21 Sep 2020
By Tom Stocks, Daniela Castro, Kelly Bloss and Adam Klasfeld, OCCRP, 20 September 2020
OCCRP — Best known for laundering billions of dollars for Iran, notorious gold smuggler Reza Zarrab’s ties to Russia received only passing mention when he was prosecuted in the U.S. in 2016.
That was a huge oversight.
A new investigation by OCCRP and Courthouse News Service shows that Russia was central to Zarrab’s money network even before he began working for Iran. The lucrative business is evident in thousands of bank transfer records obtained by OCCRP and has been described in interviews by a Zarrab insider who says he smuggled millions of dollars to Russia.
Federal prosecutors from the Southern District of New York declined comment on this investigation.
Zarrab, while still in his early 20s, was the co-owner of Bella Investments Company LLC, a Dubai-based “investment company” that secretly handled around $1.25 billion in suspicious wire transactions involving Russian and offshore entities. Several transactions were tied to the massive tax fraud exposed by the late Russian whistleblower Sergei Magnitsky.
Bella Investments also received payments from offshore companies that have been linked to slave labor in Azerbaijan and petroleum illegally shipped to President Bashar al-Assad’s Syria.
Yet Bella Investments was scarcely mentioned when the U.S. prosecuted Zarrab and Mehmet Hakan Atilla, a senior executive at Turkey’s state-owned Halkbank, which facilitated Zarrab’s criminal scheme.
Investigators apparently knew about the company. Court papers show that when U.S. authorities seized Zarrab’s electronic devices in 2016, Bella Investments was used as a keyword search term. The FBI also asked the U.S. Treasury to search its records for Bella Investments a month after Zarrab’s arrest.
Bella Investments was also on a list of companies and people that was shown to prospective jurors who were told their names might come up in Atilla’s trial. It never did.
Under a new name and managed by Zarrab’s uncle and cousin, Bella Investments was still actively registered in Dubai two and a half years after Zarrab’s guilty plea in a U.S. district court. Three other companies bearing similar names, meanwhile, have been established by Zarrab’s relatives in Turkey, North Macedonia and Italy, showing the family’s money network extends into Europe.
Bella Investments’ continued presence in Dubai highlights the Zarrab family’s ability to exploit the United Arab Emirates’ lax regulatory framework to move hundreds of millions of dollars — seemingly with few questions asked.
The wire transfer activity also involves Standard Chartered, the British multinational bank that U.S. officials labelled a “victim bank” and unwitting accomplice in Zarrab’s schemes. Documents show Bella Investments pushed millions in suspicious payments through an account at the British banking giant’s UAE branch.
A lot of it was suspicious money flowing from Russia.
In 2008, Russia badly needed cash. Its central bank recorded net capital outflows of nearly $133.6 billion that year as a weak economy, falling oil prices, and ruble depreciation prompted unprecedented flight of cash from the country.
Much of that money was held by legitimate investors seeking more stable markets, but some ended up in the accounts of a Dubai-based company run by Zarrab, an obscure 25-year-old Turkish-Iranian money exchanger, and his partner, Ahmed Ali Hassan Taher, the Emirati owner of Dubai’s Al Azhar Money Exchange.
Companies controlled by Zarrab in Turkey would later pump tens of millions of dollars through Al Azhar, banking data obtained by OCCRP show. Al Azhar’s website no longer works, but an archived page from 2011 lists several Iranian banks, including Bank Mellat, which was sanctioned by the U.S. at the time. Unlike his former partner, Taher has not been charged or sanctioned by the U.S. Taher could not be reached for comment.
Established in May 2007, Bella Investments would over the next four years process some $1.25 billion in wire transfers from overseas companies in around two dozen countries. Around half came from Russia, mostly in 2008.
On paper, the wire transfers were justified as payments to Bella Investments for a wide range of goods, such as home appliances, dried fruit, securities and textiles. Many were vaguely defined as “consumer goods” or “industrial equipment.” Often records referenced only a “contract” or “invoice,” or no purpose was stated at all.
In reality, the company was used to launder funds through numerous offshore bank accounts around the world.
Adem Karahan, a Zarrab insider who smuggled tens of millions of dollars in cash to Moscow and operated Turkish shell companies that wired funds to Bella Investments, said the company had no real business activity.
“Bella was set up for money transfer,” Karahan said in an exclusive interview. When asked if the company conducted any real commercial activity, he replied: “No, it didn’t.”
Karahan gave OCCRP bank statements for Turkish shell companies that formally listed him as shareholder or authorized representative but he says were actually controlled by Zarrab. The statements show payments to Bella Investments.
In total, Karahan was involved in seven Zarrab shell companies. Asked if any had real commercial activity, he replied: “No, absolutely not.”
On the witness stand in U.S. District Court in 2017, Zarrab testified under oath that he never laundered Russian money.
