(Bloomberg) -- The U.S. brought a criminal case against one of Turkey’s largest banks for aiding a scheme to evade sanctions against Iran, a move that carries political overtones as tensions build over Turkey’s military offensive in Syria.
In an indictment filed Tuesday in Manhattan federal court, prosecutors accused government-owned Halkbank of participating in a wide-ranging plot to violate prohibitions on Iran’s access to the U.S. financial system. The conspiracy involved high-ranking government officials in Iran and Turkey, the U.S. said.
“Halkbank’s systemic participation in the illicit movement of billions of dollars’ worth of Iranian oil revenue was designed and executed by senior bank officials,” U.S. Attorney Geoffrey Berman in New York said in a statement. “Halkbank will now have to answer for its conduct in an American court.”
Shares of Turkiye Halk Bankasi AS, as the lender is officially known, fell as much as 7.4 percent in early trading in Istanbul. Turkey’s stock exchange “temporarily prohibited” short-selling in seven banks, including Halkbank.
The Turkish lira fell almost 1% after the charges were announced. It’s down 4.5% so far this month, more than any of the 24 emerging-market currencies tracked by Bloomberg.
A Halkbank representative didn’t immediately respond to a text seeking comment.
The charges in the years-long case were described by a U.S. official as a frontal assault on Turkish President Recep Erdogan. Because of the timing, there’s a risk the prosecution will be perceived as a political attack by the U.S. on Turkey for its aggression, the official added.
Click here to read the press release and indictment
Two people, including a senior Halkbank executive, were previously convicted in the case, which led to the airing in a Manhattan courtroom of many of Halkbank’s activities. The late-2017 trial sparked vehement protests from Erdogan, who accused U.S. officials of trying to harm his country’s national and economic interests. He labeled the prosecution nothing short of an “international coup attempt.”
The case became a lasting irritant for the Turkish president, who pressed both President Barack Obama and President Donald Trump to intervene and dismiss it. Early in Trump’s term, former New York Mayor Rudy Giuliani was hired by the central figure in the case, and he mounted an audacious shadow diplomacy effort to win his client’s freedom. On Giuliani’s behalf, Trump himself asked a member of his cabinet to steer prosecutors away from the case.
Several months after the trial of the senior Halkbank executive ended, U.S. officials began negotiating a potential penalty with the bank. But no settlement was announced, and the broader case seemed to go dormant.
Read More: U.S. Inquiry Into Turkey’s Halkbank Inflamed Erdogan, Then Went Quiet
Then Trump announced last week that the U.S. was withdrawing its forces from the border with Syria, and Turkey mounted a military campaign to take over the region. Trump’s decision was roundly criticized by Congress and other foreign leaders, and images from the battlefield inflamed public opinion. Trump then demanded Turkey withdraw its forces, and in a cryptic tweet threatened to “destroy” Turkey’s economy.
The case began with U.S. charges against Reza Zarrab, a flamboyant Turkish gold trader who said he’d helped Iran tap funds from overseas oil sales that were frozen in foreign accounts. Zarrab ultimately pleaded guilty and became the star witness against the bank executive, Mehmet Hakan Atilla, who was himself convicted at the trial in early 2018.
Though the bank wasn’t initially charged, U.S. prosecutors claimed it became the nucleus of a plot to secretly launder funds out of Turkey to Dubai. There, money could be moved into the global financial system and made available to help pay Iran’s bills. Prosecutors showed how Iranian funds were converted to gold, exported to Dubai, sold for cash and then distributed for Iran’s benefit. About $1 billion was converted into U.S. dollars and moved through banks in New York, the U.S. said at the trial.
The trial gripped Turkey. Some testimony sent its markets into gyrations, in part because prosecutors aired evidence that tied the scheme to Turkish officials and their families. An ex-finance minister was charged in absentia.
Zarrab, who’s married to a Turkish pop star, had a tabloid lifestyle of yachts, fast cars and an office in a Trump Tower in Istanbul. After he was detained during a 2016 trip to the U.S., he added Giuliani, who was Trump’s confidante but not yet the president’s lawyer, to his legal team.
Giuliani attempted to broker a diplomatic deal with Turkey to extract Zarrab from U.S. custody, trying to swap him for an American pastor, Andrew Brunson, who was in Turkish custody.
Then, at Giuliani’s urging, Trump asked then-Secretary of State Rex Tillerson in the second half of 2017 to press the Justice Department to drop its case against Zarrab, Bloomberg News reported last week.
Giuliani didn’t immediately have a comment on the charges and asked in a text, “What is Halk Bank?”
In an interview last week, he said he talked to the State Department about his role as Zarrab’s lawyer and had behaved ethically and legally. He would have been a hero had he arranged the swap with Brunson, he said.
Turkey has come under heightened pressure since its invasion of Syria. The House Foreign Affairs Committee has prepared a bipartisan bill that would require the president to impose sanctions on Halkbank. Those sanctions could include freezing assets or restricting visas.
In the Senate, Republican Lindsey Graham and Democrat Chris Van Hollen have proposed sanctions any foreign individual or entity that supports the Turkish military or energy production used by that country’s armed forces.
U.S. Inquiry Into Turkish Bank Inflamed Erdogan, Then Went QuietTurkish Banker Guilty in U.S. of Iran-Sanctions ConspiracyIran’s Sanctions Evasion Went East After Europe Cracked Down
(Updates with Halkbank share decline, short-selling ban in fourth paragraph.)
--With assistance from George Lei, Nick Wadhams, Anna Edgerton and Ercan Ersoy.
To contact the reporters on this story: Greg Farrell in New York at firstname.lastname@example.org;Christian Berthelsen in New York at email@example.com
To contact the editors responsible for this story: Winnie O'Kelley at firstname.lastname@example.org, David Glovin, David S. Joachim
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