FATF Report | Turkey's Progress in Combating Money Laundering
Turkey's mutual assessment report was issued in October 2019. This follow-up report analyzes Turkey's progress in addressing some technical compliance deficiencies identified in the joint assessment. In addition, this report also analyzes Turkey's progress in implementing the new requirements regarding the changed FATF Recommendations since the end of the onsite visit to Turkey in March 2019.
Turkey has progressed in addressing the technical compliance deficiencies identified in the Mutual assessment report concerning Recommendations 6, 7, 18, and 35. Because of this progress, Turkey has been rerated in these Recommendations. The FATF welcomes the progress made by Turkey in improving its technical alignment in Recommendations 8, 22, and 24. However, sufficient progress has not been made to justify raising these Recommendations.
Since the Mutual Evaluation Report, Turkey has amended its law on the Prevention of the Financing of Terrorism, which, on its initiative, has established mechanisms to identify and propose UN definitions based on evidence. In this law, the standard of proof of "reasonable grounds" and the article "to undertake local appointments" on its initiative have been changed. In addition, the law provides a broader definition of funds and other assets and mentions the legal mandate and processes for national appointments that need to be determined quickly. Finally, Turkey has provided clear guidance on its obligations to interested parties.
Despite the progress towards addressing the shortcomings in the peer-review Report, minor defects remain as Turkey's terrorist financing law does not prohibit individuals from providing other related services (financial services) to designated persons. Moreover, outside of the 60-day period established under the Constitution, there are no clear procedures to review the appointment decision before a court or other independent competent authority upon request. Therefore, Recommendation 6 has been rerated from partially compliant to largely compliant.
Turkey's round 4 Mutual Assessment Report was also rated as "partially compliant" due to the lack of legal basis to implement UNSCRs regarding Iran, lack of prompt implementation, and limited scope of assets. Turkey has taken important steps regarding recommendation 7 since the Mutual Assessment Report. In addition, Turkey has addressed deficiencies in systems for reporting proliferation-related actions, identifying assets, and implementing prompt Non-Proliferation Financing actions and has provided several guidance documents on false positives, including asset freezes. With the establishment of the Audit and Cooperation Commission, which has the power to monitor and sanction, Turkey has taken measures to facilitate monitoring and ensure that obliged parties comply with relevant laws and practical tools, but the team has not been able to evaluate how this is done. As a result, Turkey has been rerated for Recommendation 7 from Partially compliant to largely compliant.
Turkey was rated partially compliant with Recommendation 8 in the Round 4 Mutual Evaluation Report. The main technical shortcomings were: NPO audits did not focus on terrorist financing, periodic review of NPO risk, lack of specific procedures for providing access and guidance to NPOs, and working with NPOs to develop best practices to prevent NPOs misuse of terrorist financing lack of specific procedures for The Mutual Evaluation Report noted that oversight of NPOs did not focus on the TF and was primarily aimed at preventing fraud and mismanagement.
Since the Mutual Assessment Report, Turkey has reviewed the adequacy of laws governing the entire NPO sector to protect the sector from potential abuse for TF purposes. Turkey has amended the Associations Law No. 5253, Aid Collection Law No. 2860, and the Auditor Associations Directive to explicitly focus on money laundering and terrorist financing. These changes were aimed at reducing terrorist financing risks but were not targeted or proportionate enough to focus on NPOs who were at higher risk of terrorist financing misuse.
Turkey ultimately aims to audit all types of associations based on this risk-based audit methodology, but associations identified as high risk will be given priority with varying degrees of depth and frequency according to the level of risk. The risk level of each NPO will be determined as low, medium, or high based on the sum of the scores obtained from the risk criteria. Audits will be made according to this risk matrix.
In addition, Turkey has revised the sanctions applicable to the NPO in order to have a set of sanctions that can address different types and severity of violations while maintaining proportionality.
In June 2019, Recommendation 15 was revised to include obligations regarding virtual assets and virtual asset service providers. Since the Round 4 Interview Report, no action has been taken to address minor shortcomings related to new technology requirements related to Recommendation 15, and Turkey has taken no action to address requirements related to virtual asset service providers' operations. Therefore, Recommendation 15 is again rated non-compliant, as Turkey does not meet the new requirements.
