By Daren Butler and Humeyra Pamuk
ISTANBUL (Reuters) – Shares of Turkish state lender Halkbank suffered their biggest one-day fall on Wednesday after U.S. prosecutors charged a senior executive with participating in a multi-year scheme to violate sanctions against Iran.
Halkbank, Turkey’s fifth-largest listed bank by assets, confirmed Deputy General Manager Mehmet Hakan Atilla had been detained in the United States and said it and the Turkish government were looking into the matter.
The 47-year-old is accused of conspiring with wealthy Turkish-Iranian gold trader Reza Zarrab to conduct hundreds of millions of dollars of illegal transactions through U.S. banks on behalf of Iran’s government and other entities in that country.
“Our bank and relevant state bodies are conducting the necessary work on the subject and information will be shared with the public when it is obtained,” Halkbank said in a statement.
The arrest escalates a case that has added to tensions between the United States and Turkey. President Tayyip Erdogan has said – without elaborating – he believed U.S. authorities had “ulterior motives” in prosecuting Zarrab, who was arrested in March 2016 in Miami.
Halkbank shares tumbled as much as 16 percent, and closed down 14.3 percent at 10.34 lira, their biggest one-day fall since their May 2007 listing, according to Thomson Reuters Data.
The U.S. complaint bears similarities to a 2013 Turkish investigation, which also named Zarrab and Atilla and which Erdogan, then prime minister, cast as a plot by his political enemies to undermine him. (http://reut.rs/2njgK5T)
In that investigation, prosecutors accused Zarrab, along with others, of having paid cabinet-level officials and bank officers bribes to facilitate transactions benefiting Iran.
The prosecutors were removed from office, police were reassigned, and the investigation was dropped after a court ruled evidence was not properly obtained. At least two of the prosecutors fled the country in August 2015 and are wanted by the Turkish authorities.
Zarrab has denied the charges in his case. It was unclear whether Atilla, who briefly appeared before a U.S. magistrate at a court hearing in New York on Tuesday, had hired a lawyer or made a bail application. Halkbank said last year it had no connection with the U.S. investigation into Zarrab.
In an email to Reuters in 2010, when the United States blacklisted Iran’s central bank and a number of other Iranian financial institutions, Atilla rejected the suggestion that Halkbank had been involved in any improper activity.
“We as Halkbank have never executed or accommodated any transaction regarded or considered as illegitimate,” he said in the email. “We are fully committed to international regulations and we share concerns of (the) international community regarding illegal activity of any country or institution.”
Atilla had been in New York to meet with investors as part of a marketing “roadshow” for a planned bond issue, bankers said. He was arrested at John F. Kennedy International Airport.
“The first thing we are trying to understand is how far the process will extend,” said one senior banker, who asked not to be identified. “We ask ourselves the same questions in the Zarrab process. Will this remain with just accusations against a few people or will the allegations be widened and have an impact on some Turkish companies or higher levels?”
Some industry sources said they didn’t believe the arrest would impact Halkbank’s expected bond issue.
“I do not think there will be any problem in the roadshow,” said another senior Turkish banker. “It will not create a problem among investors concerning the bank’s borrowing.”
Still, the lira weakened more than 1 percent late on Tuesday after the news of Atilla’s arrest, while the Istanbul bourse’s index of bank stocks fell nearly 2 percent on Wednesday.
“It is obviously very difficult to judge the impact on Halkbank itself right now,” said Trieu Pham, a strategist at MUFG Securities. “There is a chance that this could play out further, but there are also a lot of people who think at this level it does look interesting.”
Foreign Minister Mevlut Cavusoglu said the case would be discussed with U.S. Secretary of State Rex Tillerson when he visits Ankara on Thursday. Cavusoglu, speaking to broadcaster TRT Haber, also called for a transparent process regarding Atilla’s arrest.
Prime Minister Binali Yildirim told broadcaster NTV that Turkey would ask Tillerson for an explanation for the arrest and would follow the legal process very closely.
Atilla was detained on the same day it was revealed that Zarrab, the gold trader, had added former New York City Mayor Rudolph Giuliani, a confidante of President Donald Trump, to his legal team.
According to the U.S. criminal complaint, Atilla worked with Zarrab and others from 2010 to 2015 to conceal Zarrab’s ability to supply currency and gold to Iran through a Turkish bank, without subjecting the bank to U.S. sanctions.
As part of that scheme, Atilla and Zarrab used front companies and fake invoices to trick U.S. banks into processing transactions disguised to appear as though they involved food, and thus were exempt from U.S. sanctions, prosecutors said.
(Additional reporting by Ebru Tuncay, Birsen Altayli, Nevzat Devranoglu and Tuvan Gumrukcu in Ankara and Karin Strohecker in London; Writing by David Dolan; Editing by Nick Tattersall and Mark Potter)