Money Laundering Bulletin
www.moneylaunderingbulletin.com
Financial Action Task Force patience was running on empty when Ankara finally passed terrorist financing legislation. One crisis averted, perhaps, but Paul Cochrane, in Beirut, finds that other deficiencies persist.
Since
2007, Turkey has been on the receiving end of repeated warnings from the Financial Action Task Force (FATF) to improve its regime to combat the financing of terror. While a
anti-terrorism bill has now been passed, shortcomings still remain
and new risks have emerged in Turkey's difficult neighbourhood.
Ongoing political wrangling and a corruption scandal present further
challenges, including the independence of the judiciary.
It was in February 2009 that the AML/CTF standard-setter gave Ankara to pass new laws on terrorist financing. This did not happen and in October
2012, Turkey was told it had three months to comply with the Recommendations on terror finance or
face suspension from FATF. Specifically, Turkey is required to establish a “legal
framework for identifying and freezing terrorist assets" meeting its guidance, notably Recommendation 6, and its Interpretive Note 6 on freezing, “without delay and without
prior notice, the funds of other assets of designated person and
entities.”
Not before time
In
February 2013, at the eleventh hour, Ankara passed a domestically-controversial bill under which any
individual or entity financially aiding terrorists, even if the money
is not “used for an illegal activity,” faces five to 10 years in
prison. The law authorizes the Finance Ministry’s Financial Crimes
Investigation Board (MASAK) to freeze the assets of those involved in
terrorist financing in Turkey or abroad without the need to first
obtain a judicial ruling.
“I think
the FATF observation was valid, as we didn't have the legal framework
to confiscate or freeze assets on international watch lists or the
red flag mechanism for suspicious transaction reports (STRs),” said
Atilla Yesilada, an Istanbul-based analyst at Global Source Partners
Inc. “The final warning of FATF has strengthened the legislative
framework but it is very clear that Turkey doesn't have a very tight
supervision on AML and on CTF. We live in a country where impunity
exists.”
Still to do
Indeed,
despite the new CTF law, a FATF public statement, issued in February,
2014, stated, “certain concerns remain, and Turkey should take
further steps to implement an adequate legal framework for
identifying and freezing terrorist assets” under United Nations
Security Council Resolutions (UNSCRs) 1267 and 1373.
Such
shortcomings places Turkey alongside Yemen, Algeria and Syria in the
Middle East and North Africa (MENA) in having what FATF terms
“strategic AML and CTF deficiencies.” As such, Turkey is lagging
behind many of its MENA peers.
“On
a comparative level, Turkey needs to update its regime to be in line
with the rest of the region,” said Hossam M. Abd El-Rahman,
Chairman and Managing Director of Allied Compliance Consultants in
Dubai, which specializes in financial crime, consultancy and training
in the MENA. “Turkey is falling behind in Recommendation 6, proper
risk management, Recommendation 7, regarding financing of
proliferation, and in others, such as Recommendations 11 and 12, on
measures to be taken to prevent ML and TF. There are a lot of
deficiencies, and all these gaps need to be filled up quickly.”
Taxing questions
A
further issue to be addressed are the tax amnesties Ankara introduced
to repatriate capital. In 2008 and 2009, tax amnesties attracted some
US$27 billion in assets, according to government statistics. In 2013,
a third amnesty was introduced, with Ankara wanting to attract US$130
billion in untaxed assets kept offshore by Turkish taxpayers.
Controversially, the Finance Ministry stated there would be no tax
investigation or retroactive tax assessments, although criminal
investigations could be launched if there is suspicion of ML.
“This wealth amnesty
has completely undermined the system,” said Yesilada.
“Part of the money brought in as being of “Turkish
origin” may actually be borrowed or given to them by non-Turkish
entities or cartels with no questions asked, and laundered in Turkey.
These amnesties ask no questions and you just have to show a
certificate of deposit that the money belongs to you, which is easy
to get. It is a disgrace not to find out the source of that money, as
there's no idea of its nature.”
Trouble at the top
Compounding regulatory
and enforcement issues is the ongoing political wrangling between the
ruling AKP party of Prime Minister Recep Erdogan, which has faced
mass demonstrations over the past year, and the opposition. In
December (2013), allegations of corruption among Erdogan's circle
emerged following a police investigation, including a scandal that his son, Bilal, met with Saudi
Arabian businessman Yasin Al-Qadi, whom the United States blacklisted
via its Office of Foreign Assets Control (OFAC) as a "specially designated global terrorist," freezing his assets on 12 October 2001.
Another high-profile case
involves Iranian-Turkish national Reza Zerrab, who is alleged in another police investigation to have
launder billions of dollars for Iranian businessmen in a “oil for
gold deal,” with commissions paid out to the Economy Minister (an
alleged US$49 million), the CEO of the partly state-owned bank
Halbank (US$7.7 million), and people close to the AKP. Zerrab was arrested in December 2013, and faces money laundering, corruption and fraud charges.
Political push and pull
Depending on how these cases turn out (and the government has made allegations that they are politically motivated), they could put pressure on Turkey's financial and business world to clean up its AML act. Abd El-Rahman said: “The corruption case
will seriously affect the banks, and companies will have to do a lot
of effort to boost compliance.”
But political plays are in motion that could mean the opposite. The Speaker of Parliament,
Cemil Cicek, for instance, said in January that there is no independent judicial
review in Turkey, while a bill is being debated that would
restructure the Supreme Board of Judges and Prosecutors (HSYK).
However, Professor Recep Pekdemir, a faculty
member of the Istanbul Business School at Istanbul University,
believes this issue will be sorted out. “The judiciary issue will
be stabilised soon, it's only a fight
between politicians. If the country is stabilised
there can be more control over illicit activities, but right now the
government is focused on internal matters rather than external
matters,” he said.
Syria - unknown quantity
Externally, Ankara is having to deal with the
changing political environment in the Middle East: the West's
relations are warming with sanctioned Iran while the conflict in
neighbouring Syria has seen hundreds of
thousands of refugees flooded into the country since
2011. There are also allegations of Turkey supporting Islamic rebel
movements in Syria.
“Ankara denies it but
everyone knows that Ankara is sending arms and money to the Syrian
Islamic Front and Jabhat Al Nusra, and there are millions of Syrian
refugees in the country; who they are and what they are living on no
one knows,” said Yesilada.
“There may be blow back for Turkey, and Syrian groups
are allied with (the blacklisted terrorist group) Kurdistan Workers'
Party (PKK), which is bad news. How can smuggling be stopped?”
Turkey has many challenges ahead to bolster its
AML regime in addition to curbing the country's role as a
trans-shipment hub for drugs, human trafficking and smuggling.
“Turkey has many neighbouring countries
which have been having troubles with not only terrorism but also
human trafficking, illicit crime and money laundering. As Turkey is
uniquely positioned on two continents, it is difficult to solve such
issues,” said Pekdemir.
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