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ABOVE – REZA ZARRAB + pop singer wife Ebru Gundes

 

https://www.bloomberg.com/news/articles/2017-11-29/gold-trader-zarrab-points-finger-at-atilla-at-sanctions-trial

 

A New York jury got the first glimpse of the intricacies Iran allegedly used to get around U.S. sanctions as gold trader Reza Zarrab detailed a years-long plot involving tens of millions of dollars in bribes that reached the upper echelons of the Turkish government.

Zarrab appeared in a U.S. court for the first time in months to testify against a man accused of being his accomplice in the sanctions-evasion plot. It was a dramatic turn in a case that has dragged on since his arrest in Miami in March 2016. For more than a year, Zarrab sat through pre-trial hearings at the defense table. Then, after all attempts to extract himself from the case had failed, he vanished.

In court Wednesday as a key witness for U.S. prosecutors, he immediately pointed out Mehmet Hakan Atilla, a deputy chief executive officer at state-run Turkiye Halk Bankasi AS, as “the most knowledgeable person about the sanction rules in the bank.” Atilla helped “to make our scheme look like it’s complying with the American sanctions,” Zarrab said, and at several points throughout his testimony he said Atilla had advised on certain transactions, along with Suleyman Aslan, Halkbank’s top executive.

Sharing Profits

He also testified that he was allowed to carry out the plan through Halkbank only after agreeing to split profits on a 50-50 basis with Zafer Caglayan, then Turkey’s minister of the economy. Caglayan ended up collecting as much as 50 million euros ($59 million), about $7 million and almost 2.5 million Turkish lira ($632,000), Zarrab said. Some of the money was paid to a sibling of Caglayan, he said.

Testifying in Turkish through an English translator, Zarrab detailed for the jury a vast money-laundering scheme designed to help Iran use oil revenues to secretly do business on the international market. At the time, the U.S. was ratcheting up sanctions in retaliation for Iran’s effort to build a nuclear bomb — making a particular effort to cut off access to revenue from oil sales, a crucial source of Iran’s wealth.

He spent part of his testimony Wednesday diagramming for the jury a complex schematic to illustrate how the scheme was carried out. Using an array of different-colored markers, he drew flow charts of gold, cash and payment instructions between different entities and their bank accounts from Turkey to Dubai, and said each laundering trade required at least 10 separate transactions. He testified that he ultimately moved “a few billion” euros of Iran’s money out of Halkbank using the scheme.

Undisclosed Location

Zarrab entered from the lock-up section of the court, dressed in beige prison garb, while the jury was briefly excused. He passed the defense table without making eye contact with Atilla, who didn’t look at him. Since he pleaded guilty and agreed to cooperate as part of a bid for leniency, Zarrab is no longer in jail, but is being held at an undisclosed location by the FBI.

Atilla, who is accused of fraud, sanctions violations and conspiracy to launder money, is one of nine people charged. Others include senior Turkish government officials and bank executives, but only he and Zarrab have been in U.S. custody.

“Cooperation was the fastest way to accept responsibility and to get out of jail,” he testified, adding that he had earlier hired U.S. lawyers to explore the possibility of a prisoner exchange between U.S. and Turkey. Zarrab retained former New York City Mayor Rudy Giuliani and ex-U.S. Attorney General Michael Mukasey to try to broker a deal.

The prosecution has sparked tension between the U.S. and Turkey and spurred Turkish President Recep Tayyip Erdogan to claim it’s a plot to undermine his country’s economy. The Turkish lira fell as much as 0.2 percent to 3.97 per dollar as Zarrab’s testimony got under way, its weakest level of the day and lowest on record on a closing basis. The currency has depreciated 11 percent this year, the most among major markets.

Gold Trades

Zarrab said he initially tried to open an account at Aktifbank but couldn’t because people dealing with Iran needed special permission. He succeeded after getting help from Egemen Bagis, then Turkey’s European Union Affairs minister. Aktifbank was owned by a group led by Erdogan’s son-in-law. Zarrab also later testified that he used a third bank, DenizBank, to process some transactions.

