A trial starting soon in New York is set to throw light on whether a Turkish bank helped Iran circumvent sanctions. And how much President Erdoğan knew about it.
The corner office with a view out over the Bosporus is located in the Istanbul financial quarter of Maslak. It belongs to the man who the United States judiciary accuses of having played a vital role in one of the largest international criminal cases of the last several decades.
After finishing his economics degree in Ankara, Atilla got a job at Halkbank, a state-owned financial institution in Turkey. And within two decades, he rose through the ranks to become deputy head of the bank, in charge of a portfolio that included international financial transactions. Atilla lived a rather secluded life in Ankara with his wife and son – one of those men who ensure that the apparatus keeps running smoothly.
But his life changed abruptly on March 27, 2017, when he was arrested at JFK Airport in New York airport by agents from the FBI. A video of the arrest shows him addressing the police: "Do your best, I'm a government officer," he says. "Most probably the Turkish government would like to follow this case." Since then, Atilla has been the best-known financial manager in Turkey.
U.S. justice officials believe there is solid evidence that Atilla assisted Iran in large-scale circumvention of sanctions. A court in New York sentenced him in 2018 to two years and eight months in prison. Atilla has since returned to Turkey.
Turkish President Recep Tayyip Erdoğan, for his part, sees Atilla as a hero because during his trial in New York, the manager did not incriminate his government. Erdoğan even appointed Atilla as head of the Istanbul stock exchange, Borsa Istanbul.
Atilla, for his part, avoids publicly discussing his past legal woes and claims to believe that the accusations leveled against him were politically motivated. "I was innocent," he told DER SPIEGEL. "I am simply trying to forget the time that I unjustly spent in prison."
For Atilla, the case came to an end as soon as he set foot back on Turkish soil. But for Halkbank and the Turkish government, it is only just now starting to take off. The trial against the bank is set to start in a federal court in New York in the coming weeks. And it's no longer just Atilla standing in the docket, but Halkbank in its entirety.
In the worst-case scenario, say observers, if Halkbank is found guilty it could be facing a fine of up to $20 billion or exclusion from the international banking system SWIFT. That would mean that one of Turkey's largest banks would no longer be able to participate in international financial transactions. And that would likely mean the end of the bank.
With the Turkish economy already mired in crisis, Halkbank's bankruptcy would likely be something of a death blow. Hundreds of thousands of investors in Turkey would lose their savings and the lira would plunge even further. Economists warn that the entire Turkish financial industry could collapse, just as it did in 2001, when hundreds of thousands of people were essentially plunged into poverty overnight.
The trial also has a geopolitical dimension: The Manhattan federal court may delve into the question as to whether Turkish politicians, all the way up to President Erdoğan himself, were involved in the sanctions violations, as a witness at Atilla's trial claimed.
Halkbank headquarters in Istanbul: Trump, Erdoǧan and the interpreter Fatima Abushanab in 2019
Halkbank headquarters in Istanbul: Trump, Erdoǧan and the interpreter Fatima Abushanab in 2019 Foto: Alamy / mauritius images
For this story, DER SPIEGEL examined hundreds of pages of court documents in addition to speaking with officials in Turkey and the U.S. Most of those with whom we spoke did so on the condition of anonymity due to the ongoing legal proceedings.
The case United States vs. Halkbank is nothing less than an economic detective story stretching across several continents. It has the potential to destroy political careers and to further erode already fragile ties between the U.S. and Turkey. It is a story that got its start in Iran in 2010.
The Golden Boy
How a Turkish-Iranian businessman discovers an almost perfect smuggling system
By 2010, Mahmoud Ahmadinejad had been president of Iran for five years and had demonstrated his authority by crushing anti-regime protests. But he had a sizeable problem: In order to put a stop to the Iranian nuclear program, the European Union and the U.S. had slapped an oil embargo on Iran and cut the country off from the international banking system. Iran was running out of money.
It was at this moment that Reza Zarrab stepped into the spotlight, a gold trader with excellent ties to political leaders in both Iran and Turkey. Just 29-years-old at the time, he promised to solve Ahmadinejad's problem – and to help the regime in Tehran secretly access capital by way of oil and gas deals with Turkey.
Zarrab was born in Tabriz, a city of 1.5 million in northwestern Iran, but he had been living in Turkey since the 1980s. Starting in 2010, he apparently began playing the role of middleman for the presumably illegal business dealings between Iran and Turkey – according to the court documents.
Zarrab's system initially involved Turkey – which possesses very few of its own energy sources – continuing to take delivery of relatively affordable oil and natural gas from Iran. Payment apparently ended up in an Iranian account at Halkbank, but was seemingly never directly withdrawn. Had Tehran accessed the money, it would only have been able to spend it for humanitarian purposes, such as for the purchase of medical and food supplies, due to the sanctions in place.
