Turkey's "200 Tons Of Secret Gold" Trade With Iran: The Biggest, Most Bizarre Money Laundering Scheme Ever?

Tyler Durden's picture

The topic of Turkey's Oil-for-Gold 'deals' has not been far from our thoughts over the last few years (here, here, and here) but as Bloomberg reports, after accessing a report leaked on March 14 of a network that spanned Turkey, China, Dubai and Iran, the plot reveals "one of the most complex illicit finance schemes [prosecutors] have seen." It included the classic money-laundering techniques of over-invoicing and false invoicing (exactly as in the case of the Chinese commodity financing scandal underway) but the secret government plan to juice Turkey's exports goes much deeper; and if you think that the exposure of this scheme is slowing Turkey's manipulation, think again. Turkey’s trade balance continues to fluctuate unpredictably as gold stocks flow out of the country in bursts.  “Turkey’s going to continue it,” the Turkish economy minister said. “If those casting aspersions on the gold trade are searching for immorality, they should take a look in the mirror.”

We first started noticing major 'odd' exports of gold from Turkey to Iran in May 2012. But in 2013, with a plunging currency, surging inflation, slowing growth, and specter of rapid QE-driven hot money outflows leaving his nation desperate; Zafer Caglayan, the minister in charge of Turkey's $800 billion economy decided that the only way to ensure success in the looming election... was to cheat...

Bloomberg explains...

...Caglayan described the [trade] gap as unsustainable and said the government would take steps to improve it.

 

What he didn’t mention was a clandestine export-boosting operation started up more than a year before that was helping to solve the trade imbalance.

 

At the time of the television appearance, it was still underway. Three weeks before, Caglayan had been secretly taped by national-police investigators telling his collaborators to find a way to increase exports by at least $1 billion a month. His orders came from the top in a two-hour meeting with Prime Minister Recep Tayyip Erdogan, he told an associate.

 

The operation featured an Iranian-born businessman who liked fast horses, faster cars and the fastest planes. His unique skill: Getting gold into sanctions-encircled Iran. Enough gold that for a time he became the government’s key instrument in improving Turkey’s irksome economic imbalance.

Turkish judges and police were investigating this farce when, as we noted here, the judge in charge of the affair was mysteriously re-assigned (or fired) and in the run-up to March municipal elections this year, the prime minister decried the inquiry as an attempted coup. but their findings were leaked...

How a team that included Turkey’s economy minister sought to manage the current account deficit, as the gap is called, by juicing exports to Iran is laid out in a 300-page document prepared by Turkish investigators in 2013. Caglayan and his collaborators also came away with tens of millions of dollars in bribes, according to the document, which has been cited in parliament by opposition lawmakers.

What the enquiry found is incredible; and makes any economic analysis of Turkey's condition entirely useless...

The surge in exports 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, making the economy appear superficially stronger than it really was, said Atilla Yesilada, Turkey adviser at New York-based GlobalSource Partners Inc., an economic advisory firm.

 

“I don’t know what Caglayan’s motivations were, but he was a huge supporter of the gold trade with Iran,” said Yesilada in a phone interview from Istanbul.

 

“It never made any economic sense. This is not the kind of export that’s associated with a strong economy. What was the purpose of the gold trade with Iran? We’ve never gotten an explanation.”

When the gold trade was foiled by tightening American sanctions starting in July 2013, Sarraf and his collaborators kept exporting. As Bloomberg goes on to discuss, the details are extreme (and often downright idiotic)...

They sent thousands of tons of overpriced -- and sometimes fictitious -- food onto ships steaming between Dubai and Iran, according to the document (very reminscent of the fiasco unwinding in China currently).

 

Smoothing out the complications of this shadowy and complex trade were bribes to Turkish government ministers: multimillion-dollar diamonds, and millions of dollars stuffed into suit bags, chocolate boxes and even shoe boxes, the investigation document says.

 

The covert efforts that Caglayan and his associates undertook eventually swelled to a multi-billion dollar enterprise that reached from Ghana to China, according to the investigation. Tons of gold flowed from Turkey to Iran, much of it via Dubai. That freed up Iranian money trapped in Turkish banks, in turn boosting Turkish exports.

But things did not go according to plan...

While the gold transfers boosted overall exports by almost 13 percent in 2012, to $153 billion, from the previous year, they failed to offset the Turkish appetite for imports, which Caglayan himself once described as an “addiction.” The country ended 2013 with a $65 billion current account gap, almost $20 billion more than in 2012.

And while it's obviously non-economic, the plan was entirely politically motivated...

“All these ploys to demonstrate ever-higher export numbers have no relevance for the real economy,” said Sinan Ulgen, the chairman of the Center for Economic and Foreign Policy Studies in Istanbul. “If you concentrate too much on absolute numbers and don’t think about what those exports actually are and what they mean for the Turkish economy, then you tend to be too complacent about making the right policy choices.”

 

For Erdogan, the buoyancy and reliability of the economy goes to the heart of his promise to Turkish voters.

