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 Turkish police believe that until recently, the area around the
market also sat at the center of an audacious, multi-billion-dollar
scheme involving bribery and suspect food shipments to Iran.
To date, no one has been charged. But a recently leaked police
report — which contains allegations of payments to top Turkish
government officials including cash stuffed into shoeboxes — has
added fuel to a growing corruption scandal that has shaken the
highest levels of Turkey's political establishment.
A review by Reuters of the report's 299 pages, as well as interviews
with currency and precious metals dealers, offer colorful new
details of how what police call a "crime organization" allegedly
helped Iran exploit a loophole in the West's sanctions regime that
for a time allowed the Islamic Republic to purchase gold with oil
and gas revenues.
While the gold trade was then legal, the police report alleges the
purported crime network bribed officials in part so it could
maintain control of the lucrative business.
Then, when the West last July prohibited the gold trade as a
sanctions violation, the police report alleges the network concocted
records of shipments of food at preposterous volumes and prices to
continue giving Iran access to foreign currency.
The police report — which includes transcripts of wiretapped
conversations and surveillance photographs — was prepared for
prosecutors. Reuters confirmed its authenticity with Ekrem Aydiner,
the current chief prosecutor in charge of the case.
Turkey's Prime Minister, Tayyip Erdogan, has called the police
investigation a foreign-orchestrated plot without legal merit. In
recent months, Turkey's judiciary removed several prosecutors from
the case. That has raised questions about whether Turkish law
enforcement authorities will continue to pursue it. Aydiner said the
matter remains under active investigation.
In many ways the plot described in the police report resembles a
made-for-TV crime series: A cop who is thought to have tipped off
tax authorities finds himself transferred to a distant outpost by
the Black Sea, a plane that arrives from Ghana carrying 1.5 metric
tons of gold with no clear owner, and millions of dollars in payoffs
to various officials to block rivals and gain valuable favors such
as fast-track Turkish citizenship for members of the purported crime
network and their families.
The report presents a wealthy young businessman of Iranian descent
named Reza Zarrab as the ringleader. Zarrab grew up in Turkey, holds
citizenship, resides in a manor on the Bosphorus and goes by the
Turkish name Riza Sarraf. He is well known on Istanbul's celebrity
circuit, and is married to Turkish pop star Ebru Gundes, who is a
judge on a popular television talent show. Following her husband's
detention in December — he was released from jail two months later
without being charged — she tearfully told viewers, "God willing, I
hope these dark days will pass quickly."
When Reuters reporters recently visited his residence, they were
greeted by about a half-dozen security guards who said he was out of
town. His attorney, Seyda Yildirim, later declined to comment.
In an interview published on April 19 with Sabah, a Turkish
newspaper, Zarrab said, "The trade I do is completely legal." He
later said in an interview on Turkish television that he had helped
to reduce the country's current account deficit.
GOLD RUSH
The police report states that its investigation found evidence of
bribery, fraud and gold smuggling. Although not central to the
police investigation, the West's economic sanctions on Iran provide
the backdrop of the alleged scheme.
As financial sanctions tightened in 2012, both Turkey and Iran had
pressing needs: Turkey required oil and gas for its fast-growing
economy, while Iran desperately needed hard currency to pay for new
automobiles and other foreign imports.
Under the sanctions — imposed by Washington and Brussels to contain
Iran's nuclear ambitions — Turkey was permitted to purchase oil and
gas from its neighbor. But it was required to pay in Turkish lira, a
currency that is of limited value for buying goods on international
markets. All payments were to be deposited in an Iranian bank
account at Turkey's state-controlled Halkbank.
In 2012, Turkey purchased from Iran more than $10 billion worth of
oil and gas, according to Reuters' calculations based on data from
Turkey's energy market regulation board and Turkish officials.
One commodity that Iran was permitted to purchase with its money was
gold. A veritable Turkish gold rush ensued with bullion shipped to
Iran in everything from couriers' rucksacks to airplane cargo holds.
Turkish gold exports to Iran exploded from one metric tons in 2011
to 125.8 metric tons in 2012, worth $6.5 billion, according to the
Turkish statistical institute. Another 85 metric tons, worth $4.6
billion, were exported that year to the United Arab Emirates, a
known transshipment point to Iran.
The police report alleges that Zarrab and a network of companies he
controlled were running much of the gold trade with Iran, sometimes
via Dubai. "It is understood that, to overcome sanctions and move
money to Iran, Riza Sarraf used Turkey as a stepping stone," the
report states.
To keep the business running smoothly, the report alleges, Zarrab's
network paid bribes to Zafer Caglayan, Turkey's economy minister;
Muammer Guler, the interior minister; Egemen Bagis, the European
Union Affairs minister; and Suleyman Aslan, Halkbank's chief
executive.
All three ministers, who have since either resigned or been dropped
from the cabinet, have denied wrongdoing; none have been charged.
Caglayan declined to comment; Guler could not be reached for
comment. Lawyers for Bagis and Aslan did not return calls seeking
comment.
Halkbank has denied violating any domestic or international laws. A
spokesperson declined to answer questions but did say the bank is
not under any investigation by Turkey's police or judiciary.
