ABSTRACT

With the report and decision taken by the Financial Action Task Force (FATF), which sets international standards on money laundering and terrorism financing and audits member countries on whether these standards are adequately and adequately implemented, Turkey was included in the “Tightened Follow-up Process”, popularly known as the “gray list”, with the report published and decision taken at the FATF General Assembly held on October 21, 2021, on the grounds that it did not make sufficient efforts to combat money laundering and terrorism financing. This article, which is published in two parts, analyzes why and how the FATF imposes sanctions on Turkey, what Turkey should do to get off the “gray list”, and tries to provide a solution-oriented political and administrative prescription on how Turkey can get off the “gray list”. 

How Turkey Exits the FATF's Gray List (Money Laundering and Terrorism Financing): A Political and Administrative Prescription: Part 1

Introduction

The Financial Action Task Force (FATF) released its report on Turkey as part of the fourth “Round of Mutual Evaluation” at the FATF General Assembly on October 21, 2021. With the decision taken in this report, Turkey was included in the “Tightened Follow-up Process”, popularly known as the “gray list”, on the grounds that it did not adequately and effectively combat money laundering and terrorism financing. In the first part of this article, I will briefly discuss what the FATF is, why it was established, how it works, and how the mutual evaluation and supervision relationship with member countries works. Then, I will briefly analyze the decisions taken by the FATF after its evaluation and supervision process on Turkey in 2021, its demands from Turkey, and why and how Turkey was placed on the “gray list” after the 2021 evaluation. 

What is the Financial Action Task Force (FATF): Why and How Does it Sanction? 

The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 by the ministers of the G-7 countries - the United States, Japan, Germany, France, France, the United Kingdom, Italy and Canada - and the President of the Commission of the European Community, under the presidency of France.

The objective of the FATF is to ensure the effective implementation of the legal, regulatory and operational measures needed to combat money laundering (AML) and the financing of terrorism (TF), the financing of the proliferation of weapons of mass destruction (WMD) and all related threats to the integrity of the international financial system. To this end, the FATF sets international standards for combating AML/CFT and periodically evaluates countries to determine the extent to which the legal, regulatory and operational measures introduced for this purpose have been implemented. If, as a result of the evaluation, it is determined that there are deficiencies in the system for combating ML/TF, it monitors countries for a certain period of time to eliminate these deficiencies and imposes various sanctions on countries if the necessary improvements are not made at the end of these periods.

The FATF currently has a total of 37 members, including 35 countries and 2 international organizations, and the number of countries subject to the FATF exceeds 190, including countries that are members of regional organizations around the world that are similar to the FATF and committed to comply with FATF standards.

FATF Members: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Denmark, European Commission, Finland, France, Germany, Greece, Gulf Cooperation Council, Hong Kong, Iceland, India, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, Luxembourg, New Zealand, Norway, Portugal, Russian Federation, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States of America (USA). 

Turkey's Relationship with the Financial Action Task Force (FATF)

Turkey has been a member of the FATF since 1991 and the commitment to comply with FATF standards, which is a condition of membership, was made by the Minister of Finance on behalf of the Republic of Turkey. The Financial Crimes Investigation Board Presidency (MASAK) is responsible for the coordination and execution of relations with the FATF at the national level.

To date, Turkey has undergone three FATF assessments, starting in 1994, 1998 and 2006.

Financial Action Task Force (FATF) Standards 

The FATF standards essentially consist of 40 “Recommendations” and 11 “Immediate Outcomes” (IOs) that regulate the legal, regulatory and operational features that an effective anti-money laundering (AML) and combating the financing of terrorism (TF) system should have. The FATF Standards, which were first established in 1990, were last reviewed and updated in 2012, following amendments in 1996 and 2001.

Financial Action Task Force (FATF) Country Assessments 

In addition to setting standards for combating money laundering (AML), terrorism financing (TF) and proliferation of weapons of mass destruction (WMD), another important function of the Financial Action Task Force (FATF) is to periodically assess the extent to which member countries have implemented these standards through “Mutual Evaluation (ME)” and “Follow-Up” activities. In this way, the FATF encourages countries to implement the practices required by the standards, thus enabling a holistic response to threats to the integrity of the financial system.

FATF, which has evaluated member countries three times so far, continues its fourth round of evaluations, which started in 2013 following the renewal of its standards in 2012.