Overall, Turkey has made progress in addressing some of the technical compliance shortcomings identified in the MER and has been raised in Recommendations 6, 7, 18, and 35. Recommendation 15 was dropped as non-compliant, as Turkey did not meet the new standards.
In the Round 4 Mutual Evaluation Report, Turkey was rated as partially compliant with Recommendation 8 due to the absence of clear requirements for group-wide implementation of AML/CFT programs and the absence of group-level provision for customer, account, and transaction information, and information and analysis. Since the Mutual Evaluation Report, Turkey has published the law Amending the AML Law No. 7262 and No. 5549. The amended AML Law requires financial groups to implement group-wide AML/CFT programs and clarifies that customer, account, and transaction information can be shared between financial groups. For AML/CFT purposes, some shortcomings identified in the Cross-review Report remain. However, the impact of these shortcomings is greatly reduced by other measures, and the remaining shortcomings are considered minor. As a result, Recommendation 8 was rerated from partially compliant to largely compliant.
Turkey was rated partially compliant with Recommendation 22 in the Round 4 Mutual Evaluation Report. The main shortcomings identified were the lack of coverage of lawyers in the AML/CFT framework and the lack of specific requirements for Designated Non-Financial Businesses and Professions to comply with provisions covering KEPs and new technologies.
Since the Mutual Evaluation Report, Turkey's AML/CFT framework now includes lawyers through the new Law No. 7262. However, where ML/TF risks are higher, they are still not required to adopt a risk-based approach to enhanced due diligence. In addition, deficiencies in Recommendation 10 have an impact on Recommendation 22. In addition, there are no specific requirements for Designated Non-Financial Businesses and Professions to comply with provisions covering PEPs and new technologies. Therefore, Turkey's progress is being made, but Recommendation 22 remains partially aligned.
In the round 4 Mutual Assessment Report, Turkey was rated partially compliant for Recommendation 24 because Turkey lacked a comprehensive assessment of the money laundering and terrorist financing risks associated with any legal entity established in Turkey, an overall obligation to acquire beneficial ownership and keep it updated. It lacked a mechanism to ensure that bearer shares were not misused for money laundering and terrorist financing and were free of proportionate and dissuasive sanctions. Furthermore, Turkey does not have a specific process or mechanism to monitor the quality of assistance received regarding basic and beneficial ownership information.
Since Mutual Evaluation Report, Turkey has amended the Turkish Commercial Code and established a mechanism to ensure that bearer shares/warrants are not misused for money laundering and terrorist financing. Based on these revisions, legal entities may issue bearer shares if they keep an appropriate record of the issue and transfer of bearer shares. Bearer shares are not converted into registered shares. If the transfer of bearer shares has not been registered with the Central Depository, the bearer shareholder may not be able to practice their rights.
However, Turkey is making progress due to the lack of a comprehensive assessment of the money laundering and terrorist financing risks associated with all legal entities and the absence of deterrent sanctions, concerns about accurate and up-to-date beneficial owner information and their timely identification, as well as the presence of beneficiaries residing abroad. But Recommendation 24 remains partially compliant.
Turkey was rated partially compliant for Recommendation 35 due to the absence of lawyers in the Round 4 Mutual Evaluation Report; monetary sanctions for Financial Institutions/ Designated Non-Financial Businesses and Professions, and sanctions for NPOs that are not deemed to be proportionate or dissuasive; and there was a statute of limitations limiting the imposition of an administrative fine within five years from the date on which the obligation was breached.
Most of these shortcomings were corrected by Law No. 7262, which amended the other six Laws. As a result, Turkey:
- Included lawyers in the AML/CFT framework.
- Increased the maximum amount of fines for violation of targeted financial sanctions.
- Increased the level of sanctions.
- Increased monetary sanctions applicable to Financial Institutions and Designated Non-Financial Businesses and Professions for violations of the AML/CFT requirements of Recommendations 9–23.
The updated monetary sanctions framework is generally proportionate and dissuasive in light of the enterprise size of most of the obliged institutions in Turkey.
Despite these significant changes, a minor shortcoming of the existence of a statute of limitations remains. Therefore, Recommendation 35 has been rerated as largely compliant.