Mystery Deepens on Eve of U.S. Sanctions Case Roiling Turkey
(Bloomberg) -- Turkey wants him freed. A few in President Trump’s sphere have pushed for a deal. Even so, he’s scheduled to go on trial in New York on Monday.
A wealthy Turkish-Iranian gold trader who had an office in Trump Towers Istanbul, Reza Zarrab stands accused of helping Iran evade U.S. sanctions and bribing senior Turkish officials and bank executives. Anticipation is building from Istanbul to Washington about possible revelations in a case shrouded in mystery and stocked with surprises.
Right now, though, there is a simpler question: Where is Zarrab?
Jailed in grim New York City lockups last year after U.S. authorities seized him en route to a family vacation at Disney World, he is no longer behind bars there. Last week, the inmate registry for the U.S. Bureau of Prisons suddenly said Zarrab had been released. Two people familiar with the case said Zarrab remains in U.S. custody but not in a federal jail. That sometimes happens when a defendant has agreed to serve as a government witness. A lawyer for Zarrab’s accused accomplice has said Zarrab is no longer participating in the defense. Prosecutors and Zarrab’s lawyers have declined to comment.
Has Zarrab decided to cooperate with U.S. prosecutors and tell what he knows about alleged corruption at the highest reaches of the Turkish government? Even the Turkish government is curious, recently asking the U.S. government whether Zarrab is safe.
At least publicly, there were no answers. During the final hearing Thursday before jury selection begins on Nov. 20, Zarrab and his lawyers were not present, and repeated references were made to his absence. At the hearing’s conclusion, Victor Rocco, the lawyer for Zarrab’s co-defendant, Mehmet Hakan Atilla, tossed up his hands and in a loud voice asked the judge if Zarrab would be on trial as well.
Smiling, the judge declined to answer and told Rocco to watch the court docket.
Zarrab, 34, lived a gilded life in Turkey, with a private plane, a yacht, a waterside mansion in Istanbul and a Turkish pop-star wife. He’s accused of using his network of companies to move money through the U.S. financial system on behalf of Iran and related companies, to help them evade sanctions when the U.S. was stepping up economic pressure on the country in retaliation for its nuclear ambition.
Iran was able to process hundreds of millions of dollars in oil revenue to keep the country’s economy humming, in part by using a state-run Turkish bank, Turkiye Halk Bankasi AS, to carry out fraudulent transactions that disguised their true nature by labeling them as food shipments and other allowable commerce, according to prosecutors.
Atilla, a deputy chief executive officer of the bank, was arrested this year during a trip to the U.S. and accused of helping Zarrab. He denies wrongdoing.
The U.S. has alleged that some of the laundered funds benefited entities suspected of supporting terrorism, including Iran-based Mahan Airlines, which has allegedly aided Hezbollah and is blacklisted by the U.S. Treasury Department.
The Zarrab case has seethed with geopolitical intrigue and riveted Turkey since it burst into the public consciousness with a corruption probe there in 2013. That investigation was ultimately smothered by a purge of Turkey’s judiciary orchestrated by President Recep Tayyip Erdogan, who accused a political rival, Fethullah Gulen, of running a shadow government and fomenting a coup attempt against him from afar. Gulen has been living in exile in Pennsylvania since 1999.
The aborted Turkish probe threatened to raise questions about corruption within Turkey’s government and expose details of its relations with countries including Russia and Iran. Now, these same themes may play out in the New York courtroom, where American prosecutors seeking to prove sanctions violations appear ready to present some of the same evidence uncovered by Turkish investigators.
In Turkey, new developments in the case have set off angry eruptions from Erdogan and his ministers, who’ve suggested that the U.S. investigation is cover for a plot to undermine Turkey’s economy. Some legal observers say the Turkish evidence to be aired in the U.S. case could expose how Turkey, a key U.S. ally in the Mideast, was aiding Iran, one of America’s most vexing antagonists.
Court filings in recent weeks suggest that Turkey’s internal affairs -- and the corruption allegations -- will feature strongly in the U.S. trial. Prosecutors are seeking to question prospective jurors on their feelings about Erdogan, Gulen and Turkish politics in general.
Prosecutors have also begun to cite evidence of Zarrab’s relationship with Erdogan in court filings, noting that they have taped conversations and other records suggesting that the trader told Erdogan of the scheme and sought his support, and directed donations to charitable foundations associated with Erdogan family members. Erdogan hasn’t been accused of wrongdoing in the U.S. case.
“Erdogan clearly has a strong personal interest in Zarrab’s case, as he has raised it at the highest levels of both the Obama and Trump administrations,” said Amanda Sloat, a senior fellow at the Brookings Institution and former State Department official overseeing U.S.-Turkey relations. “U.S. judicial proceedings could also hurt the Turkish economy. Since much of Erdogan’s popularity resulted from his successful economic reforms, his domestic political support would be undermined by a downturn.”
Ultimately, the case is a test of U.S.-Turkish relations, already at one of the lowest points in the countries’ longstanding alliance, with analysts questioning how close the charges might get to Erdogan himself.
Gyrations in the case have also spurred dramatic moves in the nation’s currency and stock markets. For example, Halkbank’s market capitalization is a third of what it was before Zarrab was first arrested in Turkey, and the bank hasn’t sold an international bond or received a syndicated loan from abroad in more than a year. Other bank executives have been charged by the U.S. in absentia.
There are almost as many riddles on the U.S. side, where the case was brought by former Manhattan U.S. Attorney Preet Bharara during the waning days of the Obama administration.
Among the many sources of intrigue: Zarrab’s stable of more than a dozen lawyers includes two close associates of President Donald Trump -- former New York mayor Rudy Giuliani and ex-U.S. attorney general Michael Mukasey -- who sought to broker an end to the case after meeting Erdogan in Turkey.
Erdogan and other members of his cabinet have repeatedly asked the U.S. to drop the case. Erdogan lobbied then-Vice President Joe Biden in a September 2016 meeting and pressed for Zarrab’s release in talks with Trump after he became president.
Giuliani and Mukasey said they met with Erdogan in Turkey earlier this year after informing Attorney General Jeff Sessions. In a court filing, they portrayed U.S. officials as receptive to a diplomatic resolution of the case. The Erdogan meeting occurred after Michael Flynn had left the Trump administration as national security adviser. Flynn later registered as a foreign agent working on behalf of Turkey and is said to have discussed ways to return Zarrab to Turkey, NBC News and the Wall Street Journal have reported.
In a court filing last month, Rocco, Atilla’s lawyer, wrote that Zarrab “has essentially not participated in the case” since new charges were added in early September, which expanded the indictment to include Turkey’s former economy minister, Mehmet Zafer Caglayan, and Halkbank’s former chief executive, Suleyman Aslan, along with others. None of the new defendants is in the U.S. or has responded to the charges in court.
In the filing, Rocco said it “appears likely that Mr. Atilla will be the only defendant appearing at the trial.”
The case is U.S. v. Zarrab, 15-cr-867, U.S. District Court, Southern District of New York (Manhattan).
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