Abdullah Bozkurt/Stockholm
Turkey is still falling short in implementing effective mechanisms in combatting money laundering and terrorist financing, although it has made some progress since it was put on a grey list by the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog.
According to a report issued by the FATF in July 2023, Turkey still has strategic deficiencies in complying with the recommendations made by the FATF. The report urged Turkey to undertake more complex money laundering investigations and prosecutions and to conduct more financial investigations in terrorism cases. Additionally, the country was advised to prioritize investigations and prosecutions related to UN-designated terrorist groups.
In order to address these deficiencies and improve its anti-money laundering/combatting the financing of terrorism (AML/CFT) regime, Turkey would need to take further measures to strengthen its financial regulatory framework, enhance law enforcement efforts and cooperate internationally to prevent money laundering and terrorist financing activities.
The rampant abuse of the Turkish financial system by various criminal elements, such as mafia groups, drug traffickers, organized crime syndicates and terrorist organizations, over the last decade clearly occurred due to the permissive political environment provided by the government of President Recep Tayyip Erdogan. As a consequence of these issues, Turkey was placed among countries that were subjected to increased monitoring, which was publicly referred to as being on the “grey list,” in October 2021.
Since then, Turkey has submitted an action plan to the FATF to end the enhanced monitoring, which has had negative consequences for Turkey’s financial and economic standing. The increased risk premiums in borrowing indicate that international lenders perceive higher risks associated with lending to Turkey, making it more expensive for the country to borrow funds. Moreover, being on the grey list has made it challenging for the Turkish government to attract foreign investment, particularly at a time when the country is already facing financial hardship and economic challenges.
The FATF report on Turkey found shortcomings in the country’s compliance in combatting money laundering and terrorist financing despite some progress:
Türkiye-Follow-Up-Report-2023
While Turkey’s actions might not have been as energetic as expected by the FATF, it seems that the grey list designation has at least motivated the country to take some measures to mitigate the damage caused by the fallout of being on the list. It remains crucial for Turkey to continue its efforts and work diligently to fully address the identified AML/CFT deficiencies to improve its financial and economic situation and regain the trust of the international community.
That, however, may be an elusive goal for Turkey given the frequent flip-flopping and rollbacks taken by the government that can indeed impede progress and create uncertainty in the AML/CFT regime. Such actions would certainly erode the trust of international bodies like the FATF and financial markets, making it harder for Turkey to regain its standing and attract foreign investment.
Although the FATF welcomed some positive steps taken by the Erdogan government to address shortcomings in compliance, it nevertheless concluded that the country still has a ways to go to bring Turkey into compliance with the FATF recommendations. The warning from the FATF that all deadlines for the country have now expired means that Turkey did not meet the specified timeframes set by the FATF to make the necessary improvements in its AML/CFT regime.
One of the main problems in addressing terrorism financing in Turkey stems from the abuse of nongovernmental organization status to channel money to terrorist groups, particularly in conflict areas such as Syria and Iraq, both neighbors to Turkey. The main actors in this field are associations that represent 95 percent of all nongovernmental entities as opposed to foundations, which are strictly regulated in Turkey and require court approval for their establishment.
In the last decade dozens of associations, some Turkish affiliates of foreign NGOs, have been able to provide illegal funding to jihadist groups, helping them sustain their operations. The Erdogan government has largely turned a blind eye to such activities, and in some cases Turkish intelligence agency MIT was directly involved in funding and providing arms and logistical support to such groups to promote the policy objectives of the government in Syria, such as the ouster of the President Bashar al-Assad government and replacing it with a Muslim Brotherhood regime.
The Erdogan government is also notorious when it comes to the abuse of measures and mechanisms intended to combat terrorism financing by NGOs for political purposes. In recent years many foreign governments, intergovernmental organizations and nongovernmental human rights groups have expressed concern about the abuse of AML/CFT measures to suppress dissent, silence opposition and punish legitimate groups critical of the government’s policies.
Turkey blatantly misused AML/CFT regulations and the criminal justice system to target political opponents, undermining the integrity of these measures and eroding trust in the judicial system. As a result the Erdogan government’s actions had a chilling effect on civil society, hindered freedom of expression and threatened democratic principles.
The politicization of institutions responsible for combating financial crimes, such as the Financial Crimes Investigation Board (MASAK), the body that coordinates with the FATF, remains a serious concern as it undermines the independence and effectiveness of these bodies. When such institutions become tools in the hands of the Erdogan government, they are amenable to being exploited for political purposes, which has been the case in Turkey for the last decade.
The removal of senior police chiefs and top administrators in the Interior Ministry, followed by the politicization of MASAK, raises questions about the impartiality and credibility of MASAK’s actions. Today it is being used to produce reports that are manipulated to target legitimate businesspeople, journalists and human rights activists under the guise of fighting terrorism, posing a serious threat to the rule of law and fundamental human rights in Turkey.
The actions by the Erdogan government in 2021, when the assets of numerous individuals, including journalists, were confiscated on terrorism financing allegations without concrete evidence, raised serious concerns about the abuse of anti-terror laws and the implications for freedom of expression and human rights in Turkey.
Using anti-terror laws as a tool to crack down on freedom of expression, freedom of the press and freedom of assembly is a troubling practice that has had a chilling effect on civil society, media freedom and legitimate criticism of the government in Turkey.
The addition of names of UN-sanctioned individuals to the list to create the perception that journalists and government critics are also linked to terrorism cast further doubts on the fairness and objectivity of the Erdogan government’s actions.
