Halkbank Says Role in Iran Gold Trade Legal After CEO Arrest

Dec 23, 2013 8:18 am ET

(Updates with comment from analyst in fourth paragraph, shares in sixth, gold trade in seventh.)

Dec. 23 (Bloomberg) -- Turkiye Halk Bankasi AS, the state- run bank that slumped 19 percent since a graft probe implicating four ministers erupted last week, said it has acted lawfully after police arrested its chief executive officer.

Payments made by the bank on behalf of companies exporting gold to Iran were transparent and traceable, Halkbank said in a filing to the Istanbul bourse today. There were no rules against trading precious metals with Iran until July 1 and the bank ceased the transactions on June 10 after it became public that the U.S. planned new sanctions, it said.

Turkish police apprehended CEO Suleyman Aslan, the sons of three cabinet ministers and scores of others in three overlapping probes targeting corruption in government tenders, money laundering and gold smuggling. Prime Minister Recep Tayyip Erdogan’s government purged at least 60 police chiefs in response, sparking concerns of an escalating confrontation with former political ally, U.S.-based Islamic cleric Fethullah Gulen, who has a wide following in the police and judiciary.

“The allegation of high level graft, extending to Halk, are a real concern, along with connections into Iran, gold trade et al,” Tim Ash, chief economist for emerging markets at Standard Bank Group Ltd. in London, said in an e-mailed report to clients today. “Turkey is put increasingly under the spotlight in terms of international anti-money laundering conventions.”

Aslan was formally arrested two days ago after authorities found $4.5 million inside shoeboxes at his house, Hurriyet newspaper said last week. The money was to be donated to building Islamic schools in Turkey and Macedonia, he said, according to the newspaper.

Shares Slide

Halkbank fell 1.9 percent to 12.90 liras at 2:17 p.m. in Istanbul, heading for the biggest five-day decline in more than two years. The company, Turkey’s largest listed state-run bank, was authorized by the U.S. to trade with Iran before the sanctions were introduced, and was the main bank used for purchases by Turkey of gas and oil from Iran.

Reza Zarrab, an Iranian-Azeri businessman, was among those arrested alongside Aslan on Dec. 21. Zarrab traded a ton of gold a day, Haberturk newspaper reported two days ago citing a statement he made to prosecutors. Zarrab said that he was involved in about 20 billion liras ($9.6 billion) of gold trading last year, Haberturk said. Zarrab’s lawyers didn’t answer calls placed to their offices in Istanbul seeking comment on the report.

Turkey exported about $233 million in precious metals and jewelry to Iran per month in January through June, when Halkbank said it ended gold trading due to tighter U.S. sanctions implemented July 1. The nation exported about $45 million per month between June and October, according to data on the state statistics agency’s website.

Exports to Iran narrowed Turkey’s current account deficit, concern over which helped push the lira to a record low. The deficit may widen to 7.2 percent of gross domestic product this year from 6.1 percent in 2012, according to the median estimate of 29 economists surveyed by Bloomberg.

Four days ago, Turkish Foreign Minister Ahmet Davutoglu met with Iranian counterpart Mohammad Javad Zarif at a meeting of the Developing Eight, or D-8, in Islamabad, Pakistan. Economy Minister Zafer Caglayan, whose son Kaan was arrested in the graft probe, is scheduled to visit Iran Jan. 15. Erdogan is in Pakistan and due to return to Turkey tomorrow.

In a speech in the Black Sea city of Samsun yesterday, Erdogan said the corruption probe had an “international dimension” and threatened to expel diplomats who “exceed the limits of their duty.”

Four pro-government newspapers featured U.S. Ambassador Francis Ricciardone on their front pages two days ago, saying the U.S. had a hand in the corruption investigation.

--Editors: Mark Bentley, James Doran