By Rebecca Davis O'Brien and Aruna Viswanatha 

Federal prosecutors in Manhattan charged Turkish state-owned lender Halkbank with a multibillion-dollar scheme to evade U.S. sanctions on Iran, ramping up pressure on Turkey's President Recep Tayyip Erdogan as he conducts a military offensive on Syria.

Prosecutors say some Turkish and Iranian government officials received payouts of tens of millions of dollars in exchange for promoting and helping to conceal the alleged scheme, which occurred between 2012 and 2016.

Prosecutors allege that Halkbank and its officers used money-services businesses and front companies in Iran, Turkey, the United Arab Emirates and elsewhere to violate restrictions on Iran's access to the U.S. financial system; rules governing the proceeds of Iranian oil and gas sales; and restrictions on the supply of gold to Iran. The alleged scheme also benefited Turkey by artificially inflating the country's export statistics and making Turkey's economy appear stronger than it was, according to the indictment.

The indictment comes as the U.S. scrambles to contain the fallout from the Turkish military campaign into Syria, launched last week after President Trump decided to withdraw most troops from the country. Vice President Mike Pence to Turkey is leading a delegation to Turkey to resolve the conflict, and President Trump authorized sanctions, raised steel tariffs on Turkey and threatened more-powerful financial penalties if Ankara continues the offensive.

The charges against the bank are the latest flashpoint in a high-profile yearslong U.S. Justice Department investigation into sanctions evasions and international corruption involving the bank, which for years has drawn sharp protests from Turkish officials, including Mr. Erdogan. Nine defendants have previously been charged by Manhattan prosecutors, including the former Turkish minister of the economy and bank employees, most of whom remain fugitives.

Halkbank was charged with six criminal counts, including bank fraud, money laundering, and conspiracy to defraud the U.S.

A lawyer for Halkbank and a representative from the Turkish embassy in Washington couldn't immediately be reached for comment.

Turkish officials had said they expected clemency from the U.S. in the Halkbank case.

Manhattan federal prosecutors secured a guilty verdict last year against one of Halkbank's former managers, whom a Manhattan federal jury found guilty of helping Iran launder money and cover up the alleged scheme. The manager, Mehmet Hakan Atilla, was sentenced to 32 months in prison but has appealed his conviction.

The government's star witness at the trial was Reza Zarrab, a wealthy gold trader who has connections to top Turkish officials and is a household name in Turkey. In testimony, Mr. Zarrab said Mr. Erdogan had approved the alleged sanctions-evasion scheme, citing a senior Turkish official as telling him in 2012 that Mr. Erdogan had instructed two of Turkey's largest banks to help Iran launder money.

Mr. Erdogan has denied wrongdoing and heaped criticism on the U.S. investigation; during Mr. Atilla's trial, state-run media painted the case as a conspiracy to force Mr. Erdogan from office. At the time of Mr. Atilla's sentencing, Mr. Erdogan said: "If Hakan Atilla is going to be declared a criminal, that would be almost equivalent to declaring the Turkish Republic a criminal."

Write to Rebecca Davis O'Brien at Rebecca.OBrien@wsj.com and Aruna Viswanatha at Aruna.Viswanatha@wsj.com

(END) Dow Jones Newswires

October 15, 2019 19:09 ET (23:09 GMT)

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