MANHATTAN (CN) – As Hakan Atilla learns what sentence he must serve for helping Iran launder billions of dollars, Istanbul’s fragile markets will watch closely Wednesday for cues about the fate of the Turkish banker’s former employer.
Atilla had served as one of 13 managers at Halkbank, a Turkish government-run institution implicated in massive violations of U.S. sanctions, before his arrest last year at New York’s John F. Kennedy Airport.
With his conviction in January on sanctions violations, Turkey experts from here to Istanbul expect another shoe to drop soon for Halkbank.
“I think the markets are prepared for a fine of some sort from U.S. Treasury, but how much?” Asli Aydintasbas, a senior fellow at the European Council on Foreign Relations, said in a phone interview. “That’s the question.”
The question could carry profound implications for the future of Turkey’s economy, which has been roiled by a recent coup attempt against the country’s President Recep Tayyip Erdogan and his fevered hunt for supposed enemies under the country’s State of Emergency.
At Atilla’s trial, U.S. prosecutors could only estimate the scale of the Halkbank money-laundering scheme. In one sentencing brief, for example, they noted testimony from gold trader Reza Zarrab, who had been a key witness against Atilla, that he funneled “a few billion” euros in Iranian oil proceeds through the bank.
“The trial record also showed that the scheme involved both billions of dollars’ worth of gold transactions … and billions of dollars’ worth of fraudulent food transactions,” Assistant U.S. Attorney Michael Lockard wrote in a memorandum.
How U.S. regulators tabulate the damage, Aydintasbas said, could send Turkey’s markets into turmoil.
“So, if we’re talking about $1 or $2 billion, $3 billion, I think the markets have prepared for something like that,” she said. “But if we’re talking about $8, $9, $10 [billion], that would send shockwaves through the Turkish economy at a time when things are looking very, very fragile, particularly in terms of liquidity.”
Experts on U.S.-Turkish relations in both countries believe that is what Erdogan has feared most from the start of the Iran sanctions case.
Insisting upon deep cover, a U.S. Treasury official refused to decline comment on the record.
“Treasury does not comment on investigations, including to confirm whether one exists,” the official said.
The Erdogan Establishment
New York-based expert Steven Cook, a Council on Foreign Relations fellow who wrote the book “False Dawn,” noted that the case against Atilla here traces its origins to a 2013 corruption scandal implicating Erdogan’s political allies.
One of the targets of that corruption investigation was Zarrab, whose arrest in the United States prompted years of lobbying by Erdogan’s government for his release.
“I think it’s clear that Reza Zarrab sat at this nexus of influence between the [Turkish] government and this world of corruption and sanctions-busting, and he was at arm’s length,” Cook said. “He was the plausible deniability.”
Erdogan cast the corruption probe as an attempted “judicial coup” organized by an Islamic cleric named Fethullah Gulen, now a U.S. resident living in self-imposed exile in rural Pennsylvania. Abandoning their onetime alliance, Erdogan’s ruling Justice and Development Party accused the Gulenist movement’s followers of creating a shadow government inside its police, judiciary and academia.
The shift to archenemy status led to a purge of thousands of civil servants, effectively dismantling the corruption investigation.
Zarrab’s arrest in Miami some three years later revived the old allegations, much to the noticeable frustration of the Erdogan’s administration.
”Because [Zarrab] had knowledge of all these kinds of corrupt practices … Erdogan fought so hard, fought so hard to prevent this trial from happening,” Cook explained.
When his entreaties to two U.S. presidential administrations failed to secure Zarrab’s release, Erdogan last year retained high-profile allies of President Donald Trump for the gold trader’s legal team.
Former New York City Mayor Rudy Giuliani, who had been Trump’s campaign surrogate, and ex-Attorney General Michael Mukasey both joined Zarrab’s legal team and attempted to negotiate a prisoner swap between Washington and Ankara.
When that fizzled, Zarrab struck a deal with U.S. prosecutors to take the witness stand against Atilla in New York. But the gold trader’s testimony also implicated high-ranking Turkish ministers in bribes of tens of millions of dollars, and he accused Erdogan of personally ordering sanctions-busting trades.
For Cook, the Turkish government’s failure to avert a trial showed that they cannot influence U.S. justice.
“From what I understand of the post-trial deliberations and the penalty phase, those lawyers working for the Department of Justice are once again insulated from the politics of the U.S.-Turkey relationship and diplomacy,” he said.
Turkey’s deeply polarized society has helped Erdogan navigate the domestic political fallout so far.
“Those who support the government – about 50 percent of the population, give or take around 5, 6, 7 percent – are going to believe the government’s narrative that this was politicized, that the United States is somehow in cahoots with Fethullah Gulen in trying to change the regime in Turkey,” Cook said.
“Then, there’s the other part of the Turkish citizenry who were paying attention to the trial, because they were keenly interested in the evidence that did emerge in the trial and were keenly interested in the process of the trial and who felt that this was the only place that they could have recourse,” he continued.
Overall, however, Cook said, Erdogan has weathered the storm.
“There is a large number of people in Turkey who believe these stories,” he noted. “So, he’s safe politically, but on the economic front, that’s a different story and that’s what they are worried about.”
Pressure on Press Rights
Erdogan mitigated the political fallout of the revelations, in part, because of his tight control of Turkish media.
On top of her fellowship at the European Council on Foreign Relations, Aydintasbas has been a writer for Turkey’s oldest serious newspaper Cumhuriyet, a publication that Erdogan’s prosecutors targeted for a string of prosecutions denounced by international press-freedom monitors.
“There wasn’t much in mainstream media,” the veteran Turkish journalist said of the Zarrab case.
“I think it was pretty much confined to Twitter and social media,” she continued. “There were a couple of Turkish journalists following it over there, but they haven’t fully reported the details, particularly those working for mainstream outlets haven’t fully reported all the details.”
“I would say, all in all, there was a bit of a blackout on the case,” she said.
Reporters Without Borders ranked Turkey 155th out of 180 nations in its most recent press-freedom index.
Slamming the Turkish government’s anti-media “witch hunt,” the Paris-based watchdog chronicled how Turkey shut down dozens of news outlets and became the world’s leading jailer of journalists.
Erdogan’s anti-press clampdown may have muted embarrassing revelations inside his country, but the international criticism it engendered has made some investors queasy.
“Turkish banks are not having an easy time borrowing,” she said. “It’s not like a decade ago, when Turkey was a rising star as an emerging market – also, an exemplary country so to speak as an emerging democracy.”
Erdogan had been Turkey’s prime minister at the time, a position he served from 2003 and 2014, the year he became the nation’s president.
“Now, things are looking very different in that sequence,” she said.
Cook, the New York-based Turkey expert, noted that Atilla’s prosecution came to a head at a sensitive time for Erdogan, who is seeking a second term in office.
“In the end, it was not really about, for Erdogan, the revelations from the United States court that would come out publicly,” he said. “I think it was the fear that it would result in actions from the United States and the U.S. Treasury and the U.S. Justice Department that would harm the Turkish economy that would in turn harm him as he stands for election again scheduled in late 2019.”
Shortly after the interview with Cook, Erdogan kneecapped the opposition by fast-tracking elections for June 24. One of his rivals, Kurdish opposition leader Selahattin Demirtas, is currently in prison. Republican People’s Party (CHP) candidate Muharrem Ince, the main opposition leader, has complained about lack of media coverage. Erdogan has refused to debate him.