Turkey’s government kicked into full defensive gear today as Reza Zarrab, an Iranian-Turkish gold trader, prepared to stand witness before a New York jury for a second day, continuing his account of a billion-dollar scam to smuggle gold for oil in violation of US sanctions on Iran and in collusion with top Turkish officials. The trial continued at the Federal District Court in Manhattan with allegations of further government malfeasance. The proceedings took a further sensational turn when Zarrab said Turkey's President Recep Tayyip Erdogan and former Economy Minister Ali Babacan had signed off on the scheme. “The prime minister at that time, Recep Tayyip Erdogan, … had given instructions, had given an order, for [Ziraat and Vakif banks] to start doing the trade,” Zarrab testified. He dropped this bombshell as allegations of further government corruption swirled at home.

Turkey’s deputy prime minister, Bekir Bozdag, told the state-run Anadolu news agency he did not expect justice from the federal court in New York. Zarrab is a star witness for the prosecution against Mehmet Hakan Atilla, the jailed deputy manager of the state-owned Halkbank, which figures prominently at the Turkish end of a multi-billion-dollar sanctions-busting scheme. Zarrab had become “a false witness under duress,” Bozdag claimed. “A theater is being staged in New York by the courts.”

Zarrab told the court yesterday that he had decided to help the American authorities because “Cooperation was the fastest way to accept responsibility and to get out of jail at once.” He then went on to describe in minute detail and with the help of flow charts how the scheme worked and how he had greased the pockets of top government officials to the tune of tens of millions of dollars. Zarrab said Zafer Caglayan, a former economy minister, was among the primary beneficiaries, allegedly pocketing more than $50 million in bribes. It was Caglayan who told Zarrab that Erdogan and Babacan had allegedly given their blessings for the trade.

Zarrab also disclosed that he had approached Egemen Bagis, a former European affairs minister who remains part of Erdogan’s inner circle, to help him establish an account with a private Turkish bank, Aktif bank, which allegedly participated in the illicit activities. The bank was owned at the time by Calik Holding, a Turkish conglomerate of which Berat Albayrak, the current energy minister and Erdogan’s son-in-law, was a senior employee.