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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| Is the sequel coming up? |
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.
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| Zarrab attempts to diagram his complicated scheme |
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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| "This is a gift, I tell you! A gift!" |
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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| Reza Zarrab's new home? |
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.
