USA Against Reza Zarrab

Reza Zarrab (34) has been in custody for over 20 months. Allegedly, he is one of the key players who have connected Iran to the international financial system during the height of the United States’ economic sanctions. Preet Bharara, the crusading former US attorney, accused Zarrab of evading the sanctions against Iran, money laundering, bank fraud and defrauding the United States. In the first indictment, Bharara states that the defendant has engaged in financial transactions on behalf of the Iranian government, which amount to hundreds of millions of dollars. According to the fourth and last indictment, Zarrab’s maximum potential sentence exceeds a century.¹

 

The case that was known as USA v. Reza Zarrab et al. – until yesterday ­­­­– is being closely watched not only in the US, but also in Iran and Turkey. In the latest superseding indictment, former Turkish economy minister Zafer Caglayan and the former CEO of Turkish state-owned Halk Bank, Suleyman Aslan, have been added as co-defendants. Moreover, the US prosecutors have cited the 2013 Turkish corruption probe in court documents. A summary of the Turkish investigation includes quotes from wiretaps where the three defendants mention meeting with Recep Tayyip Erdogan, the Turkish President.² According to the Turkish government, the recordings are fake.

 

On September 21, 2016, President Erdogan met Joe Biden, the US Vice President at the time. According to unnamed US officials cited by David Ignatius, Erdogan demanded the release of Zarrab and the firing of Preet Bharara, the US attorney in charge of the prosecution at the time. Talking with the press on his way back from the United Nation’s General Assembly, the President confirmed that he mentioned Zarrab to Biden. He commented that “malicious intentions” were involved in the case, as his name had been entered into the court record.

 

A year after Erdogan’s comments, Reza Zarrab sat in a US courtroom attentively listening to the translator next to him. At times he seemed confused. True; he is foreign to the US legal system and there are language issues involved. However, Zarrab is no stranger to legal proceedings or to confinement. On December 17, 2013, he was arrested in Turkey, along with three ministers’ sons – including Zafer Caglayan’s – and the CEO of Halk Bank who was Zarrab’s co-defendant in the United States. Turkish prosecutors accused Zarrab of bribing public officials and establishing an illegal organization.³

 

The term “illegal organization” refers to the network Zarrab had allegedly set up in Turkey in order to sell Iranian oil and gas in exchange for gold, thereby bypassing the US sanctions.⁴ Iran’s proceeds from oil and gas sales to Turkey were deposited at Turkish-state-owned Halk Bank. According to US court documents, Zarrab would buy gold with these proceeds and export it to Dubai. In order to comply with the sanctions, the gold should have been directly exported to Iran.

 

Zarrab would cash the gold in Dubai and wire-transfer US dollars to his bank accounts in Turkey, writes the US attorney’s office. These dollar-denominated transfers required the clearing services of US banks. Through multiple shell companies set up in different countries, Zarrab would re-transfer the proceeds in his Turkish accounts to sanctioned Iranian companies. In February 2013, the United States implemented a ban on gold exports to Iran, which has motivated Zarrab to seek more creative schemes, according to the latest US indictment.

 

The Turkish prosecutors in charge of the December 17th investigation were shuffled and later Zarrab was released. He had spent over two months in jail.⁵ The new prosecutors dropped the charges against him. In a memorandum former US attorney Preet Bharara submitted to the court, “As a dual citizen of Iran and Turkey, who is alleged by Turkish authorities to have used his wealth and influence to secure his recent release from prison, the defendant poses and extensive risk of flight,” he wrote. In 2015, Zarrab received a “Champion of Exports” award from two Turkish cabinet members, since the gold exports had helped Turkey reduce its current account deficit.

 

2013 was the year the tides began to turn for Reza Zarrab. As a result of the corruption probe, four ministers either resigned or were relieved of duty. Economy Minister Zafer Caglayan, Interior Minister Muammer Guler, Environment Minister Erdogan Bayraktar and European Union Minister Egemen Bagis were accused of accepting bribes – some from Reza Zarrab himself. The investigation reached as high as the President’s son Bilal Erdogan. For Zarrab, this was only one of the year’s dramatic events. The other one had to do with Iranian politics.

