The intriguing case of Turkish gold trader Reza Zarrab triggered massive waves in Turkey’s domestic politics, waves so large they are being felt in the United States.
ANKARA, TURKEY — There is currently a case making its way through the U.S. federal courts that is playing a significant role in increasing tension between Washington and Ankara. Federal prosecutors in New York recently announced they would seek a 15- to 20-year prison sentence for Mehmet Hakan Atilla, a Turkish national who was formerly an executive at the majority-Turkish-state-owned Halkbank. Atilla, who was arrested in New York in March of 2017, is awaiting sentencing after being charged with bank fraud and conspiracy — while allegedly helping Iran skirt U.S. sanctions over a period of years — which he was convicted of in January of this year.
While none of this seems out of character for a high-level international banker and seems almost irrelevant in the bigger picture of international events, Atilla’s case is likely to have far-reaching consequences. The details that emerged during Atilla’s trial revealed massive corruption and collusion from the Turkish government that may go as high as President Recep Erdogan himself, who has been accused of personally approving illegal purchases of Iranian oil through shell companies.
The case, which Turkish police first began investigating in 2013, has been plaguing Erdogan since he became Prime Minister. Originally just a political headache at home, evidence being revealed in U.S. courts of an alleged sanctions-busting scheme is fueling the fire that is latter-day U.S.-Turkey relations.
In the middle of the chaos, there is one man who has been involved since the very beginning and is now state’s witness for U.S. prosecutors and the central piece of the puzzle that could further damage Erdogan: the gold trader Reza Zarrab. The repercussions from Zarrab’s case in the U.S. can’t be fully grasped yet but his disclosure of the role he played acting as a middle-man for Halkbank and Iran largely confirms suspicions about Zarrab dating back several years.
Turkey’s 2013 corruption scandal
The intrigue surrounding Zarrab is a contentious issue for Washington and Ankara but the most explosive revelations to come out of the case have been known, or at least suspected, since 2013, when Zarrab was first arrested by Turkish police based on information from the Turkish intelligence agency, MIT. The agency first revealed a variety of schemes by Halkbank and a series of Turkish and Chinese shell companies to buy gold, which Zarrab and his associates exchanged for oil through financial institutions in Dubai.
It was a Turkish investigation which initially revealed broad details of the scheme that piqued U.S. interest in the case. Without the work of Turkish authorities, it is unlikely that U.S. intelligence and law enforcement agencies would have caught on to Halkbank’s illicit activities.
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Obviously, this activity was of extreme interest to Washington owing to the sanctions factor, but initially, it seemed to be an internal Turkish matter that could be resolved through the NATO members own justice system. This line of thinking didn’t hold, however, as the investigation began to expose corruption and collusion at the top levels of the Turkish government.
The rot was evident almost immediately after Zarrab was arrested and his co-conspirators detained. Among suspects in the case were the former director of Halkbank, Suleyman Arslan and the two sons of government ministers: Baris Guler (son of then-Interior Minister Muammer Guler) and Kaan Caglayan (son of then-Economic Minister Zafer Caglayan). The arrests were the first solid indication of high-level Turkish government involvement. With this information available, the U.S. followed developments in the case closely.
Yet this was still a different time in Turkey. 2013 Turkey (or even 2013 Erdogan) still appeared relatively moderate and was in the West’s good graces for being ‘a prime example’, demonstrating the coexistence of political Islam and secular republicanism after decades of living under what was essentially military rule. These conditions — as well as the fact that the Turks first discovered the scheme — likely led Washington to believe the Turkish courts would resolve the matter and punish those responsible.
Unfortunately for the U.S., its assumptions of Turkish cooperation never came to fruition. Instead, the U.S. soon discovered that other powerful Turkish figures — also possibly involved with the sanctions scheme — had no intention of allowing the police and courts to resolve the matter. Once this was clear, the events that followed put a new rift between the U.S. and Turkey on display to the world and started a pattern of posturing by both countries that continues to this day.
There is no better illustration of this change in Turkey’s demeanor than the one man who seeks to embody the will of all Turkey: Erdogan. Up to that point, the West had been hailing Erdogan as an ‘exemplary Islamist,’ but the 2013 corruption probe triggered a bombastic and grandiose reaction from the then-prime minister that, while standard fare today, came as somewhat of a surprise just five years ago. According to Erdogan, the entire investigation was the product of a “judicial coup” perpetrated by traitors in the police and judiciary. As designated traitors, these officials became toxic to associate with and, without advocates, were soon subject to Erdogan’s retaliation, which came via Turkey’s largest-ever purge of state employees that ended with more than a hundred judges and thousands of police officers reassigned or dismissed. The move caused a stir in 2013 and was likely one of the European Union’s first red flags that Turkey’s negotiations for membership in the bloc would turn tumultuous.
