Atilla, Zarrab, and the Largest Sanctions-Evasion Scheme in Modern History
On January 18th, the Foundation for Defense of Democracies (FDD) and its Center for Sanctions and Illicit Finance (CSIF) hosted a lunch event titled Atilla, Zarrab, and U.S.-Turkish Relations, which centered on the explosive trial of Turkish banker Mehmet Hakan Atilla and gold trader Reza Zarrab, and their infamous “Gas-for-Gold” scheme which helped Iran evade economic sanctions. The panel of FDD experts provided key findings that led to the discovery of criminal activity within the highest levels of the Turkish government.
Amb. Eric S. Edelman, former U.S. Ambassador to Turkey, and Senior Advisor at FDD, moderated the conversation with Mark Dubowitz, FDD’s Chief Executive Officer who also served as an expert witness at the trial; Dr. Aykan Erdemir, Senior Fellow at FDD and former member of the Turkish Parliament; Dr. Jonathan Schanzer, FDD’s Senior Vice President for Research who was also tagged as an expert witness; and Merve Tahiroglu, a research analyst at FDD focusing on Turkey. Erdemir, Schanzer, and Tahiroglu, were also featured guests on the latest episode FDD’s Foreign Podicy, Busted! Iran, Turkey and the Largest Sanctions-Evasion Scheme in Modern History hosted by FDD Founder and President, Clifford May.
Edelman began by asking the panel to describe the sanctions and the effort put into evading them. Around 2010, “you saw a number of really tough U.S. and European sanctions imposed on the Iranian regime,” Dubowitz started. New sanctions continued to be levied through 2013, restricting their ability to trade precious metals. Countries who bought Iranian oil had to “deposit the money into escrow accounts which were effectively locked up in different countries, and Iran could only use the money… to buy local goods in that country… they were essentially cut off from the global financial system”. Before long, Iran’s foreign currency reserve was below $20 billion, imperiling “the ability of Iran to actually have enough foreign exchange reserves to buy and pay for imports.” Facing this dilemma, Iran needed to find a way to get their money out of these escrow accounts.
Whenever Turkey purchased Iranian oil, the money would be moved into an escrow account with Halkbank, Turkey’s second-largest state owned bank. According to the restrictions imposed by sanctions, Iran could only use the money to buy local Turkish goods, thus paving the way for Reza Zarrab and senior banking executives at Halkbank to come up with a way to get Iran their money. Dubowitz presented the scheme: the bank would transfer Iran’s money into accounts owned by Zarrab, who would then withdraw the money and take it down to the Grand Bazaar in Istanbul. There, he would “buy gold bars, put them in gym bags, go to the airport, fly to Dubai, and then sell that gold.” From the gold, he would get Emirati currency, exchange it for U.S. dollars, and then transfer the money into Iranian accounts. With this scheme, Dubowitz believed that there was enough evidence to prove that “the Iranians [had] access to billions and billions of dollars of foreign exchange reserves”, effectively solving their economic dilemma.
Dubowitz shared that FDD had begun to identify parts of this scheme as early as 2013, when they noted that Turkish gold exports to Iran were increasing dramatically. FDD briefed the Obama administration. “The response,” Dubowitz stated, “was ‘we don’t think so. We think this is private gold. Iranians love their jewelry’. We said, ‘it’s $13 billion in jewelry!’ and they said, ‘yeah, it’s jewelry’”.
At the end of the day, it was the Department of Justice who finally moved on Zarrab. Tahiroglu recounted how Zarrab, a Turkish-Iranian well known for bribery and corruption, was central to the plot. “Zarrab’s bribe relationships with [Turkish] ministers came out in December 2013, it was a massive scandal,” said Tahiroglu. “People in Turkey really thought this might bring down Erdogan’s government.” For Erdemir, “the key issue was treason. “Can you imagine Turkish ministers, state bank officials on the payroll of an Iranian operative?” he asked. “I thought this was the line [our party] should have taken, that this is basically about Turkish national security… but we went after the corruption angle and it didn’t work. No surprises there.” Erdogan saw Zarrab acquitted and released. Then, in 2016, Zarrab came to the U.S. with his family to go on a Disney World vacation. Instead, he was arrested.
As Schanzer described it, Zarrab’s testimony was “blockbuster”. “He gets up… and with dry-erase board starts to sketch out the entire scheme… he’s got a flowchart, he’s got dotted lines, he’s got arrows.” Zarrab gave prosecutors everything and named everyone — including Turkish government officials. Schanzer recalled that “He says point blank that he provided $50 million in bribes to this [Turkish] minister in order to ensure that this sanctions scheme continues.” “There’s actually a spreadsheet,” Dubowitz added, “And it has a list of people in the Turkish government and the amount of money that he paid them, and when he paid them, and the currency he paid them in.”
Erdemir revealed that during the trial, he was directly targeted by Erdogan. “The day Mark [Dubowitz] was going to testify as an expert witness, I woke up to the warnings… that there was an arrest warrant for me,” he said. Erdemir appealed the arrest warrant, and in response the Turkish courts confiscated all of his assets. FDD fared no better with the Turkish media. “FDD was smeared as a terrorist organization. All of the members of FDD that you see on this panel and others have been branded as members of the Fethullah Terrorist Organization… they say FDD runs the world,” Erdemir stated. “We should use that for fundraising,” joked Dubowitz.
Dubowitz pointed out that sanction evasion schemes continue to this day, but at least this one had been shut down — for now. All told, Dubowitz estimated that “Iran was able to get away with probably over $100 billion from this scheme.” That makes this one of the largest sanctions-busting schemes in history. As Edelman pointed out, “that’s a lot of damn jewelry”.
…
Find out more about the Foundation for Defense of Democracies at www.defenddemocracy.org, and follow us on Twitter, Facebook and LinkedIn.