 

In June 2013, Hassan Rouhani was elected the President of Iran, which marked the end of the Mahmoud Ahmadinejad era.⁶The bulk of Zarrab’s alleged sanction evasion scheme had been carried out in conjunction with the Ahmadinejad government. Rouhani had a starkly different vision for Iranian foreign relations. Two years after becoming president, the government signed a nuclear deal with six world powers – including the US. In exchange for keeping the Iranian nuclear program under international scrutiny, the economic sanctions would be gradually lifted.⁷

 

The deal implied that there was no longer a need for a middleman who employed questionable methods to connect Iran to the global financial system.⁸ One of the most prominent middlemen was Babak Zanjani, Zarrab’s counterpart in Iran. On March 6, 2016, he was sentenced to death for withholding billions in Iranian oil revenues that were being transferred to Iran via his companies. During a speech at the Iranian parliament, “Zarrab holds most of Zanjani’s money. Therefore, we have to seize every opportunity to bring him here,” said lawmaker Amir-Abbas Soltani.⁹

 

Two weeks after Zanjani’s sentencing, Reza Zarrab boarded a Turkish Airlines plane in Istanbul with his wife Ebru Gundes, a Turkish pop star, and their five-year-old daughter. According to Zarrab’s WhatsApp messages, the family seems to have been on their way to Disney World in Orlando, Florida.

 

Soon after TK 77 landed in Miami, Zarrab was separated from his family for interrogation. Two days later he was detained.¹⁰

 

After spending almost four weeks at the Federal Detention Center in Miami, Reza Zarrab started the road trip that would eventually take him to New York.¹¹ On April 27, 2016, Zarrab pleaded not guilty at a Manhattan courthouse.

 

During the arraignment, Judge Richard Berman turned to defense lawyer Benjamin Brafman to ask whether he and his client reviewed the first superseding indictment. They had. The indictment included an excerpt from a draft letter prepared for Reza Zarrab’s signature. The letter was prepared towards the end of 2011 and was addressed to the general manager of the Central Bank of Iran:

 

“...the Zarrab family... considers it to be our national and moral duty to declare our willingness to participate in any kind of cooperation in order to implement monetary and foreign exchange anti-sanction policies.”¹²

 

Until his bail hearing, Zarrab spent over a month in a New York jail. In the meantime, his lawyer Benjamin Brafman came up with a bail package. Brafman’s proposal included a $50 million bond, the defendant’s surrendering all three of his passports, and GPS monitoring. The defense attorney envisioned that armed private security would keep a watchful eye on the defendant as Zarrab lived on the 15^th floor of a Manhattan skyscraper. On June 16, 2016, Judge Berman denied the defendant’s bail application citing flight risk, national security and lack of trust for private guards.

 

Over a month later, Zarrab’s defense team filed a motion to dismiss the indictment. As written in defense’s memorandum, the main argument is that the United States has no jurisdiction over the alleged offenses related to sanctions law, since the defendant is a non-US person who has conducted his trade activity abroad.

 

On October 17, 2016, Judge Berman denied Zarrab’s motion to dismiss. “Clearing of the transactions through the US is sufficient jurisdictional grounds to prosecute him,” says Zachary Goldman, executive director of the Center on Law and Security at New York University. Before joining the university, Goldman worked on the development of Iran sanctions policy at the US Department of Treasury.

 

As the legal battle continued in New York, Turkey was suffering through the aftermath of a failed coup that cost the lives of over 240 people.¹³ On July 15, 2016, factions of the Turkish military attempted to take over the government. It took over 24 hours for President Erdogan to reaffirm his grasp on power.

 

The President blamed the coup on Fethullah Gulen, an influential Muslim cleric who lives in the United States. From 2010 on, Gulen and Erdogan’s former alliance had turned into a bitter power struggle. Three years later, prosecutors who were alleged followers of Gulen were behind the corruption probe that shook the Erdogan government and landed Zarrab in a Turkish jail.

 

Just a week after the coup attempt, the Turkish police raided a law firm whose owners were charged with being members of the terrorist organization led by Fethullah Gulen, according to a memo submitted by the defense. The law firm was called Yuksel Karkin Kucuk.

 

During Reza Zarrab’s initial appearance in New York, Judge Berman had disclosed that he had attended a legal symposium in Turkey co-sponsored by Yuksel Karkin Kucuk. This was a golden opportunity for Zarrab’s lawyers. The news was indicating that the law firm that paid for Berman’s Istanbul accommodation and flight, according to court documents, was also a part of the Gulen apparatus.

 

On August 30, 2016, the defense team made a motion to recuse the court. A few weeks later, President Erdogan commented on the case: “The US Department of Justice handed Zarrab over to names which FETO (pro-Fethullah Terrorist Organization) had wined and dined.” The President was referring to Preet Bharara, as well as Judge Berman. Bharara who was fired by President Trump on March 11, 2017, and who is currently being investigated by Turkish authorities denied any links to Fethullah Gulen.

 

Almost a month after the defense’s motion to recuse, Judge Berman made a decision. In his order, Berman considers the defense to have waived recusal since Zarrab’s lead lawyer did not object to the judge’s initial disclosure. With the court’s decisions regarding bail and dismissal, this denial was the third legal blow to Reza Zarrab.

 

March 27, 2017, brought about a major development. A previously undisclosed co-defendant was arrested at JFK Airport. Mehmet Hakan Atilla (47) was the deputy CEO of Halk Bank. The prosecutors accuse him of helping Zarrab coordinate his sanction evasion schemes.

 

September 25 was the last day Atilla and Zarrab appeared in court together. A month after that status conference, Zarrab’s lawyers started missing document filing deadlines. Neither Zarrab nor any of his lawyers attended his final pre-trial conference. As the jury selection began on November 27, Judge Berman clarified the situation. Addressing potential jurors, Berman said that Mehmet Hakan Atilla was the only person on trial. Henceforth, the case would be known as “USA v. Mehmet Hakan Atilla.”

 

It seems as if Reza Zarrab has pleaded guilty in exchange for a lighter sentence. He may even have started to cooperate with the prosecution.¹⁵ If this is the case, the defendant would be a powerful witness against President Erdogan’s inner circle.

 

Moreover, if Zarrab’s testimony implicates Turkish banks, they could be forced to pay billions of dollars in fines, according to Turkish daily HaberTurk. Lindsey Liddell, Fitch Ratings’ director of financial institutions, told Reuters that reputational damage to the Turkish banking system as well as large fines “could result in negative rating pressure.” This would not have a favorable effect on the fragile Turkish lira that has depreciated roughly 13% against the US dollar in the past two months. As the Turkish elections of 2019 approach, Reza Zarrab has the potential to cause an economic as well as political earthquake.

 

The trial will start following jury selection. Prosecution expects it to take three to four weeks.

 

USA v. Mehmet Hakan Atilla will be a three-in-one. From the US perspective, one of the key sanction evaders will face justice and the hearings will probably make way for additional trials. For Turkey, the corruption investigation of December 17, 2013 will be revisited and this time on an international platform. Finally, for Iran, the world-view of the Ahmadinejad era will be scrutinized. As Reza Zarrab was boarding that plane to take his daughter to Disney World, did the young gold trader realize his global importance?

USA v. ZARRAB PRE-TRIAL CHRONOLOGY

 

December 3, 2011: A draft letter is prepared for Reza Zarrab’s signature. It is addressed to the general manager of the Central Bank of Iran:

“...the Zarrab family... considers it to be our national and moral duty to declare our willingness to participate in any kind of cooperation in order to implement monetary and foreign exchange anti-sanction policies.”

 

February 6, 2013: The US ban on gold exports to Iran implemented.

 

June 15, 2013: Hassan Rouhani elected Iran’s president succeeding Mahmoud Ahmadinejad.

 

December 17, 2013: Zarrab arrested in Turkey, along with three ministers’ sons and the head of Turkish state-owned Halk Bank. Turkish prosecutors accuse Zarrab of bribing public officials and establishing an illegal organization.

 

December 25, 2013: Three Turkish cabinet ministers resign.

 

February 28, 2014: Zarrab released in Turkey.

 

September 23, 2014: According to Hurriyet, a United States judge approves a search warrant for Zarrab’s Hotmail account.

 

October 17, 2014: Investigation dismissed in Turkey. 

 

June 21, 2015: Zarrab given a “Champion of Exports” award by Deputy Prime Minister Numan Kurtulmus and Economy Minister Nihat Zeybekci.

 

July 2015: The Iranian government signs the nuclear deal with six world powers – including the United States – in exchange for the gradual lifting of the economic sanctions.

 

December 15, 2015: A sealed indictment regarding Zarrab is presented to a US court, according to Hurriyet.

 

March 6, 2016: Babak Zanjani, Zarrab’s counterpart, sentenced to death in Iran for withholding billions in Iranian oil revenues that were being transferred to Iran via his companies.

 

March 19, 2016: Zarrab boards a Turkish Airlines plane in Istanbul with his family. According to Zarrab’s WhatsApp messages, the Zarrab family seems to have been on their way to Disney World in Orlando, Florida.

 

March 21, 2016: Zarrab detained in Miami, FL.

Indictment unsealed. Reza Zarrab accused of sanctions evasion, money laundering, bank fraud and defrauding the United States. Zarrab’s initial maximum potential sentence adds up to 75 years.

 

March 29, 2016: President Erdogan comments on Zarrab’s arrest: “This is not a matter that has to do with our country. Mr. Zarrab’s lawyers will give the necessary answer.”

 

April 14, 2016: Reza Zarrab starts his road trip from Miami.

 

April 27, 2016: Zarrab arraigned in New York City. Pleads not guilty.

 

June 16, 2016: Zarrab’s bail application denied. Judge cites flight risk, national security and lack of trust for private guards.

 

July 15, 2016: Failed coup in Turkey. President Erdogan blames Fethullah Gulen.

 

July 18, 2016: A total of 15 defense lawyers undersign a memorandum of law submitted to the court. Paul D. Clement, former solicitor general of the United States, Viet D. Dinh, a former assistant attorney general, and William A. Burck, a former White House deputy counsel, all become part of Zarrab’s “dream team.”

 

July 22, 2016: The Turkish police raids a law firm whose owners were charged with being members of a terrorist organization led by Fethullah Gulen. The law firm was formerly called Yuksel Karkin Kucuk.

 

August 9, 2016: According to the New York Times, Trump campaign aid and later national security advisor Michael Flynn signs a pro-Turkey lobbying contract with Inovo, a firm with links to President Erdogan.

 

August 30, 2016: Defense makes a motion to recuse the court due to Judge Richard Berman’s alleged Gulen connection. In 2014, Berman was hosted in Turkey by Yuksel Karkin Kucuk.

 

September 21, 2016: During his meeting with Vice President Joe Biden, Erdogan demands the release of Zarrab and the firing of Preet Bharara, according to unnamed US officials cited in David Ignatius’s opinion piece.

 

September 24, 2016: “The US Department of Justice handed Zarrab over to names which FETO (pro-Fethullah Terrorist Organization) had wined and dined,” says President Erdogan. “After all, we have to seek justice for he (Zarrab) is our citizen.” The President acknowledges that he mentioned the case to Vice President Joe Biden. He comments that “malicious intentions” were involved in the case, as his name had been entered into the court record.

 

September 29, 2016: Judge Berman decides not to recuse himself saying it has been four months since Zarrab’s arraignment.

 

October 17, 2016: Motion to dismiss denied. Defense argued that this case lies outside the United States’ jurisdiction.

 

November 9, 2016: Donald Trump elected President of the United States.

 

February 13, 2017: National Security Advisor Michael Flynn resigns.

 

After February 24, 2017: President Erdogan meets Rudolph Giuliani, former New York mayor and Trump confidant, in Turkey.

 

March 11, 2017: Donald Trump fires US Attorney for the Southern District of New York, Preet Bharara.

 

March 27, 2017: Mehmet Hakan Atilla, Halk Bank deputy CEO responsible for international banking, arrested in New York.

Zarrab adds Rudolph Giuliani to his defense team.

 

March 29, 2017: After Atilla’s arrest, Halk Bank stocks suffer their biggest one-day fall, according to Reuters.

 

May 16, 2017: Erdogan mentions the case to President Trump in their first meeting.

 

September 6, 2017: Superseding Indictment filed. Former Economy Minister Zafer Caglayan and former Halk Bank CEO Suleyman Aslan added as co-defendants.

 

October 30, 2017: Zarrab’s lawyer misses a filing deadline for documents that would allow him to challenge certain pieces of evidence. Atilla’s lawyer states that his client may be the only defendant who appears at trial.

 

November 8, 2017: The US Federal Bureau of Prisons website shows that Zarrab has been released on this day.

 

Around November 9, 2017: Turkey sends the US a note inquiring about Zarrab’s status, according to Turkish Foreign Minister Mevlut Cavusoglu.

 

November 13, 2017: The US Attorney’s office says that Zarrab remains under custody, according to the New York Times.

 

November 15, 2017: The US responds to Turkey stating that Zarrab has been moved to a new location and that he is in good health, according to Turkish Foreign Minister Mevlut Cavusoglu.²⁴

 

November 16, 2017: Neither Zarrab nor his lawyer appears at his final pre-trial conference.

BDDK, the Turkish banking watchdog, introduces new regulation allowing banks to transfer their assets to another entity without dissolving. The President of BDDK, later says that the law has nothing to do with Halk Bank.

 

November 18, 2017: Turkey starts to investigate former US attorney Preet Bharara and acting US attorney Joon H. Kim who are responsible for Reza Zarrab’s prosecution.

 

November 27, 2017: Jury selection begins. According to Reuters, Judge Berman tells potential jurors that Mehmat Hakan Atilla will be the only person on trial.