Turkey furious over US sanctions-busting conviction

Turkey on Thursday slammed as "scandalous" the fraud conviction in New York of a Turkish banker after an explosive trial over Iran sanctions-busting that implicated ex-ministers and even President Recep Tayyip Erdogan.

The conviction of Mehmet Hakan Atilla, deputy chief executive of Turkish lender Halkbank, is set to further ratchet up strains between Washington and Ankara in an increasingly trouble-plagued relationship.

It also risks leaving Atilla with a hefty jail sentence and Halkbank with fines that could rattle the Turkish banking system.

Erdogan's spokesman Ibrahim Kalin described the conviction as a "scandalous decision in a scandalous case" and a "shameful scenario".

"It's a case that should have been dropped in its entirety," he told reporters in Ankara. "It is clear it is an interference in Turkey's domestic affairs."

The Turkish foreign ministry added that the "so-called evidence" was only fit "for forgery and political abuse".

A jury in New York found Atilla guilty on Wednesday of five counts of bank fraud and conspiracy.

The federal trial hinged on the testimony of well-connected Turkish-Iranian businessman Reza Zarrab, who became a government witness after admitting his involvement in the multi-billion-dollar gold-for-oil scheme to subvert US economic sanctions against Iran.

Zarrab was arrested in Miami in 2016 while seeking to take his family, including his pop star wife Ebru Gundes, on a holiday to Florida, and eventually agreed to testify in a plea bargain.

In testimony on November 30, he said he was told that Erdogan, as prime minister in 2012, and economy minister Ali Babacan had given "instructions" to two public banks to take part in the scheme.

Zarrab also said he paid tens of millions of dollars worth of bribes to then-economy minister, Zaref Caglayan, to facilitate illegal gold transactions with Iran.

- 'Political plot'-

Erdogan had repeatedly slammed the trial as a plot against Turkey and, according to American newspaper reports, had often raised the case in talks with US leaders.

Former New York mayor Rudy Giuliani, at that point part of Zarrab's legal team, even met Erdogan in Ankara in search of a solution to the case.

Ties between Turkey and the US have been strained over a number of issues including Washington's refusal to extradite the Muslim preacher Fethullah Gulen, who Ankara blames for orchestrating the failed 2016 coup.

Only last week, the two sides resolved a months-long crisis that resulted in the suspension of visa services for Americans in Turkey and vice versa.

James Sawyer, Turkey and eastern Europe analyst at political risk consultancy Eurasia Group, said the conviction would have a negligible impact on Turkish domestic politics, as the government "will have little trouble framing it as yet another US-led conspiracy".

He added: "But the conviction will pose new challenges for the already frayed US-Turkey relationship."

The foreign ministry said the court case was influenced by "unrealistic allegations" from some Gulen group members that "destroyed the court process's seriousness and credibility".

Deputy Prime Minister Bekir Bozdag blasted the case as a "political plot", saying it was "tangible proof" that the CIA and FBI were engaged in judicial cooperation with Gulen's group.

Atilla is due to be sentenced on April 11. Zarrab's sentencing date has not been scheduled.

- 'Support banking sector' -

Meanwhile, the US Treasury will also have the power to levy fines against Halkbank or even impose sanctions on its operations in the US, in moves that could impact on the Turkish banking system and wider economy.

"The Turkish authorities would in the meantime support the banking sector with all necessary props," said Anthony Skinner, director for the MENA region at global risk consultancy Verisk Maplecroft, adding that Ankara had "significant fiscal fire-power to see it through a period of acute turbulence."

He added that Erdogan would likely argue that such fines were a means of blackmail "by the US and the Gulen movement in particular, aimed at sinking the economy and undermining his rule."

Halkbank said in a statement that the case was not yet finalised, adding that legal channels including an appeal were open.

It also noted that the bank was not a party to the case, and "nor is there administrative or financial decision taken against our bank by the court