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A new U.S. court case tying a Turkish bank to a multimillion-dollar scheme to help Iran evade U.S. sanctions may throw a wrench into Turkish President Recep Tayyip Erdogans plans to seize more power.

The case alleges an executive at Halbank, one of Turkeys largest state-owned banks, colluded with an Iranian commodities trader to funnel hundreds of millions of dollars worth of illegal transactions through U.S. banks to Iran from 2010 to 2015, according to a complaint filed Monday in the United States District Court for the Southern District of New York.

The executive, Mehmet Hakan Atilla, who is Halbanks deputy CEO, was arrested by U.S. authorities Monday night in New York. The commodities trader, Reza Zarrab, already stands accused in Turkey of orchestrating a gas for gold scheme to circumvent U.S. sanctions and net Tehran $13 billion. He is known to have close links to Erdogans inner circle.

Atillas arrest threatens to shed light on corruption in Erdogans network at a sensitive time. It comes just weeks before a new national referendum on expanding Erdogans powers. The referendum, which will decide whether to merge the powers of the presidency and the prime ministership, has been mocked by his opponents as a vote for dictatorship.

The U.S. case could shed light on how corners of Turkeys banking system helped Iran avert U.S. and international sanctions and potentially unveil collusion with Erdogans government given the close ties between the banks and his cabinet, experts said.

News of Atillas arrest sent shockwaves through Turkeys banking system. Halbank shares dropped 16 percent Wednesday. Domestic and international investors will see shares in Turkish banks as toxic assets, Aykan Erdemir, a former Turkish member of parliament and current senior fellow at the Foundation for Defense of Democracies, said. You never know which bank executives will be arrested next.

The arrest also comes days before a visit by the U.S. Secretary of State Rex Tillersons next week to Ankara, promising to cast a pall over the discussions. Tillerson is slated to meet with senior Turkish officials to talk about the two countries push to dislodge the Islamic State from the Syrian city of Raqqa. Ankara was set to air some grievances with the United States at the meeting, but it seems it will now be on the defensive, said Erdemir.

Turkeys relations with the United States are already strained. The two countries came to loggerheads over the United States decision to arm Kurdish groups fighting the Islamic State. Then tensions flared anew after Washington refused to extradite Fetullah Gulen, a U.S.-based cleric in exile Ankara accused of orchestrating the botched military coup against Erdogan in July, 2016.

Zarrabs trial is slated to begin in August this year. Aside from the gas for gold scheme, hes also implicated in a major corruption scandal in 2014 that involved bribe payments to several members of Erdogans cabinet.

Erdogan previously said he suspected the United States of having ulterior motives for arresting Zarrab, whom U.S. authorities picked up in Miami in March of last year. Turkeys Justice Minister also reportedly privately asked the U.S. attorney general to release Zarrab last year, showing Erdogan wanted to sweep this issue under the rug, Erdemir told Foreign Policy.

Atillas former boss, Halbank CEO Suleyman Aslan, was also arrested in December 2013 in an anti-graft probe that implicated the sons of two Turkish ministers. Police found $4.5 million hidden in Aslans shoeboxes when they raided his home, leaving some to question what other money Aslan may have hid in things that werent shoeboxes. He was released from prison months later and Erdogans government curiously reassigned all the police and prosecutors working on the case.

Photo credit:ADEM ALTAN/AFP/Getty Images

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A Turkish Banker's Arrest Puts Spotlight on Erdogan's Circle at Awkward Time - Foreign Policy (blog)