Ziraat Never Involved in Sanctions Case Roiling Turkey, CEO Says

  • Gold trader Reza Zarrab didn't have an account at Ziraat Bank
  • Ziraat's issues in the U.S. stem from 2011 compliance talks

An audit of Turkey’s state-run Ziraat Bank by the Federal Reserve Bank of New York wasn’t linked to the prosecution of a Turkish-Iranian gold trader, Chief Executive Officer Huseyin Aydin said, rejecting what he called "insinuations in certain portions of the Turkish media."

The bank’s troubles with U.S. regulators relate to historical deficiencies in its compliance processes, Aydin told reporters on Saturday. He spoke as Turkey braced itself for potential fallout from the arrest in Miami of Reza Zarrab, also known as Riza Sarraf, on allegations including money laundering and sanctions evasion. Preet Bharara, a U.S. attorney in New York, announced the charges on March 21.

Since the arrest was made public, Turkiye Halk Bankasi AS, a listed state-run bank that did business with Zarrab, has dropped 11 percent on the Borsa Istanbul index, though it wasn’t named in the indictment. Zarrab never had an account at Ziraat, Aydin said.

Ziraat’s issues with U.S. regulators date back to 2011, when the Federal Reserve Bank of New York met with its executives and told them Ziraat’s systems didn’t make it easy to scrutinize account holders, weren’t up to international norms, and needed an upgrade.

"We signed an agreement agreeing to finalize that by 2013, but that year came and went and we hadn’t done it," said the CEO, who said he was only informed about the issue in the year of the deadline, two years after he moved from the top position at Halk. We told them "you’re right, we promised to do this and we didn’t - we’re really sorry - but frankly our customer numbers are so small that you might as well audit each of them again because we haven’t done anything that’s contrary to the rules."

The Fed agreed to that, audited the files and hasn’t communicated any problematic findings, the CEO said. Ziraat’s systems have been upgraded to comply since, he said.

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