2013, when the case was essentially frozen, also revealed the depths of Erdogan’s Justice and Development Party’s (AKP) tight grip on most levers of state power. The purges may have stopped the investigation but the matter of suspects still in police custody was unresolved until Erdogan ordered the release of the ministers’ sons after a mere 70 days in custody. Zarrab was also released, although its alleged he may have secured his release through bribery. Meanwhile, the AKP-dominated parliament protected ministers named in the case from future prosecution despite proof many had taken bribes.
Following release of those suspected of corruption, Erdogan did face some public backlash — opposition activists were more common in 2013 — but even Turkish civil society had little impact and the most ‘extreme’ punishment applied was the reassignment of some ministers. As for Zarrab and his private-sector counterparts, they escaped the investigation unscathed and allegedly went right back to their illegal business.
The corruption goes west
After being shielded from prosecution by Erdogan, most of the suspects in the Turkish investigation carried on with life, knowing they were safe as long as the AKP was in charge. Though these men were declared innocent by the Turkish state, most still knew that the U.S. was unlikely to honor this verdict, and to this day most have avoided traveling across the Atlantic. However, at least two parties didn’t understand these implications and assumed they’d be safe to travel to the U.S.: Reza Zarrab and Mehmet Hakan Atilla.
Atilla made the mistake in March of 2017, had he paid more attention to Zarrab’s case, he would have known he risked arrest. Zarrab was arrested just under a year before Atilla in Miami, Florida, apparently on a trip to Disney World. While we have no way knowing why Atilla came back to the U.S., it should have been apparent he’d be detained like his former associate. Whatever was on Atilla’s mind when his plane touched down at JFK, his arrest provided even more details of the gold-for-oil racket, all of which came directly from Zarrab.
Like Atilla, Zarrab was arrested and charged with money laundering, bank fraud and violating sanctions. Though the charges against Zarrab were the same as those faced by the other suspects in the sanctions probe, owing to Zarrab’s checkered past and impressive government connections, the opportunity for his arrest was a blessing for U.S. authorities. While there are probably hundreds of Turks listed as suspects in both the 2013 corruption probe and the U.S. sanctions case, one thing sets Zarrab apart from other figures. The list of possible accessories to his crimes is likely longer and probably consists of low to mid-level Turkish state employees who received bribes. Zarrab presumably had little to do these low-level bribes and more likely played a role in funneling money to high-level accomplices such as Guler and Caglayan, who accepted $10 million and $52 million respectively. Zarrab also drew attention to himself for his close ties to the Erdogan family — as evidenced by Zarrab’s contributions, such as $4.5 million he donated to a charity run by the president’s wife, Emine Erdogan.
Zarrab’s importance was apparent almost immediately after his arrest when the gold-trader offered to post a whopping $50 million bail. Despite offering the massive sum and voicing a willingness to finance his own house-arrest, round-the-clock monitoring, and a GPS tether, U.S. prosecutors nevertheless recommended Zarrab remain in custody during the trial. The prosecutors argued that, even if the court accepted Zarrab’s proposal of strict house-arrest, there was still a possibility he would find a way to return to Turkey. U.S. lawyers, who knew that even the smallest possibility of Zarrab fleeing the country was still a risk — and would likely mean Zarrab would receive protection from Ankara making extradition impossible. The judge in the case agreed, keeping Zarrab in detention. The Turkish government labeled the court’s fears as baseless and misguided, pointing out that after Zarrab’s arrest Erdogan had stated that the case “was of no interest” to his government.
As with most things Erdogan says, this statement by the Turkish president soon proved untrue. While Erdogan had feigned indifference in March of 2016, efforts to secure Zarrab’s return were underway by September. The first known attempts to free Zarrab were handled personally by Erdogan, who set up a special meeting with then-Vice President Joe Biden, where it is alleged he tried to secure Zarrab’s release as well as have the U.S. prosecutors on the case fired. The meeting between Erdogan and Biden failed to produce Turkey’s preferred outcome but it wasn’t from a lack of effort. Not only did Erdogan plead Zarrab’s case to Biden, but also apparently dispatched his wife to meet with Biden’s wife, Jill, to give a similar defense of Zarrab. The tactic was used a third time, by then-Justice Minister Bekir Bozdag, in a meeting with then-U.S. Attorney General Loretta Lynch. Despite his efforts, Erdogan failed to secure the return of Zarrab during the Obama administration and the U.S. trial continued. Turkey’s demands for Zarrab continued nonetheless but were much quieter until the 2016 U.S. presidential election victory of Donald Trump created new opportunities.
