Turkey under FATF Grey-List

Subject – IR

Context – global terror finance watchdog put Turkey under the lens

Concept –

The global terror financing watchdog, Financial Action Task Force (FATF), has added Turkey, along with Jordan and Mali, in its revised list of “jurisdictions under increased monitoring”.
The FATF is an inter-governmental body that works to “set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system”.
The FATF holds three Plenary meetings in the course of each of its 12-month rotating presidencies.

‘Increased Monitoring’

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”.

Why is Turkey on the list?

Turkey needs to address “serious issues of supervision” in its banking and real estate sectors, and with gold and precious stones dealers.
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.
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.

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.