The timing of the charges against Turkey’s state-run bank brings the unilateral US sanctions regime under spotlight.
The decision of US federal prosecutors to indict Turkey’s state-run Halkbank in a case over the violation of Iran sanctions comes at a time of heightened tension between Ankara and Washington.
The case is part of an investigation, which led to the imprisonment of a senior Halkbank executive last year and caused a diplomatic row between the two countries.
Turkey is engaged in a military operation in northeastern Syria where the YPG, an armed Marxist group, has established a hold in hopes of carving out an autonomous region.
The YPG’s leadership and cadre consist of militants from the PKK, a terrorist organisation that has waged a 30-year campaign of assassinations and bombings in Turkey.
Halkbank, the second largest state-run financial institution in Turkey, was at the centre of a legal battle in 2017 when it was accused of breaching a US sanctions law that forbids doing business with Iran.
The six-count indictment accuses Halkbank of helping Iran move $20 billion between the years 2012 and 2016, some of which prosecutors say was funnelled through the US financial system.
The payments in question were funds which Turkey owed Iran for the purchase of oil and gas.
Turkey depends entirely on imports to meet its energy needs and its officials have all along insisted that US laws do not apply to Turkey’s international trade.
President Recep Tayyip Erdogan on Wednesday questioned the decision of the New York prosecutors to bring charges at a crucial time for Turkey especially when a Halkbank executive, who served time because of the case, has since been released.
“It had seemed like this issue was closed. Now by opening it again, southern New York prosecutors have unfortunately taken an unlawful, ugly step,” he said, according to the Financial Times.
Last year, a US judge sentenced Halkbank’s Senior Executive, Hakan Atilla, to a 32-month prison term in the same case. He was released in July this year.
Halkbank says the charges are politically motivated and the bank’s operations don't fall under the jurisdiction of American laws since it has no branches or offices there.
The unilateral US sanctions are not just a problem for Turkey but also for Iran’s other trading partners such as China.
Over the past year, US President Donald Trump has intensified sanctions against Iran, pulling the US out of a multinational deal with Iran, to the chagrin of China, the European Union, Russia and other signatories.
Technically, US foreign policy measures, such as economic sanctions, are not binding for other countries, but because of its strong influence in the financial world, many nations tend to toe the line.
Every dollar-denominated transaction, be it a payment for imported oil, or remittances being sent home from another country, has to go through New York’s dollar clearing system.
It is for this reason that many international banks have offices in New York. Those that don’t have their own clearing offices, such as Halkbank, rely on others, known as corresponding banks, to perform this function.
The United States made it difficult for Iran to buy and sell goods on the international market by blocking it from the US clearing system in February 2012.
A few months later it forced the Belgium-based SWIFT bank message system to do the same. The result is that Iran is not even able to convert payments to euros.
This did help the US achieve the purpose of putting ‘maximum pressure’ on the Iranian economy over its disputed nuclear programme. It did not, however, stop the Islamic country from reverting to using gold as currency.
Turkey, which imports oil and gas from neighbouring Iran, had no choice but to trade in gold.
Unlike other countries, it couldn’t cut its gas imports overnight — the gas is imported via a multimillion-dollar transnational pipeline, which represents a fixed cost that has to be borne even if no gas passes through it.