In an interesting development, Turkey has been removed from the Financial Action Task Force’s (FATF) grey list. This list, which includes countries under increased monitoring due to deficiencies in combating money laundering and terrorist financing, had included Turkey since 2021. The removal follows substantial reforms by Turkey to enhance its Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) systems.
Reasons for Removal
The FATF, an intergovernmental organization that leads global efforts to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system, acknowledged that Turkey has made considerable strides in strengthening its regulatory framework. Key reforms include:
- Enhanced Supervision: Turkey improved its risk-based AML/CFT supervision, ensuring that sanctions for breaches are effective and dissuasive.
- Resource Allocation: Increased resources for the Financial Intelligence Unit (FIU) and better utilization of financial intelligence.
- Complex Investigations: Undertaking more complex money laundering investigations and prosecutions.
- Asset Recovery: Improved systems for recovering assets linked to financial crimes.
- Targeted Financial Sanctions: Enhanced enforcement of financial sanctions against terrorism financing, especially concerning UN-designated groups.
- Non-Profit Sector: Improved outreach and risk-based supervision of non-profit organizations to prevent misuse without disrupting legitimate activities (Al-Monitor) (A News) (Anadolu Ajansı).
These steps culminated in the FATF‘s February 2024 decision that Turkey had “substantially completed” its action plan, leading to an on-site assessment in June 2024. The successful completion of this assessment confirmed the sustainability of these reforms, paving the way for Turkey’s removal from the grey list.
Impact of the Removal
Turkey’s exit from the grey list is expected to boost investor confidence and reduce the country’s risk premium. Since being placed on the list, Turkey has faced challenges in attracting foreign investment, and the removal is seen as a crucial step towards economic stabilization. It is anticipated that this will help alleviate the impacts of recent financial crises and high inflation, which reached nearly 70% year-on-year in April 2024.
Criticisms and Concerns
Despite the positive outlook, some critics argue that the decision might have political underpinnings. Some suggest that geopolitical considerations influenced the timing and the rapid pace of reforms. Critics also point out that while Turkey has met technical criteria, ongoing political issues, and regional conflicts might still pose risks to financial stability and compliance.
Additionally, the effectiveness and enforcement of these reforms over the long term remain to be seen. Continuous monitoring and sustained political commitment are essential to ensure that Turkey does not backslide on its commitments to combat money laundering and terrorist financing.
