Turkish Halkbank executive detained in US in Iran sanctions probe

Turkish Halkbank executive detained in US in Iran sanctions probe
Halkbank executive Mehmet Hakan Atilla is said to have helped conceal currency and gold supplies to Iran from US sanctions regulators
By bne IntelliNews March 29, 2017

An executive of Turkish state-owned lender Halkbank was arrested on March 28 at New York’s JFK Airport on charges of conspiring to evade trade sanctions on IranReuters and Bloomberg reported. The news sent the bank’s share price down 13.85% by 12:00 Istanbul time.

Mehmet Hakan Atilla, a deputy general manager at Halkbank responsible for international banking operations, is accused of “conspiring with Reza Zarrab, an Iranian-Turkish gold trader, to launder hundreds of millions of dollars through the US financial system on behalf of Iran and its companies”, according to Bloomberg.

According to a criminal complaint, Atilla worked with Zarrab and others from 2010 to 2015 to conceal Zarrab's ability to supply currency and gold to Iran through a Turkish bank, without subjecting the bank to US sanctions, Reuters reported.

Zarrab was a central figure of the Turkish corruption probe back in December 2013 that targeted Erdogan’s inner circle.

The corruption allegations led to the resignations of four ministers of the AKP government.

Suleyman Aslan, then general manager of Halkbank, was also detained. According to the indictment prepared by Turkish prosecutors, Halkbank allegedly facilitated gold trading with Iran in breach of international sanctions.

President Recep Tayyip Erdogan, who was prime minister at the time, dismissed the graft probe and corruption allegations as a plot orchestrated by his ally-turned-foe Fethullah Gulen to topple his government.

Erdogan accuses US-based cleric Gulen of masterminding the botched coup attempt last year.

In October 2014, Turkish prosecutors dropped the Halkbank case and dismissed charges against 53 people implicated in the probe. Zarrab, the alleged kingpin of the network, was released after spending 70 days in prison.

However, Zarrab was arrested in March 2016 in Miami on charges of conspiring to evade sanctions against Iran, money laundering and bank fraud.

Zarrab this week added former New York City Mayor Rudolph Giuliani and former US Attorney General Michael Mukasey to his legal team, Hurriyet Daily News reported on March 28.

As news of the detention spread, dollar bonds from Halkbank fell across the curve on March 29, Reuters reported, citing data from Tradeweb.

Bonds maturing 2021 and 2020 fell just over 0.7 cents in the dollar, hitting six-week lows, while the 2019 issue slipped 0.66 cent, according to the news service.

A state-owned 51% stake in Halkbank was in February transferred to the newly-established Turkish sovereign wealth fund (SWF).

The arrest of the Halkbank executive came only two days before US Secretary of State Rex Tillerson is scheduled to make a visit to Ankara on March 30. The detention of the banker would be discussed with Tillerson, Turkey’s Foreign Minister Mevlut Cavusoglu told Turkish state-broadcaster TRT Haber.

“We are following the process very closely”, Cavusoglu said. “The arrest of the bank executive is based on an indictment prepared by former US [New York Southern District] attorney Preet Bharara who had close ties to Fethullah Gulen”, the minister claimed.

Bharara, who was fired earlier this month by the Trump administration, oversaw the arrest and prosecution of Reza Zarrab.  

It remains to be seen whether the US authorities will widen the scope of their investigations to include other Turkish institutions and individuals and whether they will consider measures against Halkbank, one of the largest publicly traded lenders on the Turkish stock exchange, for allegedly international sanctions.

“We are trying to understand if the probe will also target other Turkish companies and high-profile figures”, one banker told Reuters on March 29. The banker added that “the Halkbank executive was in the US for investor meetings for a planned bond issue”.

“Halkbank is expected to issue Eurobonds worth $500mn next week. We are wondering if investors will still show interest in the bond issue after the arrest,” the banker said.

The government in Ankara hopes that the election of Donald Trump could mark the beginning of a new era following rather turbulent relations with Washington under President Barack Obama.

It remains to be seen what impact the arrest of the banker may have on Turkey-US relations.

Nihat Zeybekci, Turkey’s Economy Minister, criticised the way US officials handled the Atilla case.

“At the very least, if there was a situation like this, they could have shared it with Turkey in advance. The banker could have been invited to testify," Zeybekci told Bloomberg.

The opposition may try to revive memories of the 2013 corruption allegations in its campaign for a No in the upcoming April 16 referendum on Turkey adopting an executive presidency, but it is unlikely that the arrest of the bank executive in the US will have an impact on the outcome of the poll.

The main stock exchange index, the BIST-100, was down 1.16% and the Turkish lira had gained 0.33% against the greenback to trade at 3.6432 per dollar as of 12:00 local time.