The leaked document that Erodgan tried so hard to hide, prepared by the Turkish National Police, shows that investigators probed the activities of a cast of characters that was both powerful and dependent upon each other for favors. There have been some arrests (but no politicians)

The first was Sarraf, the Iranian businessman, who changed his name from Reza Zarrab after he took Turkish citizenship in 2007. He and Erdogan were photographed on stage together at one public function, and met at a wedding in Ankara. After Sarraf was arrested in December, Erdogan told reporters that his gold-dealing had “contributed to the country.”

And Serraf gloated patriotically...

Sarraf estimated he had facilitated the transfer of about $12 billion in gold -- about 200 tons -- to Iran. That represented “about 15 percent-15.5 percent of the current account deficit that I closed by myself,” he said. He didn’t say what period he was referencing.

 

“There’s a serious benefit to the Turkish economy with profit that’s gone into state coffers,” he told the interviewer.

 

...

 

The business was certainly lucrative. Sarraf earned a 1.7 percent commission on the exports, according to a person familiar with his finances. He spent it on a lavish lifestyle.

But the bribes and kickbacks run deep...

The second participant was Caglayan, an engineer-turned-industrialist who won election to parliament in 2007.

 

The investigators said he received at least $50 million from Sarraf, some of which he then distributed to others, according to the document. He also received diamonds, a $343,000 watch and a $37,000 piano, according to the document.

and the last part of the puzzle...

The last member of this group was a man familiar to foreign investors: Suleyman Aslan, then-chief executive officer of Turkiye Halk Bankasi AS. Halkbank, as the country’s state-owned bank is known, was where the Iranian government parked payments for natural gas and oil.

 

He also served as an intermediary for instructions from Caglayan to Sarraf, the investigators said.

 

The document says Aslan was to receive $2.7 million in cash from Sarraf. Dropped off in rolling suitcases and stuffed into backpacks, the bribes were code-named “visitors” by Aslan and his wife in text messages.

 

In one exchange intercepted by investigators, Aslan wrote to his wife that he had “hosted five guests. They looked green, green.”

How the plan worked is complex but as Bloomberg explains, to get around restrictions on banking with Iran, Sarraf looked to China...

He and his associates obtained letters of introduction in Turkey and used four front companies in China, which then used Chinese banks as intermediaries in money transfers between Iran and Turkey, according to the document. One, Beijing-based Bank of Kunlun Co. Ltd., was sanctioned by the U.S. Treasury Department in July 2012 for sending as much as $100 million to blacklisted banks in Iran.

 

The document also shows an effort to push through as much gold as possible before July 2013. The U.S. that month added precious metals to the list of items that couldn’t be sold to Iran as part of an effort to curtail that country’s nuclear enrichment program.

 

“The Istanbul prosecutor’s report leaked on March 14 is a damning document that reveals one of the most complex illicit finance schemes I have seen,” said Jonathan Schanzer, a former terrorism finance analyst at the Treasury and now research director at Foundation for Defense of Democracies, a Washington policy institute focused on national security. “The networks spanned Turkey, China, Dubai and Iran. It included the classic money-laundering techniques of over-invoicing and false invoicing.”

 

...

 

“In a month and a half, they’re going to stop the gold,” he said, according to a transcript. “Let’s do a little food. Send it from Moscow, send it from Azerbaijan, wherever you can get a document from -- start right away this week.”

 

Substituting food for gold, and using Dubai as a hub to ship to Iran, proved an ineffective way to make up for the stalled high-value gold exports.

 

But this greed is where they came unstuck as investigators found comedic errors...

“Let’s talk about this wheat issue,” said Mehmet Hakan Atilla, according to the document. “This is a 140,000-ton order. I think it’s a little difficult for a 5,000-ton thing to carry a 140,000-150,000 ton order.”

 

Then he pointed out another difficulty.

 

“The document you sent has the origin of the wheat as Dubai,” said Atilla. “You know, because it’s impossible for wheat to have the origin of Dubai.” Dubai is in a desert.

This revelation will likely lead to further uprisings...

“No one is innocent in this situation. In Turkey, unfortunately, people’s lives have been mortgaged through techniques of surveillance,” said Sen in an interview in his office this month, referring to the taping and release of private conversations. “The government was complicit: It never spoke out against these things, and it let them happen.”

Especially as there is no consequences...

Sarraf was released on Feb. 28. His access to $18 million in liquid assets that had been frozen was restored after the prosecutor said there was no evidence to probe the charge. He still awaits trial.

 

Caglayan remains a member of parliament. A commission established to probe corruption allegations against him and three other lawmakers stumbled when Erdogan’s party failed to nominate anyone to sit on it.

And Turkey appears to happily going along doing the same thing...

Turkey’s trade balance continues to fluctuate unpredictably as gold stocks flow out of the country in bursts. In March, unidentified exporters sent $1.3 billion of gold to Switzerland, making the country Turkey’s top export destination. The following month the trade practically disappeared, with exports dropping 96 percent to $52 million.

Simply put - trust no one and nothing; gold is money; and the poeple are growing restless from this constant skimming, manipulation, and graft by the elites - see Ukraine (and more aware - no matter how many times you kill Twitter)

Read more here at Bloomberg