Zarrab was soon moving 5 million to 10 million euros a day in transactions, which eventually led to working on behalf of Iran’s central bank, he said.

The money-laundering business was an outgrowth of increasing demand from Iranian customers starting in 2010, as sanctions were beginning to take their grip, Zarrab said. He operated a foreign-exchange business, which he said he learned from his father.

The work for Iran’s central bank didn’t last long, but he soon picked up business from the foreign-exchange units of two other major Iranian banks — Bank Mellat and Sarmeyeh Bank. Aktifbank stopped processing his transactions because it was working directly with Iran. Then, Zarrab said he realized that revenue from Iran’s oil wealth had begun piling up in Halkbank, and he devised a plan to help tap it.

He started with a jewelry dealer to test a method of using gold trades to convert Iran’s oil revenue to cash and move it back. That worked, he said. Then he approached Halkbank but the general manager, Aslan, refused to deal with him, saying he was “too popular.” (Zarrab is married to a Turkish pop singer and was a frequent fixture in society pages.) That’s when he enlisted the help of the economy minister, Caglayan, who asked to be cut in on the deal.

“He said, ‘I can broker this, providing there’s a profit share 50-50,”’ Zarrab testified.

In the laundering scheme, the early steps were the most key, he said, and took place entirely within Halkbank — the transfer of money from Iranian accounts into the correspondent account of Sarmeyeh, which in turn would make a payment to his company. He would then use it to purchase the gold that would be shipped to Dubai.

Though the customs declarations for the trades listed Iran as the final destination of the gold, it never actually went there, he said. Instead, it would be delivered to his office in Dubai and then sold. The proceeds were then turned over to an exchange office with an account at banks in the United States — he used Standard Chartered as an example — and would then be used to make payments at Iran’s direction.

The case is U.S. v Zarrab, 15-cr-867, U.S. District Court, Southern District of New York (Manhattan).

BACKGROUND: The Odyssey of a Turkish Trader Now Spilling His Secrets in U.S.

 

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https://www.bloomberg.com/news/articles/2017-11-29/the-odyssey-of-a-turkish-trader-now-spilling-his-secrets-in-u-s

 

  • Zarrab, after two arrests, details Iran sanctions scheme
  • Pop-star wife, Bond-style toys and an ill-fated Disney trip

Turkish customs agents set off a half decade of intrigue when they boarded a plane that landed unexpectedly at Istanbul’s international airport. They found in the hold, undeclared, a ton and a half of gold.

Authorities subsequently determined that the shipment was part of a giant money-laundering operation to pay hundreds of millions of dollars to Iran for oil and gas, skirting international sanctions intended to curb the country’s nuclear work. The scheme, they said, was overseen by a young Iranian-Turk named Reza Zarrab who greased the palms of top Turkish officials with watches, a piano and cash-stuffed boxes.

It’s been quite a ride since then for Zarrab. Sprung from Turkish prison in early 2014, he was actually hailed by the country’s now president, Recep Tayyip Erdogan. He and his pop-star wife resumed their perch on Turkey’s society pages. Until, that is, he was arrested last year in Florida on his way to a Disney vacation and charged by federal prosecutors in a sweeping laundering and sanctions violations case. After 18 months in U.S. lockup, the onetime playboy with mansions and James Bond-style accessories — a jet, a personal submarine, a gold-plated pistol — is now cooperating with American prosecutors

His evolution from a central character in a 2013 Turkish political battle to a key U.S. witness is expected to take center stage later today in a federal court in Manhattan where an executive of a prominent Turkish bank is accused in the scheme. Prosecutors say Zarrab, 34, will provide the inside story of a conspiracy that spanned a decade — all part of his guilty plea agreement.

