Erdogan Allowed Turkish Banks to Help Iran Make Illegal Payments, Witness Says -- Update

By Nicole Hong Features Dow Jones Newswires

Turkish President Recep Tayyip Erdogan personally approved the use of Turkish banks to help Iran facilitate international payments that violated U.S. economic sanctions, a key government witness testified Thursday in a closely watched trial in New York.

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The witness, Reza Zarrab, said he was told by a top Turkish official around 2012 that Mr. Erdogan had instructed two of the largest banks in Turkey, Ziraat Bank and VakifBank, to begin helping Iran launder its money.

The testimony occurred during the trial of Mehmet Hakan Atilla, who worked at another Turkish bank and is accused of participating in a multinational operation to help Iran make payments that violated U.S. sanctions. Mr. Atilla has pleaded not guilty.

This is the first time during the trial that Mr. Erdogan has been directly implicated in the alleged scheme.

An aide for Mr. Erdogan couldn't be reached for comment.

During a closed-door meeting with his ruling party leaders Thursday, Mr. Erdogan said "we did not breach the sanctions [on Iran]," according to Turkey's Hurriyet newspaper, adding that "whatever the verdict is, we did the right thing."

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"The world is not only about the U.S.," the Turkish president said, according to the newspaper. "We also have trade and energy relations with Iran."

Prosecutors Thursday showed jurors transcripts of calls between Mr. Zarrab and his business associates, in which Mr. Zarrab discussed Mr. Erdogan's involvement.

In one call, Mr. Zarrab said Mehmet Zafer Caglayan, the Turkish Economy Minister at the time, told him that Mr. Erdogan had given approval for Ziraat Bank and VakifBank to help Iran move its frozen oil proceeds. Because of U.S. sanctions, Iran was unable to move its money out of Turkey and other countries to make international payments in U.S. dollars.

Spokesmen for the two banks didn't immediately respond to a request for comment. A Turkish law firm representing Mr. Caglayan said it was following the trial, and "we are not planning to comment."

In explaining another call to jurors, Mr. Zarrab said Mr. Erdogan, who was then Turkey's prime minister, "had given an order for them to start doing this trade," referring to the two Turkish banks.

Mr. Zarrab, 34 years old, had been a defendant in the case until he pleaded guilty to seven charges, including sanctions evasion and money laundering, and agreed to testify at trial against Mr. Atilla.

He became a household name in Turkey after he was arrested there with dozens of others in 2013, as part of a corruption probe. Mr. Erdogan, as prime minister, called the investigation a conspiracy against him, and the investigation was dropped. Several officials involved in the prosecution were demoted or jailed.

Mr. Erdogan became president of Turkey in 2014.

Mr. Zarrab has close ties to high-level Turkish officials. He has already testified that he paid Mr. Caglayan, the former economy minister, more than $50 million in bribes to help facilitate the scheme.

On Thursday, Mr. Zarrab said Mr. Caglayan also approved bribes that were paid to Suleyman Aslan, the former general manager of Halkbank, where Mr. Atilla worked. Mr. Zarrab testified that his initial bribe payment to Mr. Aslan was EUR2 million ($2.4 million).

Messrs. Aslan and Caglayan were both charged in absentia by the Manhattan U.S. attorney's office.

Ersan Sen, a lawyer who previously represented Mr. Aslan, said his client denies receiving bribes from Mr. Zarrab, and any money Mr. Aslan received from Mr. Zarrab was donated to schools. Mr. Aslan acted in accordance with banking laws and didn't participate in any illegal organization, Mr. Sen said.

When asked by a prosecutor why Mr. Zarrab didn't bribe Mr. Atilla or others at Halkbank, he replied: "I was already giving bribes to the Turkish minister of the economy," eliciting laughter from the courtroom. He said other bribes were unnecessary.

The testimony Thursday widened the scope of the scheme, showing that Mr. Zarrab and his associates tried to help Iran unfreeze its funds at banks around the world.

Mr. Zarrab said he established a company in China in an attempt to get Iran's crude oil proceeds out of Chinese banks and into Turkey, where it could be more easily laundered, and detailed meetings where he discussed a similar scheme involving companies in India.

Despite U.S. sanctions on Iran, the country still has energy ties and sells crude oil to countries such as Turkey, India and China.

To overcome any obstacle in the scheme, Mr. Zarrab tapped his extensive network of contacts. When he was running late for a meeting at Halkbank, Mr. Zarrab testified that he asked the traffic chief of the Istanbul police to drive him there using the emergency lane, a revelation that caused Turkish reporters in the courtroom to gasp audibly.

The case is another sore point in U.S.-Turkey relations and has dominated headlines in Ankara, where officials have denounced the charges as an attempt to oust their president.

Trial observers have been waiting in long lines to enter the courtroom each morning. In a sign of the case's significance, Joon Kim, the acting Manhattan U.S. attorney, has been seated in the back of the courtroom for much of Mr. Zarrab's testimony.

Mr. Zarrab testified Thursday in a black suit jacket and gray pants, after the judge raised concerns over Mr. Zarrab appearing in court in jail clothes Wednesday.

Write to Nicole Hong at nicole.hong@wsj.com

(END) Dow Jones Newswires

November 30, 2017 15:32 ET (20:32 GMT)