The Cable

A Turkish Banker’s Arrest Puts Spotlight on Erdogan’s Circle at Awkward Time

The U.S. arrested the Turkish executive and charged him with colluding in a multimillion-dollar scheme to help Iran evade U.S. sanctions.

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A new U.S. court case tying a Turkish bank to a multimillion-dollar scheme to help Iran evade U.S. sanctions may throw a wrench into Turkish President Recep Tayyip Erdogan’s plans to seize more power.

The case alleges an executive at Halbank, one of Turkey’s largest state-owned banks, colluded with an Iranian commodities trader to funnel hundreds of millions of dollars worth of illegal transactions through U.S. banks to Iran from 2010 to 2015, according to a complaint filed Monday in the United States District Court for the Southern District of New York.

The executive, Mehmet Hakan Atilla, who is Halbank’s deputy CEO, was arrested by U.S. authorities Monday night in New York. The commodities trader, Reza Zarrab, already stands accused in Turkey of orchestrating a “gas for gold” scheme to circumvent U.S. sanctions and net Tehran $13 billion. He is known to have close links to Erdogan’s inner circle.

Atilla’s arrest threatens to shed light on corruption in Erdogan’s network at a sensitive time. It comes just weeks before a new national referendum on changing Turkey’s constitution. The referendum will decide whether to merge the powers of the presidency and the prime ministership, but experts see it as a way for Erdogan to consolidate his grip on power. It’s very much going to strengthen the powers of the presidency without including any of the necessary checks and balances you tend to have in a presidential system,” said Amanda Sloat, former State Department envoy for Southern Europe and Eastern Mediterranean Affairs. Erdogan’s political opponents took it a step further, mocking a ‘yes’ vote as a “vote for dictatorship.”  

The U.S. case could shed light on how corners of Turkey’s banking system helped Iran avert U.S. and international sanctions and potentially unveil collusion with Erdogan’s government given the close ties between the banks and his cabinet, experts said.

News of Atilla’s arrest sent shockwaves through Turkey’s banking system. Halbank shares dropped 16 percent Wednesday. “Domestic and international investors will see shares in Turkish banks as toxic assets,” Aykan Erdemir, a former Turkish member of parliament and current senior fellow at the Foundation for Defense of Democracies, said. “You never know which bank executives will be arrested next.”

The arrest also comes days before a visit by the U.S. Secretary of State Rex Tillerson’s next week to Ankara, promising to cast a pall over the discussions. Tillerson is slated to meet with senior Turkish officials to talk about the two countries’ push to dislodge the Islamic State from the Syrian city of Raqqa. Ankara was set to air some grievances with the United States at the meeting, but it seems it will now be on the defensive, said Erdemir.

Turkey’s relations with the United States are already strained. The two countries came to loggerheads over the United States’ decision to arm Kurdish groups fighting the Islamic State. Then tensions flared anew after Washington refused to extradite Fetullah Gulen, a U.S.-based cleric in exile Ankara accused of orchestrating the botched military coup against Erdogan in July, 2016.

Zarrab’s trial is slated to begin in August this year. Aside from the “gas for gold” scheme, he’s also implicated in a major corruption scandal in 2014 that involved bribe payments to several members of Erdogan’s cabinet.

Erdogan previously said he suspected the United States of having “ulterior motives” for arresting Zarrab, whom U.S. authorities picked up in Miami in March of last year. Turkey’s Justice Minister also reportedly privately asked the U.S. attorney general to release Zarrab last year, showing Erdogan wanted to “sweep this issue under the rug,” Erdemir told Foreign Policy.

Atilla’s former boss, Halbank CEO Suleyman Aslan, was also arrested in December 2013 in an anti-graft probe that implicated the sons of two Turkish ministers. Police found $4.5 million hidden in Aslan’s shoeboxes when they raided his home, leaving some to question what other money Aslan may have hid in things that weren’t shoeboxes. He was released from prison months later and Erdogan’s government curiously reassigned all the police and prosecutors working on the case.

Update: This article was updated to include comments on the upcoming referendum in Turkey.

Photo credit: ADEM ALTAN/AFP/Getty Images

Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. Twitter: @RobbieGramer

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