Giuliani Talk With Erdogan Adds Mystery to Sanctions Case
(Bloomberg) -- A wealthy Turkish-Iranian gold trader facing U.S. charges that he helped Iran evade U.S. sanctions for sponsoring terrorism has an unlikely ally: Rudy Giuliani.
It’s a surprising role for Giuliani, who was dubbed "America’s Mayor" for his uncompromising response to the 2001 terrorist attacks as mayor of New York. An early supporter of President Donald Trump, Giuliani has helped him search for a legal way to ban Muslim immigrants and served as an informal adviser, tasked with building private sector partnerships on cyber-security.
Now, Giuliani has joined a star-studded roster of lawyers representing Reza Zarrab, who is accused of using his network of companies to launder hundreds of millions of dollars through the U.S. financial system to aid the mullahs in Tehran. In a court filing last week, Giuliani said he’s met with senior officials in the U.S. and Turkey, including President Recep Tayyip Erdogan, in an effort to broker a deal that might benefit Zarrab and bolster U.S. national-security interests.
At a hearing Monday, U.S. District Judge Richard Berman asked lawyers for updated information about what their firms have been doing on behalf of the Turkish government in the U.S.
Michael Lockard, a government prosecutor, stressed the gravity of the charges, saying Giuliani and Mukasey had soft-pedaled the seriousness of the case in court filings. Lockard said the evidence would show Zarrab personally offered his services to circumvent sanctions to Iran’s then-president, Mahmoud Ahmadinejad, and paid tens of millions of dollars to high-level banking officials to help carry out the scheme.
"What is charged in this case is a serious national-security offense," Lockard said.
Zarrab’s unorthodox defense strategy is drawing scrutiny and comparisons to other cases, where the U.S. took a hard line on companies accused of violating sanctions or moving Iran’s money. David Kelley, a former U.S. attorney in Manhattan, said prosecutors cherish their independence, removed from politics and foreign-policy considerations, and blanch at any suggestion that a criminal case might be compromised.
"They’re looking to resolve a criminal case through political means," he said of Giuliani and another Zarrab lawyer, former U.S. Attorney General Michael Mukasey. Their actions “run the risk of politicizing the Justice Department, and every time that happens in one form or another, there are serious consequences and fallout from it,” added Kelley, who’s not involved in the case.
Preet Bharara, the U.S. attorney in Manhattan until he was fired last month, appeared to be voicing the same worry in a tweet last week: "One just hopes that the rule of law, and its independent enforcement, still matters in the United States and at the Department of Justice." Prosecutors on the case have also demanded to know what Giuliani is up to.
The case has roiled diplomatic relations with Turkey, where Erdogan assailed Bharara for bringing the charges against Zarrab, his close associate. Once a staunch U.S. ally, Turkey has drifted away from the West as Erdogan has grown more autocratic and friendly toward Russian President Vladimir Putin. Trump was one of the few world leaders to congratulate Erdogan on his recent win of a referendum giving sweeping powers to the president.
In their court filing, Giuliani and Mukasey said “senior officials” in the U.S. and Turkey “remain receptive” to a deal that could promote the security of the U.S. They said the willingness of the U.S. to negotiate is not surprising because the alleged scheme involved consumer goods, not nuclear technology or other contraband, and that they had briefed both Attorney General Jeff Sessions and Bharara “in general terms” before their trip to Turkey in February.
It remains to be seen whether the Justice Department will agree to a deal for Zarrab, who’s being held in a Manhattan lockup. Erdogan’s talks with Vice President Joe Biden in September failed to win the trader’s freedom. Richard Holwell, a former federal judge in New York, said it’s not unusual for lawyers for influential defendants to seek a political resolution to a case, but it’s rare for such maneuvering to succeed because the Justice Department resists the politicization of law enforcement.
"There are sometimes lawyers in the courtroom talking to the judge and prosecutors, and then there is a separate line of communication at the diplomatic level," said Holwell. "The idea that Messrs. Giuliani and Mukasey would pay a visit to Erdogan doesn’t surprise me. The only thing that surprises me is whether Zarrab is that valuable a piece in the game that Erdogan would be interested in communicating with those in the U.S."
Yet the lawyers’ politicking has clearly raised concerns for Judge Berman.
“In a sense, the judge’s raising this conflict-of-interest question is a back door way into getting more information from Zarrab’s team,” said Peter Henning, a law professor at Wayne State University in Detroit. "The judge is flying blind on what’s going on here.”
Emanuele Ottolenghi of the Foundation for Defense of Democracies, a Washington-based think tank that has advised lawmakers writing Iran sanctions legislation, said it’s understandable why the Turkish government would press for a deal.
"The Zarrab case is going to be a treasure trove for people who study sanctions evasion," said Ottolenghi. "We will learn a lot about Zarrab, but also we’re going to learn about how complicit Turkey was as a whole in allowing Iran to evade sanctions. The potential embarrassment and fallout in this case is so vast that it is hard to put a tag on it."
Zarrab, who denies wrongdoing, is accused of using his multibillion-dollar network of companies in Turkey and the United Arab Emirates to induce U.S. banks to launder money through transactions that violated international sanctions against Iran. He was arrested in Miami after arriving in the U.S. for a family trip.
Prosecutors also say Zarrab played an active role helping to finance an Iranian airline, Mahan Air. The airline is a material supporter of the Iranian National Guard’s Quds Force, a sponsor of terrorism, the U.S. says. Treasury officials said Mahan Air has covertly flown personnel on planes without including them on passenger manifests, including in and out of Syria and Iraq, and ferried weapons for Quds and Hezbollah.
Starting in 2015, prosecutors say Zarrab began processing transactions on behalf of a Dubai-based company called Ascot General Trading that served as a front for Mahan to avoid blockades in the financial system. Over the next month, prosecutors say he handled millions of dollars in transactions for the company, some of which passed through New York banks.
In a related case, prosecutors last month charged Mehmet Hakan Atilla, a senior manager at Turkiye Halk Bankasi AS, a large state-owned bank, with conspiring with Zarrab. Prosecutors cited recorded conversations between Atilla and Zarrab in 2013 which suggested that the two were intentionally trying to disguise transactions involving a Dubai company in such a way that Western banks would approve funding. Atilla denies wrongdoing.
The case may have grown out of similar prosecution in Turkey in 2013 that connected Zarrab’s transactions with Iran to payments to senior government officials in Ankara. In 2014, Erdogan dismissed investigators involved in the case, and charges against Zarrab and members of Erdogan’s government were eventually dismissed.
The case is U.S. v. Reza Zarrab, 15-cr-867, U.S. District Court, Southern District of New York (Manhattan).