Not only did Trump’s election mark a drastic shift in policy, it also created a potential for Zarrab to bring his case to the attention of the new administration through his lawyer — and early Trump backer — former New York City Mayor Rudy Giuliani. Giuliani — along with his partner, former Bush Attorney General Michael Mukasey — secretly met with Erdogan in April of 2017 to try to find out what Turkey was willing to offer and to try to shift the conversation around Zarrab from a legal to a diplomatic context.
The meeting between Erdogan, Mukasey, and Giuliani sought to find concessions both nations could make. The offer by Erdogan was hardly enticing to Washington, with Zarrab’s lawyers only offering assurances that Turkey wouldn’t make more trouble, would act in a manner better befitting their status as a NATO member-state, and be more cooperative with the U.S., primarily in Syria.
Negotiations faltered as the Zarrab case carried on, until November of last year when Zarrab seemingly disappeared from the U.S. government’s roster of prisoners. Speculation soon began that Zarrab may have struck a deal with prosecutors to turn state’s witness. The theory soon played out, and about two weeks later Zarrab re-emerged on the witness stand to testify against Mehmet Atilla. Zarrab is also suspected to have played a role in the investigation of special prosecutor Robert Mueller into possible collusion with Russia by the Trump campaign and may have provided details used to bring down Michael Flynn for not disclosing his ties to Turkey.
Within days, Zarrab’s testimony brought to light similar evidence to that revealed in the 2013 Turkish investigation. The most controversial of which was the direct connection between Halkbank and then-Prime Minister Erdogan, who allegedly personally signed off on several of the sanctions-busting schemes.
After this, it was apparent there was likely not a viable path to Turkey securing Zarrab’s release. Erdogan soon turned to more intense negotiation tactics such as offering the return of an imprisoned pastor (and U.S.-national) in exchange for Zarrab. Erdogan also took other prisoners to use as bargaining chips, including a Turkish employee at the U.S. consulate in Istanbul who was accused of funneling evidence from the 2013 investigation to U.S. lawyers. Zarrab was also subject to more direct attacks, such as having his family’s assets in Turkey seized the day after he first appeared in court.
Around the same, Zarrab was accused of raping his cellmate while in federal detention. Zarrab denies the claim, and insinuations have been made by Zarrab’s legal team about the origin of money his accuser received to pay past legal fees and vaguely implied that the man’s attorney, Alexei Schacht, may have been the recipient of undisclosed funding.
The case against Atilla ended with a conviction on charges of conspiracy and bank fraud in January of this year. Atilla’s lawyers attempted to have his conviction overturned on the grounds that his actions, while illegal, had no victims and were not a “crime of American disloyalty.” Even the Turkish government contested the conviction, but it wasn’t enough and Atilla’s last attempt to secure a release from prison was denied in early April. Now that Atilla’s case is over, there are still questions remaining about how large Erdogan’s role in the sanctions evasion was. More suspects are being sought for arrest by the U.S. authorities in connection with the case, most of them remain in Turkey and are unlikely to travel to the U.S. While most people likely don’t care what happens to Atilla, the vast scope of this case has caused possibly irreversible damage to U.S.-Turkish relations.
Erdogan is unlikely to face justice in the U.S. for violating U.S. sanctions, but the whole debacle nevertheless provides another reason for Washington to be skeptical of Turkey’s future cooperation in a variety of policy arenas. The Zarrab/Atilla cases are just one roadblock between the U.S. and Turkey but — in combination with Turkish threats against U.S. forces in Syria, Ankara’s purchase of Russian missile systems (possibly in violation of other U.S. sanctions), and complaints of Erdogan’s hostility toward NATO allies — the Zarrab saga has helped lay the foundation for a new low in U.S.-Turkish relations.
Top Photo | Turkish businessman Reza Zarrab, who is charged currently in the U.S. for evading sanctions on Iran, is surrounded by the media members as he arrives at a courthouse in Istanbul, in a separate case against him. (Depo Photos via AP)
James Carey is journalist and editor at Geopolitics Alert. He specializes in Middle East and Asian affairs.