‘Sky Is The Limit’: Fallout Feared From Conviction Of Turkish Banker In Iran Sanctions Trial

‘Sky Is The Limit’: Fallout Feared From Conviction Of Turkish Banker In Iran Sanctions Trial

Judge of Hakan Atilla case in U.S. was invited to Turkey by Gulenists 2-3 years ago. It’s clear that U.S. case is an intervention to Turkey’s domestic affairs, a political operation.

That’s from Turkish President Recep Tayyip Erdogan’s spokesman Ibrahim Kalin who spoke on Thursday at a presser in Ankara. It of course refers to the Iran sanctions trial.

Atilla was convicted on Wednesday for his role in a plot to avoid American sanctions on Iran. The case, profiled in these pages in great detail, has profound implications for already strained relations between Ankara and Washington.

Erdogan has long sought to have the case dropped, presumably because the evidence implicates him in the scheme. He variously (and vociferously) debated the issue with the previous administration, pleading his case to Joe Biden, compelling his wife to beg Jill Biden to intervene, and in his last two phone calls with Obama, similarly appealing to have the matter resolved.

As with all things related to Erdogan, there’s a connection to his arch nemesis,  Pennsylvania resident Fethullah Gulen. If you ask Erdogan, Gulen operates a vast network of conspirators who are engaged in a perpetual attempt to undermine the Turkish President’s rule. Gulen was, according to Erdogan, behind the failed 2016 coup and also behind the leaked evidence which implicated Reza Zarrab.

Well, Zarrab pleaded guilty and ended up being a star witness for the prosecution. There was rampant speculation that Zarrab’s decision to roll was tied to Robert Mueller’s probe and the fact that Michael Flynn’s attorneys stopped cooperation with Donald Trump’s attorneys on or around the time Zarrab disappeared from prison seems to suggest that some of the leverage Mueller used to flip Flynn was derived from information he received from Zarrab. You’re reminded that Flynn was implicated in a plot to kidnap the above-mentioned Gulen and deliver him to Erdogan in exchange for $15 million.

Preet Bharara is wrapped up in this too. Erdogan swears Bharara is in on it (he’s “a Gulenist tool”, according to Ankara) and in November, Turkey actually launched an “investigation” into Bharara and Joon H. Kim.

Back in March, when Rex Tillerson visited Turkey, Foreign Minister Mevlut Cavusoglu reiterated Erdogan’s demand that Gulen be handed over to Turkish authorities and while standing next to Tillerson at a press conference accused Bharara (who had been fired by Trump just two weeks earlier) of being a Gulen pawn.

“I am not going to comment on false and silly political propaganda by a foreign official regarding a case that I no longer oversee,” Bharara said at the time.

Well as it turns out, just a month before that March meeting between Tillerson and Cavusoglu, Erdogan met with Rudy Giuliani who Zarrab had added to his legal team.

On Wednesday, Trump picked Giuliani’s law partner Geoffrey Berman to replace Bharara and thereby to succeed Joon Kim.

And yes, that’s all just as shady as it sounds and does indeed suggest that Erdogan had something to do with Bharara getting fired.

Alas, the horse had already left the barn on the case and so Erdogan was forced to sit idly by and watch as he was implicated. Here’s the New York Times recounting some of the highlights from Zarrab’s testimony:

In testimony over seven days, Mr. Zarrab described an illicit operation that relied on false documents and front companies. He also pointed to support from the highest levels of the Turkish government, as well as Iranian officials and Halkbank, an institution that prosecutors said was critical to the scheme’s success.

Mr. Zarrab testified that in 2012, Mr. Erdogan, then Turkey’s prime minister and now its president, ordered that two Turkish banks be allowed to participate in the sanctions evasion scheme.

He also told the jury that he had paid tens of millions of dollars in bribes to Zafer Caglayan, then Turkey’s economy minister, and additional bribes to Suleyman Aslan, the general manager of Halkbank, for help in facilitating the operation. Mr. Caglayan and Mr. Aslan, along with five other defendants, were also indicted in the case.

Mr. Zarrab testified that he had made as much as $150 million from the scheme.

Of course the idea that prosecutors let Zarrab off the hook in order to secure a conviction on Atilla is laughable. Zarrab gave up something else – the only question is what.

But leaving that aside, the verdict is likely to imperil U.S.-Turkey relations at a particularly delicate time. In a report dated Thursday, GlobalSource Partners’ Atilla Yesilada lays out the implications.

“The charges are so grave (essentially implicating the current president of Turkey) that one may say ‘sky is the limit’ as far as the magnitude and scope of potential sanctions go [but] Turkey is likely to strive to reduce size of any potential fine, rather than defy it and refuse to pay” Yesilada says, adding that “if sanctions or penalties for Turkish banks follow, Ankara might be compelled to take retaliatory action such as shutting down the Incirlik airbase to American flights [and] the policy of apprehending American citizens, used against Germany without success, could also be employed in this case.”

That Incirlik bit is a big deal. As far as the arrests go, you’ll recall that back in October, the detention of a U.S. Consulate employee led directly to Washington suspending visa processing in Turkey and it came at a time when investors were already concerned about Ankara’s interventions in Syria and Iraq. The result: the lira had its worst day since the coup.


As you can see, the currency has had several other miserable days since, all of which were tied to either soaring inflation (and fears that Erdogan’s aversion to rate hikes would constrain the central bank’s ability to get a handle on the situation) or jitters about the Zarrab case.

With the Atilla verdict, the specter of further arrests and a worsening diplomatic crisis hangs over the market just days after a U.S. decision to end visa restrictions seemingly calmed things down. That could be the “the calm before the storm,” the above-mentioned Yesilada writes today, before elaborating as follows:

If Washington is determined to penalize Turkey, it will probably demand political concessions, such as an end to the alliance with Russia and Iran, as well as reconciliation with Kurds, which would be extremely difficult for Erdogan to deliver without facing serious risks.

Just to be clear, Erdogan would sooner chop off his own legs than he would reconcile with the Kurds, so you can just go ahead and forget about that. It ain’t gonna happen.

Meanwhile, the inflation situation is still tenuous, slowing less than expected in December, according to the latest read, out on Wednesday. One-week implied volatility on USDTRY rose for sixth day yesterday to 11.81% – that’s the highest since December 18.

“The market reaction will be muted until investors receive educated commentary from their legal experts and/or the Congress or the White House administration begins to comment on the case,” the GlobalSource note cited above concludes.

That’s probably true. But make no mistake, this case is a very big deal for Washington-Ankara relations and Erdogan sees the verdict in the sanctions trial as a slap in the face. In case you aren’t familiar, Erdogan isn’t a man who enjoys being slapped in the face…


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