By PATRICIA HURTADO, BENJAMIN HARVEY, ISOBEL FINKEL
Reza Zarrab, a gold trader at the center of a bribery scandal that engulfed Turkey’s leadership more than two years ago, was charged by the U.S. of running a scheme to help the Iranian government launder hundreds of millions of dollars and evade economic sanctions.
Zarrab, 33, owner and operator of Royal Holding A.S., and two others, are accused of using a web of companies over five years to induce U.S. banks to unwittingly process transactions that violated international sanctions against Iran, according to an indictment unsealed on Monday.
The charges are a blow to Turkish President Recep Tayyip Erdogan, who has repeatedly insisted that allegations of corruption against him and his inner circle were nothing more than a coup attempt. In response to the scandal centered around Zarrab in 2013, Erdogan turned Turkey’s bureaucracy upside-down, dismissing thousands of state employees, police officers and prosecutors, with many jailed. He also labeled a group of former allies he blamed for the accusations, the Gulen religious movement, a terrorist organization.
Zarrab had denied any wrongdoing amid the Turkish investigation, saying the business was legitimate. The ministers also denied the charges. All charges against him and members of Erdogan’s government were eventually dropped.
The U.S. indictment suggests “that the allegations of sanctions-busting were strong enough to merit U.S. action, regardless of the political consequences,” said Aaron Stein, senior fellow at the Atlantic Council’s Hariri Center for the Middle East and author of the book “Turkey’s New Foreign Policy.” This “is a big deal because of Zarrab’s obvious connections to the AKP,” he said, referring to the party Erdogan founded, which has governed Turkey since 2002.
In December 2011, Zarrab received a draft letter in Farsi addressed to the general manager of Iran’s central bank and prepared for Zarrab’s signature, according to the U.S. indictment. It praised the role of Ayatollah Ali Khamenei, Iran’s supreme leader, and officials at Markazi Bank for action which “wisely neutralizes the sanctions and even turns them into opportunities.”
The letter volunteered the services of the Zarrab family, which it said had “half a century of experience in foreign exchange,” for anti-sanction policies in an “Economic Jihad” endorsed by Khamenei.
Zarrab, who holds Turkish and Iranian citizenship, was charged and detained in the graft probe in Turkey in 2013. In that case, he was accused of bribing ministers in Erdogan’s cabinet with millions of dollars in cash and gifts to help facilitate trade in gold with Iran, according to police and court documents in Turkey reviewed by Bloomberg News.
Zarrab and his accomplices began using a network of companies in Turkey and the United Arab Emirates to transact business on Iran’s behalf and defraud the U.S. from “at least in or about 2010 and including in or about 2015,” according to the indictment. Companies benefiting from the scheme included Bank Mellat, an Iranian government-owned bank, the National Iranian Oil Company and the Naftiran Intertrade Company, it said.
Not mentioned in the U.S. indictment is Turkiye Halk Bankasi AS, the Turkish state-run bank that processed Zarrab’s payments and whose former chief executive officer, Suleyman Aslan, was also embroiled in the scandal and briefly jailed. Police found millions of dollars stuffed into shoe boxes when they raided Aslan’s home in Dec. 2013. He said the money was donations he was collecting for Islamic schools in Turkey and Macedonia.
In a television interview on Turkey’s ultra pro-government A Haber news in April 2014, Zarrab estimated he had facilitated the transfer of about $12 billion in gold, or about 200 tons, to Iran. The surge in exports driven by that business was so rapid and so extensive — gold transfers to Iran jumped from $53 million in 2011 to $6.5 billion in 2012 — that it distorted Turkish trade figures.
Erdogan defended Zarrab after the probe, calling him a “philanthropist” whose business had “contributed to the country.” In June of 2015, a year and a half after the Turkish corruption scandal broke, Zarrab received an award in Turkey for export performance. Numan Kurtulmus, now deputy prime minister, Nihat Zeybekci, who was then economy minister, and Mehmet Buyukeksi, head of the Turkish exporters’ group, presented the citation. Erdogan was in the audience.
An e-mail sent to Royal Holding AS after regular business hours seeking comment on Zarrab’s arrest wasn’t immediately returned. Seyda Yildirim, his lawyer in Turkey, didn’t immediately respond to a request for comment.
The announcement of Zarrab’s arrest in Miami comes a week before Erdogan is scheduled to visit the U.S., where he’ll open a Turkish-funded mosque in Maryland and attend a nuclear security summit in Washington. Erdogan is scheduled to be in the country from March 29 to April 2. A meeting with President Barack Obama hasn’t yet been confirmed.
Zarrab in 2014 owned a private jet and yacht and shared a $72 million villa on Istanbul’s waterfront with his pop-star wife, Ebru Gundes, a Turkish celebrity. In recent weeks, Turkish media had reported that he’d begun selling his real estate assets in Turkey. The reports of those sales followed the sentencing of Babak Zanjani, an Iranian businessman, to death for corruption in Iran. Zanjani and Zarrab were associates, though Zarrab has denied that they were partners.
Zarrab, who’s also known as Riza Sarraf, is charged with conspiracy to commit bank fraud, which carries a maximum 30-year prison term, money laundering and sanctions evasion. He was arrested March 19 and ordered held without bail after appearing in court in Miami, according to a spokeswoman for U.S. Attorney Preet Bharara.
“For almost five years, from 2010 to 2015, the defendants allegedly conspired to thwart U.S. and international economic sanctions against Iran by concealing financial transactions that were on behalf of Iranian entities,” FBI Assistant Director-in-Charge Diego Rodriguez said in a statement published Monday by the U.S. Attorney’s Office for the Southern District of New York. “The charges announced today should send a message to those who try to hide” their true business partners, he said.