The FATF did not accept the Turkish government’s arguments and instead repeatedly emphasized in both its 2022 and 2023 reports that Turkey needs to prioritize investigations into UN-designated individuals and entities that were sanctioned for financing terrorism.
According to the FATF nongovernmental organizations remain problematic in Turkey in dealing with the financing of terrorism, and it made a number of recommendations to address the shortcomings in this area. The latest report on Turkey says Turkey enacted some amendments to Turkish laws and issued regulations allowing the Interior Ministry to categorize associations in various risk categories in the possible misuse of funds for terrorism financing.
The Interior Ministry placed 115 associations in high-risk and 1,011 in medium-risk categories between 2021 and 2022 in order to meet the FATF criteria and conducted audits on them. As a result the FATF said Turkey made progress in addressing technical compliance on this deficiency, becoming largely compliant, although it remains to be seen how this is reflected in the implementation.
It is also noteworthy that the Erdogan government has not audited a single foundation in this respect, despite the clear presence of red flags in some cases. That means the Foundation for Human Rights and Freedoms and Humanitarian Relief (İnsan Hak ve Hürriyetleri ve İnsani Yardım Vakfı, or IHH), an entity that works with Turkish intelligence in supporting the global jihadist campaign, was saved from any scrutiny. The IHH, which has worked with many violent jihadist groups including the Islamic State in Iraq and Syria (ISIS) and al-Qaeda, is the foremost charity group in Turkey for providing logistics to groups inside and outside the country under the cover of humanitarian aid.
Despite recommendations by the FATF, Turkey has still not met the required compliance in addressing deficiencies in the abuse of virtual assets (VA) and virtual asset service providers (VASPs). Both terrorist groups and organized crime syndicates rely on the use of virtual assets such as cryptocurrencies in Turkey in moving funds since there are no requirements for VASPs to be licensed or registered in the country. As a result, natural or legal persons can carry out VASP activities without raising any red flags.
The FATF warned that the absence of a requirement for VASPs to be licensed or registered may limit the ability of Turkish authorities to prevent crime, to identify people or entities involved in money laundering and terrorism financing operations and to impose of appropriate sanctions.
This is especially relevant when it comes to virtual casinos and betting sites run by mafia groups in Turkey, with many of them enjoying political cover. Although casinos are forbidden by law in Turkey, organized crime syndicates use virtual casino and betting sites to earn illegal revenue and to launder money. Some of these operations are run through the Turkish Republic of Northern Cyprus (KKTC), a breakaway entity that is recognized only by Turkey.
Technical compliance with the FATF criteria is essential, but it is only part of the equation. The true effectiveness of AML/CFT efforts lies in the implementation of these measures on the ground and the commitment of the government to execute the procedures diligently.
Turkey’s past record in combatting money laundering and terrorism financing activities is a significant factor that needs to be considered. A history of inadequate action or the undermining of competent authorities can raise doubts about the government’s genuine commitment to combat financial crimes.
A facade of doing the work without genuine and sustained efforts can hinder progress and result in a lack of concrete action on the ground. For AML/CFT measures to be effective, they must be applied consistently, transparently and without political interference.
Although empowering the competent authorities and law enforcement agencies in combatting money laundering and terrorism financing is crucial, the consolidation of power in the hands of President Erdogan has, however, undermined the independence of law enforcement and the judiciary, leading to serious challenges to taking independent action.
Law enforcement and judicial institutions in Turkey are dependent on political signals from the government and lack the ability to act impartially and without bias. As a result any actions to combat financial crimes, including money laundering and terrorism financing, are influenced by political considerations rather than based solely on evidence and the law.
That is why the effectiveness of AML/CFT efforts were hindered in Turkey and resulted in selective enforcement or a lack of action against certain individuals or entities involved in financial crimes.
In theory by upholding the rule of law, promoting transparency and demonstrating a genuine commitment to fighting financial crimes, Turkey can work towards enhancing its AML/CFT regime and contribute effectively to the global efforts to combat money laundering and terrorism financing. The Erdogan government, however, has no real interest in restoring the rule of law, respecting rights and freedoms or genuinely cracking down on criminal enterprises.
The FATF’s decision to keep Turkey on the grey list despite noting positive progress on most technical compliance criteria reflects the importance of seeing genuine action and a real commitment from Turkey in effectively implementing AML/CFT measures on the ground.
Technical compliance alone is not enough; it is the effective implementation of these measures that truly matters in combatting money laundering and terrorism financing. The FATF’s decision to keep Turkey on the grey list signals the need for the country to demonstrate concrete and sustained efforts in addressing the identified deficiencies and taking real action to combat financial crimes.
In other words the FATF is keeping Turkey in the “waiting room,” saying it is essential for Turkey to show that its efforts are not superficial or merely on paper but are backed by concrete actions and a long-term commitment to enhancing its financial integrity and combating financial crimes effectively.
What is more Turkey’s new economy czar, Mehmet Şimşek, who is supposed to get Turkey off the FATF’s grey list, does not inspire much confidence. As a former finance minister in the Erdogan government, Şimşek has been accused of enabling corrupt practices and political interference in financial institutions such as MASAK. This could understandably raise doubts about his ability to effectively lead the country’s efforts to combat money laundering and terrorism financing.
The role of MASAK, as the main counterpart to the FATF in Turkey, is crucial in implementing AML/CFT measures and ensuring the integrity of the country’s financial system. Şimşek’s track record reveals flagrant political interference, turning a blind eye to illegal activities, or using MASAK to target legitimate opposition and government critics. Hence he lacks the credibility and effectiveness in combating financial crimes although he publicly boasts about doing the work in complying with the FATF recommendations.
