The Turkish Corruption Scandal Involves An Explosive Gas For Gold Deal With Iran

Business Insider

A Turkish corruption scandal has lead to the arrests of dozens of high level officials and powerful private citizens, a routing of the Turkish stock market, and calls for Prime Minister Recep Tayyip Erdogan to step down — still, to outsiders, the details of what "corruption" went on have been mostly a mystery.

We're catching up to bits and pieces of the scandal, though.

Yesterday, Foreign Policy published a story breaking down one fascinating part — a "gas for gold" scheme with Iran.

Allegedly, officials at the upper-echelons of the Turkish government found a loophole in U.S. sanctions against Iran that allowed them to get what they wanted — Iranian oil/gas.

The transaction was carried out through Turkish state-owned bank, Halkbank. Last week, the bank's CEO was arrested, and the stock is down 32% for the year (FYI).

Here's how it worked, from FP:

Research conducted in May 2013 by the Foundation for Defense of Democracies and Roubini Global Economics revealed the bank exploited a "golden loophole" in the U.S.-led financial sanctions regime designed to curb Iran's nuclear ambitions. Here's how it worked: The Turks exported some $13 billion of gold to Tehran directly, or through the UAE, between March 2012 and July 2013. In return, the Turks received Iranian natural gas and oil. But because sanctions prevented Iran from getting paid in dollars or euros, the Turks allowed Tehran to buy gold with their Turkish lira -- and that gold found its way back to Iranian coffers.

Easy. Iran got more gold. Turkey could say it was sending cash to private citizens, thus not violating sanctions.

It was all good until January 2013, when the Obama administration decided to close this "golden loophole".

Instead of immediately charging Halkbank, though, the U.S. government essentially allowed its gold trading activities to continue until July 2013, says FP.

There are a couple reasons why the U.S. took this tack — Turkey is an important ally when it comes to Syrian policy. Plus, as we know now, the U.S. has been working out a nuclear deal with Iran.

Either way, now Turkish protesters are in the streets again. "Gas for gold" is just one part of this scandal, and unlike last summer though, their government is in no way united — notably, there are reports of a schism between Erdogan's supporters and the allies of a powerful exiled cleric, Fetullah Gulen.

On top of that, Erdogan will have an extra hard time putting his foot down as his family is getting embroiled in the fiasco.

Since he's held power since 2002, there will be some rough internal jockeying to see who takes power in his party, the AKP.