The Ministry of Treasury and Finance published Financial Crimes Investigation Board ("MASAK") General Communique Numbered 21 (the "Communique") on November 17th, 2022 in Official Gazette numbered 32016.1 The Communique has introduced the term Politically Exposed Persons ("PEP") for the first time in the Turkish regulatory landscape.
Going back to November 2021, Financial Action Task Force ("FATF") published the First Enhanced Follow-up Report & Technical Compliance Re-Rating for Turkey ("Report") regarding the anti-money laundering and counter-terrorist financing measures.2
In terms of Recommendations 12 and 22 of FATF highlighting the PEP, Turkey was rated as Non-Compliant and Partially Compliant. With the newly introduced Communique, Turkey is taking a step forward to become compliant with FATF's said recommendations. (See our article on FATF Recommendations here.)
Highlights of the Communique
What are the Definitions?
Article 3 (d) of the Communique defines Politically Exposed Persons as "High-level real persons, members of the board of directors of international organizations, senior executives and other persons who have an equivalent duty, to whom an important public duty has been entrusted by election or appointment in the country or a foreign country."
Also, the Communique provides a definition for Relatives and Close Associates ("RCA") of a PEP in Article 4 (6). According to the said article, RCA is "people who have all kinds of social, cultural or economic closenesswhich can be considered as a combination of interests or purposes, such as being engaged, company partnership, being a company employee or kinship other than the first degree."
Who is Obliged?
Article 4(1) of the Communique regulates that Financial Institutions, Crypto Asset Service Providers, and Designated Non-Financial Businesses and Professions are obliged to take necessary measures to determine whether the customer or real beneficiary is a PEP or not.
The Communique sets the framework for the procedures and principles of the measures to be taken regarding PEPs with Article 4. Accordingly;
- Paragraph 3 of Article 4 states that the following measures
shall be applied as a minimum by the obliged parties specified in
Article 4(1) in the business relations and transactions established
with PEP who are elected or appointed by a foreign country or their
spouses, first-degree relatives, and RCA.
- To bind the establishment of the business relationship, the continuation of the existing business relationship, or the execution of the transaction with the approval of the senior official,
- To take reasonable measures to determine the source of the assets and funds belonging to these persons or subject to the transaction,
- Keeping the business relationship under strict surveillance by increasing the number and frequency of controls applied and identifying the types of transactions that require additional control.
- The abovementioned measures are applied to PEP who are elected or appointed by Turkey or serving in international organizations or their spouses, first-degree relatives, and RCA in case the business relations and transactions are deemed to be high risk according to Article 4 (4).
- In the event that PEP resign from office or lose their qualifications, the implementation of the measures specified above shall continue for at least one year from the date of their resignation or loss of these qualifications. This period may be extended if the transactions or business relations with these persons pose a risk.
- In order to determine whether the beneficiary or beneficial owner of the life insurance policy is a PEP, reasonable measures shall be taken before the rights and receivables under the insurance policy are paid to the beneficiary or at the latest at the time of payment. In cases where a high risk is detected regarding this, the top management should be informed before the payment is made and the measures specified in Article 4 (3) (c) should be applied.
The Communique states that if the Financial Institutions, Crypto Asset Service Providers, and Designated Non-Financial Businesses and Professions have not fulfilled their obligations set by this Communique regarding the PEP, penalties stipulated by the Law No. 5549 shall be applied.
For the first time in Turkey, Turkish watchdog MASAK has defined and regulated Politically Exposed Persons with a newly published Communique numbered 21. The said regulation obliged Financial Institutions, Crypto Asset Service Providers, and Designated Non-Financial Businesses and Professions to take necessary measures. Considering the 2021 FATF Report on Turkey, the Turkish regulatory landscape has taken a step forward to comply with the FATF Recommendations.
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.