US federal prosecutors in the Southern District of New York have indicted Turkish state lender Halkbank (Türkiye Halk Bankası A.Ş.) on six counts including fraud, money laundering and sanctions offenses related to the bank’s participation in a multibillion dollar scheme to evade US sanctions on Iran.
The indictment was announced on Tuesday by Geoffrey S. Berman, the United States attorney for the Southern District of New York, John C. Demers, the assistant attorney general for National Security, and William F. Sweeney Jr., the assistant director in charge of the New York field office of the Federal Bureau of Investigation (FBI).
According to the indictment Halkbank is charged with conspiracy to defraud the United States, conspiracy to violate the International Emergency Economic Powers Act (IEEPA), bank fraud, conspiracy to commit bank fraud, money laundering and conspiracy to commit money laundering.
The case is assigned to US District Judge Richard M. Berman and is being handled by the US Attorney’s Office’s Terrorism and International Narcotics Unit and Money Laundering and Transnational Criminal Enterprises Unit. Assistant US Attorneys Michael D. Lockard, Sidhardha Kamaraju, David W. Denton, Jr., Jonathan Rebold and Kiersten Fletcher are in charge of the prosecution.
Between 2012 and 2016, prosecutors alleged that Halkbank and its officers, agents and co-conspirators directly and indirectly used money service businesses and front companies in Iran, Turkey, the United Arab Emirates and elsewhere to violate and to evade and avoid prohibitions against Iran’s access to the US financial system, restrictions on the use of proceeds of Iranian oil and gas sales and restrictions on the supply of gold to the government of Iran and to Iranian entities and persons.
Halkbank knowingly facilitated the scheme, participated in the design of fraudulent transactions intended to deceive US regulators and foreign banks and lied to US regulators about Halkbank’s involvement, the indictment states.
High-ranking government officials in Iran and Turkey participated in and protected this scheme. Some officials received bribes worth tens of millions of dollars paid from the proceeds of the scheme so that they would promote the scheme, protect the participants and help to shield the scheme from the scrutiny of US regulators.
The proceeds of Iran’s sale of oil and gas to Turkey’s national oil company and gas company, among others, were deposited at Halkbank, in accounts in the names of the Central Bank of Iran, the National Iranian Oil Company (NIOC) and the National Iranian Gas Company. During the relevant time period Halkbank was the sole repository of proceeds from the sale of Iranian oil by NIOC to Turkey.
Because of US sanctions against Iran and the anti-money laundering policies of US banks, it was difficult for Iran to access these funds in order to transfer them back to Iran or to use them for international financial transfers for the benefit of Iranian government agencies and banks. As of in or about 2012, billions of dollars’ worth of funds had accumulated in NIOC and the Central Bank of Iran’s accounts at Halkbank.
Halkbank participated in several types of illicit transactions for the benefit of Iran that, if discovered, would have exposed the bank to sanctions under US law, including (i) allowing the proceeds of sales of Iranian oil and gas deposited at Halkbank to be used to buy gold for the benefit of the government of Iran; (ii) allowing the proceeds of sales of Iranian oil and gas deposited at Halkbank to be used to buy gold that was not exported to Iran, in violation of the so-called “bilateral trade” rule; and (iii) facilitating transactions fraudulently designed to appear to be purchases of food and medicine by Iranian customers in order to appear to fall within the so-called “humanitarian exception” to certain sanctions against the Iranian government, when in fact no purchases of food or medicine actually occurred.
Through these methods, Halkbank illicitly transferred approximately $20 billion worth of otherwise restricted Iranian funds, federal prosecutors allege.
The 45-page indictment is posted below:u.s._v._halkbank_indictment_0
Senior Halkbank officers, acting within the scope of their employment and for the benefit of Halkbank, concealed the true nature of these transactions from officials with the US Department of the Treasury so that Halkbank could supply billions of dollars’ worth of services to Iran without risking being sanctioned by the United States and losing its ability to hold correspondent accounts with US financial institutions.
The purpose and effect of the scheme in which Halkbank participated was to create a pool of Iranian oil funds in Turkey and the United Arab Emirates held in the names of front companies, which concealed the funds’ Iranian nexus. From there, the funds were used to make international payments on behalf of Iran and Iranian banks, including transfers in US dollars that passed through the US financial system in violation of US sanctions laws.
According to the press release, US Attorney Berman said, “The facts that emerged at the full, fair, and public trial of Halkbank’s deputy general manager, which culminated in a jury’s January 2018 guilty verdict against him, illustrated senior Halkbank management’s participation in this brazen scheme to circumvent our nation’s Iran sanctions regime.”
“As alleged in today’s indictment, Halkbank’s systemic participation in the illicit movement of billions of dollars’ worth of Iranian oil revenue was designed and executed by senior bank officials. The bank’s audacious conduct was supported and protected by high-ranking Turkish government officials, some of whom received millions of dollars in bribes to promote and protect the scheme. Halkbank will now have to answer for its conduct in an American court,” he added.
“This is one of the most serious Iran sanctions violations we have seen, and no business should profit from evading our laws or risking our national security,” Assistant Attorney General for National Security Demers stated, adding that Halkbank allegedly conspired to undermine the US Iran sanctions regime by illegally giving Iran access to billions of dollars’ worth of funds, all while deceiving US regulators about the scheme.
According to FBI Assistant Director-in-Charge Sweeney, Jr., Halkbank willfully engaged in deceptive activities designed to evade US sanctions against Iran. “Halkbank illegally facilitated the illicit transfer of billions of dollars to benefit Iran, and for far too long the bank and its leaders willfully deceived the United States to shield their actions from scrutiny. That deception ends today. The FBI will aggressively pursue those who intentionally violate US sanctions laws and attempt to undercut our national security,” he added.
The US federal prosecutors previously charged nine individual defendants, including bank employees, the former Turkish economy minister and other participants in the same scheme. On October 26, 2017, Reza Zarrab, the key suspect in the scheme, pled guilty to the seven counts with which he was charged. He became a government witness who confessed he had bribed Turkish government officials.
On January 3, 2018, a jury convicted former Halkbank deputy general manager Mehmet Hakan Atilla of five of the six counts with which he was charged, following a five-week jury trial. The remaining individual defendants are fugitives.
On December 17, 2013 Turkish prosecutors made a graft investigation public in which Zarrab and the inner circle of then-Prime Minister and current President Recep Tayyip Erdoğan including government ministers were incriminated. Government officials and Halkbank managers were accused of accepting bribes from Zarrab in a sanctions-busting scheme run through Halkbank to circumvent US sanctions on Iran.
Erdoğan dismissed the corruption allegations, sacked the prosecutors and police chiefs and hushed up the graft probes. He also described the investigations as “a plot by the Gülen movement to topple the government” and launched a crackdown on the group. The movement, led by US-based Turkish Muslim scholar Fethullah Gülen, has long been critical of the Erdoğan government due to its corruption and Ankara’s aiding and abetting of radical jihadist groups in Syria and Libya.
In Turkey, then-European Affairs Minister Egemen Bağış and other officials were cleared of any crime in a parliamentary vote in 2014. Everything went well for him until Zarrab, the Iranian national and sanctions buster, was arrested by the FBI in Miami on March 19, 2016. The US Attorney’s Office for the Southern District of New York indicted Zarrab on charges similar to those filed by Turkish investigators in the December 2013 investigation. As part of their case the US attorneys used Turkish evidence to build a case against Zarrab. In his testimony Zarrab, turned into a government witness after cutting a plea deal, confessed that he had bribed Bağış and other ministers, set up a money laundering scheme, opened fake accounts in Turkish state banks and established front companies.