By Kemal Su

Mehmet Hakan Atilla, a high level banker at the Turkish state-controlled Halkbank, was convicted on January 3, 2018 of helping Iran circumvent international sanctions and gain access to billions in restricted petrodollar funds.[1]  Throughout the trial, witnesses described a conspiracy to avoid U.S.-imposed Iranian sanctions that was allegedly supported by the highest levels of the Iranian and Turkish governments.  Although six (6) other banks were named during the trial, Halkbank appeared to be at the center of the conspiracy.  While the guilty verdict applied only to Mr. Atilla, the fallout for Halkbank is only just beginning.  If the U.S. government finds that Halkbank engaged in wrongdoing, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) can impose a range of potentially debilitating penalties that will affect the future viability of the bank and may trigger a Turkish financial crisis.  In order to understand what actions the OFAC may take, it is useful to have a look at what happened when U.S. authorities investigated BNP Paribas SA (BNPP).

In June 2014, the OFAC announced its largest-ever settlement concerning BNPP’s liability for apparent violations of U.S. sanctions regulations.[2]  BNPP had allegedly engaged in a “systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States” in violation of U.S. sanctions against Sudan, Iran, Burma, and Cuba between 2005 and 2012.[3]  Throughout those years, BNPP processed electronic transfers worth $ 10.3 billion dollars.  In settling with the OFAC, BNPP agreed to pay $ 963 million dollars to the U.S. Department of Justice (DOJ) and also promised to enact and maintain policies and procedures to maximize regulations compliance and minimize the risk of future recurrence.  In this regard, BNPP increased the frequency and content of their employee training program, increased the capacity of their compliance units, enhanced their internal audit program, and created a stronger compliance review of their clients.[4]  In addition, BNPP relocated its sanctions team to New York.[5]  Despite these actions, the DOJ released a press statement in May 2015 announcing that BNPP had been sentenced to probation for five (5) years and was ordered to forfeit $8.8 billion dollars and pay a $ 140 million dollar fine.[6]

BNPP was the first financial institution that was convicted and sentenced for violating U.S. economic sanctions.  Moreover, the U.S. government’s treatment of the case indicates that it is serious about prosecuting sanctions regulations violators.  In the DOJ’s press statement regarding the sentencing of BNPP, Assistant Attorney General Caldwell promised that “financial institutions will be punished severely but appropriately for violating sanctions laws and risking our national security interests.”[7]

The fact remains that Halkbank has laundered at least four (4) times more money than BNPP.  In addition, a former top level U.S. Treasury official testified at Mr. Atilla’s trial that U.S. officials had warned Mr. Atilla and other Halkbank executives not to violate U.S. sanctions on a few occasions.  Moreover, Halkbank has had the benefit of BNPP’s example as a test case for what happens when banks violate sanctions regimes.  As a result, any fine imposed upon Halkbank will likely exceed that of BNPP’s and any settlement will likely contain stricter and more rigid measures.

Only time will tell whether Halkbank is officially implicated by the OFAC.  However, to the extent that they are found to have engaged in wrongdoing, the way the U.S. government handled BNPP leaves no doubt that heavy fines and penalties are all but inevitable.  Considering the comparative gravity of Halkbank’s violations, the OFAC may also decide to impose Turkey’s worst case scenario- designation on Washington’s OFAC sanctions list.  This designation would effectively cut off the bank’s access to the U.S. market.  Since Halkbank is the largest listed bank in Turkey, such a designation could have serious repercussions not just for the bank, but for Turkey at large. The case should serve as a cautionary tale to all banks who deal with countries on U.S. sanctions lists and reminds us that circumventing such regulations can be truly bad for business.

Dr. Kemal Su is an industrial organization economist with expertise in antitrust, regulations, and compliance issues. He is a graduate of Middle East Technical University (Business Administration B.S. 1997), the University of Illinois at Urbana-Champaign (M.S. in Policy Economics 2002), and Hacettepe University (Ph.D. in Economics, 2008). 

Dr. Su began his career at the Turkish Competition Authority in 1997, where he served for eight (8) years. He consulted international companies in antitrust/competition law and economics, regulations, and compliance for more than ten (10) years until late 2016. During that time, he led many projects and compliance programs, submitted tens of written testimonies, represented tens of clients in antitrust investigations, filed hundreds of M&As and exemption/negative clearance cases, and taught hundreds of seminars. He taught competition law and practices at Middle East Technical University to undergraduate and graduate students in between 2009 – 2016. 

Dr. Su is currently a visiting scholar at Duke University School of Law.

[1] Mr. Atilla, former Deputy General Manager of the state-controlled Halkbank, was accused of six (6) claims and convicted of five (5) of them; including bank fraud and conspiracies to violate Iran sanctions, to defraud the U.S., and to commit money laundering.  See https://www.nytimes.com/2018/01/03/world/europe/turkey-iran-sanctions-trial.html?smid=tw-share

[2] The Settlement Agreement is available at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140630_bnp_settlement.pdf

[3] Id. at para. 23.

[4] Id.

[5] Id.

[6] See https://www.justice.gov/opa/pr/bnp-paribas-sentenced-conspiring-violate-international-emergency-economic-powers-act-and

[7] Id.