The conviction in a U.S. court of Mehmet Hakan Atilla, former head of international banking at state-owned Halkbank, may cause more trouble for the lender and further strain relations between Turkey and the U.S. The trial in Manhattan sparked vehement protests from the administration of Turkey President Recep Tayyip Erdogan, who accused U.S. officials of trying to harm his country’s national and economic interests and furthering the agenda of his opponents. He labeled the prosecution nothing short of an "international coup attempt."
1. How has Turkey reacted to the verdict?
The conviction of Hakan Atilla, for helping Iran evade U.S. financial sanctions, is an “unjust and unfortunate” development and an intervention by U.S. courts in Turkey’s domestic affairs, according to a statement by Turkey’s foreign ministry. Deputy Prime Minister Recep Akdag said the evidence used in the court proceedings “was fabricated” by supporters of Fethullah Gulen, the elderly Muslim cleric who’s been based in the U.S. since 1999 and who is blamed by Turkish authorities for the 2016 coup attempt against Erdogan. Erdogan, on Friday, said the case was "full of contradictions" and called on the U.S. to review its "sense of justice".
2. What explains all the attention to the case?
There’s concern that Atilla’s conviction will prompt U.S. authorities to penalize Turkey or its banks -- especially since the jury found that the scheme was devised by executives at the state-run bank, formally known as Turkiye Halk Bankasi AS. The U.S. has given no indication of that so far. Bekir Bozdag, the Turkish government’s spokesman, has fueled concerns by repeatedly saying that the case is an attempt to cripple Turkey’s economy through the imposition of sanctions.
3. Who else is involved?
Only Atilla, a former deputy chief executive officer at Halkbank, was convicted. Others including Turkey’s former economy minister, Zafer Caglayan, and two other Halkbank executives were charged in absentia. At the center of the case is Reza Zarrab, a wealthy young Turkish-Iranian who established a network of businesses in Turkey and connections at the highest levels of its government. Zarrab, who was arrested during a March 2016 family trip to Disney World, pleaded guilty on the eve of the trial and testified that Erdogan knew of and supported the laundering effort on behalf of Iran.
4. Why the concern over the Turkey-U.S. relationship?
Ties between the two allies were already at their worst in recent history. Erdogan has increasingly questioned Turkey’s alliance with the U.S. since Washington declined to extradite Gulen, and he says Gulen’s network has used the case to smear Turkey. President Donald Trump’s first national security adviser, Michael Flynn, was said to be under investigation for allegedly plotting to seize Gulen and deliver him to Turkish officials. Turkey hired two close allies of Trump -- former New York City Mayor Rudy Giuliani and former U.S. Attorney General Michael Mukasey -- to try to broker a resolution of the case before it reached trial.
5. How have markets reacted?
Halkbank shares rose as much as 4.8 percent in early trade in Istanbul on Thursday, a day after the verdict. In the run-up to the trial, the lira lost 5.2 percent against the dollar in the past 12 months, the second worst performer among emerging market currencies after Argentinian peso. Yields on 10-year bonds have surged to a record above 13 percent. Not all of that is due to the trial, of course. Investors are worried about Turkey losing its anchor to the West as hostilities flare not only with the U.S. over this case, but also with Germany, other EU countries and NATO. The stock market has shrugged off concerns, rising 48 percent in lira terms last year. However, Halkbank’s 15 percent increase under-performed the banking index’s 32 percent rise. Halkbank was the worst performer among the top Turkish banks widely covered by analysts.
6. What does this mean for Halkbank?
If the U.S. government finds that that bank engaged in wrongdoing, it could take a range of actions up to curbing the bank’s ability to conduct transactions in U.S. dollars, the lifeline for any global bank. The case is likely to move to the U.S. Treasury, which will weigh penalties against Halkbank. “The charges are so grave (essentially implicating the current president of Turkey) that one may say ‘sky is the limit’ as far as the magnitude and scope of potential sanctions go,” GlobalSource Partners’ Atilla Yesilada said in a report on Thursday. The Turkish Treasury may help out with any fines, which could mitigate the damage to listed banks, he said. In a filing, Halkbank said the legal process hasn’t yet been concluded since Atilla has the right to appeal the decision. The lender said it’s continuing its operations and will do so “in accordance with national and international regulations in a strong, reliable and uninterrupted manner.”
7. Why does Halkbank matter so much?
It’s Turkey’s biggest listed state bank, with assets of 280 billion liras ($74 billion), and its success is viewed by the government as a national cause. The bank’s traditional client base consists mainly of small businesses, and with its options for offshore financing hampered by the trial, it’s relying on local-currency financing to fund increased lending, Chief Executive Officer Osman Arslan said on Oct. 20.
The Reference Shelf
- A Bloomberg article about Atilla’s arrest in the U.S.
- Read about Zarrab’s meteoric rise and fall in Turkey.
- A QuickTake Q&A on tensions between the U.S. and Turkey.
- A QuickTake explainer on Erdogan’s grip on power.
- A Quicktake explainer on Turkey’s efforts to extradite Fethullah Gulen.