If the producers of the hit TV show Sopranos are looking for a sequel they have no further to look than a federal courtroom in lower Manhattan. There, before disbelieving journalists and other onlookers, a young Iranian/Turkish gold trader is outlining a brazen money-laundering, Iran sanctions busting scheme involving a cast of characters that would guarantee the show several successful seasons. The trail leading to this courtroom began in Iran and wound its complicated way through Turkey, Dubai, West Africa, China, India, Miami and now a federal court in New York.
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The cast of characters would grow to involve not just one Reza Zarrab, but would include several corrupt Turkish ministers, bent banks, an enraged and uncomprehending Turkish president, relatives of this president, and a shadowy Muslim cleric now living in the U.S. who is accused of orchestrating an attempted coup in Turkey in 2016. Bit parts are reserved for former CIA officials and the now disgraced former National Security Adviser Michael Flynn. One final character would be Zarrab’s business partner in Iran who now sits in prison hoping against hope that the authorities change their minds about his execution. Oh, and in a wonderful bit of irony no script-writer would dare include, one of the Turkish ministers used by Zarrab is well acquainted with American courtroom procedures because he used to be a court-approved translator while living in New York.
As if this drama were not enough, in the middle of Zarrab’s testimony the leader of Turkey’s opposition party revealed what he said were bank statements showing that Turkish President Tayyip Erdoğan’s relatives had shifted several million U.S. dollars to the tax haven of the Isle of Man. There’s plenty here for several seasons.
The scheme described by Zarrab – once hailed as a national hero in Turkey – involved running billions of dollars through the Turkish financial laundromat he helped create in a mind-boggling plan to help Iran gain access to funds it was receiving from oil and gas sales. This was a crucially important to Iran because UN and US sanctions had blocked its ability to trade in much of the international market place. Meanwhile, billions of US dollars which Iran received for its oil/gas trade were piling up in Turkish banks. The only problem was that under the sanctions regime and US Treasury rules there was no way for Iran to use those dollars. Enter our bright Mr. Zarrab.
He was a modestly successful foreign exchange trader who saw an opportunity. The plan he designed to free up those dollars for Iran grew into a multi-billion-dollar business involving massive gold transactions, several countries, countless front companies, and banks with easy virtue. The scheme was so complex that it took him the better part of two days in the courtroom to draw an incredibly complicated diagram with multiple boxes, circles, lines, arrows, and names in an effort to show how it was done. Jurors struggling to follow all this could be excused for requesting a couple of aspirin.
None of this could have worked without the active compliance of Turkish ministers and senior officials in state banks. Zarrab said he paid one of the ministers €40 - €50 million to get him to lean on the state banks to go along with the scheme. The general manager of the major state bank Halkbank kept $5 million in cash in a shoe box in his closet. Another one of the ministers involved recently thought it prudent to become a citizen of the Turkish Republic of Northern Cyprus – from which there is no extradition.
Zarrab’s scheme was working like clockwork until an explosive series of wire-taps was released in December 2013 by unknown persons – later claimed by Erdoğan to be accomplices of the aforementioned shadowy Moslem preacher now living in the United States. These tapes blew the lid off the operation and riveted the attention of the Turkish public. The government quickly buried the news and the ministers got off with a slap on the wrist and dismissal from their jobs. The minister later accused of taking the €40 - €50 million protested loudly – in true Mafia fashion – his complete innocence and that he was ‘set up’. His case might have been stronger had he not displayed a watch that cost $700,000 while loudly protesting his innocence. Tough to do that on a minister’s salary.
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Zarrab himself spent a few days in jail but was soon released as a hero of Turkey who helped reduced the staggering Current Account Deficit through his gold trades. Nonetheless he began to feel a little uncomfortable when some of his calls were not returned and his partner in Iran was arrested, tried, and sentenced to death. That tends to focus one’s mind. It didn’t take Zarrab long to realize how much he was exposed to the whims of Turkish justice. He knew just how easily and how far he could fall from grace. In the spring of 2016 he decided to take his family to visit Disneyland in Florida. Imagine his surprise – or relief – when upon landing in Miami was met not by Mickey Mouse but by a couple of unsmiling FBI agents who promptly arrested him on multiple charges of money laundering and breaking the Iranian sanctions.
Now, the conspiracy theorists have had a field day saying his trip to America was a set-up from the start with Zarrab deciding that life in U.S. prison was safer than being in either Turkey or Iran. Maybe, maybe not. But one interesting question is how a person with his record could get a U.S. visa. Anyway, he spent almost two years in custody while prosecutors prepared their case. Their job was made inexplicably easier when for some very bizarre reason Turkey decided to send the deputy general manager of the deeply implicated Halkbank to New York for a conference. This hapless individual was promptly arrested on the same charges and thrown into the slammer to be tried with Zarrab.
By this time Turkey was caught up in the attempted coup that Erdoğan claims was orchestrated by his one-time ally Fethullah Gülen from his farm in Pennsylvania. Erdoğan pleaded vainly with Obama and later Trump to extradite Gülen. Also, recognizing the risk of a singing Zarrab, he pleaded with them to send Zarrab back. No luck.
When it became clear that, again in true Mafiosi fashion, Zarrab was going to plead guilty and testify against the defendant from Halkbank rather than face decades in prison, Erdoğan began to play the national sovereignty card. “We are an independent country! This trial is a violation of our national sovereignty! We can trade with whomever we want!” True enough. But if you use U.S. dollars in those transactions you break U.S. regulations and your banks risk huge fines. Just ask BNP Paribas, Standard Charted, HSBC, and several others who had to eat massive fines imposed by the U.S. Treasury. In his anger and impotence Erdoğan is lashing out blindly, and ordered the Istanbul prosecutor to indict two former CIA officials on grounds that they helped in the coup attempt. “Anything you do we can do better!”
So what next for Turkey? For a start, American/Turkish relationships have hit a new low. Erdoğan will do his best to play the nationalist card and portray all this Zarrab testimony as yet another plot against Turkey. Given his almost total control of the media in Turkey this may work with his really hard core supporters and limit his internal political damage. But Turkey’s international reputation has taken a serious hit. “We’ve been reduced to one level below banana republic,” lamented one friend.
It’s not clear yet how big a fine, if any, Turkish banks involved in the sanctions busting scheme will have to pay. Erdoğan will probably make a big deal out of refusing to pay any fine as a violation of Turkish pride and sovereignty. But saner heads may remind him that failure to pay could result in the Turkish banks being excluded from the international financial system. That nuclear option could force him to climb down and negotiate. Also, banks with an unpaid fine hanging over them would find it almost impossible to roll over their massive foreign exchange debt each year. No one would touch them.
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And what of the one-time national hero Mr. Zarrab? Well, the Witness Protection Program beckons. He may learn to love the wilderness of some place like Montana rather than return to Turkey and face the possibility of becoming part of the infrastructure of the runways at the new Istanbul airport.