Why a gold trader's plea deal is a big deal for U.S. foreign policy and (maybe) the Mueller investigation.

Why a Gold Trader’s Plea Deal Is a Big Deal for U.S. Foreign Policy and (Maybe) the Mueller Investigation

Why a Gold Trader’s Plea Deal Is a Big Deal for U.S. Foreign Policy and (Maybe) the Mueller Investigation

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Nov. 28 2017 5:02 PM

Why a Gold Trader’s Plea Deal Is a Big Deal for U.S. Foreign Policy and (Maybe) the Mueller Investigation

TURKEYPOLITICSCORRUPTION
Detained Azerbaijani businessman Reza Zarrab (C) is surrounded by journalists as he arrives at a police center in Istanbul on December 17, 2013.

AFP/Getty Images

Gold trader Reza Zarrab has reached a deal with prosecutors in Manhattan to avoid trial for violating U.S. sanctions on Iran. This is big news for a number of reasons. The Zarrab case itself is complicated to begin with, and is also tied to a dizzying number of ongoing geopolitical stories—from Turkey’s political crackdown to the investigation of the Trump campaign’s connections to Russia—and involves figures including Rudy Giuliani, Michael Flynn, and Turkish President Recep Tayyip Erdogan. Zarrab’s case has hardly been a front page story, so it’s understandable that you might have some questions.

Joshua Keating Joshua Keating

Joshua Keating is a staff writer at Slate focusing on international affairs and author of the forthcoming book, Invisible Countries.

Who is this guy?

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Zarrab is a wealthy, 34-year-old gold trader of Iranian-Azeri descent. He was born in Iran but has lived most of his adult life in Turkey as a dual Turkish-Iranian citizen. Prior to his recent troubles, he was most famous for being the husband of pop star Ebru Gundes, the host of a television talent show.

Why does that sound so familiar?

One of the key figures in the Trump-Russia investigation is the Azerbaijan-born host of a Russian beauty pageant. We should all have been paying much closer attention to the Black Sea-region pageant circuit.

Weird, but OK. So why is Zarrab in trouble?

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Zarrab was arrested in 2016 in Miami, while en route to Disney World with his family, and charged with helping Iran evade U.S. sanctions placed on it to deter its nuclear program. When Iran was cut off from using the international money transfer system SWIFT, Zarrab set up a system by which Iran was able to sell gas in exchange for gold bullion. The payments were deposited in an Iranian account at Turkey’s state-owned Halk Bank. In 2012 alone, Turkey reportedly exported 125.8 metric tons of gold to Iran, worth $4.6 billion. As part of the scheme, Zarrab allegedly used a network of shell companies to launder hundreds of millions of dollars through the U.S. financial system on Iran’s behalf, which is why he got in trouble with the feds.

Nine people, including Turkey’s former economy minister, have been charged by New York prosecutors as part of the case, but only Zarrab and one other defendant—Mehmet Atilla, an executive at Halk Bank—were facing trial after both were arrested while traveling in the U.S.

What’s happening now?

Zarrab was released from custody in New York on Nov. 8, and his whereabouts have been unknown since then. It was revealed on Tuesday that he had pleaded guilty to bank fraud, money laundering and other charges in secret on Oct. 26.

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But it appears that only Atilla will stand trial, and prosecutors say Zarrab will testify against him. Atilla’s attorneys have attacked Zarrab’s credibility, saying he got the “deal of a lifetime” and a shortcut back to his life of luxury.

So, the mastermind of this criminal enterprise is testifying against a lower-level associate. Isn’t that the opposite of how prosecutions are supposed to work?

Yes, exactly, which has led to speculation, as reported by the Daily Beast and NBC, that Zarrab may also be cooperating with Special Counsel Robert Mueller’s investigation of the Trump campaign.

Oh, the Russia investigation?

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Now it’s also a Turkey investigation! Mueller’s team is reportedly looking into former National Security Adviser Michael Flynn’s activities while he was both advising the Trump campaign and transition team and doing paid lobbying work on behalf of Turkey. Flynn reportedly met with Turkish officials to discuss a plan to kidnap the exiled cleric Fethullah Gulen for them. (We’ll get back to him.) Zarrab’s release may also have been part of the proposed deal between Flynn and the Turks.

