Mar 30, 2019
The Golden Loophole
Chapter 3 — The December 17 Process
In early 2012 rumors of a US effort to close the golden loophole began to ripple across the Middle East. Zarrab was keen to make the most of is smuggling operation so he drove his mules harder. According to diplomatic sources, he had at most another year to take advantage of the current arrangement.
In July of 2012, the Obama administration closed the loophole partially. Direct exports from Turkey to Iran were banned but it was still possible to move gold from Turkey to the UAE. Zarrab reacted by shifting gears. The chart above, courtesy of Turkstat, clearly shows a massive build up of gold shipments from the beginning of 2012 until July, 2012 and then a huge and abrupt shift in exports to the UAE after the partial close of the loophole effected in July, 2012.
The chart also reveals another significant development. The dramatic rise in exports during the first half of 2012 was putting pressure on the gold reserves at home. During the course of the second half of 2012 Zarrab’s massive smuggling operation nearly devoured Turkey’s entire supply of gold. If the scheme was to survive, Zarrab would have to source the gold from another country.
On New Year’s Eve of 2012 a political firestorm was touched off when an Airbus 330 flying from Ghana to the UAE was forced to refuel at Turkey’s Ataturk airport because of fog. On board customs agents discovered nearly 3,000 pounds of gold. The plane was immediately impounded and an investigation was launched. News reports placed the value of the gold at 60 to 85 million dollars.
Ownership of the plane and the gold stacked inside it was sketchy. It sat on the tarmac for four days while rumors swirled. Some news reports suggested that the gold was part of a Nigerian styled 419 confidence scheme but if this was the case the “gold” would be worthless, thus contravening the first reports of its immense value. Other reports made mention of wire-tapped phone calls between Zarrab and Zafer Çağlayan, Turkey’s economy minister, which reflected Çağlayan’s intervention in the matter to prevent customs officers from confiscating the gold shipment. Even Zarrab’s Iranian business partner, Babak Zanjani, chimed in and claimed that the gold belonged to him.
In the end, nearly three weeks after the Airbus 330 had first touched down at Ataturk Airport, it was cleared to continue on its way. Who cleared the plane to resume its flight path remains unknown. The ownership of the gold and its destination were also never definitively revealed. What is clear is that somebody or some group of well connected individuals went to great lengths to cover up the story. The sensational headlines quickly faded from the front pages of the newspapers and the public outcry over the matter soon sputtered out and died.
Zarrab returned to his gold smuggling business and continued the scheme despite the danger. There was just way too much money involved and too many people to be paid off to stop now. There were also other men and women who returned to their jobs following the scandal, and within them a seed of discovery and indignation had been planted in their minds. They were the police and customs officials responsible for getting to the bottom of the mystery. They, like a good number of the public, wanted to know who had shut down the investigation.
Nearly twelve months later, on December 17, 2012 a wave of arrests targeted high officials in the Turkish government and their families. Fifty-two people were detained, including Reza Zarrab, on the charges of facilitating and accepting bribes. The sons of three high level cabinet ministers were implicated along with many lower level government politicians and officials. The arrest wave became known throughout Turkey as the “December 17 Process” and it formed a watershed moment in modern Turkish history.
As the December 17 Process unfolded it became clear that the entire Turkish economy was rigged. Millions of unsubstantiated Turkish lira were found in the homes of government officials. It was stuffed into shoe boxes, suitcases and stacked like cord wood in their garages and walk-in closets. The investigation took on even greater significance when the police alleged that the bribery went all the way to the highest echelons of the Turkish government, perhaps even involving the Prime Minister. It was an accusation that rocked the Turkish government.
Prime Minister Erdogan denied the allegations but soon afterward a series of mysterious audio recordings surfaced on YouTube that involved private conversations between himself and his son, Bilal Erdogan. The recordings, ostensibly leaked by the someone close to the investigation, enraged the Prime Minister and prompted him to curb their spread by restricting social media and internet access for millions of Turkish citizens. In one of the most talked about recordings Prime Minister Erdogan told his son Bilal to move tens of millions of dollars from the family’s multiple homes. The call was one of 5 recordings released on YouTube and all were made within 26 hours of the December 17 arrests. When the Prime Minister followed up with another call to Bilal to ask if the job was done, Bilal replied that the house was almost clear; there were just 30 million Euros left. The recordings were a damming and nearly catastrophic turn of events for the Prime Minister. Never before had he been so close to losing his grip on the power he had assumed as Prime Minister in March of 2003.
