Erdogan gov’t aware of ISIS financiers in Turkey, took years to act

Abdullah Bozkurt/Stockholm

For many years the Turkish government turned a blind eye while the Islamic State in Iraq and Syria (ISIS) transferred funds through shell companies it had set up in Turkey, exploiting the Turkish financial system to move money between its operatives and across borders.

A Nordic Monitor investigation identified three front companies, among dozens, established by known ISIS operatives in Turkey’s financial capital of Istanbul. These companies, using accounts set up in Turkish banks, made no effort to conceal the money transfers between Turkey and Syria. In fact, the office of one of these companies was used as a local election campaign office by Turkish President Recep Tayyip Erdogan during last year’s presidential and parliamentary elections.

The operative ISIS used as a financier is a 46-year-old Syrian national named Imad Machnouk, who settled in Turkey. According to confidential information obtained by Nordic Monitor, he was registered as a refugee, granted residency in Turkey and even acquired a national ID number (99205533826). This allowed him to set up companies, open bank accounts, conduct business with Turkish government agencies and access public services

His declaration papers indicate that he settled in Istanbul’s Başakşehir district, a conservative stronghold of the ruling Justice and Development Party (AKP). The first company he helped establish was Al Jawad Gayrimenkul İnşaat Gida ve Ticaret Limited Şirketi, a real estate, construction and food commerce firm.

Trade registry data for Al Jawad Gayrimenkul İnşaat Gida ve Ticaret Limited Şirketi:

The real estate and construction industries are among the primary sectors in Turkey used by criminal and terror networks to launder money, converting illicit funds into clean money that can then be moved through financial institutions.

The company was established on August 12, 2015 and initially registered to a man named Tala Alfrra, who later transferred his shares to Sahar Bahader on January 9, 2019. Both men are Syrian nationals. Alfrra reclaimed the shares a year later but transferred them again on April 13, 2022 to a 49-year-old man named Ahmet Dahi, who also came to Turkey as a Syrian refugee and acquired Turkish citizenship. On September 30, 2022 Machnouk took over the firm and relocated its office to the Başakşehir district, where he resides.

In August 2023 Machnouk relocated the company’s office to a business complex at Adnan Menderes Boulevard No. B5 in Başakşehir. This office was simultaneously used as a local campaign office for President Erdogan during the 2023 presidential and parliamentary elections. A Google Earth image taken in December 2023 still shows Machnouk’s other business, Piko, alongside posters of Turkish President Erdogan.

On January 6, 2016 Machnouk established his second company in Istanbul, Piko Turizm Limited Şirketi, a tourism and travel agency based in the Fatih district. This venture allowed him to access the travel industry, manage bookings and coordinate with airlines, bus companies, hotels and car rental firms. Trade registry data shows that on April 15, 2022 he sold his shares to Dahi but reacquired them seven months later.

It appears that Machnouk and Dahi have been coordinating their business operations, repeatedly transferring shares of the companies they were involved in back and forth between themselves.

An ISIS financier established a travel and tourism agency, Piko Turizm Limited Şirketi, in 2016:

Facing increasing difficulties in using jewelers and exchange houses to move money for ISIS, Machnouk decided to establish his own jewelry firm, which also functions as an exchange house. On January 24, 2022 he instructed Dahi to set up a jewelry company called Piko Kuyumculuk Limited Şirketi in Istanbul’s Esenyurt district. On December 7, 2022 Dahi transferred ownership of the jeweler to Machnouk

The jewelry business in Turkey often operates on a cash basis, with many jewelers also functioning as unofficial foreign currency exchange houses. This sector is one of the primary avenues that terrorist groups, such as ISIS, exploit to move money by various means, often using what is known as the hawala system.

The Turkish government had not taken any action against Machnouk’s business ventures, established on behalf of ISIS, until it faced growing pressure from the US and the Financial Action Task Force (FATF). The FATF placed Turkey on an increased monitoring list, commonly referred to as the “grey list,” due to deficiencies in its anti-money laundering and terrorism financing mechanisms since 2021.

This development dealt a blow to foreign investment in Turkey and increased risk premiums for government borrowing at a time when the country was already grappling with financial difficulties and economic hardship.

To remove itself from the FATF grey list, the Erdogan government needed to demonstrate that it was taking action against money launderers, terror financiers, criminal syndicates and organized crime networks. At this juncture, Machnouk’s business activities in Turkey became the focus of a criminal investigation, seven years after he first established his operations there.

