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Turkish government attempts to mitigate Zarrab scandal fallout

By Patrick Higgins  |  07/12/2017 15:03
The Turkish government has announced any measures necessary will be taken to protect Turkish banks and the overall Turkish banking system against any possible international sanctions in the wake of the fallout from the Reza Zarrab scandal Turkish Finance Minister Naci Agbal made the comments today in Ankara in an attempt to soothe investor worries about the potential for fall-out from the trials of both Reza Zarrab and Mehmet Hakan Atilla.

Reza Zarrab, an Iranian-Turkish gold trader, was arrested in 2016 for orchestrating a gold-for-oil scheme with Iran; a scheme created to help Iran circumvent the-then stringent US sanctions in place due to Iran's nuclear development programme. He has been officially on trial in New York since last week, and his court testimonies have been scathing. Mr. Zarrab stated that he gained over $150 million from his involvement in the scheme, and revealed to the court that Turkish President Erdogan personally ordered the participation of two Turkish banks in the plan back in 2012. Additionally, Mr. Zarrab admitted to the court that starting in 2012 he began paying then-Turkish Economy Minister Zafer Caglayan tens of millions of dollars in bribes for his complicity in the scheme. In regards to the tangent matter Mr. Atilla, Mr. Zarrab's associate who worked as an executive for Halkbank and was arrested at the beginning of 2017, was implicated for assisting the bank in disguising the transfers of gold to Iran as legitimate transactions.

Initially, Mr. Zarrab was to have been tried alongside Mr. Atilla but pleaded guilty secretly back in October to secure a leniency agreement with the US government. This scandal has rocked the Turkish financial system and has led President Erdogan to point fingers at various behind-the-scenes figures in the US government for conducting a "conspiracy," against Turkey. Interestingly, Erdogan does not believe that Trump has a hand in the Zarrab affair, but instead blames leftover officials from the Obama administration for the current course of events.

In regards to the current matter at hand, it is precisely because of the subsequent fallout from the trials of Reza Zarrab and Mehmet Atilla that has international financiers increasingly concerned over the potential frailness of the Turkish financial systems. These concerns are oriented primarily towards the prospect of more Turkish banks being implicated in the scheme due to Mr. Zarrab's court testimonies. Therefore, Mr. Agbal said the government was prepared to take all steps necessary to ensure the stability of the banking system, as well as to limit volatile forex trades. This last point is critical, as the Turkish lira has fallen drastically since the attempted coup in Turkey last year. However, with the Zarrab trial still ongoing, what more potential involvements to be revealed have yet to be seen.

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