Zarrab testimony reveals weighty allegations against Arab & Türk Bank

(Corrects former Halkbank general manager's surname to "Aslan," from "Arslan", in 15th paragraph.)

As the first week of the U.S. trial of a Turkish banker charged with busting sanctions on Iran comes to an end, the testimony of state’s witness Reza Zarrab continues to set the cat among the pigeons.

The two most important points from the Iranian-Turkish gold trader’s second day in the witness stand relate to the role played by Turkish state Halkbank, where the accused Mehmet Hakan Atilla worked, and to former Economy Minister Zafer Çağlayan.

Zarrab appeared at court on Thursday wearing a black jacket and white shirt, answering questions from the judge and prosecutor with a remarkably polite and respectful demeanour.

The most striking news of the day came when Zarrab was questioned on tape recordings from October 2012, leading him to say that Recep Tayyip Erdoğan, Turkey’s current president and prime minister at the time, had “ordered” Turkey’s Ziraat Bank and Vakıfbank to become part of the scheme to bypass U.S. sanctions on Iran.

As the trial prosecutors stated, Zarrab had clearly rehearsed his testimony with the FBI for the last month. The prosecutor was already aware of what Zarrab was going to say, and received the statements accordingly. It was therefore no accident that prosecutors led the gold trader to reveal Erdoğan’s orders to the two banks to contravene U.S. sanctions. We are yet to see the full strategy behind these moves by the prosecutors in New York.

Back in Turkey, Erdoğan denied any role in the sanction-busting scheme and called for those responsible for allowing Zarrab to leave the country to be brought to account.

This followed months of statements from top ruling party officials saying U.S. embargo on Iran over its nuclear programme did not apply to Turkey.

So far, Zarrab’s testimony has taken two full days. As an expert observer of the trials from Washington reminds us, at this stage it is still too early to fully understand the significance of his statements, or to fully grasp the implications of the prosecutors’ strategy. In this expert’s words, it would be wise to follow the trial to its end.

The prosecutors seem to be acting strategically for now, paving the way and preparing jurors for later arguments, in a trial that they have been rehearsing for weeks, on top of the 20 months of planning since Zarrab’s arrest as he arrived in Miami for a family trip to Disney World.

One interesting development from the second day of Zarrab’s testimony was his accusation that former Deputy Prime Minister Ali Babacan had, alongside Erdoğan, ordered Ziraat Bank and Vakıf Bank to participate in the scheme. Babacan’s name had not come up in the subsequently quashed Dec. 17, 2013 corruption investigation in Turkey that first revealed the sanction-busting trade.

The first day of testimony saw serious accusations levelled against Aktif Bank, a company owned by the Çalık Holding, one of Turkey’s largest conglomerates. Erdoğan’s son-in-law Berat Albayrak was CEO of Çalık Holding from 2007 to 2013 and became energy minister in 2015.

On the second day, it was the turn of Arab & Türk Bank (A&T Bank) for headache-inducing allegations: the bank, according to Zarrab's testimony, received transfers in Turkish lira from Halkbank in order to conceal funds originating from Iran.

One detail that did not come up in court was that control of the A&T Bank during the period when this activity took place had been seized by the Savings Deposit Insurance Fund of Turkey (TMSF), due to the Libyan Civil War. Arab & Turk was known as the former Libyan dictator Muammar Gaddafi’s bank, and the government that took Gaddafi’s place was engaged at the time in efforts to recover control of it. 

During Thursday’s testimony, tapes were played in court with recordings of conversations between Zarrab and Halkbank executive Atilla. This followed on from Wednesday’s proceedings, during which only the text of the tapes was discussed.

The tapes revealed that Atilla had not been aware that the transactions with Iran, which appeared to be for food exports, had been falsified, and acted under the orders of Halkbank General Manager Süleyman Aslan. The tapes also appeared to show that Zarrab had never paid bribes to Atilla or to another Halkbank bank executive, Levent Balkan; rather, they were delivered to Aslan and Çağlayan.

In the light of this, we can say that Thursday was a good day for Atilla.

Another of the most interesting points revealed on the day related to Zarrab’s efforts to transfer Iranian money held in China to Halkbank.

As expected, Muammer Güler, interior minister in 2013, first entered the equation at this point in the trial. Zarrab made a noteworthy statement detailing how he received a reference letter to open bank accounts and set up companies in China from Güler’s son Barış Güler, in exchange for a $100,000 bribe. Barış Güler was employed by his father at the time.

But for me, there was another more significant point here, as I noticed thanks to a young reporter observing the proceedings:

According to Zarrab, Chinese authorities put a stop to the mechanism delivering money to Iran through China after several months. The reason for this was that the Chinese had understood that Zarrab was working on behalf of Iranian authorised bodies.

The judge and prosecutors dwelled on this point: it was as if they wished to draw attention to the fact that, while the Chinese had shut down the mechanism Zarrab attempted to create once they realised that it contravened the U.S. sanctions, the same mechanism had continued to work unchallenged in Turkey for years.

Besides China, a transfer of funds belonging to the National Iranian Oil Company to Halkbank from India was also discussed, though the total amount was not disclosed.

Thursday’s testimony also brought the detailed disclosure of Çağlayan’s “bribery list”. This made Çağlayan the focus of discussion facing the most accusations in the two days of testimony.

However, it is still not clear how Çağlayan was able to manage billions of illicit dollars and take tens of millions in personal bribes without being touched.

Zarrab’s testimony is expected to continue on Friday. Further comment on the trial is at the moment difficult, as we are not aware of the prosecutors’ plans, or of which path the jurors are being led along.

We must not forget that in this trial, the prosecutors’ most important aim is to convince the jury of Atilla’s guilt and ensure he is sentenced.

Besides this, the defence will also have its turn to question Zarrab, and we may well witness further interesting revelations.