Published: Thu, October 17, 2019
Markets | By Otis Pena

Turkish bank charged in $20B scheme to skirt United States sanctions on Iran

Turkish bank charged in $20B scheme to skirt United States sanctions on Iran

Halkbank could not immediately be reached for comment after business hours in Turkey. It said the bank let Iranian oil and gas money be used to buy gold that was not exported to Iran and let transactions fraudulently created to appear to be purchases of food and medicine by Iranian customers proceed, qualifying those funds for a "humanitarian exception" allowed under the sanctions.

"High-ranking government officials in Iran and Turkey participated in and protected this scheme", prosecutors said in the 45-page indictment.

State banks - which have sold dollars to defend the lira since the Syria incursion began last week - were on Wednesday squeezing funding in an offshore FX swaps market to cushion the blow from the Halkbank indictment, a bond trader said.

The sanctions come at a time of intensified pressure between Washington and Ankara after the latter launched an offensive against the Kurds in Syria barely waiting for the USA troops to pull out.

Turkey's Halkbank said on Wednesday that USA charges against it amount to an escalation of Washington's sanctions on Ankara over its military incursion in Syria, while President Tayyip Erdogan called them an "unlawful, ugly" step.

The department 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.

Assistant Attorney General John Demers called the scheme "one of the most serious Iran sanctions violations we have seen". Seven of those individuals remain fugitives.

Robert O'Brien, who has been national security adviser for a month, was due to meet Foreign Minister Mevlut Cavusoglu, ahead of talks the following day between Vice President Mike Pence and Turkish President Recep Tayyip Erdogan.

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In the statement, the bank outright rejected claims that it was engaged in any secondary USA sanctions violations.

The charges unsealed in federal court in Manhattan mirror those against one of Halkbank's former executives, Mehmet Hakan Atilla, who was found guilty and sentenced to prison after a trial in the same court previous year.

State banks stepped in to sell dollars in March when the lira briefly tumbled, and traders said they intervened again in the last two weeks. Prosecutors said it mostly involved masking money transfers as gold sales to work around sanctions imposed by the U.S. on Iran.

Turkey cast that case as a political plot against Erdogan's government and said it was an extension of a 2013 domestic corruption investigation, which Ankara says was launched by the network of Fethullah Gulen, a US-based Muslim leader.

Hakan Atilla was ultimately convicted and sentenced to 32 months in prison for conspiring to violate US sanctions. At the time of Atilla's conviction, Erdogan condemned the case as a political attack on his government.

Sanctions against Iran have increased steadily in the decades after the Iranian hostage crisis in which 52 Americans were held captive from 1979 to 1981.

Zarrab, 33, and other financial professionals were charged with breaking US sanctions and "laundering the proceeds of those illegal transactions, and defrauding several financial institutions by concealing the true nature of these transactions".

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