Millions of Americans may have unwittingly invested in a Turkish bank that has illegally helped Iran circumvent international economic sanctions meant to weaken its disputed nuclear program, according to investment documents and sanctions experts.
Several of America’s largest financial institutions are significant shareholders in Turkey’s Halkbank, a majority state-owned lender that has come under fire for enabling so-called "gold-for-gas" exchanges with Iran that violate U.S. sanctions, according to investment documents obtained by the Washington Free Beacon.
Multiple U.S. financial groups currently own shares in the bank, also known as Turkiye Halk Bankasi, which is state-owned and publicly traded. They include the Vanguard Group, Inc., Fidelity Management, J.P. Morgan, T. Rowe Price Associates, Inc., and Principal Management Group, among others.
Iran sanctions experts criticized these companies for profiting from investments in a foreign bank that has long been a key enabler of Iran’s efforts to skirt sanctions targeting its energy and oil industry.
"It is of great concern that U.S. institutions may be indirectly involved in the sale of Iranian oil for Turkish gold," said Nathan Carleton, spokesman for United Against Nuclear Iran (UANI), a nonpartisan advocacy group that pressures international companies to cease dealings with Tehran. "The Iranian regime is conducting these transactions specifically to evade sanctions and fund its nuclear program."
"The American people don't want their money going toward Iran business, and once they're informed of these situations the companies will have to make a choice between U.S. investors or the Iranian regime," Carleton said. "Any U.S. entities invested in Halkbank should take immediate action to stop Iranian oil transactions, or divest."
Halkbank has quietly been exchanging large amounts of gold for Iranian crude oil according to multiple reports. These large monetary exchanges have provided Tehran with an economic lifeline while the nation’s energy sector is subjected to international sanctions.
Turkey is believed to have swapped at least 60 tons of gold for several million tons of Iranian crude oil, though the amounts could be larger.
Halkbank has also processed monetary deals between Indian oil companies and Tehran, according to Bloomberg.
The U.S. has never formally blacklisted Halkbank despite its sanctions-evading practices. While it is legal to own shares in the bank, its behavior directly violates U.S. and U.N. sanctions on Iran.
Sanctions experts have speculated the state-controlled Halkbank may have escaped designation due to its political connections.
"The Obama administration relies heavily on Turkey—we have effectively sub-contracted our Syria policy to Ankara. A designation of Halkbank would greatly complicate that relationship," said Jonathan Schanzer, a former terrorism finance analyst at the U.S. Treasury Department.
It is difficult to determine just how much U.S. money is tied up in the Ankara-based bank, though one of the its shareholders, Vanguard, maintains the investments in Halkbank are minimal and not "political" in nature.
At least five Vanguard funds have "relatively small investments in Turkiye Halk Bankasi as of Dec. 31, 2012," David Hoffman, a Vanguard spokesman, told the Free Beacon.
Halkbank accounted for "0.02 percent to 0.16 percent" of fund assets, according to Hoffman.
Vanguard is one of Halbank’s top five American investors, owning nearly 2 percent of the lender as of late Friday, according to updated Bloomberg investment information obtained by the Free Beacon. This translates to more than 24 million shares in the bank.
Hoffman said Vanguard’s investments in Halkbank are primarily maintained through index funds, or collective investment systems.
These types of investments "are developed and maintained by independent, third-party companies," meaning that Vanguard itself has "no input on the index construction methodologies or component companies that comprise any given benchmark," Hoffman said.
Vanguard additionally retains an "actively managed fund" with shares in Halkbank. These types of funds include investments that are selected by a fund manager.
Asked why Vanguard would invest in a fund that has been identified as a partner in Iran sanctions-busting schemes, Hoffman said its advisers do not make "investment decisions based on social or political issues."
Hoffman added that it is not prudent for Vanguard to make financial decisions based on the prevailing political climate.
"As an investment firm with a very large client base, Vanguard is frequently asked by clients to divest from stocks for a variety of reasons—from environmental and social issues to humanitarian and political concerns," he said. "We simply cannot manage investment portfolios in an effective manner that would address all of these issues while fulfilling our fiduciary obligation to shareholders to produce the highest possible investment returns."
The other U.S. financial institutions involved in Halkbank either did not respond to a request for comment or declined comment when reached by the Free Beacon last week.
A spokesperson for J.P. Morgan said the firm does "not to comment on individual companies," but directed a reporter to the group’s Turkey Equity Fund, which "offers investors the opportunity to share in the development of the Turkish economy."
Halkbank is listed as one of the top investments in this particular fund.
"This is not uncommon," said Schanzer, a vice president of research at the Foundation for Defense of Democracies. "Without a U.S. treasury designation, such investments are legal. The corporate compliance officers have no legal reason compelling them to divest."
Iran sanctions experts on Capitol Hill have long been watching Halkbank and its U.S. partners, sources said.
"Halkbank is one of the worst offenders in the world of U.S. sanctions violations on multiple levels, many of which are not even public," said a senior Senate aide involved in sanctions legislation.
Foreign governments have detailed to U.S. officials "sanctionable activity with regard to Iran," the source said. Yet "no action has been taken by the Obama administration, despite more than year now of sanctions violations going on in Turkey. It’s about time the American people know where their money is getting invested."
U.S. companies involved in Halkbank have been walking a tightrope, said the Senate source.
"There’s a legal side to this and if I were Vanguard’s lawyers I’d be freaking out right now and figuring out how to divest because you are literally sitting on a volcano of sanctions violations that is about to erupt," the source said. "It’s legal until its not, and one flip of the switch at the Treasury Department and suddenly you’re the primary U.S. shareholder of a sanctioned company under U.S. law"
Carleton said these types of questionable investments are not unusual.
"This sort of thing is sadly rather common, particularly since these deals often have been in place since before Iran sanctions and divestment were as popular as they are now," he said. "We regularly find that simply highlighting the issue will result in change."
Recently implemented economic sanctions could make it more difficult for Halkbank to support Iran’s energy sector.
New regulations limiting the sale of "precious metals" to Iran could make it tougher for Turkey to transfer gold, according to report.
However, some experts doubt the new sanctions will have a meaningful impact as Turkey continues to back rogue terrorist regimes.
"The Halkbank issue is just one of several for Turkey right now," Schanzer said. "Ankara has become one of the top sponsors of the Palestinian terrorist group Hamas."
"It was also put on notice five years ago by the Financial Action Task Force (FATF), which is the United Nations of terrorism finance," Schanzer said. "FATF warned that Turkey’s laws failed to properly criminalize terror finance and money laundering."