Indictment Alleges that Bank and its Officers Used Front Companies to Evade Prohibitions on Iran’s Access to the U.S. Financial System
The U.S. Attorney for the Southern District of New York has charged Turkish state-owned bank Halkbank (formally known as Türkiye Halk Bankasi A.S.) with money laundering, bank fraud and sanctions offenses under the International Emergency Economic Powers Act, or IEEPA, arising from the Bank’s alleged involvement in a multibillion-dollar scheme to evade U.S. sanctions on Iran. As alleged in the six-count indictment, senior officials at Halkbank designed and executed the Bank’s systemic and illicit movement of Iranian oil revenue moving through the Bank to give Iran access to the funds. This case is an extension of prosecutions initiated in late 2017 against nine individual defendants in the scheme, including bank employees and the former Turkish Minister of the Economy.
As alleged, from 2012 through 2016, Halkbank and its officers, agents, and co-conspirators directly and indirectly used money service businesses and front companies in Iran, Turkey, the United Arab Emirates, and elsewhere to violate and evade prohibitions on Iran’s access to the U.S. financial system, restrictions on the use of proceeds from Iranian oil and gas sales, and restrictions on the supply of gold to the Iranian government and its citizens. Halkbank allegedly worked in tandem with high-ranking government officials in Iran and Turkey, some of whom (unsurprisingly) allegedly received million-dollar kickbacks to promote the scheme, protect the participants, and shield the scheme from U.S. scrutiny. Then, Halkbank lied to U.S. regulators at the Office of Foreign Assets Control, or OFAC, about its involvement in the scheme.
As of approximately 2012, billions of dollars were held in accounts at Halkbank held by the National Iranian Oil Company (“NIOC”) and the Central Bank of Iran. Any proceeds from the sale of NIOC oil to Turkey was deposited into Halkbank. But because of the U.S sanctions against Iran and the anti-money laundering policies of U.S. banks, these funds functionally were inaccessible to be transferred to Iran or used to benefit the Iranian government.
The U.S. Attorney’s Office identified three primary schemes facilitated by Halkbank to evade these hurdles. First, Halkbank allowed the funds in NIOC’s account to buy gold for the benefit of the Iranian government. Second, Halkbank allowed the funds in NIOC’s account to be used to buy gold that was not exported to Iran, in violation of the “bilateral trade” rule. Third, Halkbank facilitated transactions designed to look like humanitarian food and medicine purchases, when in fact no such purchases were made.
The purpose and effect of these schemes were to create a pool of Iranian oil funds in Turkey and the United Arab Emirates held in the names of front companies, which in turn concealed the funds’ connection to Iran. From there, the funds were used to make international payments on behalf of the Iranian government and Iranian banks—including payments to and through the U.S. financial system.
The two money laundering charges — a substantive charge under 18 U.S.C. § 1956(a)(2)(A), the “international” money laundering provision, and a money laundering conspiracy charge under 18 U.S.C. § 1956(h) — specifically allege that the Bank caused cross-border financial transactions involving the Southern District of New York to occur, and that these transactions sought to promote three forms of Specified Unlawful Activity, or SUAs: (i) the illegal export of financial services to Iran, in violation of IEEPA; (ii) bank fraud, in the form of inducing U.S. financial institutuions through false pretenses to conduct financial transactions for the benefit of Iran and Iranian entities; and (iii) an offense against a foreign nation involving the bribery of a public official.
As noted, this case is an extension of the prosecutions initiated in late 2017 against nine individual defendants in the scheme. As the DOJ press release regarding the Bank’s indictment describes, the DOJ
has previously charged nine individual defendants, including bank employees, the former Turkish Minister of the Economy, and other participants in the scheme . . . . On Oct. 26, 2017, Reza Zarrab pled guilty to the seven counts with which he was charged. On Jan. 3, 2018, a jury convicted former Halkbank deputy general manager Memet Hakkan Atilla of five of the six counts with which he was charged, following a five-week jury trial. The remaining individual defendants are fugitives.
Given the fact that related investigations and prosections have been going on for years, it is possible that the indictment is entirely coincidental to the timing of the United States’ recent imposition of sanctions on Turkey — now already lifted — in response to Turkish attacks against the Kurds in northeastern Syria.
Nonetheless, the case certainly involves its share of drama. Halkbank publicly has taken the position that the indictment “was filed as part of the sanctions” and that “the decision to indict is an unprecedented legal overreach.” The President of Turkey, Tayyip Erdogan, called the charges an “unlawful, ugly” step. No one appeared on behalf of the Bank at the initial appearance scheduled in Federal District Court in regards to the indictment, leading the DOJ to brand the Bank a “fugitive.”
Adding to the intrigue is the fact that Rudy Guiliani, the personal lawyer of President Donald Trump, represented Turkish-Iranian gold trader Reza Zarrab, who pleaded guilty and testified against Mehmet Hakan Atilla, who had headed international banking at Halkbank. Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) has added to the atmosphere by announcing that he has launched an investigation in order to examine U.S. Secretary of the Treasury “Mnuchin’s reported conversations with President Donald Trump, Turkish officials and Treasury Department officials about Halkbank, including whether he was directed by the [P]resident to intervene in the Southern District of New York’s investigation.”
Regardless, the case exemplifies the clear focus of the U.S. government on enforcement related to Iran — as similarly exemplified by FinCEN’s recent announcement on October 25, 2019 that it has identified Iran as a jurisdiction of primary money laundering concern under Section 311 of the USA Patriot Act.