USA Against Reza Zarrab

The chronicle of what has happened inside and outside a United States courtroom leading up to the historic trial

It was September 25, 2017. Room 17B of the Southern District courthouse in New York was not as crowded as it usually was. The pre-trial phase of the US sanctions evasion case against Reza Zarrab had been going on for over 17 months. Most American journalists following the case had diverted their attention to other trials. As a result, the jury seats that were reserved for the American media were mostly empty. I quickly took the seat closest to the defendant. During the previous hearings, I could only see the back of Zarrab’s head covered with thick, black hair. For the first time, I was going to look at him in the eye.

The courtroom was intimidating. The yellow carpet that covered the entire floor felt like quicksand capable of swallowing all that dared to step on it. Tall, wooden panels covered the walls. At the far end of 17B, was the judge’s seat with an unusually high headrest. The seat stood on an elevated platform. The only thing above the judge was a single-headed American eagle hung on the wall. All else was below.

Suddenly, a side door opened and Reza Zarrab, 34, entered the courtroom in a beige, short-sleeve jail uniform. His hair was bowl-cut and beard trimmed. As he walked towards his seat, I noticed that his feet were shackled.

Gold trader Reza Zarrab, a citizen of both Turkey and Iran, 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 indictment, Zarrab’s maximum potential sentence currently exceeds a century.

The case that was known as USA v. Reza Zarrab et al. — until last week–­­­– 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 have been added as co-defendants. Moreover, the US prosecutors have cited a 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. 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. 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 to the Turkish daily Hurriyet 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 the 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.

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. 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, thereby bringing the case into US jurisdiction. 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. 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 the Turkish deputy prime minister as well as the new economy minister, since the gold exports had helped Turkey reduce its current account deficit.

2013 was the year the tides began to turn for Reza Zarrab. It was the beginning of the end of years of wealth accumulation and jet setting. Zarrab’s involvement in a corruption probe that cost four Turkish cabinet members their jobs and that reached President Erdogan’s son was only one of the year’s dramatic events. The other one had to do with Iranian politics.

In June 2013, Hassan Rouhani succeeded Mahmoud Ahmadinejad, as Iran’s president. 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. 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.

One of the most prominent middlemen was Babak Zanjani. On March 6, 2016, he was sentenced to death in Iran for withholding “billions in [Iranian] oil revenues channeled through his companies,” according to the BBC. Ipek Yezdani of Hurriyet reported that 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. Zarrab had denied on TV that he was partners or friends with Zanjani. In an interview with Al-Monitor, the Iranian member of parliament Soltani said that Zarrab chose to be detained in the US instead of being caught in Turkey and extradited to Iran. Turkey could have extradited Zarrab because — unlike the US — Turkey has an extradition treaty with Iran.

On March 19, 2016, Reza Zarrab boarded a Turkish Airlines plane in Istanbul with his wife Ebru Gundes, a Turkish pop star, their five-year-old daughter and her nanny. According to Zarrab’s WhatsApp messages submitted to the US court as evidence, the family seems to have been on their way to Disney World in Orlando, Florida.

The defendant had been planning his trip at least since March 14. On that day he WhatsApp messaged one of his employees, whom the US attorney has nicknamed Adem Turkey, asking for the best scuba diving spots in America. Adem Turkey recommended that Zarrab spends a few days in Miami and the Keys before making his way to the theme park in Orlando. In order to plan more precisely, the confidant asked for the length of his employers stay. Zarrab changed the subject.

Little did Adem Turkey know that US federal agents were waiting for Zarrab at the Miami International Airport. Tolga Tanis, Hurriyet’s Washington correspondent at the time, reported that there had been a sealed indictment with Zarrab’s name listed as a defendant, since December 2015. As soon as the plane took off from Istanbul, the American authorities knew that Zarrab was heading their way due to the passenger information exchange between Turkey and the US.

TK 77 landed in Miami at around 9 pm, local time. According to a memorandum submitted to the US court by Zarrab’s lawyer, the defendant proceeded to passport control and declared that he was carrying $104,000. Later, customs agents directed him to a separate room with his family. Both Zarrab and his wife were asked to hand in their iPhones. At this point, the agents separated Zarrab from his family and took him to an isolated room. Two days later Zarrab appeared at a federal court in Miami and was detained. President Erdogan later commented 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.”

