January 3, 2018 | Policy Brief

Landmark NY Trial Proves Turkish Government Complicity in Iran’s Sanctions-Busting

January 3, 2018 | Policy Brief

Landmark NY Trial Proves Turkish Government Complicity in Iran’s Sanctions-Busting

Today, a federal jury in the Southern District of New York returned a guilty verdict in a landmark case focused on Turkish efforts to help Iran evade U.S. sanctions. The jury found Turkish banker Mehmet Hakan Atilla guilty on five of six counts, including sanctions evasion, bank fraud, and obstructing the actions of the U.S. Treasury. In November, gold trader Reza Zarrab, the ringleader of the Turkish scheme, pled guilty to similar charges and chose to cooperate with prosecutors.

The three-week trial presented a plethora of evidence implicating both the Turkish government and Turkey’s second largest state-owned bank, Halkbank, where Atilla was a deputy general manager, in a scheme to help Iran illicitly access billions of dollars of restricted funds.

After a last-minute decision to cooperate with prosecutors, Zarrab became the trial’s star witness, disclosing details of his operations in Turkey and Dubai between 2012 and 2016. His testimony provides ample evidence of a conspiracy between the Central Bank of Iran, the Iranian oil ministry, Turkey’s former economy minister Zafer Caglayan, and Halkbank’s ex-CEO Suleyman Aslan.

The evidence suggests that Caglayan and Aslan sought to help Iran gain access to billions of dollars of oil revenue being held in escrow accounts as a result of U.S. sanctions. The Turkish effort converted the escrow funds to gold, which was transferred to Dubai, where payments were made on Iran’s behalf.

The testimony heard at trial demonstrates the extent to which senior Turkish officials pursued personal enrichment by means that directly undermined the supposed objectives of President Recep Tayyip Erdogan’s foreign policy. Since 2012, Erdogan has been the loudest critic of the Iranian client on his southern border, Syrian President Bashar al-Assad, as well as the top supporter of Sunni rebels fighting the Syrian regime. Erdogan has called the Syrian civil war an “attempted genocide,” denounced Assad as a terrorist, and chastised Tehran for supporting Damascus. All the while, the New York trial has shown, his government was facilitating a scheme that helped Iran fund both its nuclear program and Assad’s war effort in Syria.

Turkey’s sanctions-busting scheme also came at the expense of Turkish businesspeople as well as needy Iranian citizens. In theory, the Iranian funds placed in escrow at Halkbank should have been used to make legitimate purchases of food and medicine. Instead, Zarrab’s front companies and fake exports generated commissions that went into bribing corrupt state officials. Ironically, Zarrab’s fake exports earned him an award from the Turkish government, with Erdogan anointing him as a philanthropic businessperson. In effect, Zarrab’s scheme used up funds slated to meet Iranians’ humanitarian needs, redirecting that money instead to bankrolling corrupt Iranian mullahs, the nuclear program, and the Syrian war.

The evidence from the trial spells trouble for the already turbulent U.S.-Turkish relations in 2018. U.S. authorities will likely slap Halkbank and possibly other Turkish financial institutions with hefty fines. Erdogan will not hesitate to capitalize on this opportunity to propagate conspiracy theories and incite the Turkish electorate against the U.S. as part of his campaign strategy for the 2019 presidential elections. As usual, the top losers of this move will be Turkey’s economy, democracy, and flailing alliance with the West.

Aykan Erdemir is a former member of the Turkish parliament and a senior fellow at the Foundation for Defense of Democracies. Follow him on Twitter @aykan_erdemir.

Merve Tahiroglu is a research associate at the Foundation for Defense of Democracies. Follow her on Twitter @MerveTahiroglu.

Follow the Foundation for Defense of Democracies on Twitter @FDD.