Instead, the money apparently passed through a number of intermediate steps on its way to Zarrab, who used it to purchase gold, among other commodities. Zarrab then used that gold to pay outstanding Iranian bills overseas. In total, U.S. investigators believe that Zarrab and Halkbank laundered around $20 billion on behalf of the Iranian regime over the years.
The hustle brought Zarrab immense wealth within an extremely short period of time. He moved into a villa in Istanbul worth $72 million and he owned a half-dozen yachts, a weapons collection and a private jet. He was married to well-known Turkish popstar Ebru Gündeş and had unhindered access to Turkish ministries. He also had close personal ties to President Erdoğan.
To keep the system afloat, he apparently handed out million-dollar bribes to several Turkish officials, allegedly including then-Economics Minister Zafer Çağlayan and then-Halkbank head Süleyman Aslan, as Zarrab later confessed to U.S. investigators. The alleged bribe recipients deny the accusation.
The system continued quite successfully for many years, until Erdoğan, who was still prime minister at the time, had a falling out with Islamist cleric Fethullah Gülen and his followers. Erdoğan and Gülen had worked together informally for quite some time, with Erdoğan appointing Gülen followers to key government positions. In return, the religious community rounded up voters for Erdoğan and went after his critics.
But then, Gülen became too powerful for Erdoğan. In fall 2013, the prime minister ordered the closure of schools and other educational facilities operated by the movement. In response, state officials allied with Gülen launched corruption investigations against Halkbank head Aslan and several sons of government ministers.
Gülen adherents in the police and judiciary had spent years systematically monitoring the telephone conversations of Turkish politicians, through which they apparently also learned of Zarrab's system of circumventing the Iran sanctions. Now, the time had come to make it public. In one of the intercepted telephone conversations, Erdoğan can be heard telling his son to remove several million dollars from the house. In Aslan's villa, meanwhile, investigators found $4.5 million packed away in shoeboxes.
The corruption affair dealt a significant blow to the Erdoğan system and the prime minister was forced to shuffle his cabinet. Zarrab, meanwhile, spent around two months in pre-trial detention.
Ultimately, though, Erdoğan was successful in portraying the investigations as a disguised coup d'état. Zarrab was rehabilitated and, at Erdoğan's behest, according to the U.S. court files, he resumed trading with Iran. In 2015, he even received a prize as "Top Exporter" thanks to a word from Erdoğan.
Apparently, though, Erdoğan and Zarrab didn't appreciate the degree to which the U.S. had taken an interest in the covert dealings with Iran. President Barack Obama had identified the prevention of an Iranian atomic bomb as a top foreign policy priority, and he couldn't stand by and do nothing as Turkey, a NATO ally, continued to help Iran get around sanctions.
When Zarrab traveled with his family to the U.S. in March 2016 on the way to a visit to Disney World, he was arrested at the airport in Miami and transferred to a high-security prison in New York, where he would later provide FBI investigators with detailed testimony. Zarrab's deposition also included serious accusations against Erdoğan. As prime minister, Zarrab said, Erdoğan had approved of the sanctions violations from the very beginning.
Halkbank deputy head Mehmet Hakan Atilla was arrested during his own U.S. trip one year later. The court in New York ruled that he knew about the system, but had not directly profited from it, in contrast to bank CEO Aslan. As such, his prison sentence was relatively lenient.
An Alliance of Alpha-Males
How Erdoğan tried to prevent the U.S. trial against Halkbank
Erdoğan was alarmed when he learned of the investigation in the United States. And it must have been clear to him that legal proceedings against Halkbank wouldn't just be a drag on the Turkish economy. It would also expose him to the global public. His claims that the accusations were merely the product of Gülen propaganda suddenly no longer looked particularly credible.
Together with Halkbank, his government launched a lobbying campaign that cost them almost $5 million between 2017 and 2019. It also cost Erdoğan almost all of his political capital.
Even before Halkbank manager Atilla was arrested in New York, Erdoğan approached Obama and Vice President Joe Biden, hoping he could get the U.S. authorities to drop the case. But Obama and Biden declined, noting that the division of powers in the U.S. left them with no influence over the judiciary.
Erdoğan's hopes were revived when Donald Trump moved into the White House in January 2017. Just a few weeks after Trump's inauguration, Rudy Giuliani – who was an adviser to the president at the time – flew to Ankara to discuss the Halkbank case with Erdoğan. A short time later, Trump fired Preet Bharara, the U.S. attorney for the Southern District of New York who had been leading the proceedings.