According to the police report, many of the payoffs were allegedly
picked up in a building on a row of jewelry dealers near the Grand
Bazaar. Police also tracked the shipment of a Swiss watch the
network allegedly gave to Caglayan, the economy minister, that cost
about $340,000. Bagis, the EU Affairs minister, at one point
allegedly received $500,000 cash delivered in a chocolate box, along
with a silver plate. In an intercepted phone conversation about the
plate, the report quotes Zarrab as telling an associate, "Don't make
it too expensive."
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The report alleges that Aslan, the former head of Halkbank, and
Caglayan received a percentage of the Iranian money transfers,
resulting in bribes that totaled tens of millions of dollars. In
December, police raided Aslan's house and seized $4.5 million
stuffed in shoeboxes, according to local media reports. Aslan told
police the cash was a charitable donation from various businessmen
to build an Islamic school, the media reports said.
The police report alleges the bribes bought the network perks such
as reduced commissions from Halkbank for money transfers,
authorization to drive along highway emergency lanes and assistance
in preventing rivals from participating in the lucrative trade. One
Istanbul gold and currency trader told Reuters, "I went to the bank
about 18 months ago and tried to open an account, saying I wanted to
sell goods to Iran and that I was going to pay via Halkbank. But
they did not let me. There has been unfair competition in terms of
using this bank." The bribes also secured the network police
protection, the report alleges. Suspecting at one point that a local
police officer had initiated a tax audit of some of Zarrab's
companies, the interior minister arranged to have the officer
transferred to Zonguldak, a Black Sea coastal town about 200 miles
east of Istanbul, the report alleges. According to the report, a
wiretap allegedly picked up Guler telling Zarrab that "we have sent
him into exile."
The network also allegedly received special assistance when, in
January 2013, a plane carrying 1.5 metric tons of gold bullion
arrived at Istanbul's Ataturk airport from Ghana without proper
paperwork. The report cites wiretapped phone calls between Zarrab
and Caglayan's office allegedly showing that Caglayan intervened at
Zarrab's request to prevent customs officers from seizing the
shipment. The cargo was held up for days, but ultimately released.
The circumstances surrounding the Ghanaian gold shipment remain
murky. An Iranian billionaire businessman named Babak Zanjani, who
is accused by the United States and European Union of violating
sanctions on Iranian oil, recently posted a statement on the website
of his company, Sorinet Group, stating he was the original purchaser
of the gold from Ghana. "This type of trade was completely legal,"
he wrote.
Yet Zanjani boasted last year in an interview with Aseman, an
Iranian magazine, of violating sanctions. "This is my work — sanctions-busting operations," he was quoted as saying. He is in
jail in Tehran on charges of owing the government more than $2.7
billion from oil sales; he denies any wrongdoing.
In the website posting, Zanjani said he had met Zarrab "a few times"
but that they had not done any business together. Zarrab said in the
television interview earlier this month he had met Zanjani twice,
but "I am neither friends nor partners with him."
FAKE FOOD
Washington closed the gold loophole last July. In the television
interview, Zarrab said he stopped trading gold and "shifted to food
and medicine," which were still permitted. In a four-month period,
he said, that trade totaled about $1.6 billion.
But the police report alleges that some of the food shipments never
actually took place, but consisted of counterfeit invoices submitted
to Halkbank that should have raised plenty of red flags at the bank.
The documentation included bills of lading that purportedly showed
that cargoes "of 150,000 metric tons were being carried in vessels
with a capacity of 5,000 tons," the report alleges.
In another case, the report includes an alleged copy of an invoice
for a shipment to Iran of about five metric tons of raw brown sugar.
The cost? A whopping $250 a pound, more than a hundred times the
market rate.
The report also quotes from a wiretapped conversation with Zarrab in
which an associate allegedly tells him about the food shipment
records, "The documents we are giving are wrong. I mean, they are
documents that do not exist in reality."
Following their investigation, the police staged a series of raids
and detained dozens of suspects in December. Later that month, one
of the prosecutors on the probe was removed from the case. He
accused police of refusing to comply with his orders to detain even
more suspects. "Suspects have been allowed to take precautions, flee
and tamper with the evidence," the prosecutor, Muammer Akkas, said
in a statement to Turkish media. Reached by Reuters this month, he
declined to comment.
Aydiner, the new chief prosecutor on the case, said the detentions
were just a precaution and that no suspects have been formally
charged. "Of course, they are still under investigation," he said.
Shortly after the December raids, two of the ministers who allegedly
accepted bribes — Economy Minister Caglayan and Interior Minister
Guler — resigned; Bagis, the EU Affairs minister, was replaced in a
cabinet reshuffle.
Aslan, the chief executive of Halkbank, left his job in February. He
was recently named to the board of directors of a larger,
state-owned bank.
As part of a preliminary deal struck in November between Western
powers and Iran, Tehran promised to scale back its nuclear
development program in exchange for the suspension of certain
economic sanctions. The deal, which took effect in January and is to
last until July, includes allowing Iran to resume some gold trading.
But there's no evidence that Turkey is benefiting. Some Istanbul
traders say they are too jittery to sell gold to Iran. Gold exports
have plummeted.
(Additional reporting by Asli Kandemir in Istanbul and Gulsen
Solaker in Ankara; edited by Simon Robinson and Sara Ledwith)
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