The FATF 20 July 2023 Turkey Report, which is published annually as a result of the FATF General Assembly’s close monitoring of Turkey within the framework of the criteria for combating the financing of terrorism Counter Terrorist Financing (CTF) and anti-money laundering (AML) in 2019, has been published.
Introduction
The Financial Action Task Force (FATF) is an independent inter-governmental body that has been established by the OECD which develops and international standards to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. More than 200 countries around the world have committed to comply with FATF recommendations (FATF 40 Recommendations). The FATF Recommendations are recognized as the global AML and CTF standard.
According to the results of Türkiye ‘s Mutual Evaluation Report (MER) in October 2019, the FATF General Assembly found Turkey risky within the framework of the recommendations for combating the financing of terrorism and money laundering and followed it up closely (enhanced follow-up). A Follow-Up Report (FUR) is published every year about Türkiye regarding the measures taken and the struggle within this framework.
Türkiye’s 1st Enhanced FUR with technical compliance re-ratings was adopted in November 2021. Plenary adopted the 2nd enhanced FUR by written process in April 2022. This 3rd enhanced FUR analyses Türkiye’s progress in addressing most of the technical compliance deficiencies identified in its MER. Re ratings are given where progress has been made. However, this report does not address what progress Türkiye has made to improve its effectiveness.
As widely acknowledged, Turkey, a member nation of FATF, could not meet FATF’s criteria regarding the regulations and implementation of AML and CTF measures and was therefore included in the “gray list” in 2021. As per the Follow-up Report, Türkiye has made progress to address the technical compliance deficiencies identified in the MER in relation to R.8, R.12, R.15, R.22, R.26 and R.28. Consequently, Türkiye’s ratings on these Recommendations have been re-rated due to this progress.
In the July 2023 Report published by FATF, Türkiye was evaluated as compliant (C) in 14 of 40 recommendations, largely compliant (LC) in 25, and partially compliant (PC) in 1. There are currently no recommendations considered non-compliant (NC).
- Recommendation 8
Following the review outlined in the report, it was stated that in accordance with Recommendation 8, since its 1st FUR, Türkiye has addressed most of the deficiencies stated in 2019 and 1st FUR by revising its national legislation, updating the Regulation of Associations, revising the Audit Guidance and Auditors of Association Directive, as well as revising its risk-based methodology.
However, despite Turkey addressing the deficiencies identified in the 2019 MER certain provisions introduced by the Law on the Prevention of Financing of the Proliferation of Weapons of Mass Destruction (“Law 7262”) have been deemed disproportionate considering Türkiye’s risks and context.
Therefore recommendation 8 is re-rated only to Largely Compliant (LC).
- Recommendation 12
The FATF characterizes a politically exposed person (PEP) as “an individual entrusted with a prominent public function”. Research conducted by the FATF, and other international organizations identified that the positions held by PEPs are vulnerable to abuse for the purposes of corruption, ML and potentially TF.
The Report indicates that in Türkiye’s case, the absence of requirements in relation to PEP is currently addressed with MASAK Communique No. 21 on PEP which includes specific references to foreign, domestic and international organizations PEPs, their family members and close associates. As a result, recommendation 12 is re-rated as Compliant (C).
- Recommendation 15
Under FATF’s Recommendation 15, regulations concerning virtual assets are categorized under “New Technologies.” Despite Türkiye was classified as LC in the FATF assessment of this category in 2019, its classification shifted to largely NC in 2021. However, in the current Report, the situation has been updated to “Partially Compliant” (PC). Despite this improvement, Recommendation 15 remains the only section in which Turkey couldn’t enhance its standing.
Virtual Asset Service Providers (VASPs) have been included as obliged parties and MASAK supervises their compliance with national AML/CFT requirements. However, VASPs are not required to take AML/CFT measures beyond the general preventive measures and are not subject to licensing or registration, which may limit the capacity to effectively identify the relevant universe of high/medium risk VASPs operating in the country with a high level of confidence.
Therefore, Recommendation 15 is re-rated as Partially Compliant (PC).
Overall
Overall, Türkiye taken positive steps towards improving its AML/CFT regime and has made progress in addressing most of the technical compliance deficiencies identified in its MER and has been upgraded on R.8, R.12, R.15, R.22, R.26 and R.28.
As a result, the country has been re-rated on six recommendations:
- Recommendations 8, 22 and 28 are re-rated from PC to LC
- Recommendation 12 is re-rated from NC to C
- Recommendation 15 is re-rated from LC to PC
- Recommendation 26 is re-rated from PC to C
The three follow-up reports and subsequent re-ratings since the 2019 assessment of Türkiye’ s AML/CFT framework highlight the progress that Türkiye has made to strengthen its measures to combat money laundering and terrorist financing.
Türkiye now only has one Recommendation left rated PC (R.15) and no recommendations rated NC.
Türkiye will report back to the FATF on progress achieved in improving the implementation of its AML/CFT measures in its 5th round mutual evaluation.