In the months that followed, "it would be a rare conversation in person or on the phone where it (Halkbank) didn't come up" in discussions with the U.S. president, Trump's former national security adviser, John Bolton, told DER SPIEGEL.
According to reporting by the New York Times, the U.S. lobbying firm Ballard received at least $4.6 million from the Turkish government for lobbying on behalf of Halkbank. Turkey allegedly even offered another of Trump's former national security advisers, Michael Flynn, $15 million to have the cleric Fethullah Gülen, who is in exile in the U.S., extradited to Turkey. That claim is to be found in the report compiled by Special Counsel Robert Mueller, who investigated foreign interference in the 2016 U.S. presidential elections. Flynn denies that such an offer was made.
On the sidelines of the G-20 summit in Buenos Aires in December 2018, Erdoğan presented his U.S. counterpart with a memo from the law firm King & Spalding, which worked for Halkbank. Bolton says that Trump leafed through the memo without really reading it. Nevertheless, says Bolton, the president ensured Erdoğan that he believed in Halkbank's innocence. According to Bolton, Trump told Erdoğan he would "take care of it."
In April 2019, the U.S. president allegedly told Erdoğan that he had personally entrusted Attorney General William Barr and Treasury Secretary Steven Mnuchin with the matter. "We were getting very close to a resolution on Halkbank," he allegedly told Erdoğan on the phone.
According to people familiar with the issue, Attorney General Barr allegedly pressured Geoffrey Berman, Bharara's successor in the Southern District of New York, telling him to refrain from charging the bank. Berman apparently declined to comply. Barr could not be reached for comment.
Many in Trump's orbit are still unsure why the president sought to help Erdoğan. Some believe that Trump was pursuing business interests in Turkey. Former National Security Adviser Bolton, though, thinks that the reasons are much less juicy. Trump, he says, was fascinated by authoritarian leaders like Erdoğan and Putin. "He was trying to show Erdoğan he was gonna do him a favor," says Bolton.
According to Bolton, the ongoing exchange between the two presidents was ultimately quite damaging to Halkbank. The financial institution, he says, was so certain that Trump would put an end to the legal proceedings that it refused to engage in any sort of compromise with U.S. officials.
What the Halkbank affair means for Erdoğan's rule
The District Court in southern Manhattan is well known for handling politically sensitive cases. Trump's former lawyer Michael Cohen was tried here for perjury and other misdeeds, while sexual predator Jeffrey Epstein also faced justice at the court. But there is hardly a legal case to be found with the potentially far-reaching consequences of United States of America vs. Halkbank.
Other banks, to be sure, have also violated sanctions in the past, including Deutsche Bank and BNP Paribas. But their violations were far smaller. Deutsche Bank, for example, was able to reach a settlement with the authorities. In the case of Halkbank, however, such a settlement no longer seems possible. And the Biden administration will not seek to intervene, according to a source close to the administration.
Initially, the trial had been set to begin on March 1. But an appellate court granted a temporary stay to allow for a panel of judges to hear bank requests on an expedited basis. First and foremost, it must be determined whether a court in New York even has jurisdiction over a Turkish financial institution. Experts, however, view that determination as little more than a formality.
The evidence incriminating Halkbank appears to be overwhelming. Gold trader Zarrab has issued a sweeping confession and investigators also have access to documents that a Turkish police officer secretly turned over to the U.S. in 2017.
Officially, the Erdoğan government continues to insist that Halkbank consistently adhered to the letter of the law. Ankara did not respond to a request for comment submitted by DER SPIEGEL. Halkbank likewise declined to comment with reference to the ongoing legal proceedings. In confidential conversations, however, Turkish officials admit that it is likely no longer possible to protect Halkbank from legal consequences.
Erdoğan, of course, cannot be made legally liable in the U.S. because of the immunity he enjoys as a head of state. But the damage to his reputation from the Halkbank proceedings is already considerable.
The affair appears to confirm everything that the opposition has been accusing Erdoğan of for years: that he has a flexible approach to the law and that he abuses his position to enrich himself and his family. "It was my conclusion that the reason that Erdoğan was taking such a persistent interest in this matter was he was worried about what would emerge or be revealed of his own involvement in this as well as in other things," former U.S. Secretary of State Rex Tillerson told the magazine Foreign Policy.
The investigation by the U.S. authorities has shaken the faith of investors in the Turkish finance industry – at a time when Turkey is more dependent than ever on foreign capital due to the coronavirus pandemic and the country's weak currency.
The trial in New York could also just be the beginning of a long series of court proceedings against Halkbank. "We've heard a lot about potential corruption involving Halkbank," says Bolton. "If Halkbank treats the laws of other countries as it was with our Iran sanctions, it's possible others could get involved in looking into its conduct as well."