Explained: Why has the global terror finance watchdog put Turkey under the lens?

What does ‘increased monitoring’ mean?

According to the FATF, when a jurisdiction is placed under increased monitoring, “it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to extra checks”.

Specifically, these jurisdictions are now “actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing”.

This list of jurisdictions are commonly referred to as the “grey list”.

Which are the world’s grey list jurisdictions?

There are now 23 countries in the FATF grey list, officially referred to as “jurisdictions with strategic deficiencies”. From India’s, and most of the rest of the world’s perspective, the most important country on the list is Pakistan. Myanmar is also on the list — and now, Turkey.

In essence, in the assessment of the FATF, all these countries have failed to prevent international money laundering and terrorist financing, and are, therefore, on a global watchlist.

Some of the other countries on the updated grey list are Philippines, Syria, Yemen, Zimbabwe, Uganda, Morocco, Jamaica, Cambodia, Burkina Faso, and South Sudan, and the tax havens of Barbados, Cayman Islands, and Panama.

The FATF also took two countries — Botswana and Mauritius — out of the grey list. These “jurisdictions no longer subject to increased monitoring” have made “significant progress [in…] addressing the strategic AML/CFT deficiencies identified earlier by the FATF and included in their respective action plans”.

AML/CFT refers to “Anti-Money Laundering/Combating the Financing of Terrorism”. “Both countries will no longer be subject to the FATF’s increased monitoring process. This comes after both countries received an on-site visit, despite the COVID-19 crisis,” the FATF said.

A vendor talks to clients in a street market at the Eminonu district in Istanbul, Turkey, Thursday, Oct. 21, 2021. (AP Photo/Francisco Seco)

So why is Turkey on the list?

FATF President Pleyer told a news conference that Turkey needs to address “serious issues of supervision” in its banking and real estate sectors, and with gold and precious stones dealers, Reuters reported.

“Turkey needs to show it is effectively tackling complex money laundering cases and show it is pursuing terrorist financing prosecutions…and prioritising cases of UN- designated terrorist organisations such as ISIL and al Qaeda,” Pleyer said.

The FATF statement said Turkey has made a “high-level political commitment to work with the FATF to strengthen the effectiveness of its AML/CFT regime”. The FATF has given eight specific tasks to Turkey, including, in broad terms:

(i) dedicating more resources to the supervision of AML/CFT compliance by high-risk sectors and increasing on-site inspections;

(ii) applying “dissuasive sanctions” for breaches of AML/CFT, including unregistered money transfers;

(iii) enhancing use of financial intelligence to support money laundering investigations;

(iv) undertaking more complex money laundering investigations and prosecutions;

(v) fixing responsibilities and measurable performance objectives for anti-terror finance authorities;

(vi) conducting more financial investigations in terrorism cases;

(vii) concerning targeted financial sanctions under the UN’s anti-terror resolutions, and pursuing actions against UN-designated groups; and,

(viii) implementing a risk-based approach to supervision of non-profit organisations to prevent their abuse for terrorist financing.

And how has Turkey responded?

While agreeing to comply with the requirements of the FATF, of which it is a member, the Turkish Treasury complained that “despite our work on compatibility, placing our country on the grey list is an undeserved outcome”.

“In the coming period, necessary measures will continue to be taken in cooperation with FATF and all relevant institutions, to ensure that our country is removed from this list, which it does not deserve, as soon as possible,” it said in a statement.

The Reuters report recalled that FATF had warned Turkey in 2019 about “serious shortcomings” including the need to improve measures to freeze assets linked to terrorism and weapons of mass destruction proliferation.

What can happen as a result of grey-listing?

There is research that suggests grey-listing negatively impacts the relationship of the concerned countries with international funders including banks and financial institutions that take note of FATF rankings, as well as existing and potential overseas investors in those countries.

A recent study by the International Monetary Fund reported that grey-listing cuts capital inflow by an estimated 7.6% of gross domestic product (GDP), while foreign direct investment (FDI) and portfolio flows are also hit, Reuters reported.

The report said the FATF downgrade “could further weigh on Turkey’s lira, which touched a record low earlier on Thursday”.

Pakistan Prime Minister Imran Khan (File Photo)

What did the FATF say about Pakistan?

In June 2018, after being grey-listed by the FATF, Pakistan made an international commitment at the highest political level that it would work with the FATF to strengthen its AML/CFT regime, and to address deficiencies in its counter-terrorist financing-related actions.

“Pakistan has completed 26 of the 27 action items in its 2018 action plan,” the FATF said in its report after the Paris Plenary. “While Pakistan has reported some steps, the FATF encourages Pakistan to continue to make progress to address as soon as possible, the one remaining CFT-related item by continuing to demonstrate that TF investigations and prosecutions target senior leaders and commanders of UN designated terrorist groups.”

Leaders like Lashkar-e-Taiba founder Hafiz Saeed and Jaish-e-Muhammad founder Masood Azhar, who have been sanctioned as international terrorists, continue to be largely free in Pakistan, despite some apparent actions against them by the government and courts.

The FATF said, “Pakistan should continue to work to address its other strategically important AML/CFT deficiencies, namely by:

(1) providing evidence that it actively seeks to enhance the impact of sanctions beyond its jurisdiction by nominating additional individuals and entities for designation at the UN; and,

(2) demonstrating an increase in ML investigations and prosecutions and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze, and confiscate assets.”

FATF and its partners such as the Asia Pacific Group (APG) are reviewing Pakistan’s processes, systems, and weaknesses on the basis of a standard matrix for anti-money laundering (AML) and combating the financing of terrorism (CFT) regime.

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