The term "money laundering", according to its general definition, expresses the process by which proceeds from criminal activity are disguised to conceal their illicit origins1. The combat against money laundering is an issue with both national and international aspects. In this article, we will examine the anti-money laundering legislation in Turkey.
Before delving into the national regulations, it would be prudent to provide a brief insight into Turkey's combat against money laundering at the international level. In this context, international conventions on money laundering that Turkey has executed and ratified are as follows:
- 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances2
- Convention of Council of Europe on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime dated November 8th, 1990 (known as the Strasbourg Convention or CETS 141)3
- 1990 United Nations Convention against Transnational Organized Crime (known as the Palermo Convention)4
Regarding the national AML rules in Turkey, the primary legislation are as follows:
- The Law No. 4208 on Prevention of Money Laundering (Abolished) ("Repealed AML Law")
- The Law No. 5549 on Prevention of Laundering Proceeds of Crime ("AML Law")
- The Regulation on Measures Regarding Prevention of Laundering Proceeds of Crime and Financing of Terrorism ("Measures Regulation")
- The Regulation on Compliance Programs Regarding Obligations on Laundering the Proceeds of Crime and Prevention of Financing of Terrorism ("Compliance Regulation")
- Financial Crimes Investigation Board ("MASAK") General Communiques
- Turkish Penal Code
1. The Repealed AML Law
The Repealed AML Law, which entered into force on November 19th, 1996, defined the "money laundering offense" for the first time in the Turkish legal system. It set out the general framework for combating money laundering. Besides MASAK, which is the primary institution established by the Repealed AML Law to control and combat financial crimes in Turkey. MASAK started to carry out its activities under the Revealed AML Law in February 1997.
MASAK is currently organized and operates under the Ministry of Finance and Treasury (the "the Ministry"), and its primary duty is to prevent money laundering crime. In this sense, it is authorized to develop anti-money laundering policies and measures, conduct research on obliged sectors, investigate and examine institutions and transactions and impose sanctions in case of violation5.
The AML Law has abolished most provisions of the Repealed AML Law, and consequently, the latter has become ineffective.
2. The AML Law
The AML Law entered into force on October 18th, 2006 and was prepared based on international standards for combatting money laundering. It contains provisions determining the obliged parties, their obligations, and sanctions for non-compliance with these obligations. Also, the AML Law foresees the same measures to prevent both money laundering and financing of terrorism.
As per the AML Law, the obliged parties are the following ones and their branches, agencies, representatives, and similar affiliated units:
- Other financial institutions authorized to issue deposit cards or credit cards
- Foreign exchange bureaus
- Financing and factoring companies
- Capital Markets Brokerage Houses and portfolio management companies
- Payment service providers and electronic money institutions
- Investment partnerships
- Insurance, reinsurance, and pension companies, and insurance and reinsurance brokers
- Financial leasing companies
- Providers of settlement and custody services under the capital markets legislation
- Borsa Istanbul A.S. pertaining only to its custody services relating to Precious Metals and Precious Stones Market
- PTT Corporate (Postal and Telegraph Organization) and cargo companies
- Asset management companies
- Dealers of precious metals, stones, and jewelry
- Directorate General of Turkish Mint pertaining only to its activities of minting gold coins
- Precious metals intermediaries
- Buyers and sellers of real estate for trading purposes and brokers/intermediaries
- Dealers of the sea, air, and land vehicles, including construction machines
- Dealers and auctioneers of historical artifacts, antiques, and works of art
- Lottery and betting operators including the Turkish National Lottery Administration, Turkish Jockey Club, and Football Pools Organization Directorate
- Sports Clubs
- Public notaries
- Lawyers in private practice (not in-houses)6
- Certified general accountants, certified public accountants, and sworn-in certified public accountants in private practice
- Independent auditors licensed to audit under the Capital Markets Law
The AML Law stipulates the following obligations in general:
- Customer identification,
- Suspicious transaction reporting,
- Notification of large transactions to MASAK
- Assignment of a compliance officer,
- Training and internal auditing
The details such as principles and procedures of these obligations are determined by the Regulations and MASAK General Communiques
3. The Measures Regulation
Under the main measures set out in the Measures Regulation, the obliged parties should conduct due diligence for their customers, report the suspicious transactions they encounter related to money laundering and financing of terrorism to MASAK, keep the relevant information and documents about their customers, and submit them when they are requested by the competent authorities.
