October 24,2019

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Wyden Launches Investigation Into Halkbank Scandal

Wyden requests information about whether Secretary Mnuchin’s conversations with President Trump were about criminal investigation into Turkish state-owned bank

Washington, D.C. – Senate Finance Committee Ranking Member Ron Wyden, D-Ore., today launched an investigation into the lapses in administration and financial oversight that resulted in the indictment of Halkbank, the Turkish bank facing criminal charges for a multi-billion dollar scheme to evade U.S. sanctions on Iran.

Wyden is examining Secretary Mnuchin’s reported conversations with President Donald Trump, Turkish officials and Treasury Department officials about Halkbank, including whether he was directed by the president to intervene in the Southern District of New York’s investigation.

Wyden is also examining the relationship between Halkbank and leading financial institutions, Deutsche Bank, Bank of America, JP Morgan Chase, Citibank, HSBC, Standard Chartered, UBS and Wells Fargo.

“Halkbank is at the center of the ongoing scandal surrounding President Trump, Rudy Guiliani and President Erdogan. They all appear to have been working toward the same goal of preventing criminal prosecution of the bank. Congress needs to get to the bottom of why the president and his personal lawyer were carrying water for a state-owned Turkish bank, and Secretary Mnuchin is a key witness in the matter,” Senator Wyden said. “In addition, Halkbank exploited U.S. financial institutions to allegedly evade sanctions and it’s important to know how loopholes in anti-money laundering laws could be improved to prevent similar future crimes.”

Full text of the letter to Secretary Mnuchin follows:

October 24, 2019

The Honorable Steven Mnuchin

Secretary of the Treasury

U.S. Department of the Treasury

1500 Pennsylvania Ave. NW

Washington, DC 20220

Dear Secretary Mnuchin:

I am writing to you concerning troubling reports regarding your involvement with the Administration’s treatment of Turkey’s state-owned bank Halkbank and U.S. law enforcement investigations into the bank’s efforts to aide Iran in circumventing U.S. economic sanctions. Bloomberg recently reported that in April 2019, President Trump instructed you, along with Attorney General Barr, to address Turkish President Recep Erdogan’s requests that state-owned bank Halkbank avoid charges for evading sanctions against Iran.  The President’s instructions reportedly came after a call that month with Erdogan.   In addition, the New York Times recently reported that Turkish officials appealed directly to you over actions related to Halkbank,  and in April 2019 you met with the Turkish finance minister in the Oval Office, along with the President and Jared Kushner.  

These reports are part of a larger story highlighting President Trump’s efforts to accommodate the intense pressure campaign by the Turkish government to get investigations into Halkbank dropped.   In 2017, President Trump reportedly asked Secretary of State Tillerson to pressure the Justice Department to drop the case against a co-conspirator in the Halkbank-assisted sanctions evasion schemes, Reza Zarrab, who had an office in Trump Tower Istanbul and was a client at the time of the President’s attorney Rudy Giuliani.

Although Halkbank was eventually charged in the Southern District of New York in a six-count indictment related to the bank’s participation in a multibillion-dollar scheme to evade U.S. sanction on Iran on October 15, 2019,  these charges came just days after the Turkish invasion of northern Syria and the resulting political backlash.  I am concerned that absent these actions by the Turkish government, the Administration’s interference in favor of Turkey’s Halkbank requests could have undermined years of effort by U.S. law enforcement, and may still do so.  Yesterday, the President lifted all sanctions against Turkey.

U.S. officials, including those at Treasury, have been pursuing misconduct at Halkbank for a number of years.  According to the October 15, 2019, indictment, U.S. authorities were investigating Halkbank’s role in transactions related to Iran at least as early as 2012.   In February 12, 2013, Treasury officials, including the then-director of OFAC, met with Halkbank officials in Turkey and warned the bank against involvement in schemes to evade sanctions against Iran.   In 2016 and 2017, the Justice Department brought indictments against Halkbank officials and other co-conspirators related to the schemes to circumvent those sanctions.

In March 2016, the Justice Department unsealed an indictment against Zarrab for conspiring to evade sanctions against Iran.  In March 2017, Mehmet Hakan Atilla, Deputy General Manager for International Banking at Halkbank, was charged in the same scheme with Zarrab as a co-conspirator.  Zarrab later testified that he and Atilla, had conspired to evade sanctions, and funnel Iranian oil profits back to the country through complex gold purchases disguised as money transfers. 

In September 2017, federal prosecutors charged former Turkish economy minister Mehmet Zafer Caglayan with directing, among others, officers at a state-owned bank to conceal activity related to the evasion of sanctions, and included in that indictment were former general manager at Halkbank, Suleyman Aslan, and former assistant deputy manager at Halkbank, Levent Balkan.  In January 2018, Atilla was convicted for his role in the scheme, and it was reported that prosecutors in the case described Halkbank as critical to the success of the operation. 

Around the time of Zarrab’s trial, in October 2017, you reportedly said after conversations with Turkish officials, that you “did not have specific conversations on sanctions.”  At the time, however, the administration was leveling new sanctions against Iran, with OFAC adding entities and individuals to the SDN list. 

Throughout 2018, it appears that the Turkish Government never thought it was in any real danger of fines or charges against Halkbank. In August of 2018, the Turkish finance minister said Turkey wasn’t expecting any fines.  In September 2018, the finance minister said that OFAC had been properly informed of Halkbank’s Iran trade.  And in November 2018, the finance minister said that he had a “positive meeting” with you regarding Halkbank. 

However, reporting indicates that during this period in 2018, OFAC was continuing to investigate Halkbank. Halkbank reportedly responded to a subpoena, and its response being deemed insufficient. It was also reported that Turkey and the U.S. government were in “prolonged negotiations over a major fine against Halkbank.  It was up to Treasury to determine a regulatory penalty after the conviction of Atilla in January 2018.

Given the above please answer the following: 

  1. Identify the Turkish officials you met with in October 2017 and describe the nature of the conversations you had with them, including whether or not you discussed U.S. efforts to enforce sanctions against Iran and whether or not you discussed the U.S. Government’s investigations of Halkbank.
  2. Identify the Turkish officials you met with in November 2018 and describe the nature of the conversations you had with them, including whether or not you discussed U.S. efforts to enforce sanctions against Iran and whether or not you discussed the U.S. Government’s investigations of Halkbank.
  3. Identify the Turkish officials you met with at the White House in April 2019 who reportedly appealed directly to you over actions related to Halkbank,  and describe the nature of the conversations you had with them, including whether or not you discussed U.S. efforts to enforce sanctions against Iran and whether or not you discussed the U.S. Governments investigations of Halkbank.
  4. Identify any other meetings or conversations you have held with Turkish officials since your confirmation, identify the participants in those conversations and meetings, and the nature of those discussions including whether or not they included Halkbank.
  5. Did President Trump, or did anyone at his direction, ask you in April 2019 or at any other time to handle, intervene, or otherwise engage with Turkish concerns related to Halkbank, or with Halkbank generally?  If so, when where you asked to engage in these matters and what where you asked to do?
  6. Did you have any involvement with Halkbank or any Halkbank Treasury actions, by OFAC or another other office or agency, such as reviews of compliance Iran sanctions by Halkbank?
  7. Did Treasury initiate an investigation, or work towards determining a fine for Halkbank, and if so when? Did OFAC come to any conclusions of fact or determine any figure for a potential regulatory fine?
  8. Did you ever appeal directly to the Justice Department, at any level, on behalf of Halkbank?

Full text of the letter to Deutsche Bank, Bank of America, JP Morgan Chase, Citibank, HSBC, Standard Chartered, UBS and Wells Fargo follows:

                                                                                                October, 24 2019

Mr. Thomas H. Patrick Jr.

Chief Executive Officer

Deutsche Bank Americas Holding Corp.

60 Wall Street

New York, NY 10005

Dear Mr. Patrick: 

On October 15, 2019, Turkish state bank Halkbank was charged with fraud, money laundering, and sanctions evasion related to the bank’s participation in a multibillion-dollar scheme to evade U.S. sanctions on Iran.   This indictment comes in the wake of related charges by the Department of Justice against nine individual defendants, including bank employees, the former Turkish Minister of the Economy, and other participants in the scheme.

According to court documents, Halkbank directly and indirectly allowed the Government of Iran and sanctioned entities to circumvent the prohibition on their access to the United States financial system by using front companies located in third countries like Turkey and the United Arab Emirates, the creation of falsified invoices, and the transmission of false and/or incomplete wire payment instructions.