This is all pretty hazy and speculative still. For one thing, it’s not clear how much Zarrab would have known about what Flynn was doing on his behalf. But Turkish President Recep Tayyip Erdogan has certainly taken a strong interest in Zarrab’s case, raising it with both the Trump and Obama administrations and publicly criticizing the prosecution.

And Zarrab clearly was pushing for a diplomatic solution for his case, hiring former NYC mayor (and Trump associate) Rudy Giuliani and former Attorney General Michael Mukasey to lobby on his behalf.

So Donald Trump’s national security adviser (and Rudy Giuliani!) might have been helping someone get away with funneling gold to Iran in violation of U.S. sanctions?

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Yep. And it would look especially bad after all Trump’s criticism of those planeloads of cash sent to Iran after the 2015 nuclear deal. On the other hand, it would be even worse for Erdogan.

Why’s that?

Prosecutors have suggested they have evidence that Erdogan and his family were involved in Zarrab’s activities. Their filings include references to conversations in which Zarrab inferred that he had received Erdogan’s support for his money-laundering activities. He also made donations to charities associated with Erdogan’s relatives. Zarrab’s activities reportedly involved quite a bit of bribery of senior officials to keep things running smoothly.

Why hasn’t he been charged in Turkey then?

He has. Zarrab was arrested in 2013 as part of a wide-ranging government corruption probe. Some of the reports’ juicy details included Zarrab sending his assistant to Geneva to buy a $350,000 Patek Philippe watch for the economy minister. While several officials resigned, Zarrab was eventually released and Erdogan managed to quash the probe, which he blamed (probably somewhat accurately) on judges associated with Gulen.

What’s the deal with Gulen?

Gulen, currently living in exile in Saylorsburg, Pennsylvania, is the influential leader of a large Turkish spiritual movement. He is also known for the global network of charter schools he runs. He and Erdogan used to be allies against Turkey’s enforced secularism but later fell out. Erdogan has accused Gulen of masterminding last year’s failed coup attempt, and since then, thousands of people have been arrested as suspected Gulenists, often on flatly ridiculous pretexts. The U.S. doesn’t quite buy the evidence, and Washington's resistance to extraditing him has been a major sticking point in U.S.-Turkish relations.

Erdogan has also blamed the Gulenists for Zarrab’s prosecution.

In New York? How does that work?

Erdogan has maintained that the prosecution is a Gulenist-inspired plot to overthrow his government. Turkish prosecutors have launched an investigation of former U.S. Attorney Preet Bharara and his successor Joon H. Kim. Bharara, who filed the initial charges, has been accused of links to Gulen, which Bahara denies. Kim and the judge in the case took the unusual step last week of responding directly to the charges, with Kim dismissing the notion that his office was “infiltrated by Gulenists.”

Is the Trump administration pro-Turkey?

That’s complicated. Trump has effusively praised Erdogan and touted their great relationship, despite international criticism of Erdogan’s increasing authoritarianism. Nevertheless, Turkish-U.S. relations are at a low point over a number of issues, including the Zarrab case, the failure to extradite Gulen, and U.S. support for Kurdish fighters in Syria, whom Turkey considers terrorists. As part of the post-coup crackdown, Turkey also arrested several Americans, including a Christian pastor and a NASA scientist. There’s been speculation that the pastor in particular, Andrew Brunson, may be a bargaining chip for Gulen, Zarrab or both. Erdogan hasn’t exactly denied this. The two countries suspended non-immigrant visa services for each other in October.

Interestingly, the recent Zarrab news comes as relations seem to be improving following a conversation last week between Trump and Erdogan. The Turks came away from that call with the impression that the U.S. would soon stop supplying weapons to the Syrian Kurds, which would make Erdogan very happy. If Zarrab were released without detailing what senior Turkish officials knew about the gold-for-gas scheme, that might make Erdogan very, very happy.

So what happens now?

That’s a little unclear. Assistant U.S. Attorney David Denton said in his opening statement Tuesday that the scheme Zarrab and Atilla were running was “so large that it was protected by government ministers in Turkey and Iran.” If prosecutors use Zarrab’s testimony to shed light on the extent of that protection and how much was paid for it, those revelations could incriminate Turkey and could further strain U.S.-Turkish relations.

As for implications for the U.S., we should have a better idea after Mueller reveals what, if any, charges, he’s filing against Flynn. There have been signs that Flynn is also mulling a deal.

Either way, it’s safe to say that a number of very powerful people would prefer that Zarrab keep quiet.