Turkey's outgoing Economy Minister Zafer Caglayan
Turkey's outgoing Economy Minister Zafer Caglayan (c.) talks during a handover ceremony as he is flanked by newly named minister Nihat Zeybekci (2nd from left) and former European Affairs Minister Egemen Bagis (2nd from right) in Ankara, Dec. 26, 2013. REUTERS/Umit Bektas

Turkey has some major explaining to do in the wake of the recent corruption scandal that exposed the country's continued financial and energy ties with Iran. The arrests last week of the head of a Turkish state-owned bank and a well-known Iranian gold trader for money laundering and gold smuggling raise questions about U.S.-Turkish relations going forward.

Halkbank CEO Suleyman Aslan and Iranian trader Reza Zarrab are key players in the “gas-for-gold” scheme that allowed Tehran to buy gold with Turkish lira in exchange for Iranian natural gas and oil. Western sanctions over Iran's nuclear pogram prevented the country from getting paid in euros or dollars, so Halkbank used the precious metal to get around the restrictions.

Between March 2012 and July 2013, Turkey was able to export approximately $13 billion worth of gold to Tehran, according to Mark Dubowitz of the Foundation for Defense of Democracies.

“It was puzzling that Ankara allowed this to continue: The Turks -- NATO allies who have assured Washington that they oppose Iran's military-nuclear program -- brazenly conducted these massive gold transactions even after the Obama administration tightened sanctions on Iran's precious metals trade in July 2012,” Dubowitz wrote in Foreign Policy Thursday.

If gold sanctions are not enforced, Iran could receive up to $20 billion a year, which is around 30 percent of Iran’s projected 2013 energy exports, Dubowitz said.

The U.S. administration stiffened sanctions on Iran’s precious metals trade in 2012, but a loophole allowed Turkey to transfer gold to private Iranian citizens. In January 2013 the U.S. took action to close the financial outlet, but the Obama administration lobbied Congress to wait six months in order to protect Halkbank from being sanctioned and thus cutting the bank from the U.S. financial system. The decision effectively helped Iran acquire billions of dollars more in gold by July.

“It's possible that the Obama administration didn't have compelling evidence of the role of the Iranian government in the gold trade,” Dubowitz said. “However, the president may have also simply sought to protect his relationship with Ankara and didn't want to get into a diplomatic spat with [Turkish Prime Minister Tayyip] Erdogan, whom he considers a key regional ally.”

Halkbank said payments made by the bank on behalf of companies exporting gold to Iran were transparent and traceable. Rules against trading precious metals with Iran took effect July 1, and the bank discontinued trades a month earlier.

Still, Dubowiz expressed concern over the relationship between Iran and Halkbank, noting a recent comment by the Iranian ambassador to Turkey, Ali Reza Bikdeli, praising Halkbank for its "smart management decisions in recent years [that] have played an important role in Iranian-Turkish relations."