Iran’s Turkey-Based Sanctions-Evasion Scheme More Extensive Than Previously Reported

Iran’s sanctions-evasion schemes involving Turkey “started earlier, lasted longer, extended further, and involved more people and countries” than previously known, according to a series of deeply researched exposés published on Sunday by a global network of investigative journalists. The revelations show the ease with which Iran and its agents were able to exploit not only the Turkish but also the international financial systems.

The Organized Crime and Corruption Reporting Network (OCCRP), the investigative reporting platform of a global network of independent media centers and journalists, reached its findings based on a 16-month investigation involving more than 400 journalists from 88 countries. The investigation examined 2,100 leaked Suspicious Activity Reports (SARs) that international financial institutions submitted to the U.S. Treasury Department’s Financial Crimes Enforcement Network. The OCCRP then collaborated with other media outlets to analyze the leaked SARs as well as other documents and transaction records – totaling nearly 750,000 items – that U.S. prosecutors used to indict Reza Zarrab, the Turkey-based ringleader of Iran’s sanctions-evasion network.

Authorities arrested Zarrab in Miami in March 2016 for his role in evading U.S. sanctions against Iran and laundering billions of dollars for the Islamic Republic. He then pleaded guilty and turned state’s witness, confessing in federal court to having bribed senior Turkish ministers and top executives of Turkey’s second-largest public lender, Halkbank. The trial resulted in the conviction of the bank’s deputy CEO, Mehmet Hakan Atilla, who received a 32-month prison sentence. During his testimony, Zarrab even implicated Turkish leader Recep Tayyip Erdogan, saying that the then-prime minister had approved the sanctions-busting efforts.

The OCCRP’s research, which included hours of interviews with Adem Karahan, Zarrab’s bodyguard-turned-bagman since 2006, shows that Zarrab’s illicit work for Iran started in 2008, two years earlier than prosecutors told jurors during the 2017 Atilla trial. Karahan confessed that he accompanied Zarrab on a Tehran trip, during which Zarrab, Karahan believes, presented a bribe to then-Iranian President Mahmoud Ahmadinejad, likely a kickback from Zarrab’s sanctions-evasion profits.

Karahan also exposed how Egemen Bagis, Turkey’s former minister of European Union affairs and current ambassador to Prague, intervened with Turkey’s Aktif Bank to reverse the private lender’s decision to reject an application for an account that the Zarrab network had planned to use. Aktif Bank, which Zarrab implicated in his court testimony as a party in his scheme, is part of a conglomerate that Erdogan’s son-in-law Berat Albayrak directed as CEO until 2013, before he became Turkey’s minister of energy and, later, minister of finance and treasury.

The OCCRP’s research further shows that while Zarrab’s sanctions-evasion activity through Turkey received media and court attention, a similar Sweden-based network moved money from Chinese petroleum companies to Iran while escaping scrutiny. The OCCRP’s investigation also indicates that Zarrab, in addition to his work for Iran, laundered over $1.25 billion for Russian clients.

Overall, the OCCRP’s series of exposés shows that reports that international financial institutions submitted to the U.S. Treasury Department concerning suspicious transactions failed to prevent sanctions evasion, money laundering, and other criminal activity. Given that the OCCRP’s report relies on only 2,100 of the 12 million SARs filed between 2011 and 2017, it is fair to assume that this is just the tip of the iceberg. If Washington wants to deny impunity to the likes of Tehran, Ankara, and their illicit networks, it is imperative for the United States to hold accountable financial institutions that knowingly participate in such schemes, while also working with global allies to build institutional capacity to detect and crack down on such malign financial activity in a timely fashion.

Aykan Erdemir is a former member of the Turkish parliament and senior director of the Turkey Program at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Aykan, the Turkey Program, and CEFP, please subscribe HERE. Follow Aykan on Twitter @aykan_erdemir. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.