US sanctions-busting trial puts spotlight on Turkish president

Testimony of millionaire gold trader threatens to implicate Erdogan in elaborate scheme

Reza Zarrab: During testimony he repeatedly tied the Turkish politicians and bankers he once courted to the alleged conspiracy. Photograph: AFP/ Ozan Koseozan Kose/Getty Images

Until he took a trip to Disney World last year, Reza Zarrab enjoyed the life of a millionaire playboy. He lived in an Istanbul villa overlooking the Bosphorus, garnered celebrity status as the husband of a pop star, used a private jet and mingled with Turkey's political elite.

But last week the Turkish-Iranian gold trader was in a New York court wearing the sombre tan suit of a prison inmate, a reflection of the 34-year-old's new status as a felon under US law. Zarrab is at the centre of a sanctions busting trial that threatens to implicate Turkish president Recep Tayyip Erdogan and his allies in an elaborate scheme allegedly set up to pay hundreds of millions of dollars to Iran for oil and gas.

It is a case that threatens to rupture already fraught relations between Washington and Ankara and is shining a spotlight on the type of measures that were allegedly taken to break US nuclear sanctions imposed on Iran.

US authorities arrested Zarrab at Miami airport in March last year while he was taking his family to Disney World. He has since pleaded guilty to his role in the scheme and is now co-operating with US prosecutors. During testimony this week he repeatedly tied the Turkish politicians and bankers he once courted to the alleged conspiracy.


He told the court that Erdogan, who was prime minister at the time of the alleged operation, "gave approval" to allow two Turkish banks to move Iran's funds in the scheme. A former economy minister, Zafer Caglayan, accepted bribes of €45 million to €50 million, $7million and 2.5 million Turkish lira (about €500,000) from Zarrab to launder Iranian funds through Halkbank, a state-owned Turkish bank, he said. The alleged bribes took place about five years ago.

Zarrab cited Caglayan as saying that Erdogan had personally “given instructions” to allow the Turkish banks into the scheme.

Zarrab explained in numbing detail how he worked with Halkbank to help Iran launder the proceeds of its oil and gas sales to make international payments, drawing a flow chart whose complexity elicited laughter in the courthouse. The transactions required flying suitcases full of gold bars to his office in Dubai, where they were converted to cash, he testified. Later, the deals involved fictitious sales of food to Tehran, as shipments of food and medicine were exempt from the sanctions.

‘Plot against Turkey’

Speaking before Zarrab pointed the finger at him, Erdogan insisted that Turkey had not violated US sanctions. The strongman leader told a private meeting of ruling party MPs that, no matter what the verdict, Turkey "did the right thing", according to Turkish media.

Angry Turkish officials have described the trial as a plot against Turkey, and sought to link it to Fethullah Gülen, the US-based cleric Ankara blames for masterminding a failed coup last year.

“This court case has stopped being judicial and became completely political, with the sole aim to corner Turkey and its economy,” Binali Yildirim, Turkey’s prime minister said on Friday.

Also on Friday the state-run Anadolu news agency said that Ankara was going to seize Zarrab’s assets and those of any acquaintances as part of the Turkish investigation against him.

Fears over the case’s political and economic fallout have added to the strain on the Turkish lira, which has lost about 15 per cent against the dollar since the start of September. There are also fears that it could lead to the imposition of huge fines on Turkish banks, causing foreign investors to monitor the trial closely.

The case has helped push relations between Ankara and Washington to their lowest point in decades as it adds to a list of grievances between the Nato allies, including US policy in Syria and its refusal to extradite Gülen. Erdogan and his ministers have repeatedly raised the sanctions busting case with their US counterparts, including president Donald Trump, to no avail.

Zarrab’s testimony has illustrated how the US and its allies tightened a financial noose around the Islamic republic before Tehran signed a deal with world powers in 2015, under which Iran agreed to scale back its nuclear activities in return for many sanctions being lifted.

Gold trading

Suleyman Aslan, Halkbank's former general manager, told Zarrab he was "constantly receiving warnings" about Iran from US officials and asked for bribes to compensate for the risk he was taking, the gold trader told the court. Later Aslan suggested the food deals "because the US is not allowing gold trading any more", Zarrab recalled.

Both Caglayan and Aslan were among the nine defendants charged by the US, but they have not been arrested by American authorities. Zarrab gave his testimony at the trial of Mehmet Hakan Atilla, a senior banker at Halkbank who US authorities arrested in March. Atilla has pleaded not guilty.

The claims being argued before the New York jury first became known to the Turkish public in December 2013, when Istanbul police launched a huge corruption investigation. They arrested more than four dozen people, including Zarrab and the sons of three government ministers. The case rocked Turkey and Erdogan portrayed it as a plot by Gülen to topple his government.

The Turkish charges against Zarrab and 52 other suspects in the case were eventually dropped as Erdogan launched a purge against prosecutors and police involved in the case. He praised Zarrab as a philanthropist and the gold trader was later awarded a prize for exporter of the year by the government.

Two years later he flew to Miami and was promptly arrested.

Yildirim on Friday said he hoped Zarrab would “turn back from his mistake”. He was not referring to the trader’s alleged role in sanctions busting, but his decision to co-operate with US prosecutors.

Copyright The Financial Times Limited 2017