as commercial director for the Islamic Republic of Iran’s Shipping Lines, or IRISL, until early 2005 when the firm dispatched him to London to run its British subsidiaries. Within months he resigned, going on to establish dozens of companies with Iranian partners who were later designated for sanctions evasion. By 2013 — when Turkish media accused him of acting on Zanjani’s behalf — Shams ran a small corporate empire active in finance, aviation, precious metals, investment, and shipping, with companies across Europe and Turkey. After Iranian prosecutors implicated him as a key associate of Zanjani’s sanction-evasion schemes, he returned to Iran to face trial. Western sanctions agencies somehow missed that connection.
Tehran is apparently so confident that sanctions won’t be reinstated that it has no qualms about exposing its own past violations. That confidence was bound to hurt Turkey, which has played a key role in facilitating those sanction-evasion networks. Had Iran kept quiet, Turkey’s collusion might have been forgotten. With evidence emerging daily from Tehran’s court proceedings, it is impossible to ignore. Revelations that are now bound to emerge from Zarrab’s trial will only fuel Tehran’s resolve to seize his assets in Turkey, and hurt Ankara’s already eroding international image. But they may also embarrass Washington.
Days after Zanjani’s death sentence, Zarrab — perhaps mindful that his life and wealth were now in danger — reportedly put his extravagant property portfolio up for sale and flew to Miami, only to be arrested on arrival. Whether he plea-bargained with U.S. authorities for his safety or came to America unaware of his pending indictment remains to be seen. Either way, he may have reasoned, it was better to hang out in a federal penitentiary than hang from a crane in a Tehran square with his former business partners.
Zarrab’s trial is now bound to shed light on why Washington waited so long to go after Tehran’s top sanctions evaders. Turkey’s collusion with Iran’s fraudulent middlemen and the corruption it fed exposes the rotten nature of Ankara’s ruling party. The indictment and prosecution of a sanctions evader after those international penalties are gone raise questions about Obama’s sanctions strategy against Iran. After all, the cases of Shams, Zanjani, and Zarrab reveal the president’s reluctance to hold the Islamic Republic accountable during nuclear negotiations, something that will severely undermine Washington’s credibility to confront Iran’s bad behavior post-deal.
Punishing sanctions evaders and corrupt politicians, it seems, was not Obama’s priority in 2014. Now that the Iran deal is done, ironically, the Zarrab trial may only serve Tehran’s efforts to recoup its assets.
Emanuele Ottolenghi is a Senior Fellow at the Foundation for Defense of Democracies. Follow him on Twitter @eottolenghi