Levent Kenez/Stockholm
The Turkish government has finally decided to enact legislation concerning cryptocurrency, with the relevant proposal approved by parliament’s Planning and Budget Committee. Hoping to exit the Financial Action Task Force’s (FATF) grey list at its annual meeting in Singapore on June 28, Ankara has been accused since 2021 of failing to implement fundamental reforms related to money laundering and terrorist financing. Various reports have indicated that terrorist groups, particularly the Islamic State in Iraq and Syria (ISIS), have been using intermediaries in Turkey, cash transfer apps and cryptocurrency to fund their activities.
The recent proposal to amend the Capital Markets Law introduces a comprehensive regulatory framework for crypto asset service providers, covering the operations of crypto-asset platforms, the custody of crypto assets and the trading and transfer activities on these platforms by individuals residing in Turkey. Under the new regulations, the establishment and operation of crypto asset service providers will require authorization from the Capital Markets Board (Sermaye Piyasası Kurulu, SPK).
Unauthorized activities will be subject to criminal penalties, including imprisonment. The principles and guidelines that crypto asset service providers must adhere to during their operations will be determined by the SPK through secondary legislation.
Crypto asset service providers will be held accountable for unlawful activities and breaches of information security. Additionally, members of their boards of directors will also be held liable and subject to embezzlement provisions in such cases.
Existing crypto asset service providers will be required to apply for an operating license from the SPK within one month from the date the law is enacted. Foreign crypto firms will be also required to cease their activities directed at residents of Turkey within three months, or they will be classified as unauthorized crypto asset service providers.
Text of the proposed legislation amending the Capital Markets Law:
SPK proposalThe FATF included Turkey among countries that were subjected to increased monitoring, publicly referred to as being on the “grey list,” in October 2021.
During a parliamentary committee meeting on May 30 opposition party members criticized the government for its inaction on cryptocurrency-related irregularities until now, arguing that the new regulations are overdue. Peoples’ Equality and Democracy Party (DEM Party) MP Heval Bozdağ reminded lawmakers that the FATF long ago had warned Turkey about terrorist groups like al-Qaeda and ISIS, as well as other money launderers, illegally channeling funds into the Turkish real estate market. Once laundered through the real estate sector, the funds were then integrated into other sectors of the economy.
The government’s delay in taking these steps is related to the wealth amnesty bill enacted on July 1, 2022. According to the bill, individuals and entities had until March 31, 2023 to bring cash, gold and other capital wealth that was not previously disclosed in Turkey into the country from abroad. The bill does not allow for any audit or investigation into such assets under any circumstances, providing total immunity for money launderers, drug traffickers and others who transfer their wealth to Turkey. Those who were already under investigation by government auditors would also be able to exploit this law if they claimed that the wealth under audit was obtained through such transfers. The government waited for as much money as possible to enter the country.
On January 30, 2024, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned a Turkish cybersecurity specialist linked to ISIS. This individual provided ISIS leaders and supporters with cybersecurity training, facilitated their use of virtual currencies and aided in the group’s recruitment efforts. Furthermore, OFAC targeted an ISIS financial facilitator who was involved in transferring funds to individuals associated with ISIS in Syria. “Today’s actions hinder ISIS’s ability to transfer funds, particularly through cryptocurrencies, and exploit its online presence for recruitment and propaganda,” said Brian E. Nelson, under secretary of the Treasury for Terrorism and Financial Intelligence. According to OFAC, in mid-2020 Faruk Güzel, based in Turkey, received several transfers from ISIS supporters for associates of ISIS in Syria via a money remittance service. Güzel subsequently disbursed the funds to individuals affiliated with ISIS.
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-2023Another report issued by the US Department of Defense and submitted to Congress on February 9 states that ISIS continues to use Turkey for transferring funds and facilitating support for its regional and global activities. The report revealed that ISIS transferred up to $20,000 per month to individuals at al-Hol through intermediaries in Turkey, using the hawala system, cash transfer apps and cryptocurrency. Al-Hol is a detention camp in Syria where ISIS members and their families are held. Additionally, some ISIS militants are detained in another camp known as Al-Roj, located in northern Syria near the Turkish border. According to the Pentagon report, ISIS increasingly relies on virtual assets for international funds transfers to support militant operations, recruit and maintain loyal supporters and secure the release of its members from detention.
According to a report issued by the FATF in July 2023, Turkey still has strategic deficiencies in complying with the watchdog’s recommendations. 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.
As Turkey faces a foreign capital shortage, Finance Minister Mehmet Şimşek has repeatedly emphasized the importance of Turkey’s exit from the grey list to attract Western investors. Following 2016 President Recep Tayyip Erdogan’s government implemented an open-door policy to meet the need for hot money, welcoming mafia groups, drug traffickers, organized crime syndicates and terrorist organizations. Struggling to secure loans from international financial institutions and unable to obtain the expected financial support from the Gulf countries, Turkey faced difficulties. Upon his re-election on May 28, 2023, Erdogan appointed former Istanbul Governor Ali Yerlikaya as interior minister, replacing Süleyman Soylu, who faced various allegations of connections to the mafia. Yerlikaya initiated a series of operations against mafia groups and gangs with international connections. The significant number of mafia members detained raised questions among the public about when Turkey had become a haven for so many mafia members.
An April 2024 report by the European Union Agency for Law Enforcement Cooperation (Europol) unequivocally affirmed that during President Erdogan’s 22-year tenure, Turkey has become a focal point for major criminal syndicates, posing a serious threat to Europe’s safety and security. Among the 821 most threatening criminal networks scrutinized across Europe, individuals holding Turkish citizenship or EU nationals of Turkish descent frequently appeared as members or key figures, heightening the risk to the EU’s internal security.
