Halkbank, Turkey’s second-largest state bank, said it did not engage in sanctions violations as alleged and falls outside of the US Justice Department’s jurisdiction since it has no branches or employees in the US.

A street vendor sells roasted chestnuts in front of a branch of Halkbank in central Istanbul, Turkey. January 10, 2018.
A street vendor sells roasted chestnuts in front of a branch of Halkbank in central Istanbul, Turkey. January 10, 2018. (Reuters)

Turkey’s Halkbank said on Wednesday that US charges against it are part of sanctions Washington slapped on Ankara over its military incursion in Syria and represent an “unprecedented legal overreach.”

US prosecutors on Tuesday charged the state-owned lender with taking part in a multibillion-dollar scheme to evade US sanctions on Iran. 

In response, Halkbank’s shares plunged as much as 7 percent on Wednesday despite a ban on short selling. 

The indictment came a day after Washington imposed sanctions on Turkish officials, hiked tariffs and halted trade talks in an effort to persuade Ankara to stop its military Operation Peace Spring against YPG terrorists in northern Syria. 

The charges in a US district court in New York, which further strains ties between the NATO allies, alleges Turkey’s second-largest state bank conducted fraud, money laundering, and other sanctions offences. 

Charges linked to Syria operation?

“These were filed as part of the sanctions introduced against our country by the US government in response to Operation Peace Spring, heroically launched by the Turkish army to secure our borders and establish peace in the region,” Halkbank said of the incursion now in its eighth day. 

Turkey’s second-largest state bank said it did not engage in sanctions violations as alleged and falls outside of the US Justice Department’s jurisdiction since it has no branches or employees in the US. 

“Therefore the decision to indict is an unprecedented legal overreach,” it said. The case against Halkbank follows from a previous criminal case that came to light in 2016 against Turkish-Iranian gold trader Reza Zarrab, who was accused of playing a central role in the sanctions evasion scheme. 

Mehmet Hakan Atilla, a former Halkbank deputy general manager, was arrested in New York the following year and was later sentenced to 32 months in prison. He returned to Turkey in July after serving out his sentence. 

Zarrab pleaded guilty and testified for US prosecutors. He said Iran, with the help of Halkbank and Turkish government officials including President Recep Tayyip Erdogan, used a web of shell companies and sham transactions in gold, food and medicine to sidestep US sanctions. 

Turkey said the case was a political plot against Erdogan’s government and said it was an extension of a 2013 domestic corruption investigation launched by the network of FETO terror group.  

'Political leverage'

“The Halkbank case has always been on the table as political leverage,” said a banking analyst who declined to be named. 

Before Turkish markets opened, authorities banned short selling on seven large Turkish bank stocks, including Halkbank. 

Selling shares in the banks only to buy them later in the session was also banned, authorities said. 

State banks – which have sold dollars to defend the lira since the Syria incursion began last week – were on Wednesday squeezing funding in an offshore FX swaps market to cushion the blow from the Halkbank indictment, a bond trader said. 

Halkbank stock nonetheless fell as much as 7.2 percent at the open and was down 4.8 percent at 0939 GMT. The main banking index, XBANK, which has fallen more than 16 percent this month on fears of US repercussions, was down 2.4 percent while Turkey’s broader stock index was off 1.3 percent. 

Following the Halkbank charges, Borsa Istanbul said its CEO temporarily banned short-selling in banking shares within the top BIST-30 Index.

The Capital Markets Board said it would protect investors and promote market stability. The banking analyst called it “a sort of intervention on the free market” and said authorities were motivated not only by Halkbank but the 8 percent fall in bank stocks on Monday. 

Sadrettin Bagci, another bank analyst, at Deniz Yatirim, said Halkbank had the ability to absorb a possible fine of between $1.3 to $2.3 billion, depending on the capital measurement. “We think that a possible direct fine has been largely priced at the share price,” he said. 

Source: Reuters