The 'Reza trade'

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In the HBO crime drama "The Night Of," actor Riz Ahmed plays a suspect in a murder trial. Imprisoned in New York while on trial, he is able to bribe prison guards along with his associates in acquiring cellphones, alcohol and drugs. Seemingly unbelievable, the TV series was less fiction and more based on fact than I had realized. We learned on Tuesday that Riz Ahmed's character behaved in much the same way that Reza Zarrab has in prison. In testimony Tuesday, Zarrab testified that he bribed federal prison officials to the tune of $45,000 in exchange for alcohol, marijuana and the use of a cellphone. This, however, was not the most interesting part of his Zarrab's testimony.

A few weeks ago, investors banking on the outcome of the Zarrab trial thought they had a sure thing. Short Turkish markets, score big. The Zarrab trial may not be as profitable as anticipated, however. The trial of gold trader Zarrab and his co-defendant, Halkbank executive Mehmet Hakan Atilla, began with only the latter a defendant, as Zarrab has pleaded guilty and turned state's witness for the government. Charged with conspiracy to launder money, Atilla has pleaded not guilty in the case in which his attorneys have begun to cross-examine Zarrab. The case was supposed to be a slam dunk for the prosecution. Zarrab was supposed to testify to being close to Atilla and working closely in a money laundering scheme. On expectations of such testimony and a speedy trial ending with a conviction, Turkish financial markets saw substantial profit taking. The Turkish lira was down sharply as bond yields jumped as prices fell. That the trial began during a period of dollar strength did not help, certainly, however the tide may have turned.

The defense introduced evidence that the prosecution only recently revealed prison calls between Zarrab and an unnamed associate. In the calls, Zarrab said he needs to lie "in America in order to make it out of prison." Pretty damning evidence in impeaching the government's witness it appears. Zarrab also testified that he only spoke to Atilla four times during the many years he helped to sell Iranian oil. The defense will argue this hardly makes them close associates. Atilla's defense team has pointed the finger elsewhere, making the case that he was an employee of the bank executing his duties. This statement is one of many in a trial full of things that just do not make sense.

Why would Zarrab travel to the United States knowing that he was wanted for violating U.S. laws? Even weirder, why would Atilla travel to the United States on business a full year after Zarrab was imprisoned for crimes he is alleged to have committed with Atilla? Both trips make no sense. Atilla's attorneys argue that he had no reason to fear imprisonment and thus traveled to the U.S. without hesitation. Zarrab, however, pleaded guilty to conspiring against the United States, so why would he go to Disney World, guaranteeing his incarceration? Many of the transactions were conducted in euros and many others were in dollars. Why? Why not Chinese yuan or some other dollar-pegged currency? If the FBI warned Halkbank officials and perhaps Zarrab himself against conducting activities in potential violation of U.S. sanctions, why would they continue to trade in dollars? These questions loom large in the minds of spectators of the trial as I am sure they must loom in the minds of members the jury.

Setting aside the larger theoretical questions of whether the long-arm jurisdiction argument is just in policing trade between two neighboring countries half a world away or whether similar policing is not done in cases involving major U.S. trading partners like China or India, there are many more practical questions that have yet to be answered.

Turkish financial markets have recovered much of their losses, with government two-year bonds trading at 12.94 percent late Wednesday, down from nearly 14 percent only two weeks ago. The Turkish lira also traded at 3.84 to the dollar, down from highs of 3.97, a recovery of 3 percent. Despite this small recovery, Atilla may very well still be convicted. U.S. federal prosecutors have, according to U.S. attorneys' statistical reports, a conviction rate of more than 99 percent in all cases. They practically never lose. So Atilla will most likely be convicted, but Zarrab's credibility will be shot in the process, leaving this case with many more unanswered questions then there were going in.

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