Why is Washington going soft on the Turkish banks enabling Iran’s terrorism?

The Turkish state-owned lender Halkbank has served as a conduit for illicit Iranian financing networks. It was indicted in the U.S. in 2019 for one of the largest sanctions-evasion schemes in modern history, and at least two of its employees were convicted during the first Trump administration for their involvement.

Yet despite overwhelming evidence that the bank helped Iran bypass U.S. sanctions, the White House has now granted Ankara a lenient settlement that lets the bank itself avoid prosecution. This outcome — now all but a done deal and requiring only a judge’s signature — undermines both sanctions enforcement and American credibility.

Between 2012 and 2013, Halkbank played a pivotal role in converting Iranian oil revenues trapped in Turkish accounts into Turkish lira, then gold and ultimately cash, which was in turn smuggled back to Iran.

The operation — engineered by Reza Zarrab, an Iranian Turkish businessman and Mehmet Hakan Atilla, Halkbank’s deputy general manager — allowed Iran to circumvent Washington’s “maximum pressure” campaign. Zarrab’s testimony in 2017 revealed the complicity of senior Turkish officials, some of them within President Recep Tayyip Erdogan’s inner circle.

Halkbank’s actions violated multiple U.S. laws, including the International Emergency Economic Powers Act and anti-money laundering statutes. Yet successive administrations, Republican and Democratic alike, have refrained from pursuing the maximum penalties.

The Trump administration has now reached a deferred prosecution agreement between the U.S. and Halkbank — an extraordinary concession compared to the multibillion-dollar penalties paid by European banks such as BNP Paribas ($8.9 billion) and Standard Chartered (over $1 billion) for similar offenses.

According to U.S. Treasury and Justice Department findings, Halkbank processed at least $13 billion in Iranian transactions between March 2012 and July 2013, with some estimates reaching $20 billion. Those funds likely financed Tehran’s regional proxies, including Hezbollah and the Assad regime.

Congressional reports indicate that between 2012 and 2018, Iran spent roughly $16 billion annually sustaining militant clients across the Middle East. Under standard Treasury guidelines, civil fines could reach twice the value of illicit proceeds — up to $40 billion in Halkbank’s case.

This lenient outcome not only rewards Turkey’s defiance but also erodes the deterrent value of U.S. sanctions. Without an independent compliance monitor, Halkbank can continue to facilitate Tehran’s access to the global financial system under the guise of legitimate trade.

Why would the White House ease pressure on a bank convicted of enabling terrorism financing? The answer lies in geopolitics.

Erdogan has positioned himself as an indispensable broker for Washington’s regional ambitions — offering to mediate ceasefires in Gaza, stabilize northern Syria and even facilitate talks between Russia and Ukraine. Following the October 2025 Israel-Hamas ceasefire, President Trump publicly praised Erdogan’s strong leadership in securing hostages and promoting peace.

In return, Ankara appears to have received quiet assurances that Halkbank will be spared.

For Erdogan, the issue is personal. A heavy fine or renewed prosecution could expose the direct involvement of his family and confidants in the sanctions-busting operation. Moreover, Halkbank’s collapse would reverberate through Turkey’s fragile economy, already weakened by inflation and capital flight. Shielding the bank thus protects both his domestic political standing and his international reputation.

Halkbank is not alone. Another Turkish institution, Kuveyt Türk Bank, is currently facing litigation in the U.S. District Court for the Eastern District of New York. Plaintiffs accuse the bank of routing dollar transactions for Hamas through correspondent accounts at major U.S. banks — including Citibank, HSBC, Standard Chartered and BNY Mellon. They allege Kuveyt Türk Bank “knowingly used its U.S. accounts to facilitate funds transfers for Hamas’s benefit,” contributing to terrorist attacks in the West Bank between 2015 and 2018.

The court initially dismissed the suit in 2023 for lack of jurisdiction but reinstated it in early 2025 after plaintiffs presented new evidence. The case highlights a recurring problem: Turkish banks with New York correspondent accounts exploit the dollar system to finance militant networks, often with tacit government support.

The Treasury Department and the Justice Department have ample authority to act. Under Section 311 of the Patriot Act, the Financial Crimes Enforcement Network have teh power to designate Kuveyt Türk Bank or similar institutions as “primary money-laundering concerns,” effectively cutting them off from the U.S. financial system. Such measures would send a clear signal that no bank — Turkish or otherwise — can use American financial channels to fund terror without consequence.

In contrast, the offer of political exceptions for Erdogan undermines the credibility of U.S. sanctions, weakens counterterrorism financing efforts and emboldens rogue regimes.

Washington’s willingness to look the other way for the sake of transactional diplomacy risks transforming “maximum pressure” into selective indulgence.

The Halkbank case, unfortunately, was the test of whether the U.S. still enforces its own laws when politically inconvenient. And the answer appears to be no.

Sinan Ciddi is a senior fellow and director of the Turkey Program at Foundation for Defense of Democracies. Tyler Stapleton serves as senior director of government relations at FDD Action. Max Meizlish is a research fellow with the Center on Economic and Financial Power at Foundation for Defense of Democracies.

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