Iran, a nation embraced as a second home by Turkish President Recep Tayyip Erdogan, has become the leading country in the establishment of foreign-owned businesses in Turkey, a NATO ally.
Primarily undertaken to circumvent Western sanctions, these enterprises also serve to acquire banned and/or restricted materials for Iran and facilitate the distribution of funds and logistical support, thereby underwriting Iran-aligned terrorist entities and proxy factions on a global scale.
According to official data released by the Turkish Union of Chambers and Commodity Exchanges (TOBB), a confederation representing the nation’s business interests, Iranian nationals led all other foreign citizens in the establishment of companies in Turkey in 2023. This trend has continued into the current year.
In stark contrast to its Western counterparts, Iran does not rank among Turkey’s principal trading partners, with the trade volume amounting to a modest $5.4 billion. However, the proliferation of Iranian-led enterprises in Turkey paints a striking picture at odds with the bilateral trade landscape. This contradiction implies that a considerable portion of these businesses may indeed function as proxies, strategically employed by the mullah regime to circumvent sanctions.
In the preceding year, Iranians established 696 limited liability companies in Turkey, the majority of which as under Iranian ownership and boast a cumulative declared capital of 787 million Turkish lira. This noteworthy statistic puts Iran at the top of the rankings, with Russia trailing closely behind with 646 ventures.
Remarkably, Germany, Turkey’s top trading partner, is a distant third, with a mere 233 enterprises. It’s also interesting to note that Iranians eschewed corporations as the form of business, with only 20 established in 2023. This is because corporations require more paperwork and capital as opposed to limited liability companies, which are easy to establish and operate.
The trend persisted into January 2024, according to the latest available data published by TOBB. Iranian entrepreneurs launched 37 new businesses during the first month of the year, boasting a cumulative declared capital amounting to 30.7 million Turkish lira.
Approximately half of the Iranian-founded firms in Turkey, numbering 322, have declared their principal business activity as that of a general trade company, engaging in wholesale and retail operations. This classification affords them the ability to engage in the procurement and sale of a wide-ranging portfolio of goods, both within and without Turkey. The second most favored sector among Iranians in initiating new ventures is scientific and technical services, along with information and communication technologies.
The dominance of Iran in the realm of foreign-owned companies in Turkey presents a perplexing incongruity when juxtaposed with the comparatively modest trade activity between the two nations. According to trade statistics, Iran occupied the 39th position among Turkey’s export partners in 2023, with a trade volume amounting to $3.2 billion. In stark contrast, Germany was the foremost export destination for Turkish goods, with $21.1 billion, closely trailed by the United States with $14.8 billion. Likewise, in terms of imports, Iran was in 56th place, with imports totaling $2.2 billion in 2023.
The discrepancy between the substantial presence of Iranian-owned enterprises in Turkey and the comparatively modest trade volume between the two countries can only be explained by acknowledging Iran’s exploitation of Turkish territory for illegal trade activities. This extends beyond the procurement of sanctioned materials to encompass the clandestine shipment of goods to proxy entities in third countries. Shipments originating from Turkey attract minimal scrutiny and attention compared to those coming directly from Iran, thus affording a shield of discretion conducive to clandestine operations in other countries.
What is more, an opaque dimension of Iran’s clandestine commercial endeavors in Turkey eludes capture in official statistics. Numerous Iranians have acquired Turkish citizenship by means of investment and property purchases, facilitated significantly by policies enacted during the tenure of the Erdogan government over the past decade. Some people have gone to the extent of altering their identities, including name changes, to hide their origins, thereby complicating efforts to trace business affiliations back to Iranian nationals.
Indeed, upon closer examination of the growing number of US-designated Turkish firms over the past decade due to violations of sanctions imposed on Iran, it becomes apparent that a subset of their proprietors comprises Iranian nationals who have acquired Turkish citizenship.
