Podcast: Time running out for Turkey’s Halkbank - Henri Barkey & Steven Cook (part II)

A New York Times poll out this week gave Senator Joe Biden a 14-point lead over U.S. President Donald Trump in the presidential race to be decided in November.

For Turkish President Recep Tayyip Erdoğan, this means he has precious little time to avoid what could be among the largest and most destructive financial punishments in modern history.

As Turkey has sunk deep into economic crisis in the past few years, Washington has been mulling whether and to what extent to sanction Turkey’s state-run Halkbank, the country’s second largest lender, for its involvement in a multi-billion-dollar scheme to evade U.S. sanctions on Iran.

“This is the largest sanctions evasion scheme in U.S. history, which would require huge fines,” Steven A. Cook, senior fellow at the Council on Foreign Relations, told Ahval in a podcast. “That could bring the Turkish banking system to its knees.”

Last October, the Department of Justice indicted Halkbank on six charges and in February Halkbank agreed to appear in court to face the charges after months of refusals.

Halkbank stands accused of laundering up to $20 billion on behalf of Iranian entities and concealing the nature of these illicit transactions from U.S officials. The DoJ indictment says Halkbank’s “systematic participation in the illicit movement of billions of dollars’ worth of Iranian oil revenue was designed and executed by senior bank officials”.

Southern District of New York (SDNY) Judge Richard Berman, who had been overseeing the Halkbank case, was dismissed by Trump last week. Cook saw this having little impact on the case, which he expected to move forward on or around the date set by Berman, July 24.

Despite the justice system taking the lead, it seems to have been Trump who has kept Turkey from facing the music for Halkbank’s offences. At the G20 summit in Buenos Aires in December 2018, Erdoğan told Trump the bank was innocent and Trump told Erdoğan that “he would take care of things,” according to the new book by former national security advisor John Bolton.

“The only thing that has stopped the sanctions from being implemented is the White House,” Henri Barkey, Lehigh University professor and senior fellow at the Council on Foreign Relations, told Ahval in a podcast with Cook. “This is why for Erdoğan this is such an important issue.”

Barkey linked Halkbank to Turkey’s purchase of Russian-made S-400 missile defences, for which the U.S. is legally bound to sanction Turkey under the Countering American Adversaries through Sanctions Act (CAATSA). In both cases, Trump acceded to Erdoğan’s desires and has thus far held off on punishment.

“Everything that Trump does is being perceived in Turkey as, ‘Oh you can go ahead and do what you want’,” said Barkey.

In Syria, Trump’s generally friendly stance toward Erdoğan has enabled Ankara to make several incursions, including, most controversially, an operation into a predominantly Kurdish area of northeast Syria last year.

“Turkey wants to create a buffer zone and kind of de-Kurdify the area,” said Barkey. “They’ve done it in certain parts of northern Syria but clearly they haven’t done it everywhere.”

And it’s not only Trump. In his new book, Bolton suggests U.S. Ambassador to Turkey James Jeffrey often seemed to be doing Turkey’s bidding. Barkey said there might be some truth to that depiction, as Jeffrey raised no alarm as Turkey and Turkish-backed forces in Syria repeatedly violated human rights.  

“They’ve gone after Kurds. They’ve tortured people. They’ve kicked people out of their houses,” said Barkey. “He hasn’t said anything. He hasn’t tried to stop them.”

The question is why the Trump administration seems to have repeatedly kowtowed to Erdoğan, and whether the U.S. president might be expecting something in return. Some point to a real sense of friendship and Trump’s business interests, while others believe Trump has tapped Erdoğan to be a sort of American proxy as the United States reduces its Middle East presence.

“It may just be that Trump wants a strongman to deal with the region,” said Barkey, who added that Biden winning the election and taking office would result in a significant shift in U.S. policy toward Turkey. “What Erdoğan is trying to do is trying to maximise his gains as long as Trump is there.”

Erdoğan’s aggressiveness in Syria, as well as in Libya, the eastern Mediterranean and the Aegean, also has a domestic political component, according to Cook. Turkey has no election scheduled until late 2023, but recent polls put Turkey’s president behind his likeliest challenger, Istanbul Mayor Ekrem İmamoğlu.

“If you’re presiding over an economy in profound trouble, [with] a lot of citizens growing weary of your view as another form of authoritarianism, it’s easy to play on the nationalist sentiments,” said Cook. “A leadership role for Turkey in the region, one that is muscular, aggressive and ordering the region, plays well for Erdoğan.”

What would not play well for Erdoğan is a collapsing Turkish financial system. Yet that’s what he might face should the United States levy the expected sanctions for the S-400s and Halkbank, which has failed to put funds aside to pay for possible U.S. fines and has been struggling to find funding as international banks fear the pending sanctions.

This explains why Erdoğan, in addition to the extradition of alleged coup plotter Fethullah Gülen, brings up the Halkbank issue every time he talks to Trump.

“If sanctions were to be imposed because of this, especially at a time when the Turkish economy is exceedingly weak, it would be devastating,” said Barkey. “What he would really like is for that provision to completely disappear.”

Read the first part of this two part series here: Podcast: Turkey’s muscle-flexing lights Libyan fuse - Henri Barkey & Steven Cook

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.