That has the potential to send shock waves through Turkish politics and international relations. Prosecutors accused Zarrab of making bribes to then-senior ministers under Erdogan as part of his laundering scheme. As they have added more charges against more defendants in a case full of twists and turns, Turkish stock and currency markets have heaved.

Erdogan has demanded Zarrab’s return. The U.S.’s refusal has contributed to deteriorating Turkish-U.S. relations, now the most strained in decades. The case could spill over to U.S. politics, too, given the Trump administration’s efforts in its early days to strengthen its alliance with Turkey.

It could even brush up against a separate probe of Russian influence in the presidential election. The U.S. special counsel has delved into work done on behalf of Turkey by Michael Flynn, who was fired after a brief run as President Donald Trump’s national security adviser. Trump ally Rudy Giuliani was hired by Zarrab and met earlier this year with Erdogan in hopes of resolving the matter diplomatically, outside the courts.

Zarrab Family Vacation

Gold bars in a photo discovered on Zarrab’s phone.

It was a curious decision, in late March 2016, for Zarrab to gather his family for an American vacation. He no longer faced any charges in Turkey, but prosecutors there had made public a raft of documents marking him as a possible money launderer and a violator of U.S. sanctions.

Zarrab may have had an even bigger worry than U.S. arrest, though. Prosecutors in Iran had accused one of its wealthiest men, Babak Zanjani, of diverting $2.7 billion in oil proceeds from official coffers. An influential Iranian lawmaker said that if anyone knew where Zanjani put the money, it was Zarrab. (U.S. lawyers for Zarrab have denied the men were partners and Zanjani’s lawyers have called the case politically motivated.)

In early March 2016, Iran sentenced Zanjani to death. Two weeks later, Zarrab arrived in Florida, saying he was going to Disney. He was promptly arrested.

Though Zarrab may not have known it at the time, he was also the subject of a counter-intelligence investigation that the U.S. had started three years earlier, prosecutors said in court on Tuesday.

The money-laundering scheme by Zarrab — reconstructed from hundreds of Turkish and U.S. court filings including documents and phone transcripts — was built around complicated cross-border transactions and his personal connections in Turkey and Iran.

His father, a wealthy steel baron from Iran named Hossein Zarrab, moved the family to Turkey when Reza was still a toddler. At least one company used later by the son was founded in his name when he was 12 or 13. When Reza moved to Dubai with his family at the age of 16, he opened a tea-trading business with three employees. Three years later, back in Istanbul on his own, he started a gold brokerage and currency exchange and, later, shipbuilding and construction firms.

Meanwhile, his father kept a hand in Iranian trade. Hossein was among a team of people that Mahmoud Ahmadinejad assembled, after he was elected Iran’s president in 2005, to help work around U.S. sanctions, according to the Turkish paper Hurriyet.

Zarrab on a private jet from a phone photo submitted to U.S. court.

Still in his early 20s, Reza began his Turkish ascent. He became a Turkish citizen in 2005, adopting the local variation of his name, Riza Sarraf.

At his older brother’s wedding, he met a Turkish singer, Ebru Gundes. Reza, smitten, wrote two songs for her that were delivered by mutual friends. She agreed to meet him.

The two were married in 2010 and became a fixture on Turkey’s society pages — the glamorous Ebru and the boyish and stocky Reza, with a black beard and a mop of black hair coiffed up from his forehead. Turkish papers featured their mansions on the Bosphorus and Aegean, and showed them on the town, here with a Rolls Royce, there a Range Rover or an Aston Martin.

Chance Discovery

The possible source of Zarrab’s wealth began to emerge after Turkish customs officials made their chance discovery on New Year’s Eve 2012. An Airbus A330, flying from Ghana to United Arab Emirates, had been scheduled to refuel at a nearby regional airport when fog forced it to Ataturk. Customs agents impounded its gold cargo.