In the end, Erdogan claimed the recordings were elaborate fakes and reassigned or fired anyone involved in the investigations taking place all over the country. Over the course of the next year he fired or re-assigned 2,500 police, 2,500 judges and thousands of teachers. He clamped down on the Internet, strengthened his ties to the military and extended the reach of the National Intelligence services. He also changed the structure of the government and positioned himself to run for President in August of 2014. It was a swift and definitive assertion of power and control.
In the months leading up to the Presidential election Erdogan also made a calculated decision to distance himself from the more moderate members of his party. Instead he aligned himself with conservative Islamic party members and secularists who were willing to throw their support behind him for political favors. Erdogan appealed to the interests of this new coalition by placing blame for the arrests and the leaks plaguing his administration on the moderate followers of the Islamic imam, Fethullah Gulen. Gulen, who had been living in the United States since 1999, had a considerable influence on the Turkish citizenry serving in the government. His teachings about hizmet, the practice of altruistic service to the common good, is a central tenant of good government and it is the fundamental basis of the Gulenist’s unwillingness to tolerate corruption.
Erdogan characterized their altruism as a widespread conspiracy to challenge his rule and he suggested that their allegiance to Gulen constituted a “parallel government” working within the government. According to Erdogan the Gulenists were determined to destabilize Turkey and turn it against the will of the people. In the end Erdogan’s actions served to cleave a new political fault line in Turkey where none had previously existed. This was the December 17 Process and it eventually culminated in a failed military coup d’etat on July 15, 2016. Erdogan assigned blame to the Gulenists but to many observers the short lived crises appeared to be the work of the Erdogan administration itself. The lack of arrests, injury or public condemnation of anyone directly involved in the coup attempt led many to believe it was a false flag event.
Zarrab’s trial was held just four days after his arrest, on December 21, 2013. On this date he was accused of corruption involving bribery, professional misconduct, bid rigging, and smuggling. Also charged was Zafer Çağlayan, the son of the Turkish Foreign minister Melmet Çağlayan and several other high ranking government administrators. They began their prison sentences immediately following the trial.
Over the following days Zarrab’s plight was tearfully chronicled on prime time national television by his wife, Ebru Gundes. President Erdogan, despite his own troubles, eventually heeded her calls for mercy and personally returned Zarrab to freedom on February 28, 2014. Zarrab had served just 72 days. Erdogan was roundly condemned for his actions but he argued that justice had been miscarried. He claimed that Zarrab was a fine young Turkish businessman, who was simply a victim of a wide ranging scheme to de-legitimize the Turkish government and bring down Erdogan himself.
Critics of Erdogan declared obstruction of justice but it was too late. Multiple government ministers, businessmen and news agencies were paid off to bury the story and within weeks Zarrab was back in business with the full knowledge and consent of the highest levels of Turkish government. Zarrab’s work, according to President Erdogan,was aligned with the national interests of Turkey. Local customs agents and police were told to accept that fact or face retribution.
Zarrab’s Iranian business partner, Babak Zanjani, was not so lucky. On December 30, just nine days after Zarrab’s trial, he was arrested and charged with embezzling 2.7 billion dollars from the Iranian oil ministry. Zanjani’s arrest stunned the Iranian business community. He was a wealthy billionaire and managing director of the UAE-based Sorinet Group, one of Iran’s largest business conglomerates. Others, who had noted a change in Iran’s political climate, were not so surprised. Iran’s transition from the corrupt Ahmadinejad administration to the reformist party of the left leaning Hassan Rouhani had exposed one of the world’s most wealthy men to charges of embezzlement and “spreading corruption on earth.” Two years later Zanjani would be sentenced to death.
Link to Chapter One — The Rise to Power
Link to Chapter Two — Financial Crimes/Setting the Stage
Link to Chapter Four — Crushing Debt and the Food Business
Link to Chapter Five — Saving Reza Zarrab
Link to Chapter Six — The Worm Turns and Final Conclusions
Originally published at www.dailykos.com.