Through this scheme, Halkbank and the co-conspirators concealed from U.S. financial institutions that international financial transfers appearing to be on behalf of Turkish and Emirati counterparties were, in fact, on behalf of and for the benefit of the Government of Iran and sanctioned entities. The co-conspirators caused numerous U.S. financial institutions to violate U.S. sanctions by causing them to unknowingly conduct these international financial transactions through U.S. correspondent accounts located in New York and elsewhere, and export financial services to the Government of Iran and to agents or affiliates of the Iran Revolutionary Guard Corps. 

Although not specifically identified in the indictments, court records identify eight “victim banks,” U.S. financial institutions tricked into processing barred transactions on behalf of Halkbank and their coconspirators.  The identified banks are Deutsche Bank, Bank of America, JP Morgan Chase, Citibank, HSBC, Standard Chartered, UBS, and Wells Fargo.   I am writing seeking more information from you about the barred transactions in which your financial institution may have participated.

As Ranking Member of the Senate Finance Committee, which has broad jurisdiction over U.S. international trade policy, I have a particular interest in the integrity of correspondent banking services.  Correspondent banking services and related cross-border payments are a critical part of the global trade system.  The ability to send and receive cross-border payments enables businesses to serve customers abroad, or to buy goods from suppliers abroad.  

Most cross-border payments flow through a complex and opaque correspondent banking network, and these payments are difficult for banks to administer and costly for consumers, particularly when compared to domestic payments.  The complexity of the cross-border system is not only frustrating for legitimate trade and business, but also provides a vehicle for abuse. Risks associated with money laundering and terrorist financing are heightened in cross-border transactions, and the alleged Halkbank scheme is a clear example of exploitation of this system for such illegitimate purposes. 

To assist my review, please provide the following information.

  1. Please describe your bank’s relationship with Halkbank and any correspondent banking services provided to Halkbank, including any alleged co-conspirators as identified by  Department of Justice filings. 
  2. Please describe your bank’s due diligence policies, procedures, and controls as they related to Halkbank.
  3. Did your bank process any prohibited financial transactions on behalf of Halkbank and its alleged co-conspirators?  If so, please identify the branch office(s), and provide the number of transactions, the approximate value, and the time period covered.
  4. For any branch or branches identified in 3, please describe any independent testing for anti-money laundering compliance conducted by independent bank personnel or by an outside party at any time during which the prohibited transactions were occurring.  Were any U.S. dollar transactions independently reviewed as part of the testing, if so, how many?

The following questions refer to your bank’s correspondent banking practices generally and are not limited to transactions related to Halkbank.

  1. How many U.S. dollar foreign correspondent banking relationships does your bank currently maintain? In each of the past three years, how many new U.S. dollar correspondent banking relationships have been established?  In each of the past three years, how many U.S. dollar correspondent banking relationships have been terminated? For each terminated correspondent banking relationship, please identify the financial institution, and the jurisdiction in which it operates.
  2. Please provide the approximate number of U.S. dollar wire transfers provided to correspondent account holders by your bank on an annual basis.
  3. Please describe your bank’s practices for verifying the accuracy of any information contained in wire transfer records, including payment instructions, identity of originator, identity of beneficiary, and any other related data. 
  4. Please describe your bank’s practices for conducting independent testing for anti-money laundering compliance for correspondent accounts.  Please estimate the number of individual U.S. dollar transactions reviewed for accuracy as a part of any such testing on an annual basis.
  5. Beginning in 2018, U.S. financial institutions must establish and maintain procedures designed to identify and verify the beneficial owners of legal entity customers as part of the bank’s anti-money laundering program.  Do the foreign financial institutions with which your bank has a correspondent relationship conduct the same level of due diligence of legal entity customers?  If not, how does your bank account for the increased risk of money laundering and the abuse of anonymous shell companies when providing correspondent banking services to customers in these jurisdictions?
  6. Is your bank subject to any deferred prosecution agreement related to its correspondent banking activities?  If so, please describe.
  7. Has your bank entered into any settlement agreement with the U.S. Department of Treasury’s Office of Foreign Asset Control since 2009?  If so, please describe.

Please provide answers to these questions no later than November 20, 2019.  Thank you for your attention to this matter.