3.1 Customer identification/due diligence
The fundamental element in the prevention of money laundering is customer identification/due diligence. The Measures Regulation contains provisions requiring obliged parties to take all measures for customer due diligence by adopting risk-based approaches and to pay adequate attention and care for the prevention of money laundering, as well as financing of terrorism.
As per the Measures Regulation, the obliged parties should conduct customer due diligence when:
- Establishing a permanent business relationship with a customer;
- The amount of a single transaction or the total amount of multiple linked transactions is equal to or more than 20.000 TRY (approx. 2,460 USD)7; (With the amendments to the Measures Regulation that will come into force on May 5, 2021, this threshold will be 75,000 TRY. (approx. 9,225 USD)8)
- The amount of a single transaction or the total amount of multiple linked transactions is equal to or more than 2,000 TRY (approx. 245 USD)9 in wire transfers; (With the amendments to the Measures Regulation that will come into force on May 1st, 2021, this threshold will be 7,500 TRY. (approx. 920 USD)10
- Cases requiring suspicious transaction reporting;
- Any case where there is a suspicion about the adequacy and the accuracy of previously acquired identification information.
The Measures Regulation provides different methods of customer identification for natural persons, legal entities registered in the trade registry, associations and foundations, trade unions and confederations, political parties, legal entities residing abroad, non-legal entities, and public institutions.
As per the AML Law, in case of a violation of customer identification, MASAK imposes an administrative fine of 30,000 TRY (approx. 3,690 USD)11 on obliged parties. If the obliged party is a bank, financing company, factoring company, lender, financial leasing company, insurance, a reinsurance company, pension company, capital market institution, exchange bureaus, payment, and electronic money institution, the administrative fine is doubled. (the amount cannot be less than 5% of the transaction amount) This administrative fine can be applied to (i) the obliged party, (ii) the employee or employees who performed the transaction, and (iii) the managers who have a role and responsibility in the finalization of the transaction.
3.2. Suspicious transaction reports
The other important element of anti-money laundering measures is suspicious transaction reports. ("STR") The suspicious transaction occurs if there is any suspicion on the assets subject to the transaction that they have been obtained illegally or used for illegal purposes. Besides, transactions, where obliged parties cannot identify the customers or receive sufficient information about the purpose of the business relationship can be considered suspicious transactions. As per the anti-money laundering legislation, the obliged parties shall report all suspicious transactions, regardless of their amount, to MASAK.
The obliged parties submit the suspicious transactions to MASAK physically or via the online system (MASAK.ONLINE) by filling out the STR form (Şüpheli İşlem Bildirim Formu) ("ŞİB") issued by MASAK. STRs must be filed within ten working days at the latest from the date of the suspicion.
The Measures Regulation ensures the confidentiality of suspicious transaction reports. It states that the obliged parties cannot provide information to anyone other than compliance officers and MASAK about the reported transactions. It also ensures the legal protection of reporting persons and institutions.
As per the AML Law, MASAK imposes an administrative fine of 50.000 TRY (approx. 6,150 USD)12 on obliged parties who violate the STR obligation. If the obliged party is a bank, financing company, factoring company, lender, financial leasing company, insurance, a reinsurance company, pension company, capital market institution, exchange bureaus, payment, and electronic money institution, the administrative fine is doubled. (the amount cannot be less than 5% of the transaction amount) This administrative fine can be applied to (i) the obliged party, (ii) the employee or employees who performed the transaction, and (iii) the managers who have a role and responsibility in the finalization of the transaction.
If the obliged parties leak information about STR to someone other than the court and the supervision officers, the AML Law foresees imprisonment from one to three years and a judicial fine of up to five thousand days.
MASAK publishes annual activity reports13 containing information such as the number of suspicious transaction reports and inspections by MASAK, budget allocation, and administrative fines imposed. The latest report published on MASAK's official website is the 2019 activity report.14 According to this report, MASAK has received 203,786 suspicious transaction reports from obliged parties in 2019. Most notifications were received from banks (174,764), followed by payment Institutions and electronic money institutions (19,225).
MASAK conducted 17 compliance inspections in 2019. This number was 117 in 2017. The obliged parties subject to MASAK's inspections are mostly banks, factoring companies, precious metal buyers, exchange offices, insurance and pension companies, and those operating in the betting field. As a result of these inspections, the obliged parties were fined 3,049,194 TRY (approx. 538,000 USD)15 in 2019 and 14,422,908 TRY (approx. 3,950,000 USD)16 in 2017. Administrative fines were mostly imposed for violation of customer identification and STR obligations.
3.3. Providing information to authorities
Another obligation stipulated by the Measures Regulation is to provide information and documents regarding customers, transactions, and the obliged parties' activities. This obligation stipulates that not only obliged parties but also all organizations, institutions, and persons (both private and public) are obliged to provide the information and documents requested by MASAK and supervision officers.
Following the Measures Regulations, MASAK and Supervision officers request information and documents in writing, except urgent cases, and give an appropriate period of not less than seven days to the obliged parties for providing the requested information and documents. Moreover, another obligation of the responsible parties is to periodically and continuously provide information about transactions exceeding the amount determined by the Ministry to MASAK.
As per the AML Law, those who violate the obligation to provide information upon authorities' request are sentenced to imprisonment from one to three years and a judicial fine of up to five thousand days.
4. The Compliance Regulation
As per the Compliance Regulation, the obliged parties for establishing and operating a risk-based anti-money laundering compliance program are specified as follows:
- Banks (excluding development and investment banks and the Central Bank of the Republic of Turkey)
- Intermediary institutions active in capital markets,
- Insurance and pension companies
- General Directorate of Post and Telegraph Corporation (PTT) (limited to its banking activities)
Pursuant to the amendments to the Compliance Regulation that will enter into force on May 1st, 2021, the following institutions will be obliged to establish a compliance program as well:
- Authorized institutions of Group A specified in the foreign exchange legislation
- Financing, factoring, and leasing companies
- Portfolio management companies
- Precious metals intermediary institutions
- Electronic money institutions
- Payment institutions (Except for those who exclusively provide intermediary service for invoice payments, payment order initiation services, and information related to the payment account)
The risk-based compliance program should include the following measures:
- Establishment of corporate policy and procedures
- Risk management activities
- Monitoring and controlling activities
- Appointment of a compliance officer and establishing a compliance unit
- Training activities
- Internal auditing
The board of directors is ultimately responsible for conducting the entire compliance program adequately and effectively according to the scope and characteristics of the obliged party's activities and the provisions under the Compliance Regulation.
In accordance with the AML Law, if the obliged parties violate the obligations of establishing training, internal audit, control, and risk management systems or appointment of the compliance officer, the authorities grant obliged parties with a period of at least thirty days to by officially serving a written notice. At the end of this period, if the obliged parties do not complete their deficiencies, an administrative fine of 500,000 TRY (approx. 61,500 USD)17 will be imposed. After the notification of this administrative fine, the Ministry gives a new period, not less than sixty days. If the obliged parties do not complete their deficiencies at the end of this period, an additional 1,000,000 TRY (approx. 123,000 USD)18 administrative fine will be imposed. If the deficiencies are not completed within thirty days from the notification of the second administrative fine, the situation will be notified to the relevant institution to suspend or restrict the activities of the obliged party for a certain period or to cancel their activity permit certificate.
5. MASAK General Communiqués
Another regulation determining the principles and procedure of the AML obligations is MASAK General Communiqués. There are currently four Communiqués in execution19 , and they include the procedure, thresholds, and exemptions for customer identification, suspicious transaction reporting, and asset freeze. The MASAK General Communiqués are issued and amended by the Ministry.
Moreover, MASAK occasionally publishes reports, brochures, and guidelines specific to the sectors with the current compliance level and recommendations, aiming to ensure that the abovementioned rules are implemented adequately in practice.20
These documents published by MASAK contain general information on crimes of money laundering and terrorism financing and provide practical information for the obliged parties on how to fulfill the obligations we will examine below accurately. MASAK also provides information about the types of suspicious transactions frequently encountered in different sectors to attract the attention of obliged parties to such transactions.
6. Turkish Penal Code
Article 282 of the Turkish Penal Code titled "Laundering of Assets Acquired from an Offense" foresees the following provisions regarding the sanctions for money laundering offense:
- A person who transfers abroad the assets acquired from an offense requiring a minimum penalty of six months or more imprisonment or processes such proceeds in various ways to conceal the illicit source of such proceeds or to give the impression that they have been legitimately acquired shall be sentenced to imprisonment from three years up to seven years and a judicial fine up to twenty thousand days.
- A person who, without participating in the commitment of the money laundering offense, purchases, acquires, possesses, or uses the proceeds which is the subject of that offense knowing the nature of the proceeds shall be sentenced to imprisonment from two years up to five years.
- This offense is committed by a public officer or professional person in his duty, then the penalty to be imposed shall be increased one-half.
- Where this offense is conducted in the course of the activities of an organization established for the purpose of committing an offense, the penalty to be imposed shall be doubled.
- Where a legal entity is involved in the commission of this offense, it shall be subject to security measures specific to the legal entities.
No penalty shall be imposed upon a person who directly enables the securing of financial assets or facilitates the securing of such assets by informing the relevant authorities of the location of such before the commencement of a prosecution.
7. Recommendations and suggestions for Turkey
At the 1989 summit in Paris, G-7 countries (USA, Japan, Germany, France, England, Italy, and Canada) have established an international organization called Financial Action Task Force ("FATF"). FATF is the global money laundering and terrorist financing watchdog. Its objectives are to set standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing and to monitor countries' progress in implementing these measures.21
Turkey is one of the member countries of FATF since 1991.22 The latest report of FATF on Turkey is the Mutual Evaluation Report dated December 16th, 2019.23 The prominent issues highlighted in the Mutual Evaluation Report can be summarized as follows:
- Due to its geographic location, Turkey faces the most significant money laundering risks from drug trafficking, migrant smuggling, human trafficking, and fuel smuggling. It also faces substantial terrorist financing risks from both national and international threats.
- Authorities should make better use of financial intelligence to improve and increase the number of money laundering investigations that result in few convictions only and develop a national strategy to permanently deprive criminals of the proceeds of their crimes.
- Turkey needs to fundamentally improve its ability to freeze, without delay, assets linked to terrorism and financing of terrorism.
- Supervision of the financial and other relevant sectors is generally well-developed, but sanctions for non-compliance are not always effective, proportionate, and dissuasive.
Another international report including anti-money laundering regulations and practices in Turkey is the International Narcotics Control Strategy Report24 ("INCSR") dated March 2nd, 2021. This report is undertaken annually by the United States Department of State Bureau of International Narcotics and Law Enforcement Affairs. The INCSR 2021 highlights the following deficiencies for Turkey:
- There is a need for a centralized government anti-money laundering policy to be implemented across all stakeholders using a risk-based approach.
- Non-profit organizations are not regularly audited for money laundering activity and do not receive adequate AML guidance.
- There are many suspicion transaction reports, but the result only in a few convictions.
- Virtual currency is insufficiently regulated and supervised.
- Many financial institutions apply "Know Your Client" and customer due to diligence procedures insufficiently due to the lack of adequate guidance.
- There is a lack of legislation or methodologies to effectively combat money laundering through casinos linked to the Turkish Republic of Northern Cyprus.
Although their AML regulations in accordance with international standards in Turkey, it has some shortcomings in the practical implementation of these rules. Both authorities and obliged parties play a role in overcoming these deficiencies. In this context, we can expect that the steps to be taken by MASAK in the upcoming period are as follows:
- Adequate guidelines for the fulfillment of obligations that will be applicable for all sectors
- Effective examination of suspicious transaction reports, judicial requests, and referrals
- Increased supervision on compliance with obligations should be increased, and the enforcement of the results
- Particular attention to the non-profit organizations
- Sufficient regulation and supervision on virtual currency activities
On the other hand, we can summarize the measures for obliged parties to comply with AML rules as follows:
- Adequate analysis and corporate implementation of brochures and guidelines published by MASAK regarding their sectors
- Establishment of corporate policy and procedures
- Adequate training of employees and internal auditing activities
- Internalization of customer identification and STR principles and procedures
1. P.A. Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism, Second Edition and Supplement on Special Recommendation IX, Washington, The World Bank/IMF, p. I.1. Date accessed 08.04.2021 https://openknowledge.worldbank.org/bitstream/handle/10986/6977/350520Referenc1Money01OFFICIAL0USE1.pdf?sequence=1&isAllowed=y
2. 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. Date accessed 07.04.2021. https://www.unodc.org/pdf/convention_1988_en.pdf
3. Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. Date accessed 07.04.2021. https://rm.coe.int/168007bd23
4. United Nations Convention against Transnational Organized Crime and the Protocols thereto. Date accessed 07.04.2021. https://www.unodc.org/documents/middleeastandnorthafrica/organised-crime/UNITED_NATIONS_CONVENTION_AGAINST_TRANSNATIONAL_ORGANIZED_CRIME_AND_THE_PROTOCOLS_THERETO.pdf
5. Presentation of Financial Crimes Investigation Board on official website. Date accessed 07.04.2021. https://en.hmb.gov.tr/fcib-presentation
6. Limited to the activities of buying and selling of property, establishment and management of companies, charitable foundations and associations, and sales of the foregoing entities.
7. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
8. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
9. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
10. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
11. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
12. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
13. MASAK 2010-2015 Activity Reports. Date accessed 08.04.2021 https://en.hmb.gov.tr/fcib-activity-reports
14. MASAK 2019 Activity Report. Date accessed 08.04.2021 https://ms.hmb.gov.tr/uploads/sites/12/2021/01/FAALIYET_RAPORU_2019-FINAL-1.pdf
15. The USD/TRY rate is calculated based on the Turkish Central Bank's monthly average buying exchange rate of USD 1 = TRY 5,67 for the period of January 1st, 2019 – December 31st, 2019.
16.The USD/TRY rate is calculated based on the Turkish Central Bank's monthly average buying exchange rate of USD 1 = TRY 3,65 for the period of January 1st, 2017 – December 31st,2017.
17. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
18. The USD/TRY rate is calculated based on the Turkish Central Bank's buying exchange rate of USD 1 = TRY 8,13 for the date of April 12th, 2021.
19. MASAK's General Communiques. Date accessed 11.04.2021 https://en.hmb.gov.tr/fcib-national-legistation
20. Brochures in English by MASAK. Date accessed 07.04.2021. https://en.hmb.gov.tr/fcib-brochure
21. Official website of FATF. Date accessed 07.04.2021 http://www.fatf-gafi.org/
22. FATF currently has 39 members; 37 jurisdictions and 2 regional organisations (the Gulf Cooperation Council and the European Commission). https://www.fatf-gafi.org/faq/membercountriesandobservers/#:~:text=Which%20jurisdictions%20are%20members%20of,money%20laundering%20and%20terrorist%20financing. Date accessed 07.04.2021
23. FATF Mutual Evaluation Report Turkey. Date accessed 07.04.2021 http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Report-Turkey-2019.pdf
24. International Narcotics Control Strategy Report (March 2021). Date accessed 07.04.2021 https://www.state.gov/wp-content/uploads/2021/02/21-00620-INLSR-Vol2_Report-FINAL.pdf
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.