Turkey’s Halkbank agrees to respond to U.S. criminal charges in turnaround in Iran sanctions case

(Updates with background information on case, paragraphs 5-7)

On February 25, Turkey’s state-run Halkbank agreed to appear in Manhattan federal court for arraignment after refusing to appear for months to face charges stemming from allegations that it violated American sanctions against Iran.

Judge Richard Berman announced to the court that Halkbank, Turkey’s second largest lender, confirmed through a representative that its board authorized its counsel to move forward with the case. Berman welcomed the decision, calling it a “welcome change of direction.”  

King & Spalding, the white shoe law firm representing Halkbank in earlier proceedings, confirmed this move in court and states they would move into permanent representation of the bank. The firm was to this point serving in a limited capacity to represent their client but King & Spalding’s lead attorney on the case Andrew C. Hruska told the court that Halkbank’s general manager authorized his firm to represent it moving forward.  

This is a major turn-around considering Halkbank’s persistent refusal to appear to represent itself before the Southern District of New York (SDNY) after being indicted on Oct 15, 2019 for what is considered to be the largest sanction-violations case to date.

Halkbank stands accused of laundering up to $20 billion on behalf of Iranian entities, bank fraud charges, and concealing the nature of these illicit transactions from U.S officials. In the initial indictment, Halkbank’s senior managers are accused of “systematic participation in the illicit movement of billions of dollars’ worth of Iranian oil revenue was designed and executed by senior bank officials”.

Reza Zarrab, a Turkish-Iranian gold trader, was arrested for spearheading this scheme on March 19, 2016. Zarrab agreed to cooperate with SDNY prosecutors in exchange for leniency which led to the indictment and arrest of Halkbank executive Hakan Attila in March 2017, and the indictment of former Turkish Economy Minister Zafer Çağlayan.

Attila was convicted and sentenced to 32 months in prison, but was released in July 2019 for time already served in detention. He returned to Istanbul that same month and later named head of the Istanbul Stock Exchange by Finance Minister Berat Albayrak, who is also the son-in-law of President Recep Tayyip Erdoğan.  

Twice the bank was absent in legal hearings, instead seeking a right to a special-appearance that would not require its representatives to physically appear  fearing it would imply acknowledgment of the charges filed against it. 

Frustrated with its refusal to appear in court, prosecutors previously demanded Halkbank be fined $1 million for every day it does not turn up to proceedings. An escalating fine on top of a large penalty if found guilty would be a devastating blow to Halkbank, the Turkish banking sector and the wider Turkish economy.

Through King & Spalding, Halkbank filed an appeal with the Court of Appeals for the Second Circuit and was granted a temporary stay in proceedings earlier this month. 

Their appeal however was rejected on Feb 21 in a paragraph long letter from the appellate court because the “Petitioner has not demonstrated that it lacks an adequate alternative means of obtaining relief, that its right to the writ (of mandamus) is clear and indisputable, or that granting the writ is appropriate under the circumstances.”       

The tensions related to Halkbank’s behavior to date was on display at today’s hearing. Citing the case’s contemporary history, Judge Berman initially questioned King & Spalding as to whether or not it could procure any written documentation authorizing it to represent Halkbank. 

Hruska, the lead litigator, responded that his client was looking to cooperate but that the history of the case was not relevant to the matter and that oral confirmation can suffice. He did quickly follow this by saying that if necessary his firm would seek documentation from Halkbank confirming this arrangement if ordered to by the court. 

Judge Berman obliged and issued an order the documentation to be presented to the court within the week. When asked whether this was an acceptable path forward, federal prosecutors with the SDNY present at the hearing agreed with lead prosecutor Michael Lockhard saying that given Halkbank’s past stubbornness in proceedings this would be a necessary step. 

When speaking to reporters after the hearing, Hruska said that his client did not intend to plead guilty and insinuations that it would were not true. By agreeing to arraignment, he said it only meant Halkbank is now cooperating towards a resolution of the case.

Halkbank has not released any official statements related to this development yet, but in a previous statement shared with Ahval by a spokesman at King & Spalding after being granted a stay, Halkbank expressed a commitment to fighting any charges.

“Halkbank said it will aggressively defend itself against the indictment brought last year by the U.S. Attorney’s Office for the Southern District of New York ... The Bank is committed to performing banking operations in an accountable, reliable and unwavering fashion and in full compliance with national and international regulations,” the statement read.

The hearing ended with Judge Berman setting a control date in which the path going forward for subsequent proceedings in the case would be determined by March 3. Before dismissing the court, he said that he wants to see these proceedings move quickly along in this direction.

© Ahval English

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.