After spending 25 days at the Federal Detention Center in Miami, Reza Zarrab started the road trip that would eventually take him to New York, reported correspondent Razi Canikligil. On April 27, 2016, Zarrab was arraigned at a federal courthouse in Manhattan. He pleaded not guilty. During the arraignment, Judge Richard Berman, who reminded me of Dustin Hoffman perhaps with shorter grey hair and thick-framed glasses, mentioned that he had attended a symposium about the rule of law in Turkey and that he found Istanbul to be a “fantastic” city. The judge who frequently checked his manicure while asking questions added that the event was co-sponsored by the United Nations Local Compact and by a Turkish law firm called Yuksel Karkin Kucuk. It was not immediately obvious why Berman was being so specific about his time in Istanbul. The reason was going to become crystal clear in the months ahead…

After his disclosure, 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 it 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,” reads a portion of the letter.

Until his bail hearing, Zarrab spent 35 days in jail. In the meantime, his lawyer Benjamin Brafman came up with a bail package. The proposal included a $50 million bond, the defendant’s surrendering all three of his passports, and GPS monitoring. Brafman envisioned that armed private security would keep a watchful eye on the defendant as Zarrab lived on the 15th 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.

Benjamin Brafman was disappointed by the decision. After all, the short, animated criminal defense attorney with a wide forehead and long, silver hair is one of the most prominent lawyers in New York, according to Ben Weiser of the New York Times. He has defended numerous high profile clients ranging from rapper Puff Daddy to former International Monetary Fund chief Dominique Strauss-Kahn. Brafman’s most recent celebrity client is the Hollywood producer Harvey Weinstein who has been accused of sexual assault.

USA v. Zarrab et al. brought a peculiar set of challenges and Brafman needed more help than what he already had. Less than two weeks after the bail decision, the number of attorneys defending Reza Zarrab began to grow. A total of 15 defense lawyers undersigned a memorandum of law dated July 18, 2016. “Turkish Gold Trader Builds a Dream Team of Defense Lawyers,” wrote the New York Times. Paul D. Clement, former solicitor general of the United States, Viet D. Dinh, a former assistant attorney general and a close friend of Preet Bharara, and William A. Burck, a former White House deputy counsel joined the “Dream Team.”

On July 19, 2016, the team filed a motion to dismiss the indictment. As written in the memorandum to the court, the main argument is that the US has no jurisdiction over the alleged offenses related to sanctions law. “This is a prosecutorial overreach of the first order,” write the defense attorneys. Appendix A of the memorandum in support of the motion includes tables with 36 cases comparable to USA v. Zarrab. The tables show that when the defendant of those cases is a non-US person, the incriminating trade activity has always taken place in the US. However, 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. At the US Department of Treasury, Goldman worked on the development of Iran sanctions policy.

As the legal battle in New York continued, Turkey was suffering through the aftermath of a failed coup that cost the lives of over 240 people. On July 15, 2016, factions of the Turkish military attempted to take over the government. Fighter jets bombarded the Turkish parliament while some soldiers opened fire at waves of protestors. It took 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.

Even though Gulen denied any involvement in the coup, Erdogan believes that the plotters were the cleric’s followers. The government declared a state of emergency and the purge began. According to the Wall Street Journal, after the coup attempt, approximately 100,000 public servants with alleged ties to Gulen have either been suspended or sacked, over 32,000 people have been detained, dozens of media outlets closed and businesses seized.

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. Hurriyet reports that four lawyers were arrested. However, Cuneyt Yuksel and Murat Karkin, the partners who gave the company its former name had left the country the day before. The law firm was called Yuksel Karkin Kucuk.

During Reza Zarrab’s initial appearance in New York, Judge Richard 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 accommodation and flights in Istanbul, 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 Recep Tayyip Erdogan made blunt comments regarding USA v. Reza Zarrab et al. According to Hurriyet Daily News, “…the US Department of Justice handed Zarrab over to names which FETO (pro-Fethullah Terrorist Organization) had wined and dined,” he said. The President was referring to Preet Bharara, as well as Judge Berman. Bharara who is currently being investigated by Turkish authorities denied any links to Fethullah Gulen, according to Dogan News Agency. “After all, we have to seek justice for he (Zarrab) is our citizen,” Erdogan added.