Iranian shell companies operating in Turkey employ myriad 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-exportation of Turkish goods into Iran, effectively circumventing sanctions. Furthermore, some of these shell companies have been implicated in financing and supporting terrorist groups affiliated with the Iranian Revolutionary Guards Corps (IRGC) Quds Force, both within Turkey and beyond its borders.
The Erdogan government, characterized by the presence of numerous pro-Iranian Islamists in prominent positions, has condoned clandestine Iranian activities under the guise of business endeavors, and in certain instances, has even facilitated them. These actions have been undertaken in exchange for substantial monetary gains, amounting to millions of dollars, lining the pockets of those involved including Erdogan’s family members.
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 significant corruption investigations. These probes revealed their involvement in laundering Iranian state funds through the Turkish banking and financial systems, revealing a web of illicit financial activities with far-reaching implications.
The probe laid bare a complex web of corruption, with Turkish-Iranian national Reza Zarrab emerging as a central figure. Zarrab bribed senior government officials, including cabinet ministers, while also cultivating personal connections with Erdogan and his wife Emine. This revelation underscored the extent of illegal dealings and the erosion of institutional integrity within the Turkish government’s upper echelons.
In the wake of his implication in the probe, Erdogan intervened to derail the prosecution, orchestrating the removal of lead prosecutors and investigators involved in the case. All the suspects, including Zarrab, were subsequently released with the aid 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 US Attorney for the Southern District of New York accusing him of orchestrating transactions worth hundreds of millions of dollars on behalf of the Iranian government, in addition to charges of money laundering and bank fraud.
Zarrab struck a plea deal with prosecutors and cooperated in a landmark US federal case, shedding light on the involvement of President Erdogan. According to Zarrab’s testimony, Erdogan instructed Turkish state banks to take part in the multibillion dollar scheme in exchange for kickbacks. This revelation underscored the gravity of the allegations implicating the highest echelons of power in Turkey.
At the end of the trial, Mehmet Hakan Atilla, the deputy general manager of state lender Halkbank, was convicted and served his sentence before returning to Turkey. However, the co-conspirators indicted by US federal prosecutors, including the former economy minister in the Erdogan cabinet, remain beyond the reach of American authorities.
US federal prosecutors also indicted Halkbank, with the case currently on appeal. Turkey has asserted sovereign immunity from prosecution, citing Halkbank’s ownership by the state. However, the US Supreme Court rejected Turkey’s immunity argument under the Foreign Sovereign Immunities Act. Consequently, the case has been sent back to the 2nd U.S. Circuit Court of Appeals in Manhattan , which initially rejected the Turkish government’s claims of immunity, for reconsideration based on federal common law.
The 2nd Circuit heard oral arguments in the case in February and is anticipated to maintain its stance, likely issuing a ruling that Halkbank is not shielded under federal common law from criminal prosecution for violating US sanctions on Iran. This forthcoming decision will undoubtedly have significant ramifications for both Halkbank and President Erdogan, who has lobbied successive US administrations to kill the case, to no avail.
In February 2014 the Erdogan government terminated a confidential anti-terrorism case that had been initiated against Quds Force generals and their Turkish assets back in 2011, subsequently releasing all the suspects, thus emboldening the Quds Force network in Turkey and effectively granting them carte blanche for their operations on Turkish soil.
Indeed, the Erdogan government’s lenient approach to illegal Iranian business activities was a significant contributing factor to Turkey’s inclusion on the Financial Action Task Force’s (FATF) “grey list” in October 2021. This designation subjects Turkey to heightened scrutiny by the international watchdog tasked with combating money laundering and terrorist financing. The decision reflects mounting concerns regarding Turkey’s commitment to curtailing illicit financial activities within its borders and underscores the imperative for robust regulatory measures to address these challenges effectively.
Despite certain measures implemented by the Erdogan administration in response to FATF recommendations, Turkey remains on the “grey list” as of the present day. This status imposes elevated risk premiums on Turkey, rendering it more costly for the country to secure foreign loans.
