U.S. Commerce Department targets former Turkish banker for evading Iran sanctions - Aykan Erdemir

U.S. -Turkey relations have been dominated in recent months by Ankara’s purchase of a Russian-made missile system and Washington’s recognition of the Armenian genocide, decisions which each drew strong public condemnations from the other side.

Meanwhile, the legal proceedings against a Turkish state-owned bank accused of running a billion-dollar scheme to evade U.S. sanctions on Iran have quietly rumbled on. This despite the personal intervention of Turkish President Recep Tayyip Erdoğan, who reportedly sought to use his leverage with former U.S. President Donald Trump to have the case dropped. But with Joe Biden now in the Whitehouse, any Turkish hopes of political interference in their favour appear to have ended.

Writing for the Foundation for the Defense of Democracies, analyst Aykan Erdemir provides an update on the Halkbank indictment and what it means for the future ties between the two NATO allies.  

The U.S. Department of Commerce’s Bureau of Industry and Security on May 5 announced it would deny export privileges to Mehmet Hakan Atilla, the former deputy general manager of Halkbank, Turkey’s second-largest public lender, for his violations of U.S. sanctions on Iran. The bureau’s move is a reminder to international financial institutions and their executives that evading U.S. sanctions has consequences.

In May 2018, following a jury trial at the U.S. District Court for the Southern District of New York, Atilla received a 32-month prison sentence for his role in a multibillion-dollar scheme to evade U.S. sanctions on Iran. The prosecution described Atilla’s crimes as part of “the biggest sanctions evasion case prosecuted in the United States that we are aware of”, and added that the case was not about drugs or conventional weapons, but about the “nuclear capability (of) the world’s biggest state sponsor of terrorism”. At the time of Atilla’s sentencing, Turkish President Recep Tayyip Erdoğan, who was also implicated in the Islamic Republic’s sanctions busting scheme, condemned the trial as a political attack on his government.

After serving 28 months of his 32-month sentence, Atilla returned to Turkey in July 2019. In line with Erdoğan’s policy of rewarding Iran sanctions evaders with cushy appointments, Turkey’s then-Finance and Treasury Minister Berat Albayrak, who is also Erdoğan’s son-in-law, named Atilla as the CEO of Borsa Istanbul, Istanbul’s stock exchange. The appointment of a convicted sanctions buster prompted the European Bank for Reconstruction and Development to sell its 10 percent stake in the stock exchange. In March, Atilla resigned from his post, likely for damage control ahead of Halkbank’s trial in the United States and amid reports that Borsa Istanbul is planning a public offering in 2022.

Although Halkbank’s jury trial was scheduled to begin in May, Ankara has succeeded in stalling the process through legal manoeuvres at the 2nd U.S. Circuit Court of Appeals in Manhattan. The Turkish public lender claimed that the bank’s government-owned status makes it immune to criminal prosecution in the United States. U.S. prosecutors, who accuse the bank of helping Tehran transfer $20 billion worth of restricted funds, with at least $1 billion laundered through the U.S. financial system, warned that granting Halkbank immunity under the Foreign Sovereign Immunities Act would be an extension of sovereign immunity to criminal cases.

Erdoğan has a well-documented history of seeking to interfere with U.S. judicial proceedings, including by using formal and informal channels to stall the U.S. prosecution of Atilla, Halkbank, and Reza Zarrab, the ringleader of Tehran’s sanctions-evasion network. Biden should therefore be prepared for renewed Turkish attempts to meddle in the federal case against Halkbank.

The Bureau of Industry and Security’s denying of export privileges to Atilla for a period of 10 years from the date of his conviction will prevent him and his representatives from participating, directly or indirectly, in any transaction involving the export or reexport of any commodity, software, or technology from the United States subject to the Export Administration Regulations. This move aims to prevent the convicted banker from partaking in any future efforts to evade U.S. sanctions. The bureau imposed similar restrictions against Turkish individuals and entities in 2014, 2018, and 2019 for breaching U.S. sanctions by supplying aircraft engines to the Islamic Republic.

The Biden administration’s handling of the Halkbank case will be an important indicator of whether the U.S. president and his aides are truly prepared to hold Erdoğan to account. The U.S. Department of Commerce’s move to deny export privileges to Atilla sends a message not only to Erdoğan and Turkish banks, but also to international governments and financial institutions that Washington will not grant impunity for sanctions busting or money laundering.

(The original version of this article was first published here.)

Aykan Erdemir is a former member of the Turkish parliament and senior director of the Turkey Program at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP).