Turkey: Money Laundering Report Of Turkey

Last Updated: 9 September 2013
Article by Safak Herdem

In particular due to its location bridging Europe to Asia attracts the foreign criminal organizations of migrant smuggling, terrorism and narcotics. Turkey hosted many brass plate companies in the past set for the purpose of placement, layering and integration of laundering transactions by 1990s.

The first systematic drug trafficking and money laundering dates to the 1960s during Turkish immigration to Germany. Between the years of 1980s-1990s, due to the increase in illicit production and shadow economy and the lack of regulated financial institutions and effective laws, usury, in a form of typical business as a laundering method was very common.

The effects of globalization, increase in financial institutions and transnational business operations after 1990s required to regulate the financial market and to handle the matter of laundering both in domestic and international standards. For that purpose Turkey enacted its first regulation, law no 4802 in 1996. Even it is still defined as high risk jurisdiction in 2011 it came a long way to prevent laundering acts. Especially after 1988, the criminal organizations launched intensive anti-money laundering activities through off shore banking and almost none of these money laundering activities have been charged due to the lack of regulations.

Turkish National Police has divulged the 180 methods of laundering in 2004 that some of are as follows; to enter the privatization tenders, lotteries and games of chance and to reach people who win the lottery to buy their ticket, beach services, establishment a touristic resort, expensive ship / yacht trading, owning a car, buying precious metals, to go to the capital increase in companies, art and historical artifacts, enter the financial markets, opening shopping centers, to use false or inflated invoices, to open a casino and betting businesses in Turkish Republic of Northern Cyprus, the tax exemption from the countries.

In today's Turkey, in parallel with the developments of financial tools and diversity of financial systems, professionals such of financial, legal advisors, insurance companies or private bankers are used for laundering. When compared with recent years, since the volume of the money especially in terrorist financing has been increased and the increase in terrorist organizations to involve ordinary crimes to provide financial, the largest portion of laundering consists of speculation, smuggling, racketeering, aggravated fraud and bankruptcy, forgery on documents, producing and using counterfeit documents organ smuggling, kidnapping, arms trafficking, historical artifact smuggling, loan-backs, snatching and brass plate companies.

Besides, the hidden local-foreign partnerships shown as "investor" in capital markets and private equities choose smurfing through speculations and fraud investments. Such transactions have been reported by banks and financial institutions mostly with suspicion of unbalanced financial status and the volume of the transaction (22%), unreasonable transactions (20,6%) and suspicious cash flows (14,5%).

Turkey has also regulated its free trade zones and liaison office regulations in 2012 to prevent laundering through business organizations of transit trade. The new regulations lifted the effectiveness of inspections by central and local government authorities. However, especially due to the lack of inspection in eastern part of the country, there is still a potential risk of Syrian, Iranian, Iraqi drug traffickers and terrorist financing.

B. Turkey's Compliance with the 40 FATF Recommendations and Nine Special Recommendations

The Financial Action Task Force ("FATF") is an inter-governmental body founded in 1989 by the G7. FATF was developed to combat money laundering and terrorist financing. FATF outlines 40 recommendations and nine special recommendations in order for compliant countries to curb the growth of money laundering and terrorist financing.

Turkey is a member of FATF since 1991 and observer to EAG, the Euroasian Group of FATF. The FATF last released a mutual evaluation report in the February of 2007 and public statement for compliance for Turkey in the June of 2011.

1) 40 Recommendations

The FATF outlines 40 recommendations in order for countries to comply with to deter money laundering. Of the 40 recommendations, Turkey is compliant with three, largely compliant with eleven, partially compliant with fifteen, and non-compliant with ten of the recommendations (5, 6, 7, 9, 11, 12, 16, 21, 22, and 24). Since trusts do not exist under Turkish law, recommendation 34 in this regard is not applicable. In February of 2012, The FATF Standards have been revised to strengthen global safeguards and further protect the integrity of the financial system by providing governments with stronger tools to take action against financial crime. At the same time, these new standards will address new priority areas such as corruption and tax crimes.

a) Recommendation Five

Recommendation Five requires that financial institutions have adequate controls and procedures to recognize the new and existing customers and record keeping.

The only explicit customer due diligence (CDD) requirement is customer identification in Turkey and it is not specified whether identification must be conducted for linked transactions below the TRY 12,000 threshold. Customer verification of natural persons only partially complies with international standards however there are no verification requirements for legal persons, associations, and foundations.

