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Turkish bank case showed Erdogan’s influence with Trump

  • NEW YORK TIMES / 2018
                                President Donald Trump chats with President Recep Tayyip Erdogan of Turkey at the NATO summit meeting in Brussels.

    NEW YORK TIMES / 2018

    President Donald Trump chats with President Recep Tayyip Erdogan of Turkey at the NATO summit meeting in Brussels.

WASHINGTON >> ​Geoffrey Berman was outraged.

The top federal prosecutor in Manhattan, Berman had traveled to Washington in June 2019 to discuss a particularly delicate case with Attorney General William Barr and some of his top aides: a criminal investigation into Halkbank, a state-owned Turkish bank suspected of violating U.S. sanctions law by funneling billions of dollars of gold and cash to Iran.

For months, President Recep Tayyip Erdogan of Turkey had been pressing President Donald Trump to quash the investigation, which threatened not only the bank but potentially members of Erdogan’s family and political party. When Berman sat down with Barr, he was stunned to be presented with a settlement proposal that would give Erdogan a critical concession.

Barr pressed Berman to allow the bank to avoid an indictment by paying a fine and acknowledging some wrongdoing. In addition, the Justice Department would agree to end investigations and criminal cases involving Turkish and bank officials who were allied with Erdogan and suspected of participating in the sanctions-busting scheme.

Berman didn’t buy it.

The bank had the right to try to negotiate a settlement. But his prosecutors were still investigating key individuals, including some with ties to Erdogan, and believed the scheme had helped finance Iran’s nuclear weapons program.

Six months earlier, Matthew Whitaker, the acting attorney general who ran the department from November 2018 until Barr arrived in February 2019, rejected a request from Berman for permission to file criminal charges against the bank, two lawyers involved in the investigation said. Whitaker blocked the move shortly after Erdogan repeatedly pressed Trump in a series of conversations in November and December 2018 to resolve the Halkbank matter.

The president’s apparent eagerness to please Erdogan has drawn scrutiny for years. So has the scale and intensity of the lobbying effort by Turkey on issues like its demand for the extradition of one of Erdogan’s political rivals, a Turkish religious leader living in self-imposed exile in the United States. Erdogan had a big political stake in the outcome because the case had become a major embarrassment for him in Turkey.

At the White House, Trump’s handling of the matter became troubling even to some senior officials at the time.

The president was discussing an active criminal case with the authoritarian leader of a nation in which Trump does business; he reported receiving at least $2.6 million in net income from operations in Turkey from 2015 through 2018, according to tax records obtained by The New York Times.

And Trump’s sympathetic response to Erdogan was especially jarring because it involved accusations that the bank had undercut Trump’s policy of economically isolating Iran, a centerpiece of his Middle East plan.

“He would interfere in the regular government process to do something for a foreign leader,” John Bolton, Trump’s former national security adviser, said in a recent interview. “In anticipation of another favor from that person down the road.”

In the case of Halkbank, it was only after an intense foreign policy clash between Trump and Erdogan over Syria last fall that the United States would proceed to lodge charges against the bank, though not against any additional individuals. Yet the administration’s bitterness over Berman’s unwillingness to go along with Barr’s proposal would linger and ultimately contribute to Berman’s dismissal.

This account is based on interviews with more than two dozen current and former Turkish and U.S. government officials, lobbyists and lawyers with direct knowledge of the interactions. Representatives for the Turkish government, Halkbank and the White House declined to comment.

The Halkbank Campaign

Turkey’s lobbying campaign had started before Trump took office.

During a one-day visit to the country in August 2016 by Vice President Joe Biden, the Turkish president pulled Biden aside for a private conversation, according to an aide to the vice president.

The investigation of Halkbank, Erdogan claimed, was a “big conspiracy” instigated by his rival Fethullah Gulen, a charismatic Muslim cleric. Gulen left Turkey in the late 1990s and moved to Pennsylvania where, in Erdogan’s telling, he plotted an unsuccessful coup attempt just a month earlier.

Erdogan asked Biden to remove Preet Bharara, then the U.S. attorney for the Southern District of New York. That office was in the early stages of an investigation into Halkbank and had already indicted a Turkish Iranian gold trader, Reza Zarrab, for helping to orchestrate the sanctions evasion scheme. And Erdogan wanted Zarrab released and allowed to return to Turkey.

“If the president were to take this into his own hands, what would happen would be, he would be impeached for violating the separation of powers,” Biden said, with Erdogan at his side.

The Turkish president did not give up. He again raised Halkbank with Biden and then twice with President Barack Obama.

Trump’s election brought an immediate shift in Turkey’s outreach effort. The Trump family had helped build Trump Towers Istanbul, a successful residential and retail complex that attracted Erdogan to its ribbon-cutting in 2012. In Turkey, there was confidence that Erdogan’s agenda would now win attention and support at the highest levels of the U.S. administration.

But the investigation by the federal prosecutors in Manhattan ground ahead. By early 2018, it had led to the indictments of nine defendants, including Turkey’s former economy minister and three Halkbank officials, on charges such as bank fraud and money laundering related to the sanctions evasion scheme.

