Iranians lead number of foreign businesses launched in Turkey, sparking security concerns

Abdallah Bozkurt/Stockholm

Iran, a country adopted as a second home by Turkish President Recep Tayyip Erdogan, has become the leading country for foreign companies to set up operations in NATO ally Turkey.

Primarily undertaken to circumvent Western sanctions, these companies also serve to acquire prohibited and/or restricted materials for Iran and to facilitate the distribution of funds and logistical support, thereby supporting Iran-aligned terrorist entities and factions agents on a global scale.

According to official data released by the Turkish Union of Chambers and Commodity Exchanges (TOBB), a confederation representing the country's business interests, Iranian nationals dominated all other foreign citizens in starting businesses in Turkey in 2023 . This trend has continued to the present. year.

Unlike its Western counterparts, Iran is not among Turkey's top trading partners, with trade volume standing at a modest $5.4 billion. However, the proliferation of Iranian-led companies in Turkey paints a stark picture, at odds with the bilateral trade landscape. This contradiction implies that a considerable part of these companies could actually function as proxies, strategically used by the mullahs' regime to circumvent sanctions.

During the previous year, Iranians established 696 limited liability companies in Turkey, the majority of which are Iranian-owned and have a cumulative declared capital of 787 million Turkish liras. This remarkable statistic places Iran at the top of the ranking, followed closely by Russia with 646 projects.

Remarkably, Germany, Turkey's main trading partner, comes a distant third, with only 233 companies. It is also worth noting that Iranians have avoided corporations as a form of business, with only 20 companies established in 2023. This is because corporations require more paperwork and capital than limited liability companies, which are easy to create and manage.

The trend continued until January 2024, according to the latest available data published by TOBB. Iranian entrepreneurs launched 37 new businesses in the first month of the year, with a cumulative declared capital of 30.7 million Turkish liras.

Distribution of newly created foreign companies according to their country of origin in Türkiye in 2023:

2023_foreign_companies_owned

About half of the Iranian-founded companies in Turkey, numbering 322, said their main business activity was that of a general trading business, engaging in wholesale and retail operations. This classification gives them the opportunity to engage in the buying and selling of a wide range of goods, both inside and outside Turkey. The second sector favored by Iranians for launching new businesses is scientific and technical services, as well as information and communication technologies.

Iran's dominance in foreign business in Turkey presents a disconcerting incongruity when juxtaposed against the relatively modest commercial activity between the two nations. According to trade statistics, Iran ranked 39th among Turkey's export partners in 2023, with trade volume amounting to $3.2 billion. In contrast, Germany was the top destination for Turkish product exports, with $21.1 billion, followed closely by the United States with $14.8 billion. Similarly, in terms of imports, Iran ranks 56th, with imports totaling $2.2 billion in 2023.

The discrepancy between the significant presence of Iranian companies in Turkey and the relatively modest volume of trade between the two countries can only be explained by recognizing Iran's exploitation of Turkish territory for illegal commercial purposes. This goes beyond the purchase of sanctioned materials to encompass the clandestine shipment of goods to proxy entities in third countries. Shipments from Turkey attract little scrutiny and attention compared to those originating directly from Iran, providing a discretionary shield for clandestine operations in other countries.

What's more, an opaque dimension of Iran's clandestine trade activities in Turkey escapes the capture of official statistics. Many Iranians have acquired Turkish citizenship through investments and property purchases, greatly facilitated by policies adopted under the Erdogan government over the past decade. Some people have gone so far as to alter their identities, including changing their names, to hide their origins, complicating efforts to trace business affiliations to Iranian nationals.

Indeed, upon closer examination of the growing number of Turkish companies designated by the United States over the past decade due to violations of sanctions imposed on Iran, it becomes clear that a subset of their owners include Iranian nationals who have acquired Turkish citizenship.

Iranian front companies operating in Turkey employ a multitude of strategies to conceal their activities, including using third countries such as Iraq, the United Arab Emirates, Azerbaijan and Georgia as intermediate transit points. This facilitates the subsequent re-export of Turkish products to Iran, thereby circumventing sanctions. Additionally, some of these front companies have been involved in financing and supporting terrorist groups affiliated with the Quds Force of the Iranian Revolutionary Guard Corps (IRGC), both within Turkey and beyond its borders. .