Besides, documents authorizing a natural person to conduct transactions on behalf of a legal person are required as part of customer identification in accordance with primary or secondary law for legal persons registered in Trade Registry, but not for foundations or associations.

There is only a very limited provision, which is not yet implemented in supporting regulation, requiring the identification of the beneficial owner, and financial institutions are not required to take reasonable steps to understand the layers of ownership and control of legal persons which are their customers.

Measures for collection of information on the purpose and nature of the relationship for legal persons are only contained in unenforceable guidelines.

There is no provision applicable for insurance.

Measures for enhanced CDD for sensitive countries, sensitive business and higher risk customers, are only contained in non-mandatory and unenforceable guidelines and this is largely undefined.

There are no clear CDD requirements for the financial sector other than those for banks.

The exemption of requirements for identification for transactions carried out with central and local public administrations, state economic enterprises, quasi public institutions, banks and participation banks are overly broad.

There are no clear requirements to conduct ongoing CDD

b) Recommendation Six

Recommendation Six requires that financial institutions have appropriate risk management systems in place to determine whether the customer is a politically exposed person ("PEP"), obtain senior management approval for PEPs, take reasonable measures to established the source of wealth and source of funds for a PEP, and conduct enhanced ongoing monitoring of the business relationship with a PEP.

Turkey has not implemented anti-money laundering (AML) / counter-terrorist financing (CFT) measures concerning establishment of customer relationships with PEPs.

c) Recommendation Seven

Recommendation Seven is related with the targeted financial sanctions related to proliferation aimed at ensuring consistent and effective implementation of targeted financial sanctions when these are called for by the UN Security Council. Recommendation 7 is applicable to all current Security Council resolutions applying targeted financial sanctions relating to the financing of proliferation of weapons of mass destruction, any future successor resolutions, and any future Security Council resolutions which impose targeted financial sanctions in the context of the financing of proliferation of weapons of mass destruction. At the time of issuance of this Recommendation, (February 2012), the Security Council resolutions applying targeted financial sanctions relating to the financing of proliferation of weapons of mass destruction are: resolutions 1718 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1874 (2009), and 1929 (2010).

Turkey is non-compliant with recommendation seven for the following reasons:

i) Turkey does not address correspondent banking in law or regulation.

ii) Turkey has not implemented Recommendation 7. Again, the TBA has issued guidance on this issue, but that guidance is unenforceable and it is only issued to banks. While TBA guidance is implemented in fact by many banks in Turkey it does not deal with payable through accounts or the share of responsibilities between the institutions involved in the transaction are dealt. In practice, the Turkish authorities and representatives of the private sector indicated that Turkish banks have no correspondent banking relationship with foreign banks, nor payable through accounts relationships.

d) Recommendation Nine

Recommendation nine outlines the criteria for countries should ensure that financial institution secrecy laws. Accordingly, Financial institutions should, in relation to cross-border correspondent banking and other similar relationships, gather sufficient information about a respondent institution and assess the respondent institution's anti-money laundering and terrorist financing controls.

Turkey is non-compliant with this recommendation for the following reason:

i) There is no law, regulation or enforceable guidance, outside of the securities' sector, on the use of third parties to perform CDD under Turkish law.

e) Recommendation Eleven

Recommendation eleven requires financial institutions to maintain all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities.

Turkey is non-compliant with this recommendation for the following reasons:

i) Turkey has not implement Recommendation eleven as there is no requirement to establish the purpose and background of unusual transactions or to maintain this information in writing and keep records which will be accessible by authorities.

f) Recommendation Twelve

Recommendation twelve requires designated non-financial businesses and professions to pay attention to money laundering and terrorist financing transactions.

Turkey is non-compliant with this recommendation because of the following reasons:

i) Lawyers, accountants and other legal professionals are not obliged parties.

ii) Turkey's general shortcomings in implementation of Recommendations 5, 6 and 8-11 also apply to designated non-financial businesses and professions.

iii) There are questions about the effectiveness of implementation of customer identification and record keeping requirements in obliged designated non-financial businesses and professions.

g) Recommendation Sixteen

Recommendation sixteen aims to provide suspicious transaction reporting (STR) by designated non-financial businesses and professions.

