Page 53 - The Economist

The Economist December 9th 2017 Europe 53
Corruption in Turkey
Russia
Plot of gold The Siberian bitcoin rush

IRKUTSK
Ice, snowand cryptocurrencymining
ISTANBUL USSIA’S recession had taken its toll on television station this month.
Acourtcase in NewYorkrattles RYuri Dromashko, an entrepreneur This weekthe price ofone bitcoin hit
Turkey’s president
from the Siberian city ofIrkutsk. His $12,000, up1,485% on the year. MrDro-
FEDERAL court in New York is not the property investments had floundered. A mashko says he spends about 4m roubles
Aobvious setting for a trial that has sent karaoke barwas flailing. Aventure to permonth on electricity, but easily re-
panic through the Turkish establishment. make machines that print magnets from coups that. “Sellingdrugs and guns
Butsince he began testifyingon November Instagram photos failed miserably. “We wouldn’t generate such profits,” he says.
29th, Reza Zarrab, a 34-year-old gold trader, were all crying,” he recalls. Then in 2016 (“Though I haven’t tried,” he clarifies.)
haspled guiltyto violatingAmerican sanc- his brotherproposed bitcoin mining. Mr Some see cybercurrency as a path to
tions against Iran; implicated Halkbank, a Dromashko acquired servers from China self-sufficiency. Dmitry Tolmachev, an
Turkish bank, and Recep Tayyip Erdogan, and watched the cash roll in. “It’s almost Irkutskfurniture magnate, developed a
Turkey’s president, in his scheme; and con- like you print money out ofnowhere,” he prototype modularhome warmed by the
fessed to bribing a former economy minis- says. “It’s the childhood dream.” servers’ excess heat. The homes cost
terwho, alongside an executive from Halk- Irkutskhas embraced the digital gold $8,500 and up, and generate about $850
bankand sixothers, isa suspectin the case. rush. Awash in electricity from hydro- permonth in miningprofit. MrTolma-
In Turkey, a prosecutor has placed one cur- electric plants, the region charges 2.1 chev sports a blackberet, goes by “Che”,
rent and one former US attorney under in- roubles ($0.04) perkilowatt-hour, com- and recently did jail time forhosting a
vestigation, and Mr Erdogan has accused pared with 5.3 roubles in Moscow. That rally by the opposition leaderAlexei
an Islamic sect of using America’s judicia- makes “mining”, in which computers Navalny. “The Russian man doesn’t love
ry to stage a coup against his regime. solve cryptographic challenges to gener- to work, he needs free money,” he says,
The charges against the gold trader, ate currency, especially profitable. Semi- invoking “Wish Upon a Pike”, a classic
who wasarrested duringa trip to Florida in nars have proliferated. “Cybercurrency Russian fairy tale about a lazy villager
2016, and the substance of his own allega- feverhas swept Irkutsk,” declared a local who catches a magic fish that grants his
tions will sound familiar to most Turks. In wishes. “This is a kind ofpike that does
2013 police in Turkey arrested dozens of everythingforyou: it produces money,
people, including Mr Zarrab, the sons of and heats yourhome too.”
three cabinet ministers, and Halkbank’s At present the miners exist in a legal
general manager. Then as now, Mr Zarrab vacuum. In October, President Vladimir
was accused of operating a laundering Putin ordered his officials to draw up a
scheme that involved converting revenues regulatory framework. Some in the Rus-
from sales of Iranian gas to Turkey into sian government see cryptocurrencies as
gold, shipping the bullion to Dubai, and a way around Western sanctions; the
sellingit forbillions ofdollars. president’s internet ombudsman has his
Mr Erdogan labelled the investigation a own miningfarm, and one Duma deputy
plot by a secretive Islamic movement, the even proposed buildinga miningcity in
Gulenists, to topple his government. He Siberia. But the central bankis sceptical,
had it dismantled in the courts, the evi- with one seniorofficial callingcryptocur-
dence dismissed as forgery, and the main rency “a sort offinancial pyramid that
suspects, includingMrZarrab, released. He may collapse at any moment”. Siberia’s
then sacked or reassigned thousands of al- digital pioneers are undaunted. “Sure it’s
leged Gulenists from the police and the ju- a bubble,” MrDromashko acknowl-
diciary, the start of a purge that swelled to Deep down in the bitcoin mines edges. “But all money is a bubble.”
vast proportions after Turkey’s failed coup
in 2016. Many Turks share Mr Erdogan’s
view that the investigation was the work dollars in offshore accounts, the state news Zarrab’s assets, including a private jet and
ofthe Gulenists. Yet few appear as eager as channel cut its live broadcast ofhis speech. property worth some $80m, opened an in-
their president to overlook the evidence of The more immediate risk is to Turkey’s vestigation into the American officials
wrongdoing it exposed. The shenanigans economy and its banks. In the event of a who put him on trial, and issued an arrest
in an American courtroom risk becoming guilty verdict, Halkbank faces the prospect warrant for a former opposition lawmaker
an embarrassment forMrErdogan. of major fines over its alleged role in the who is meant to appearas a witness.
The president has so far contained the sanctions-busting, says Inan Demir, an Yet Turkey may have no choice but to
damage to his reputation by muzzling the economist at Nomura Bank. “We might be accept the court’s verdict and pay any pen-
media. A day after Mr Zarrab confessed to looking at something in the area of $5bn,” alties. Its currency, the lira, has lost more
paying Zafer Caglayan, the former econ- he says, an estimate almost double the than a tenth of its value against the dollar
omy minister, more than $60m in kick- bank’s market value. Halkbankhas denied over the past year, partly due to anxiety
backs and said Mr Erdogan ordered two takingpart in any illegal transactions. about the Zarrab case and its conse-
banks to take part in his scheme, most of On December 5th Mr Erdogan called quences for Turkish banks. Failure to com-
the country’s biggest newspapers, as well the case “an international coup attempt”. ply with American fines would send the
as the state news agency, censored the His foreign minister has claimed that Gu- currency into a nosedive. Mr Erdogan
story. The day before, when the leader of len supportershave “infiltrated” America’s might risk a fresh row with America, but
the main opposition party accused Mr Er- institutions, including its courts. Turkish notthat. “Rightnow,” saysone banker, “the
dogan’s family of depositing millions of prosecutors, meanwhile, have seized Mr lira is the only checkon his power.” 7