14 Oct 2019
U.S. prosecutors were bearing down last year on a state-owned Turkish bank implicated in a sanctions case that had long been an irritant for Turkish President Recep Tayyip Erdogan.
Erdogan asked both the Obama and Trump administrations to drop the matter. Rudy Giuliani got involved, mounting an audacious shadow diplomacy effort to extract a key Turkish suspect from U.S. custody. President Donald Trump asked a member of his cabinet to steer prosecutors away.
Still, federal officials secured the conviction of two people who they said helped channel $20 billion to Iran in violation of U.S. sanctions. By the summer of 2018, U.S. authorities had started wrangling with Turkish authorities about a costly financial penalty against the bank itself, Turkiye Bank Halkasi AS, according to people with knowledge of the discussions.
Since then, the investigation has gone quiet.
That silence might have escaped notice, but for Trump’s controversial and recent communications with the Turkish president. After a phone call with Erdogan on Sunday, Trump withdrew U.S. support from Kurdish fighters along Syria’s border with Turkey, opening the way for a Turkish incursion that began Wednesday. The White House threatened more sanctions against Turkey on Friday. The rapid-fire mix of concessions and threats against the country served as a reminder of the allies’ uneasy relationship — in which the sanctions investigation has been a major pressure point.
Word of Trump’s dealings with Turkey interrupted blanket news coverage of a congressional impeachment inquiry into his dealings with Ukraine. Lawmakers are focusing on whether Trump tapped the machinery of the state to advance his personal agenda there, while using personal emissaries to steer U.S. policy. The Turkey matter echoes the Ukraine episode — once again placing Trump and Giuliani at the center of ad hoc diplomacy and private requests between leaders.
It’s unclear where the Halkbank investigation stands. Complex financial investigations can move slowly, requiring coordination between the Justice Department, the U.S. Treasury’s sanctions-enforcement unit or other agencies. Diplomatic considerations can add to the complexity. For criminal inquiries, the Justice Department can choose to close an investigation without charges, sometimes via formal notice, but there’s no indication of what it may have done in this instance.
The Manhattan U.S. attorney’s office and the Justice Department in Washington declined to comment.
Halkbank and Turkish officials didn’t respond to requests for comment. The White House didn’t immediately comment.
At the center of the U.S. inquiry was Reza Zarrab, a flamboyant Turkish gold trader who said he’d helped Iran tap funds from overseas oil sales that was frozen in foreign accounts.
Zarrab, who’s married to a Turkish pop star, had a tabloid lifestyle of yachts, fast cars and an office in a Trump Tower in Istanbul. After he was detained during a 2016 trip to the U.S., he added Giuliani to his legal team.
Giuliani attempted to broker a diplomatic deal with Turkey to extract Zarrab from U.S. custody, attempting to swap him for an American pastor, Andrew Brunson, who was in Turkish custody.
Giuliani’s role apparently went deeper than previously reported: At Giuliani’s urging, in the second half of 2017, Trump asked then-Secretary of State Rex Tillerson to press the Justice Department to drop its case against Zarrab, Bloomberg News reported on Wednesday.
Giuliani, in an interview, said he talked to the State Department in his role as Zarrab’s lawyer and said he behaved ethically and legally. He would have been a hero had he arranged the swap with Brunson, he said.
Giuliani’s efforts to spring Zarrab were unsuccessful. He ultimately pleaded guilty. In a twist, he became the prosecution’s star witness in a trial that resulted in the conviction of a Halkbank executive, Mehmet Hakkan Atilla.
The proceedings in a Manhattan federal court gripped Turkey. Some testimony sent its markets into gyrations, in part because prosecutors aired evidence that tied the scheme to Turkish officials and their families. An ex-finance minister was charged in absentia.
Prosecutors were unsparing in presenting evidence of Halkbank’s alleged complicity in the laundering scheme. Standing in front of an easel, Zarrab drew a schematic diagram of how the operation’s crucial initial stages took place within Halkbank.
The state-run bank would transfer money from frozen Iranian accounts there into one of Zarrab’s accounts. Zarrab would then convert the cash to gold and ship it to Dubai, where it could be used to make payments on Iran’s behalf.
Testimony and evidence also tied the bank’s then-chief executive officer, Suleyman Aslan, to millions of dollars in bribe payments linked to the scheme, some of which was later found stuffed into shoe boxes in his home. Charges against Aslan in Turkey were dropped, and he was charged in absentia in the U.S. He has said he collected the money to build schools.
Other evidence included text messages and wiretapped telephone conversations between Zarrab and bank executives as they plotted the operation. In one recorded call, Atilla coached Zarrab on how to falsify customs records to avoid arousing suspicions. Evidence also emerged that top Turkish officials, including Erdogan, had condoned Zarrab’s plan.
By Christian Berthelsen, Bloomberg, 11 October 2019
Read more at Bloomberg
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