Turkey is non-compliant for the following reasons:

i) Accountants, lawyers and other legal professionals are not required to submit STRs and are not subject to other measures covered by Recommendations 14, 15 and 21.

ii) Designated non-financial businesses and professions are not obliged to have compliance officers or internal control programmes.

iii) Designated non-financial businesses and professions are not required to conduct in-house training or screen potential employees.

iv) Limited training has been provided to designated non-financial businesses and professions.

v) Designated non-financial businesses and professions are not required to pay special attention to transactions with countries which do not or do not adequately implement the FATF

vi) No STRs have been submitted by designated non-financial businesses and professions, which calls into question the effectiveness of implementation of Recommendation 13 in this sector.

g) Recommendation Twenty-One

Recommendation twenty-one prohibits financial institutions, their directors, officers and employees from disclosing the fact that an STR or related information is being reported to the financial intelligence unit (FIU).

Turkey is non-compliant for not implementing the Recommendation twenty-one.

g) Recommendation Twenty-Two

Recommendation twenty-two requires financial institutions to ensure that the principles applicable to financial institutions, which are mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply the FATF.

Turkey is non-compliant for the following reasons:

i) Article 4 of the Regulation Regarding Implementation of the Law 4208 providing for application of customer identification requirements to overseas branches and subsidiaries has not been implemented.

ii) Internal control provisions for overseas branches and subsidiaries only exist for banks, not for any other obliged parties.

iii) There is no requirement to pay particular attention where branches and subsidiaries are in countries which do not or insufficiently apply the FATF Recommendations.

iv) There is no requirement to apply the higher of the two countries' standards.

v) There is no requirement to inform supervisors when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures due to host country restrictions.

g) Recommendation Twenty-Four

Recommendation twenty-four requires designated non-financial businesses and professions should be subject to regulatory and supervisory measures, for example Casinos should be subject to a comprehensive regulatory and supervisory regime that

ensures that they have effectively implemented the necessary anti-money laundering and terrorist-financing measures.

Turkey is non-compliant for the following reasons:

i) No systems exist for monitoring and ensuring compliance of designated non-financial businesses and professions with AML/CFT requirements.

2) Nine Special Recommendations

The FATF outlines nine special recommendations for countries to comply with to further anti-terrorist financing goals. Of the nine special recommendations, Turkey is currently largely compliant with one and partially compliant with eight special recommendations.

C. INCSR Rating

Every year the International Narcotics Control and Strategy Report compiles a list of countries of concern for money laundering. The list is based on the countries that are vulnerable to money laundering or terrorist financing. The International Narcotics Control and Strategy Report of 2012 placed Turkey on the list of countries/jurisdictions of primary concern for money laundering and terrorist financing.

Turkey is on the list of countries/jurisdictions of primary concern for the following reasons:

i) In "All serious crimes" approach or "list" approach to predicate crimes, all serious crimes and legal persons are covered by criminally and civilly.

ii) It should ensure the enhanced due diligence procedures.

iii) It should increase the STRs requirements

iv) The non-profit sector is vulnerable to terrorist financing. Turkey's investigative powers, law enforcement capability, and supervisory oversight are weak and lacking in all the necessary tools and expertise to effectively counter this threat through a comprehensive approach; all these areas need to be strengthened.

v) The nonprofit sector is not audited on a regular basis for terrorist finance vulnerabilities and does not receive adequate AML/CFT outreach or guidance from the

authorities.

vi) The General Director of Foundations issues licenses for charitable foundations and oversees them. However, there are a limited number of auditors to cover more than 70,000 institutions.

vii) Turkey should insure any new legislation meets the FATF standards.

II. Anti-Money Laundering and Terrorist Financing

A. Hierarchy of Turkey's Law

Legal Basis

Turkish laws are based on continental European Law. The first constitution was signed in 1921 which is called Texkilat Esasiye Kanunu and ratified by Turkish Grand National Assembly. It was replaced entirely by the constitution of 1924. The principal laws such as criminal law, civil law, commercial law are mostly modified versions of some European countries' laws. The constitutional court has function of supervising the conformity of laws to the constitution. The country is based on separation of powers and the judiciary is independent. The military and civilian judiciary is separated.

Executive Branch

The executive branch is comprised of the President and the Council of Ministers. The President represents the Turkish Nation's unity and responsible for ensuring the harmonious manner of state organs. He/she does not have to be a member of the parliament. The Council of Ministers is comprised of the ministers and headed by the prime minister. The prime minister is appointed by the President and responsible for coordination of ministers.

To view this article in full please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Safak Herdem
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions