US charges Turkish bank over allegations of sanction evasion

Out-Law News | 22 Oct 2019 | 4:54 pm | 2 min. read

The US Federal Bureau of Investigation (FBI) has charged Turkey’s Halkbank with fraud, money laundering, and sanctions offences related to the bank’s participation in an alleged multibillion-dollar scheme to evade US sanctions on Iran.

The FBI claim that Halkbank used money service businesses and front companies in Iran, Turkey, the United Arab Emirates, and elsewhere to “violate and to evade and avoid prohibitions against Iran’s access to the US financial system, restrictions on the use of proceeds of Iranian oil and gas sales, and restrictions on the supply of gold to the Government of Iran and to Iranian entities and persons”.

The indictment said Halkbank knowingly facilitated the scheme, participated in the design of fraudulent transactions intended to deceive US regulators and foreign banks, and lied to US regulators about Halkbank’s involvement.

Tom Stocker

Partner

[This case] is a stark example of the wide reach of US law enforcement when it comes to economic sanctions.

Regulatory law expert Tom Stocker of Pinsent Masons, the law firm behind Out-Law, said: “The prosecution of Halkbank by the US Department of Justice is a stark example of the wide reach of US law enforcement when it comes to economic sanctions".

"In this case funds with an Iranian nexus are alleged to have been deposited in Halkbank - a state owned Turkish bank - and used to make international payments on behalf of the government in Iran in violation of US sanctions laws. EU businesses are in a difficult position because of EU laws which prohibit compliance with US sanctions against Iran. The mischief here was the alleged deliberate nature of the programme to breach US sanctions,” he said.

Consequences for a party found to have participated in sanctions evasion could include forfeiture of benefits from the sanctioned acts, exclusion from US markets and denial of US correspondent banking accounts.

Sanctions were imposed on Iran by the US, United Nations and EU up until 2016, when a joint plan of action was agreed, lifting sanctions in return for limits on Iran’s nuclear programme. However in 2018 the US re-imposed the sanctions in response to "bad faith" by Iran.

According to the claim, the proceeds of Iran’s sale of oil and gas to companies in other countries such as Turkey were deposited at Halkbank in the name of Iranian entities. US sanctions meant that it was difficult for Iran to access the funds.

The FBI claimed that between 2012 and 2016 Halkbank participated in illicit transactions totalling $20 billion, including using the proceeds of sales of Iranian oil and gas to buy gold for the benefit of the Iranian government, as well as facilitating transactions fraudulently designed to appear to be purchases of food and medicine by Iranian customers, in order to appear to fall within the so-called “humanitarian exception” to certain sanctions against Iran, when in fact no purchases of food or medicine actually occurred. 

The FBI previously charged nine individual defendants in relation to the allegations. Gold trader Reza Zarrab pleaded guilty to the seven counts with which he was charged in October 2017, and in January 2018 Halkbank deputy general manager Memet Hakkan Atilla was convicted of five of the six counts with which he was charged, following a five-week jury trial. The remaining individual defendants are fugitives.