One defendant, Mehmet Hakan Atilla, the bank’s deputy general manager for international banking, was tried and, in January 2018, convicted.

Zarrab, the gold trader, had pleaded guilty and testified about how the scheme had relied on false documents and front companies and how he had paid millions of dollars in bribes to the economy minister and Halkbank’s general manager. He also testified that the operation had Erdogan’s knowledge and approval as well as that of Erdogan’s son-in-law, Berat Albayrak, who now serves as Turkey’s finance minister.

Halkbank’s lawyers held repeated talks in 2018 with Berman’s office over whether a “global settlement” could be reached. But the two sides were far apart.

The prosecutors said they were prepared to allow the bank to avoid indictment if it agreed to pay a heavy fine, reform its operations and make a series of admissions about its conduct. But the bank’s lawyers argued that Halkbank and its executives had done nothing wrong, that they had been deceived by Zarrab and that his testimony was untrue. They said the bank would not make the required admissions.

There were indications by then that Turkey’s arguments were being heard in Washington.

Treasury Secretary Steven Mnuchin raised concerns about how large a fine might be imposed on Halkbank. A prospective billion-dollar fine could threaten the future of Halkbank.

In 2018, Mnuchin reached out about the scale of a potential fine to Jeff Sessions, the attorney general at the time. Justice Department officials then asked Southern District prosecutors whether the size of the fine they were demanding was negotiable, one lawyer involved in the effort said. The response was affirmative: The amount was less important than securing an admission of wrongdoing.

‘This Is Not How We Do Things at the Southern District’

On the second day of a trip to Buenos Aires, Argentina, in late 2018 for the annual Group of 20 gathering of world leaders, Trump met with Erdogan for talks intended to be focused on issues like continued tensions over Islamic State group operations in Syria.

But the conversation quickly went off course.

Erdogan made clear that he was frustrated with the continued pestering by Southern District prosecutors concerning Halkbank, and he wanted Trump to intervene to help wrap up the investigation.

Two weeks later, in mid-December 2018, Trump and Erdogan spoke by phone. The president began by assuring Erdogan that the government and Halkbank were close to a resolution, according to Bolton.

Bolton said in the interview that his concern, as he listened to these conversations, was that Turkey and Halkbank now “had a direct channel in the Oval Office — they weren’t going to negotiate in good faith” with the prosecutors.

The prosecutors in Manhattan had just drafted a memo for Whitaker and Rod Rosenstein, the deputy attorney general, detailing why the Justice Department should give them the authority to file criminal charges against the bank, two lawyers said.

Rosenstein was convinced that the evidence was compelling. The memo from the prosecutors also noted that the actions Halkbank was accused of taking were helping to support Iran’s economy, which was antithetical to Trump’s foreign policy goal of tightening economic pressure on the country.

Rosenstein urged Berman to come to Washington to present the Southern District’s argument to Whitaker.

Berman arrived at the Justice Department headquarters and reported to Rosenstein’s office. But shortly before the meeting was to begin, Rosenstein was summoned to Whitaker’s office without Berman.

Whitaker told Rosenstein that he did not want the case to move forward and that he wanted the matter shut down. Whitaker cited concern that charges against the bank might result in a threat to U.S. forces in Syria, a suggestion that others in the department said they found hard to understand.

Justice Department officials decided to ignore Whitaker’s edict, concluding that they most likely would outlast Whitaker in the department.

Barr was confirmed as the new attorney general in mid-February 2019, a few months after Whitaker had pushed to end the case. The prosecutors in Manhattan were encouraged that they might now get the charging authority they wanted.

But Erdogan and his top advisers continued to lobby Trump and members of his Cabinet, including Mnuchin and now Barr.

In mid-June 2019, when Berman met with Barr in Washington, the attorney general pushed Berman to agree to allow the Justice Department to drop charges against the defendants and terminate investigations of other suspected conspirators.

The suggestion that the Justice Department would offer Turkish officials protection from criminal charges, even without their agreement to assist in the investigation, was unacceptable and unethical, Berman argued. Justice Department policy specifically says that criminal conduct by individuals is not resolved when a company admits wrongdoing.

“This is not how we do things at the Southern District,” Berman told Barr, adding that he would not agree to such a move and that his office would not be part of it.

Last October, Erdogan sent troops into Syria. Trump, who had initially given Erdogan the green light to do so, then faced an intense bipartisan backlash, leading him within days to take a tougher line with Turkey, threatening economic reprisals.

On Oct. 15, the Justice Department gave the prosecutors in Manhattan approval to file charges against Halkbank, a direct slap at Erdogan.

The prosecutors rushed to present evidence before a grand jury and secured a six-count indictment that same day charging Halkbank with money laundering, bank fraud and conspiracy to violate the Iran sanctions.

In June, eight months after the indictment was returned, Trump fired Berman. Justice Department officials cited his handling of the Halkbank matter, including his blocking of the proposed global settlement, as a key reason for his removal.

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