The Erdogan government, characterized by the presence of numerous pro-Iranian Islamists in important positions, has tolerated Iranian clandestine activities under the guise of commercial activities and, in some cases, even facilitated them. These actions were undertaken in exchange for substantial monetary gains, amounting to millions of dollars, lining the pockets of those involved, including members of Erdogan's family.

A watershed moment highlighting such collusion came to light in December 2013, when Erdogan, then prime minister, and several members of his cabinet were implicated in major corruption investigations. These investigations revealed their involvement in the laundering of Iranian public funds through the Turkish banking and financial systems, revealing a network of illicit financial activities with far-reaching implications.

The investigation exposed a complex network of corruption, of which Turkish-Iranian national Reza Zarrab appears to be a central figure. Zarrab bribed senior government officials, including ministers, while maintaining personal ties to Erdogan and his wife Emine. This revelation highlighted the scale of illegal transactions and the erosion of institutional integrity within the upper echelons of the Turkish government.

Following his involvement in the investigation, Erdogan intervened to derail the prosecution, orchestrating the dismissal of key prosecutors and investigators involved in the case. All suspects, including Zarrab, were later released with the help of new judges appointed by the Erdogan government to oversee the proceedings.

The saga took a dramatic turn when Zarrab was apprehended by the FBI in Miami in 2016, facing charges filed by the U.S. Attorney for the Southern District of New York, accusing him of orchestrating transactions worth hundreds of million dollars on behalf of the Iranian government. in addition to charges of money laundering and bank fraud.

Zarrab reached a plea deal with prosecutors and cooperated in a landmark U.S. federal case, highlighting President Erdogan's involvement. According to Zarrab's testimony, Erdogan asked Turkish state banks to participate in the multibillion-dollar project in exchange for bribes. The revelation underlined the seriousness of the allegations involving the highest levels of power in Türkiye.

Following the trial, Mehmet Hakan Atilla, deputy general director of the state-owned Halkbank, was found guilty and served his sentence before returning to Turkey. However, co-conspirators charged by US federal prosecutors, including the former economy minister in Erdogan's cabinet, remain beyond the reach of US authorities.

US federal prosecutors also charged Halkbank, with the case currently under appeal. Turkey has claimed sovereign immunity from prosecution, citing the fact that Halkbank is state-owned. However, the U.S. Supreme Court rejected Turkey's argument for immunity under the Alien Sovereign Immunities Act. Therefore, the case was sent back to the 2nd U.S. Circuit Court of Appeals in Manhattan, which had initially rejected the Turkish government's requests for immunity, for reconsideration based on federal common law.

Data from January 2024, the latest data available, shows that Iranians are the first to start businesses in Turkey:

2023_january_foreign_owned_firms

The 2nd Circuit heard oral arguments in the case in February and is expected to maintain its position, likely issuing a ruling that Halkbank is not immune under federal common law from criminal prosecution for sanctions violations Americans against Iran. This upcoming decision will undoubtedly have significant consequences both for Halkbank and for President Erdogan, who has pressured successive US administrations to end the affair, to no avail.

In February 2014, the Erdogan government ended a confidential counterterrorism case that had been launched against the Quds Force generals and their Turkish assets in 2011, subsequently releasing all suspects, thereby emboldening the Quds Force network by Turkey and effectively granting them carte blanche for their operations on Turkish soil.

Indeed, the Erdogan government's lenient approach towards illegal Iranian business activities largely contributed to Turkey's inclusion on the Financial Action Task Force (FATF) “grey list” in October 2021. This designation Subjects Turkey to increased surveillance by the international watchdog charged with combating money laundering and terrorist financing. The decision reflects growing concerns about Turkey's commitment to reducing illicit financial activities within its borders and highlights the imperative for robust regulatory measures to effectively address these challenges.

Despite certain measures implemented by the Erdogan administration in response to the FATF recommendations, Turkey remains on the “gray list” to this day. This status imposes high risk premiums on Turkey, making it more expensive for the country to obtain foreign loans.