Mysterious Gold Dealer"s Testimony Puts Erdogan On Shaky Ground

Authored by M K Bhadrakumar via The Asia Times,

As on the soccer field in his youth, so in a tumultuous political career spanning four decades: Turkey’s president Recep Tayyip Erdogan has consistently shown his mettle as a fighter who won’t be satisfied with anything short of total victory. 

But in the battle that is now unfolding around him, and which is besieging him, there isn’t going to be a winner.

What is at stake is survival – the chance to live another day, even if in some ignominy. That much is clear from the opening testimony in a federal courtroom in New York on Wednesday from the Turkish-Iranian gold trader Reza Zarrab, who allegedly helped Tehran sidestep US sanctions to export oil with the connivance of corrupt Turkish high officials and then to launder the income.

When the principal accused becomes the star witness in a US court, he has possibly struck a deal with the authorities. The remaining ambiguity is with regard to when it was that Zarrab struck the deal – was it when he landed in Miami 18 months ago, ostensibly to show his young son around Disneyland, or before he was spirited out of Turkey to America on the express understanding that he’d get clemency for providing hard evidence to nail Erdogan.

Zarrab explained before the court the elaborate scheme he orchestrated to free “a few billion euros” of Iran’s sanctioned oil using funds deposited in the Turkish state-owned Halkbank which were used to buy gold that was subsequently smuggled to Dubai and sold for cash. (The FBI also nabbed a senior functionary of Halkbank, Hakan Atilla, who is on trial.)

Turkish gold trader Reza Zarrab is shown in a court room sketch as he appears in Manhattan federal court in New York. Photo: Reuters / Jane Rosenberg

Zarrab named a confidant of Erdogan, the former Turkish Economy Minister Zafer Caglayan, as having taken bribes amounting to over US$60 million and also implicated Turkey’s Aktif Bank, which is part of a holding company headed at the time by Erdogan’s son-in-law, Berat Albayrak (the current energy minister). Zarrab is due to testify again. We have only seen the tip of the iceberg.

Meanwhile, Turkey’s main opposition leader, Kemal K?l?çdaro?lu, revealed on Tuesday that Erdo?an’s close circle – including his brother, his son and his executive assistant – made transactions worth around US$15 million to an off-shore company called Bellway Limited in the Isle of Man (a tax haven) in late 2011 and early 2012. Kilicdaroglu produced documentary evidence and promised to revert with more such disclosures.

Top Turkish officials and senior leaders of the ruling party have made the counter-allegation that all of this is a political conspiracy orchestrated by Islamist preacher Fetullah Gulen, who lives in the US. They say Gulen and his American mentors are making a second attempt to remove Erdogan from power after the failed military coup two years ago. The Turks believe that CIA officials sponsored Gulen’s exile in Philadelphia.

Evidently, the US establishment has been preparing the case file for quite some time – and the effort predates the Trump presidency.

The Turkish side have kept President Trump personally out of the firing line.

There is, in fact, an eerie similarity here to what the Russians have been saying – namely, that Trump himself desires a good working relationship with Russia and President Vladimir Putin, but, alas, the Washington establishment is pursuing a contrarian agenda.

Erdogan’s strategic defiance of Washington seriously hurts US interests. Without Turkey’s cooperation, America’s military presence in northern Syria is unsustainable. Turkey’s entente with Russia and Iran undermines US regional strategies.

Add to that Turkey’s S-400 missile deal with Russia, Erdogan’s hostility toward Israel and support of Qatar in its rift with Saudi Arabia, the downhill slide in Turkey’s relations with major European countries and its lackadaisical attitude toward NATO, and it’s not hard to see how the West might view Erdogan as a hurdle that must somehow be overcome.

Zarrab can help irreparably damage Erdogan’s reputation, and even implicate his family members and close aides as criminals.

Worse still, heavy penalties of billions of dollars could be levied on the Turkish banks involved, crippling the country’s economy. And sanctions could be imposed.

Suffice to say, Erdogan has a choice between capitulation or the desecration of the house he has built in a long and hugely successful political career. Time is running out. Erdogan is circling the wagons. He may feel tempted to ride the wings of Turkish nationalism. There is still no credible political figure who can seriously challenge him in Turkish politics. He is daring and charismatic. The next elections are due only in 2019.

But that is to cast an eye at the horizon.

Significantly, US Secretary of State Rex Tillerson quietly digressed during a speech on trans-Atlantic relations in Washington on Tuesday to pose a riddle to no one in particular – whether Turkey would be better off partnering with Russia and Iran or aligning with the West.

On the eve of Zorrab’s testimony, Tillerson seemed to hint at a passage that Erdogan has not taken, toward a door that he has never opened – one that leads into the rose-garden.

Lira Tumbles After Zarrab Confirms Erdogan Approved "Secret Iran Gold" Trade

In somewhat of a worst-case scenario, Turkish-Iranian gold trader Reza Zarrab just confirmed that Turkish President Erdogan approved the "secret Iran gold" trade that enabled Iran to evade US sanctions.