An indictment drafted and submitted to the court by the Istanbul Chief Public Prosecutor’s Office in April 2024 marked a turning point for Machnouk, who was listed as a suspect in a terrorism financing case along with 18 other individuals.

Imad Machnouk took over the jewelry and foreign exchange firm Piko Kuyumculuk Limited Şirketi in December 2022:

The investigation conducted by the police counterterrorism department revealed how Machnouk and others were transferring money to Syria using the companies they had established in Turkey, often employing the hawala system. They communicated via WhatsApp, which was already being monitored by Turkish government agencies.

The report prepared by Turkey’s Financial Crimes Investigation Board (MASAK), the designated institution for the FATF in Turkey, indicated that Machnouk, through his companies, has been involved in money transfers with known ISIS figures whose assets were frozen under UN Security Council sanctions regarding ISIS and al-Qaeda

The report revealed that Machnouk had transferred several billion Turkish lira through his companies since 2017, despite there being no recorded trade, and over 200 million lira through his personal bank accounts. The amount he managed to transfer using the hawala system, which is not recorded in bank transactions, remains unknown.

Suspicious activities were also noted in the declarations made by Machnouk. In Turkey businesses are required to file records of their purchases of goods and services exceeding a certain amount (5,000 Turkish lira). These declarations, the Notification Form for Purchases of Goods and Services (Mal ve Hizmet Alımlarına İlişkin Bildirim Formu [Ba] in Turkish) and the Notification Form for Sales of Goods and Services (Mal ve Hizmet Satışlarına İlişkin Bildirim Formu [Bs] in Turkish), are submitted to the tax authority.

A review of the Ba and Bs forms filed by Machnouk did not match the business activities he was supposed to be engaged in within the area for which he was authorized and licensed.

For instance in January and February 2023 Abu Alaa, also known as Abd-al-Hamid Hadib or Fawaz, an ISIS operative in Syria’s Raqqah, transferred $600,000 to Istanbul in 20 different transactions through Machnouk’s Pico jewelry firm.

In other words Turkish authorities were aware that transactions were occurring and that the firms were, in fact, shell companies, but they did not act until the critical moment when the Erdogan government decided to crack down on Machnouk and his associates to demonstrate Turkey’s readiness to remove itself from the FATF’s grey list.

The strategy proved effective. On June 28, 2024, just two months after Turkey opened a criminal case against ISIS financiers, the FATF removed Turkey from the grey list.

In the meantime, Turkey’s Finance Ministry, led by Mehmet Şimşek, eliminated the requirement for businesses to file Ba and Bs forms as of September of this year, citing the need to reduce the paperwork burden on companies.

The indictment also included a significant piece of evidence in the form of a flash drive obtained from ISIS several years ago during the arrest of an ISIS suspect in Turkey’s border province of Kilis, near Syria. The drive contained Arabic documents detailing ISIS’s activities in Syria from 2019 to 2021. Some of these documents were presented in versions translated into Turkish as evidence against Machnouk and the other suspects.

One document titled “Islamic State Sham Province – Security,” sent on March 16, 2021 to the ISIS deputy governor of Sham by Omar, the ISIS emir of Aleppo, detailed ISIS’s frustration with the financial crackdown in many countries, urging caution. It stated, “If the money transfer location is a known place in the area, it can lead to the capture of our members, as cameras in the office can record them and expose their faces. This is why many brothers have been arrested. We also know that many money transfer companies send camera recordings, pictures, names and reports of transfer activities to the tyrants.”

The ISIS emir recommended using shell companies for money transfers in the form of credit lines and share transfers to evade detection. “It is not possible for us to make large transfers. An alternative solution is to use inter-company credit [deposit] methods. This requires establishing relationships with certain companies. We already have relationships with some companies. We are establishing connections with the owners of companies whose families were killed while carrying out activities in the Islamic State,” the ISIS emir said.

In the indictment Machnouk was charged with “membership in an armed terrorist organization,” “violating the Law on the Prevention of Terrorism Financing” and “purchasing, carrying, or possessing unlicensed firearms and ammunition.” He faces up to 42 years in prison if convicted. The public prosecutor is seeking various sentences for 18 other suspects involved in the same case.

It is not expected that a genuine crackdown will occur after the end of the trial, given that in most ISIS cases in Turkey, suspects are often released during hearings, with very few actually convicted. In some instances even those few ISIS members who are convicted in lower courts have their convictions overturned on appeal as the criminal justice system in Turkey, heavily influenced by Islamists and nationalists, acts as a revolving door for ISIS suspects.