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Thu, 05 Dec 2019 22:45 GMT

Halkbank, Iranian Officials Face US Fraud Accusations


Ahmed Fathi

Mon, 21 Oct 2019 20:46 GMT

The criminal charges filed in the United States against Halkbank, the second-largest owned-state bank in Turkey, serve a reminder that Turkey's economy may become more fragile in the face of measures targeting its financial system.

On Monday October 21st, the Capital Markets Board of Turkey (CMB) decided to ease restrictions on trading in major banks following the announcement by US judicial authorities of an investigation into Halkbank for violating US sanctions against Iran, Turkish news portal Ahval reported.

According to Bloomberg, the CMB cancelled the so-called "deposit base" imposed on the trading of shares of the seven largest banks listed on the Turkish stock exchange to reduce the repercussions of the decision of the US authorities on the stability of Turkish financial markets.

The regulator also abolished the rule that allows the sale of shares of the seven major banks only through brokerage firms that manage their clients' shares in these banks. The CMB has maintained a temporary ban on the trading of shares of these banks under the system of "short selling" (short sale), imposed last Wednesday.

US authorities accused Halkbank last week of a multi-million dollar plan to evade Iran's sanctions, pointing out that high-ranking officials in Iran and Turkey are involved in the plot. The bank has denied any wrongdoing.

US Attorney Geoffrey Berman described Halkbank's conduct as "audacious", adding that it had been "supported and protected by high-ranking Turkish government officials, some of whom received millions of dollars in bribes", The Financial Times reported.

Halkbank was charged with conspiracy to defraud the United States, conspiracy to violate the International Emergency Economic Powers Act (IEEPA), bank fraud, conspiracy to commit bank fraud, money laundering and conspiracy to commit money laundering.

The case against Halkbank has added to the already tense relations between Ankara and Washington amid the Turkish aggression on Syria and push for further sanctions on the regime of President Recep Tayyip Erdogan.

The sanctions coincided with a visit by US Vice President Mike Pence to Ankara on October 17th to discuss with Erdogan the Turkish military offensive in northern Syria.

Foreign investors have dumped Turkish assets worth $ 2.2 billion this year, according to Central Bank data, while the Turkish lira is designated as the worst-performing currency in emerging markets in 2019 after the Argentine peso.

The indictment comes at a time when Turkish lenders are still struggling to recover from the collapse of the lira at the end of last year.

Halkbank's shares fell 3.4% as of 5.05pm in Istanbul, the biggest drop on the Borsa Istanbul Banks Sector Index. That extended losses this year to 22%, making it the worst performer on the 13-member gauge, which is up 17% on average.

Moreover, the leading lobbying firm for Halkbank has decided to stop representing Turkey's majority state-owned bank following charges against it, Al-Monitor reported.

Between 2012 and 2016, prosecutors claimed that Halkbank's conspirators exploited financial services and front companies in Iran, Turkey, and elsewhere to evade a ban on Iran's access to US financial system resources, the Sweden-based website Nordic Monitor said in a report.

Halkbank is accused of facilitating the scheme, participating in the design of fraudulent transactions intended to deceive US regulators and foreign banks and lying to US regulators about Halkbank's involvement, according to the indictment.

Millions and bribes

High-ranking government officials in Iran and Turkey are accused of participating in the scheme. Some officials received bribes worth tens of millions of dollars in proceeds in exchange for protecting the scheme from the scrutiny of US regulators.

Proceeds from the sale of Iran's oil and gas to the Turkish national oil company, among others, were deposited in Halkbank in accounts on behalf of the Central Bank of Iran, the National Iranian Oil Company (NIOC) and the National Iranian Gas Company. During this time, Halkbank was the sole repository of proceeds from the sale of Iranian oil by NIOC to Turkey.

Because of US sanctions against Iran and anti-money laundering policies of American banks, it has been difficult for Tehran to access these funds for domestic transfer or for international financial transfers to Iranian government agencies and banks. As of 2012, billions of dollars of funds have been accumulated in the accounts of NIOC and the Central Bank of Iran in the Halkbank.

Halkbank allegedly allowed the use of proceeds from Iranian oil and gas sales deposited at the bank to purchase gold for Iran's regime, as well as allowing the use of these funds in buying gold that has not been exported to Iran, a violation of the so-called bilateral trade rule.

The bank's fraudulent transactions may have been disguised as purchases of food and medicine by Iranian customers, which would have been exempted from the sanctions. Federal prosecutors allege that Halkbank used these methods to illicitly transfer approximately $20 billion worth of otherwise restricted Iranian funds.

Middle East