The global money laundering and terrorist financing watchdog, The Financial Action Task Force ("FATF") has recently published the "Turkey Follow-Up Report ("FUR")" for 2023, offering a thorough examination of Türkiye's progress in addressing the technical compliance deficiencies outlined in its 2019 Mutual Evaluation Report ("MER").
The FUR 2023 has recognized notable advancements Türkiye has made in rectifying the compliance deficiencies previously identified under six recommendations:
- Recommendation 8: The country has amplified its Customer Due Diligence (“CDD”) regulations concerning wire transfers, obliging financial institutions to gather extensive information about the sender and recipient involved in the transfer.
- Recommendation 12: Amendments to Türkiye’s money laundering law have expanded the definition of money laundering to align with FATF standards and introduced stiffer penalties for offenders.
- Recommendation 15: Türkiye has implemented measures to mitigate the risks of money laundering and terrorist financing associated with emergent technologies, notably cryptocurrencies. Such steps include formulating regulations on cryptocurrency usage and mandating financial institutions to report suspicious transactions involving such digital assets.
- Recommendation 22: The enforcement of AML/CTF laws has been intensified, signified by a rise in the number of prosecutions for money laundering and terrorist financing offenses, and increased severity of penalties imposed on offenders.
- Recommendation 26: Controls on cross-border currency transfers have been bolstered to prevent their exploitation for money laundering and terrorist financing.
- Recommendation 28: Supervisory mechanisms over financial institutions have been enhanced, marked by an increased inspection frequency and the requirement for financial institutions to maintain robust AML/CTF compliance programs.
Following these improvements, the FATF has upgraded Türkiye's rating on these six recommendations from "Partially Compliant" to "Largely Compliant" or "Compliant," indicating substantial progress. However, the FATF underscores that Türkiye still requires further work in these areas and thus remains in the enhanced follow-up status. This status suggests that Türkiye will continue to be under close FATF scrutiny, potentially leading to further consequences should its efforts toward progress wane.
Consequently, Türkiye remains subject to heightened FATF scrutiny, potentially leading to ramifications such as elevated costs for financial institutions, curtailed access to international financial markets, and reputational damage.
The report has implications for the Turkish government. The government needs to continue to make progress in addressing the deficiencies in its AML/CTF regime. At this stage, it is crucial to comply with and implement the FATF’s Recommendations for the Turkish government.
The adverse effects of being on the grey list can be significant, and they can have a negative impact on the economy of a country. However, the re-rating of Türkiye on six recommendations is a positive sign, and it suggests that Türkiye is making progress in addressing the deficiencies in its AML/CTF regime. If Türkiye continues to make progress, it could be removed from the grey list in the near future.
How Will Business Be Affected?
The report has a number of implications for businesses that operate in Türkiye or have dealings with Turkish companies. Businesses should review the report and assess their AML/CTF compliance programs to ensure they align with the FATF's recommendations. Businesses should also consider implementing additional measures to mitigate the risks of money laundering and terrorist financing.
Here are some of the critical elements of an AML/CTF compliance program:
Risk Assessment: Businesses need to assess the risks of money laundering and terrorist financing that they are exposed to. This assessment includes identifying the types of customers they deal with, the types of transactions they process, and the geographic locations where they operate.
Customer Due Diligence: Businesses need to conduct CDD on their customers to understand their identity, source of funds, and purpose for doing business with the business. This process includes collecting information such as the customer's name, address, date of birth, and occupation.
Monitoring and Reporting: Businesses need to monitor their customers' transactions for suspicious activity. Monitoring activities include identifying transactions that are large or unusual, or that do not appear to have a legitimate purpose. Businesses also need to report suspicious activity to the relevant authorities.
Enforcement: Businesses need to have a system in place to enforce their AML/CTF compliance program, which includes disciplining employees who violate the program and terminating the relationships of customers who engage in suspicious activity.
Training: Businesses should train their employees on AML/CTF compliance. This training should cover the risks of money laundering and terrorist financing, the business's AML/CTF compliance program, and how to identify and report suspicious activity.
Businesses that fail to comply with AML/CTF regulations may face several sanctions, including fines, criminal prosecution, and reputational damage. Therefore, it is crucial for businesses to ensure that they comply with the FATF's recommendations.
The FUR reflects Türkiye's progress in addressing AML/CTF deficiencies but stresses the need for continuous effort from both businesses and the Turkish government. Full compliance with AML/CTF regulations is critical in safeguarding against financial and legal repercussions, and equally vital in preventing the financial system's exploitation for money laundering or terrorist financing activities. The hope remains that Türkiye's continued progress will eventually lead to its removal from the FATF's grey list. In addition, it is also very important for all stakeholders in Türkiye to follow and comply with their obligations arising from both national and international regulations regarding Türkiye's AML/CTF reforms.
You can read the full report here.
Zeynep İnceer Üçgül
Head of Business Development