“Isn’t it also true that you were involved in money laundering involving Russia prior to 2010?” asked an attorney representing the Halkbank executive, Atilla.
“No, that is not correct, ma’am,” Zarrab responded.
“Wasn’t your chauffeur stopped at the border with $150 million in cash in connection with your dealings in Russia?” the attorney pressed. “Yes or no?”
“No, ma’am; that is not correct,” Zarrab said.
But Karahan said he and others routinely smuggled cash into Russia.
“Me and my friend took $4 million, after that $8 million,” he said. “We went a lot to Russia.”
Karahan recalled as many as 20 journeys to Russia were made around 2009 and 2010, and shared Russian visas that confirm his travel there in 2010. He said that on one occasion he had to bribe officials who discovered the illicit cash.
“During that [trip] custom police stopped us at Sheremetyevo airport,” he said. “We were questioned. In exchange with $1,000 they set us free.”
Karahan said other couriers who handled Russian cash included Yücel Özcil, a Turkish national who in 2017 was described in a U.S. court as Zarrab’s security guard. Özcil’s Facebook account shows photos of Moscow’s Red Square uploaded in September 2010, when the smuggling was taking place. Özcil did not respond to a request for comment.
Another associate was Vidadi Badalov, an Azerbaijani national who took delivery of the cash in Russia, Karahan said. Data obtained by OCCRP through the U.S. Freedom of Information Act shows that three Turkish companies formally registered to Badalov and Karahan wired more than $42 million to Bella Investments in 2010.
“Vidadi Badalov was Reza Zarrab’s man in Russia,” Karahan said. Badalov did not respond to a request for comment.
Karahan estimates as much as $300 million in cash was smuggled into Russia. Zarrab himself travelled to Russia in 2007 and 2010, according to passport stamps noted in U.S. court filings.
While financial records obtained by OCCRP only now show the true volume of Zarrab’s Russian business in the years before his arrest, the smuggling operation was revealed in 2013 by a leaked report believed to have been prepared by Turkish law enforcement investigating high-level bribery of government officials. The investigators described what they called Zarrab’s “Russia-based old system” for moving cash.
“In order to meet the Russian banks’ need for hot money, they’ve been transferring money through shell companies with commission through the [old] system they’ve developed,” they wrote.
“In order to take the monies earned abroad through unknown legal/illegal sources into Russia, they may be brought into our country from Dubai.”
The “Iran-oriented new system,” Turkish law enforcement said, involved laundering money for Iran.
Zarrab was arrested in Turkey in December 2013 in relation to alleged bribery to further money laundering linked to Iran. He later testified in the U.S. that he spent time in jail before bribing his way to freedom.
Huseyin Korkmaz, who led the 2013 investigation, testified in the U.S. that criminal charges were brought against him, and against another prosecutor and investigators who were probing alleged corruption by Turkish President Recep Tayyip Erdoğan, who was prime minister at the time, and by other ministers. Korkmaz said in court that he was reassigned and then jailed before fleeing Turkey.
Zarrab testified that Erdoğan was in on the scheme to help Iran evade sanctions.
‘Classic Red Flags’
Turkish police didn’t appear to know about Bella Investments and lacked access to the thousands of bank wire records that U.S. authorities later collected and used in prosecuting Zarrab and Atilla.
But documents and data obtained by OCCRP show that Turkish authorities were on the right track.
The “old system” appears to have relied on dozens of shell companies registered in Russia and in low-transparency jurisdictions, such as the British Virgin Islands, Belize and Seychelles. These companies over four years wired hundreds of millions of dollars to Bella Investments alone.
Most of the $1.25 billion was sent in 2008, with around half coming directly from the Russian bank accounts of Russian companies that were often created just months before the money transfer.
Bank records suggest these transfers were also justified as payment for a wide variety of goods, vaguely defined as consumer items, industrial equipment, home appliances, or fruit and vegetables. In some cases there was a reference to a contract or invoice with little or no further information.
Ross Delston, a U.S.-based anti-money laundering expert who trains financial professionals to detect suspicious activity, said banks’ compliance units should have questioned those transfers.
“The facts of this matter present classic red flags that banks are supposed to identify for potential money laundering or other financial crime,” he said.
Delston noted that Bella Investments had only recently been formed, and was — on paper — dealing with a wide variety of goods, which is atypical for an investment company. Furthermore, funds were being transferred from “higher-risk offshore financial centers.”
“All of these are red flags, indicators of possible criminal activity,” Delston said.
The Russian companies included Investconsulting LLC, which was established in 2007 and shuttled more than $136 million to Bella Investments in the first half of 2008. Banking records say only that the money was for the “contract of sale of purchase of securities” and reference an apparent contract date.
Read more at OCCRP
RiskScreen: Eliminating Financial Crime with Smart Technology
Advance your CPD minutes for this content, by signing up and using the CPD WalletFREE CPD Wallet