Venezuela, Turkey using gold to evade U.S. sanctions

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Almost three years ago, Reza Zarrab, an Iranian-Turkish gold trader, was arrested at Miami International Airport by FBI agents. Zarrab was accused of executing “gas-for-gold” transactions with Iran, which helped Tehran circumvent U.S. sanctions intended to halt its nuclear program. He pleaded guilty and decided to cooperate with the U.S.

Shortly after, U.S. officials also arrested Mehmet Hakan Atilla, the deputy chief executive officer of Turkey’s state-owned Halkbank in New York, on related charges of Iran sanctions evasion. Atilla was found guilty on Jan. 3, 2018, of conspiring to violate U.S. sanctions law.

Now, the Treasury Department is currently considering whether to impose financial sanctions on Halkbank for its involvement in circumventing U.S.-imposed sanctions on Iran through a gold-for-gas scheme.

While Turkey faces major fines for allegedly violating U.S. sanctions on Iran, President Recep Tayyip Erdogan appeared to launch a gold trade with a new partner from the list of the countries facing U.S. sanctions. It seems that the similar scheme to evade sanctions on Iran will be repeated.

Following the improved relations between Turkey and Venezuela, the embattled Maduro government decided to move gold refining from Switzerland to Turkey to avoid the risk of Venezuelan assets being seized in following a possible U.S. sanction. Against this backdrop, Venezuela exported 23.62 tons of gold worth $900 million to Turkey in the first nine months of 2018.

This transaction between the two countries presents some serious issues. First, the lack of transparency on both sides makes this trade suspicious. Venezuela argued that the gold exported to Turkey would ultimately return to become part of the Venezuelan Central Bank’s portfolio of assets. However, official Turkish records do not show any gold exports back to Venezuela in 2018.

Beyond that, the spikes in the gold trading between Turkey and the United Arab Emirates after Venezuela’s gold export have drawn attention. It is possible that the Turkish government is sending the gold to UAE that they imported from Venezuela and turning it into liquidity.

Moreover, Turkey has recently started to supply the basic products for Venezuela’s government-subsidized food program CLAP, appearing to create a gold-for-food mechanism between Ankara and Caracas.

The statement of U.S. official Marshall Billingslea, Assistant Secretary of the Treasury, also seems to confirm this possibility. “We have seen 21 metric tons or more that have gone to Turkey in recent months, and we have seen Turkish companies replace many of the food companies that were involved in corruption related to the CLAP food boxes program.”

Suffice it to say, a vast bribery and corruption mechanism that would benefit government officials of the two countries may play an important role as it was witnessed in the case of Iran. Given the existence of expanded pro-government networks and state-sponsored patronage in both countries, it would not be wrong to claim that the personal gains of individuals within the Turkish and Venezuelan governments may be pushing this gold trade.

More important, Ankara’s eagerness to trade gold with Venezuela came at a time when Washington exerted more diplomatic pressure to isolate the Maduro regime. A new executive order has recently been signed by the White House to impose sanctions targeting Venezuela’s gold sector by prohibiting U.S. citizens and entities from financial involvement in the trade.

As the Trump administration imposes further financial sanctions that limit the Maduro government, the focus remains on Turkey - a NATO ally - whether the sanctions will do anything to alter its policy toward Venezuela. However, it seems that the Turkish government appears to be determined to move relations with isolated Venezuela forward. During his recent visit to Venezuela, Erdogan said that “Turkey is on Venezuela’s side. We do not approve of these measures that ignore the rules of global trade. … Commercial restrictions and sanctions are mistaken.”

Ankara now is looking for the ways to dodge U.S. sanctions, taking advantage of a collapsed, cash-strapped Venezuela to do lucrative business. But, the Trump administration might not tolerate Erdogan’s enthusiasm to keep the Maduro regime afloat through the gold trade.

This being the case, Erdogan’s trade would likely result in costs and risks well out of proportion to whatever he might gain from Venezuelan gold. His gold passion amid U.S. isolation efforts is set to trigger adverse scenarios and create major ramifications for U.S.-Turkey relations in the foreseeable future.

Imdat Oner is a Ph.D. student in International Relations at Florida International University. He previously served for two years in the Turkish Embassy in Caracas, Venezuela as deputy head of mission and political officer.