Erdogan Linked at Trial to Plot to Evade Iran Sanctions

Updated on
  • Zarrab says Erdogan approval was cited by ex-economy minister
  • Turkish-Iranian gold trader testifying against former partner

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Turkish President Recep Tayyip Erdogan was implicated for the first time in a plot to help Iran evade U.S. sanctions.

Reza Zarrab, who laundered billions of dollars on behalf of Iran, told a New York jury Thursday that a senior Turkish official said to him that then-prime minister Erdogan personally signed off on a plan to involve two Turkish banks in the scheme.

Zarrab said he was told by Turkey’s then-economy minister Zafer Caglayan that "the prime minister had given his approval for the work with Ziraat," referring to money laundering through the Turkish bank Ziraat Bankasi. Asked by prosecutor Sidhardha Kamaraju who was prime minister of the country at the time, Zarrab replied: "Recep Tayyip Erdogan."

Erdogan was Turkey’s prime minister from 2003 to 2014 before becoming the country’s first directly elected president.

“We didn’t violate the embargo,” Erdogan said in a speech Thursday in Ankara to lawmakers from his ruling party, NTV reported. “Whatever comes out of the trial, let it come out, we did the right thing."

Economic Impact

Turkey’s currency, interest rates and bank stocks have gyrated in response to news about the trial. The lira fell as much as 1% against the dollar after reports of Zarrab’s testimony about Erdogan, but recovered as Turkish banks issued denials of involvement in the laundering scam.

For years, Erdogan has scrambled to suppress inquiries into the money-laundering scheme and bribery payments to senior Turkish officials that accompanied it. The case began as a corruption investigation in Turkey in 2013, but Erdogan quashed it amid a purge of investigators and prosecutors. Since U.S. prosecutors took up the case in New York, Erdogan has repeatedly protested through diplomatic channels and asked senior U.S. officials to drop it.

In his second day of testimony, Zarrab said he had been told by Caglayan on another occasion that Erdogan approved the plan along with the country’s treasury minister Ali Babacan, and that they "gave instructions, gave the order, to begin doing this trade."

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Zarrab is testifying for the prosecution against his former co-defendant, Mehmet Hakan Atilla, an executive at Turkiye Halk Bankasi AS. Zarrab was charged and spent more than a year awaiting trial in U.S. jails. A few weeks before the trial, he agreed to plead guilty, cooperate and testify in a bid for leniency.

On Thursday, he appeared in a dark blazer, an open-collar white shirt and light-colored slacks, in contrast to his drab prison garb of the day before. He testified that he had been moved out of the U.S. jail system because of threats against him, but that he remained in the custody of the FBI. During the course of his testimony, jurors sat and listened to stretches of his recorded phone conversations in Turkish, which none of them appeared to understand.

Zarrab has said he helped Iran access billions of dollars in oil revenue that should have been off limits because of strict U.S. sanctions. He said he used an intricate money-laundering scheme that ran some of the funds through U.S. banks.

Zarrab testified Thursday that in October 2012, after successfully tapping Iran’s money accumulating in Turkey, he helped devise a similar plan to launder Iranian funds that were piling up in India, also by moving them through Turkey. The new plan would involve a handful of Turkish banks, including Ziraat and Turkiye Vakiflar Bankasi TAO.

PM Approved

"I spoke with Ankara," Zarrab told an associate, according to a phone transcript that was cited in court. Zarrab testified he was referring to Caglayan, who told him, "Mr. Prime Minister and Ali Babacan have given their approval."

Zarrab’s testimony about Erdogan’s alleged approval isn’t direct evidence of the Turkish president’s involvement, and it’s possible that what he was told by Caglayan wasn’t true.
Still, it was the first evidence tying Erdogan’s overt involvement to the laundering scheme.

In court filings, U.S. prosecutors have previously cited recordings and other evidence in which Zarrab invoked Erdogan’s name, and one in which he said he asked Erdogan for his support to buy a bank that he hoped to use as a conduit for transactions with Iran. But Zarrab’s testimony Thursday was the first time Erdogan was alleged to have known of, approved of or given orders related to the scheme.

Zarrab also testified that Suleyman Aslan, then the top executive at Halkbank, had sought a meeting at his old office. Aslan said he was getting nervous about the money-laundering scheme, Zarrab said. He said he interpreted the conversation as a request for a bribe. Zarrab said Aslan told him the U.S. had warned him repeatedly about the Iranian transactions.

"He expressed his concern, and he expressed he wanted to ensure his future in some way,” Zarrab testified. “He stated his expectations.”

Zarrab added later: "He was asking for money." He testified he paid a $2 million bribe to Aslan. He testified that Aslan and Caglayan were the only two people he paid bribes to, though he acknowledged making another payment.

Zarrab testified he approached Baris Guler, the son of Turkey’s former interior minister Muammer Guler to pass along a request for a letter of reference to help him do business in China. Zarrab told jurors that the younger Guler at the time was as a consultant for Zarrab’s companies. Zarrab said he paid Baris $100,000 for getting the letter.

For a time, Zarrab also tried to devise a similar laundering scheme to help Iran access its oil revenue that had been piling up in China. But the business only lasted a few months, and was frozen out by Chinese banks.

"As soon as they understood the money trade had something to do with Iran, they stopped it," Zarrab said.

The case is U.S. v Zarrab, 15-cr-867, U.S. District Court, Southern District of New York (Manhattan).

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