Full Zarrab quote:

"What I’m saying is that the prime minister at that time period Recep Tayyip Erdogan and minister of the treasury ... had given orders to start doing this trade."

The immediate reaction is clear.

Citi"s FX desk explains why Turkish markets are watching the US trial of a banker so closely.

The basics: The US government has accused Turkish banker Mehmet Hakan Atilla of helping Iran evade US sanctions.

 

Turkey’s former economy minister, Zafer Caglayan, and two other banking executives, have been charged in absentia but Atilla is the only one on trial.

 

Why it matters: It"s about the implications this has for US/Turkey diplomatic relations. Bloomberg has a good explainer here: ‘The focus will be on whether [Zarrab] implicates Turkey’s banking system or the highest levels of its government.’ The worst case scenario would hypothetically be where the trial results in diplomatic penalties to Turkey and its banks.

 

An October 30 document submitted to the court by federal prosecutors in New York said that the US “anticipates that the evidence introduced at trial will show that Turkish government and banking officials were integral to the sanctions evasion scheme.” Still, it’s too early to tell, and we watch the wires closely for the latest developments.

And throwing Erdogan under the bus is likely as serious as it gets.

*  *  *

By way of background, we previously detailed... While long forgotten for some, in the summer of 2014, we reported in detail on what appeared to be the biggest, most bizarre money-laundering scheme ever, involving Turkey trading "200 tons of secret gold" with Iran...

The topic of Turkey"s Oil-for-Gold "deals" has not been far from our thoughts over the last few years (here, here, and here) but as Bloomberg reports, after accessing a report leaked on March 14 of a network that spanned Turkey, China, Dubai and Iran, the plot reveals "one of the most complex illicit finance schemes [prosecutors] have seen." It included the classic money-laundering techniques of over-invoicing and false invoicing (exactly as in the case of the Chinese commodity financing scandal underway) but the secret government plan to juice Turkey"s exports goes much deeper; and if you think that the exposure of this scheme is slowing Turkey"s manipulation, think again. Turkey’s trade balance continues to fluctuate unpredictably as gold stocks flow out of the country in bursts.  “Turkey’s going to continue it,” the Turkish economy minister said. “If those casting aspersions on the gold trade are searching for immorality, they should take a look in the mirror.”

 

We first started noticing major "odd" exports of gold from Turkey to Iran in May 2012. But in 2013, with a plunging currency, surging inflation, slowing growth, and specter of rapid QE-driven hot money outflows leaving his nation desperate; Zafer Caglayan, the minister in charge of Turkey"s $800 billion economy decided that the only way to ensure success in the looming election... was to cheat...

 

Read more here...

A farcical domestic investigation was undertaken and while the judges and officials who probed the money laundering scheme were either fired or reassigned, the findings in their report were leaked.

The leaked document that Erodgan tried so hard to hide, prepared by the Turkish National Police, shows that investigators probed the activities of a cast of characters that was both powerful and dependent upon each other for favors. There have been some arrests (but no politicians).

The first was Sarraf, the Iranian businessman, who changed his name from Reza Zarrab after he took Turkish citizenship in 2007.

 

He and Erdogan were photographed on stage together at one public function, and met at a wedding in Ankara.

 

After Sarraf was arrested in December, Erdogan told reporters that his gold-dealing had “contributed to the country.”

Then, three years later, Bloomberg reports that Zarrab - the gold trader accused of helping Iran evade sanctions - invoked the name of Turkey’s president, Recep Tayyip Erdogan, as part of a scheme that U.S. prosecutors say was supported by Turkey’s government, according to court documents.

U.S. prosecutors in New York have gathered taped conversations and other records that suggest the trader may have sought support from Erdogan.

 

The Turkish president hasn’t been accused of wrongdoing, and it’s possible that the trader falsely invoked Erdogan’s name to influence others.

 

The people charged in the case are captured in the recorded conversations, which were introduced in a filing in federal court in Manhattan.

 

The documents introduced in the sanctions and money-laundering case against the Turkish-Iranian gold trader, Reza Zarrab, could further complicate the relationship between the U.S. and Turkey, a majority-Muslim country long considered a crucial ally in the region.

And now, the day that Turkish President Erdogan has been most fearful of has arrived, despite his best efforts to block it. Erdogan tried to pressure U.S. officials during the Barack Obama and Donald Trump administrations to drop the prosecution of the trader and has complained in public comments that prosecutors were trying to extract a confession from Zarrab and turn him into an informant. He also claimed President Trump apologized for the prosecution in a phone call.

“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 Institute 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.”

AP reports that a U.S. prosecutor says Turkish gold trader Reza Zarrab has pleaded guilty to charges and will reveal at a New York trial how he helped Iran evade U.S. sanctions in an "economic jihad."