Oct 22 2019

U.S. prosecutor says Turkey’s state-owned Halkbank a fugitive, in contempt of court

A U.S. attorney on Tuesday said that Turkey’s second-largest state-owned bank, which was indicted last week with charges of fraud, money laundering and sanctions evasion, is a fugitive.

With no representation at the proceedings against the bank, which began on Tuesday, Halkbank is “now a fugitive from the charges and is in contempt,” journalist Adam Klasfeld quoted U.S. Attorney Michael D. Lockard as saying.

District Judge Richard M. Berman during the hearing on Tuesday said the appointment of the jailed former Halkbank director Hakan Atilla as the chair of Istanbul’s stock exchange was “one way of integrating (him) back into society,” Klasfeld said. 

Atilla served 32 months in prison in the United States for helping Iran evade U.S. sanctions, and was released on July 19 this year.

Law firm King & Spalding had sent a letter to Judge Berman, who said he was taken aback by the firm saying it was not authorised to accept service for Halkbank. 

Lockard confirmed that the firm did represent the bank “since at least October 2017,” Klasfeld said.

Lockard also pointed out statements by Turkey’s President Recep Tayyip Erdoğan, who had called the indictment against Halkbank an “unlawful, ugly step”, and that Turkey has attempted to influence the case since it began.

The charges against Halkbank risk “spilling over into the rest of the industry, pushing up borrowing costs for lenders dependent on foreign funding,” Bloomberg wrote on Monday.

If a settlement is reached, Halkbank’s cost might be on par with or exceed the $ 8.9 billion BNP Paribas paid in 2014 for violating sanctions, according to Bloomberg.

Turkey’s lenders struggle to recover from last year’s currency crisis, and state-owned lenders like Ziraatbank and Vakıfbank could be hardest hit, Bloomberg wrote.

Moody’s Investors Service could possibly downgrade Halkbank’s ratings as the bank may need “extraordinary support due to legal risks,” Bloomberg wrote, while Fitch Ratings downgraded the bank’s rating to negative watch on Monday, citing uncertainty of sufficient support from Turkish authorities in case of punitive measures.

Turkish economist Atilla Yeşilada said the real danger would be the global banks’ reduction of syndicated loans and the expansion of spreads following the charges against Halkbank and U.S. sanctions imposed against Turkey, Bloomberg wrote.

A bipartisan bill introduced on Oct. 17 includes measures against President Erdoğan, as well as Turkish government officials, banks, military and energy sector because of the country’s military actions in northern Syria against U.S.-backed Kurdish forces.