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. The defense’s motion is untimely because it has been four months after the arraignment and even an early trial date has been selected, adds Berman. Following the court’s decisions regarding bail and dismissal, this denial was the third legal blow to Reza Zarrab.

November 8, 2016 was a shocking day for the world. Contrary to most forecasts, Donald J. Trump was elected the 45th President of the United States. Recep Tayyip Erdogan’s camp received the change in American leadership enthusiastically, since Erdogan’s relationship with the Obama administration had decayed due to various issues. Moreover, the previous administration had not been particularly helpful with regards to Reza Zarrab. Vice President Joe Biden neither had the case dismissed nor had the responsible US attorney fired. Perhaps President Trump could change the status quo. President Erdogan would mention the case to his counterpart at their first meeting.

The Erdogan administration’s first indirect contact with the Trump campaign dates back to August 9, 2016, according to the New York Times. On this day Inovo, a firm with links to President Erdogan, signed a pro-Turkey lobbying contract with Michael Flynn, a Trump campaign aid and later national security advisor. Flynn resigned after serving under President Trump for just 24 days.

A few weeks after Flynn’s resignation, President Erdogan met Rudolph Giuliani, former New York mayor and Trump confidant. According to court documents, Giuliani was seeking a diplomatic solution to the Zarrab issue. On March 11, 2017, Donald Trump fired Preet Bharara, the US attorney responsible for Zarrab’s prosecution. Just over two weeks after that, Giuliani officially joined Zarrab’s defense team.

On the same day Giuliani became Zarrab’s lawyer, there was another major development. A previously unknown co-defendant was arrested at JFK Airport. Mehmet Hakan Atilla, 47, was the deputy CEO of Turkish state-owned Halk Bank. The prosecutors accuse him of helping Zarrab coordinate his sanction evasion schemes. For instance, in July 2013, Zarrab attempted to transfer the proceeds of Iranian oil sales deposited at Halk Bank to Dubai claiming that they would be used to send food to Iran. The sanctions allowed the proceeds to be used to buy food and medicine for Iran. However, Zarrab told Atilla that he would be claiming to carry 140 tons of food on five-ton wooden ships, according to the last indictment. Although Atilla said “that’s not physically possible,” the Halk Bank Deputy CEO was fine with it as long as Zarrab could provide customs documents. Two days after Atilla’s arrest, Halk Bank stocks suffered their biggest one-day loss, Reuters reports.

Atilla and Zarrab began to appear in court side by side. On September 25, they were sitting only a few seats apart. Even though Zarrab was closer to me, I could clearly see Atilla too. His graying hair was wavier and better styled than Zarrab’s. Unlike his co-defendant’s beige uniform, Atilla was wearing a blue, short-sleeve uniform, which indicated that they were staying at separate jails. They were both shackled.

Frankly, nothing interesting happened during that status conference. Its significance would become apparent in about a month when Zarrab’s lawyers started missing document filing deadlines. On October 30, Atilla’s lawyer stated that his client may be the only defendant who appears at trial. Neither Zarrab nor his lawyer attended the final pre-trial conference. Hence, the unremarkable September 25 status conference became the last time the two appeared in court together as co-defendants.

Where was Reza Zarrab? On November 8, the US Federal Bureau of Prisons website showed that Zarrab was released. According to the Turkish Foreign Minister Mevlut Cavusoglu, Turkey asked the United States for clarification regarding Zarrab’s status. A few days later, the US attorney’s office assured the public that he was still under custody. One of Zarrab’s Turkish lawyers told Hurriyet that she had not been able to speak with her client in days. 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.”

On October 26, Zarrab had secretly plead guilty in exchange for a lighter sentence, and started to cooperate with the prosecution. The former defendant has become a powerful witness against numerous people ranging from Michael Flynn (who is under a federal investigation that encompasses his dealings with Turkey, according to NBC News) to members of President Erdogan’s inner circle. Moreover, as Zarrab’s testimony continues to implicate 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 10% 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/political earthquake.

With Zarrab as key witness and Atilla as the sole defendant, the trial has begun on November 28. 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. I wonder… As Reza Zarrab was boarding that plane to take his daughter to Disney World, did the young gold trader realize his global importance?