Earlier: 2014 article traces Zarrab’s journey from society pages to an Istanbul jail cell

Zarrab pressed into action. He called the country’s economy minister, Zafer Caglayan, among others. Caglayan was paid tens of millions of dollars in bribes to keep the scheme running and conceal transactions from the U.S., according to federal prosecutors. Less than three weeks after the plane was detained, it took back off, resuming its journey to Dubai.

Turkish prosecutors, armed with wiretaps of Zarrab’s conversations, arrested Caglayan’s son in late 2013 on charges of facilitating bribery. As a minister and member of parliament, Caglayan the father had immunity, and he denied taking bribes. Like Zarrab, he was ultimately cleared in Turkey. He’s now charged in the U.S. case but remains outside the country.

The gold shipments to Dubai, the Turkish prosecutors said, were but one link in a chain that turned Iranian oil and gas into hard currency for Tehran. Turkey’s national oil company bought Iranian gas. It then deposited funds into special accounts at Turkey’s Halkbank. Using shell companies, Zarrab took the proceeds to buy gold that was shipped to Dubai, prosecutors say.

The gold was then sold for dollars and euros, running through international banks, which were unwitting participants, according to U.S. prosecutors, and were told the transactions were for food or humanitarian aid, according to Turkish and U.S. court documents. In a 10-month span, Zarrab helped move $900 million in Iranian funds through U.S. banks, U.S. prosecutors say.

Dubai Wheat

Millions of dollars in bribes were used to keep the scheme going. Once, according to U.S. filings, Zarrab discussed moving 150,000 tons of humanitarian supplies to Iran on a 5,000-ton vessel, a logistical impossibility. He said another payment was for wheat exports from Dubai, which neither grows nor exports wheat. Surveillance in Turkey showed that Zarrab also tried to head off bad press, allegedly paying about $4 million to two politicians to help squelch negative coverage of him.

His contacts included the country’s ministers of the interior and EU affairs (who are not accused of wrongdoing by the U.S.). At an April 2013 wedding in Ankara, Zarrab cut a deal with Caglayan, then economy minister, to support his scheme, Turkish prosecutors said. U.S. prosecutors more recently hinted of a bigger grab for influence: Zarrab later boasted in a conversation caught on tape that he had also talked to Erdogan at the wedding, seeking support to buy a bank that could be a conduit for Iran transactions.

An ornate golden pistol, from a photo found on Zarrab’s phone, thought to be from his firearms collection

When Turkish prosecutors laid out their allegations, the three ministers resigned. Zarrab was detained.

But then the tables turned. Erdogan, prime minister at the time, portrayed Zarrab as a philanthropist whose businesses were a service to the country. The Turkish prosecutors’ case against Zarrab, Erdogan said, was part of a plot put into motion by Fethullah Gulen, a Turkish cleric who runs an influential worldwide movement from his compound in Pennsylvania, to smear his government. Turkey’s parliament cleared all the ministers of wrongdoing. Prosecutors and police involved in the case were reassigned, dismissed or jailed by the thousands.

Zarrab was freed. A pro-government news channel placed him before a Turkish flag and interviewed him. In July 2015, Hurriyet published photographs of a notably slimmer Zarrab yachting on the Aegean. A few yards off the fantail of a large black yacht, he could be seen above the blue sea, held aloft by jets of water on a personal hovercraft.

Erdogan Enraged

Zarrab’s arrest the following year in the U.S. enraged Erdogan, who asked the Obama White House to send him home. Instead, Zarrab transited through a series of U.S. detention centers — in Tallahassee, Atlanta and Oklahoma City — before arriving in New York. Many of the details supporting the charges, brought by then-U.S. Attorney Preet Bharara, were similar to those originally revealed in Turkey.

Even after Zarrab’s testimony, which U.S. prosecutors say will reach the highest levels of Turkey’s government, the mystery may continue about whether he is helping the U.S. government in other ways and how much he knows about Iran, for example. The man who recently bribed a U.S. prison guard for a cell phone may finally be ready to spill his secrets.