2021 Turkey Evaluation of the Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) published its report on Turkey in December 2019 (Mutual Evaluation Report - MER 2019) within the scope of the 4th Round Mutual Evaluation process and Turkey was included in the International Cooperation Monitoring Group (ICRG) review pool due to the results achieved within the framework of short-term targets. Country contributions on the issues set out in the evaluation report were awaited until September 2021; finally, with the publication of the Post Observation Period Report of Turkey by the International Co-operation Review Group at the FATF plenary session held on October 21, Turkey was placed on the Jurisdictions under Increased Monitoring (Jurisdictions under Increased Monitoring) on the grounds that it did not adequately combat money laundering and terrorism financing; in other words, it entered the “gray list” as it is known. 

In this process, Turkey will submit assessments to the FATF secretariat 3 times a year and is required to report on 19 topics from September 2022 to May 2023; if the expected progress is achieved in the areas determined within the process, it should be removed from the tightened monitoring process (gray list).

Some of the topics for which progress is requested are as follows:

1- Sufficient number of personnel should be assigned to the Presidency of the Financial Crimes Investigation Board to ensure that investigations arising from being a financial intelligence unit can be carried out.

2- Deterrent sanctions should be imposed for violations within the scope of the fight against money laundering and financing of terrorism in relation to unregistered money and other transfer service providers, especially the Hawala system.

3- Cooperation and information sharing between law enforcement agencies should be increased.

4- Target-oriented strategies for combating money laundering and terrorist financing, including antecedent crimes, should be determined and the number of seizure and confiscation decisions in this regard should be increased.

5- Measurable performance targets and criteria should be set for law enforcement units, judges, prosecutors and the Financial Crimes Investigation Board (MASAK) in charge of combating money laundering and terrorist financing.

6- Seizure and confiscation decisions in money laundering, terrorism financing and predicate offenses should be traceable and statistics should be available.

7- To provide priority in the fight against terrorist organizations identified by the United Nations, to carry out asset freezes at the national level on the initiative of the country in accordance with the United Nations Security Council Resolution No. 1373, and to take into account asset freeze requests from other states.

8- To make requests from foreign states within the scope of the organizations determined at the national level with the country's initiative in accordance with the United Nations Security Council Resolution No. 1373.

The Financial Action Task Force's (FATF) Decision on Turkey: Evaluation and Implications

Having made a personal analysis of how and why Turkey was included in the gray list, I would like to present a few important considerations to the public and the authorities. First, it is observed that Turkey has shown outstanding efforts in the FATF evaluation process and that great efforts have been made by the relevant institutions and organizations. However, the significant changes in decision-making processes following Turkey's transition to the Presidential Government System, the failures in understanding and implementing the new system, and the uncertainties in the process of settling the new system show that the political and bureaucratic structures in Turkey have not been able to adequately prepare and respond to the FATF's mutual evaluation process with the necessary institutional capacity and operational competence. Second, an analysis of the relevant institutions revealed that bureaucrats were hesitant to take decisions on some issues due to the congestion in decision-making processes after the Presidential Government System in Turkey, and that they could not take the necessary initiative because they considered that the issue should be decided by the Presidency since they could not take decisions on their own. Finally, thirdly, some of the decisions that should have been taken could not be taken, and in some areas, the FATF ratings remained low because the views of politicians were not known and a specific policy could not be determined.

However, a fourth point that should be emphasized is that the FATF's decision to put Turkey on the gray list should be interpreted as a political decision above all. This is because the country's financial system is put in the same league with Pakistan, Syria, Albania, Myanmar, Yemen, South Sudan, Uganda, Senegal, Burkina Faso, Zimbabwe, Nicaragua, the Philippines, Cambodia, Haiti, the Cayman Islands and Barbados in the fight against money laundering and terrorist financing. Considering that Turkey was not invited to the Global Democracy Summit, it is indisputable that the decisions taken have a political dimension.

Finally, what we should really focus on is that Turkey's recapture of the FATF's required standards on money laundering and terrorism financing, despite all these shortcomings, setbacks and political dimensions, should be recognized as a matter of both technical and effective/efficient state and competent public policy capacity. Turkey, without taking refuge in various excuses, reserving the right to criticize this process by political actors in the political arena, should quickly take the necessary steps to get off the FATF's gray list in a manner befitting its own state tradition, legal/democratic experience and institutional capacity. In this regard, both elected politicians, appointed administrative staff and judicial institutions have important duties and tasks. In the second part of this article, I will discuss in more detail the public policy implications and solutions for Turkey's rapid exit from the gray list in line with the FATF's demands.

The views expressed in this article are solely those of the author and may not reflect the institutional stance, editorial perspective, and/or policy orientation of KAPDEM. While KAPDEM encourages the articulation of diverse perspectives through its published content, it bears no responsibility for the information and intellectual output presented therein; all responsibility lies with the respective authors.