While long forgotten for some, in the summer of 2014, we reported in detail on what appeared to be the biggest, most bizarre money-laundering scheme ever, involving Turkey trading "200 tons of secret gold" with Iran...
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...
A farcical domestic investigation was undertaken and while the judges and officials who probed the money laundering scheme were either fired or reassigned, the findings in their report were leaked.
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.”
Then, three years later, Bloomberg reports that Zarrab - the gold trader accused of helping Iran evade sanctions - invoked the name of Turkey’s president, Recep Tayyip Erdogan, as part of a scheme that U.S. prosecutors say was supported by Turkey’s government, according to court documents.
U.S. prosecutors in New York have gathered taped conversations and other records that suggest the trader may have sought support from Erdogan.
The Turkish president hasn’t been accused of wrongdoing, and it’s possible that the trader falsely invoked Erdogan’s name to influence others.
The people charged in the case are captured in the recorded conversations, which were introduced in a filing in federal court in Manhattan.
The documents introduced in the sanctions and money-laundering case against the Turkish-Iranian gold trader, Reza Zarrab, could further complicate the relationship between the U.S. and Turkey, a majority-Muslim country long considered a crucial ally in the region.
And now, just days before he's scheduled to go on trial (on Monday), Bloomberg reports that no one is sure where Reza Zarrab is as he is no longer in the US prison system.
Zarrab stands accused of helping Iran evade U.S. sanctions and bribing senior Turkish officials and bank executives.
Anticipation is building from Istanbul to Washington about possible revelations in a case shrouded in mystery and stocked with surprises.
Right now, though, there is a simpler question: Where is Zarrab?
Jailed in grim New York City lockups last year after U.S. authorities seized him en route to a family vacation at Disney World, he is no longer behind bars there.
A lawyer for his accused accomplice says Zarrab has stopped participating in his defense.
Has he decided to cooperate with U.S. prosecutors and tell what he knows about alleged corruption at the highest reaches of the Turkish government?
And the Turkish government wants to know: Is he safe?
Some insight may come during a pretrial hearing on Thursday. Last week, the inmate registry for the U.S. Bureau of Prisons suddenly said Zarrab had been released.
Two people familiar with the case said Zarrab remains in U.S. custody although not in a federal jail.
That sometimes happens when a defendant has agreed to serve as a government witness. Prosecutors and Zarrab’s lawyers have declined to comment in recent days.
Investors and the average joe appears concerned at how this trial ends (or begins), as Turks horde gold at a record pace...
And Turkish bond yields soar to record highs...
“The Zarrab case is the one to watch in terms of U.S.-Turkey relations,” Tim Ash, a London-based strategist for BlueBay Asset Management LLP, said in an email to clients.
“Zarrab is thought to have been close to the Erdogan family and, indeed, he was given Turkish citizenship, alongside Iranian. This is a real stress point."
As Bloomberg notes, Erdogan tried to pressure U.S. officials during the Barack Obama and Donald Trump administrations to drop the prosecution of the trader and has complained in public comments that prosecutors were trying to extract a confession from Zarrab and turn him into an informant. He also claimed President Trump apologized for the prosecution in a phone call.
“Erdogan clearly has a strong personal interest in Zarrab’s case, as he has raised it at the highest levels of both the Obama and Trump administrations,” said Amanda Sloat, a senior fellow at the Brookings Institute and former State Department official overseeing U.S.-Turkey relations.
“U.S. judicial proceedings could also hurt the Turkish economy. Since much of Erdogan’s popularity resulted from his successful economic reforms, his domestic political support would be undermined by a downturn.”
Ultimately, the case is a test of U.S.-Turkish relations, already at one of the lowest points in the countries’ longstanding alliance, with analysts questioning how close the charges might get to Erdogan himself.