Zarrab Reveals Erdogan Link in Iran Sanctions Evasion Scheme

NEW YORK — Turkish-Iranian gold trader Reza Zarrab revealed on Thursday the role of then-Prime Minister Recep Tayyip Erdogan and former Minister of Treasury Ali Babacan in a scheme designed to evade U.S. sanctions against Iran through the use of Turkish public banks.

During the second day of his testimony at a Manhattan court, Mr. Zarrab said Mr. Erdogan and Mr. Babacan gave instructions to two paramount Turkish public banks — Ziraat Bank and Vakifbank — to start trade business as part of a plan spearheaded by Halkbank, which appears at the center of the sanctions evasion scheme.

Mr. Zarrab, who became a star witness in the trial that involves former Turkish Economy Minister Zafer Caglayan, state-owned Halkbank General Manager Suleyman Aslan and deputy CEO Mehmet Hakan Atilla, continued to present his views on how the situation evolved.

When Judge Richard Berman asked Mr. Zarrab how he learned that Mr. Erdogan and Mr. Babacan brought two other public banks into the scheme, he said former Economy Minister Caglayan informed him about the instructions.

“What I’m saying is that the prime minister of that time, Recep Erdogan, and the minister of the treasury, Ali Babacan, had given an order for them to start doing this trade. By them, I mean the banks,” he told the court to elaborate on a phone call that took place in 2012.

Mr. Zarrab said both banks were hesitant and reluctant to take part in the scheme due to their connections and ties to the U.S. financial system.

They feared to be involved due to U.S. sanctions and potential ramifications for the bank, he said commenting on the situation with Ziraat Bank.

During his testimony, Mr. Zarrab appeared calm, pedantic on details. He repeatedly offered to draw several schemes on the diagram to simplify and clarify the complicated parts of his multi-layered gold trade plan for jurors at the courtroom.

Mr. Zarrab did not wear a prison jumpsuit. He wore a white shirt, a black jacket with no tie. A day before, he refuted claims that he was staying in a hotel room. He is being currently held at an undisclosed location under FBI surveillance.

He went on to clarify many elements of his gold trade scheme and how he worked with senior Turkish officials.

According to his account, former Economy Minister Caglayan appeared to be at the center of the plan. Mr. Zarrab even discussed with him how much money he should give Halkbank CEO Aslan as a bribe.

He said Iranians wanted to get rid of complicated and multilayered trade scheme and wanted to make their international payments directly through Halkbank. Mr. Aslan and the former economy minister blocked the Iranian demand for the fear of losing their lucrative bribe scheme and profit share in the illicit trade.

Mr. Aslan shared his concerns with Mr. Zarrab at one point. At a meeting, the Halkbank CEO told the gold trader how much risk he took, how he put himself at the crux of a risk of facing U.S. legal action.

What did Mr. Aslan mean in that meeting? the prosecutor asked.

“He was asking for more money,” Mr. Zarrab told the courtroom, sparking laughter.

When the prosecutor asked him whether he bribed other individuals, his answer was unwavering: No.

The Turkish-Iranian businessman said he did not bribe any other officials at Halkbank, not Hakan Atilla nor anyone else at the Economy Ministry.

“I was giving bribes to Economy Minister, Halkbank CEO to do my business. I did not feel the need to bribe other individuals,” he said.

The amount of the bribe paid to Halkbank CEO caused a squabble between him and his business associate Abdullah Habbani, who found the amount to be too high.

“I told him that Aslan was the CEO of Halkbank and he was doing a lot of help to do our job. So it was a not a wasted money,” he said of his conversation between him and his assistant.

He paid too much bribe to too many people, he said, at one point, they confused the accounts and mistakenly sent money to wrong people. He once mistakenly sent $2 million money to Economy Minister Caglayan and withdrew back once he realized it.