Based on the findings of a 2007 Financial Action Task Force (FATF) mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, overall, Turkey's legal requirements to combat money laundering (ML) and terrorist financing (TF) are generally comprehensive. The legislative renewal program undertaken by the Turkish authorities has strengthened the AML/CFT system though, due to the recent implementation of a number of key laws, many elements of the system's effectiveness have not yet been tested. A new money laundering offense was introduced in June 2005, and the stand-alone terrorist financing offense was introduced in July 2006. While the scope of the new ML offense is broader than its predecessor, and it may produce better results in the future, the penalties provided for ML are low when compared to similar types of offenses. No prosecutions have yet been brought using the new ML offense. The new TF offense of July 2006 is generally broad, although it does not completely implement the 1999 United Nations (UN) Convention on the Suppression of the Financing of Terrorism. While the number of suspicious transaction reports (STRs) submitted has increased substantially, the level of reporting remains low when the size and nature of Turkey's financial sector is considered. The confiscation framework in Turkey appears to meet most of the standards, but has not yet produced substantial results. The Turkish financial intelligence unit (FIU), (Mali Suçlan Arastirma Kurulu, or MASAK), is the focal point for Turkish AML/CFT efforts and it is generally effective in its functions. However, one major drawback identified by the FATF report is that Turkey does not comply with the FATF's customer due diligence (CDD) requirements for financial institutions and designated non-financial Business and Professions (DNFBPs).

General Overview

Based on the findings of a 2007 mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, overall, Turkey's legal requirements to combat money laundering (ML) and terrorist financing (TF) are generally comprehensive. The legislative renewal program in Turkey has strengthened the AML/CFT system though, due to the recent implementation of a number of key laws, many elements of the system's effectiveness have not yet been tested. (FATF 2007, p. 2)

Turkey is an important regional financial center, particularly for Central Asia and the Caucasus, as well as for the Middle East and Eastern Europe. It continues to be a major transit route for Southwest Asian opiates moving to Europe. However, local narcotics trafficking organizations are reportedly responsible for only a small portion of the total funds laundered in Turkey. Money laundering takes place in banks, nonbank financial institutions, and the underground economy. Money laundering methods in Turkey include: the cross-border smuggling of currency; bank transfers in and out of the country; trade fraud, and the purchase of high value items such as real estate, gold, and luxury automobiles. It is believed that Turkish-based traffickers transfer money and sometimes gold via couriers, the underground banking system, and bank transfers to pay narcotics suppliers in Pakistan or Afghanistan. Funds are often transferred to accounts in the United Arab Emirates, Pakistan, and other Middle Eastern countries. A substantial percentage of money laundering that takes place in Turkey involves fraud and tax evasion. Informed observers estimate that as much as 50 percent of the economy is unregistered. In 2005, the Government of Turkey (GOT) passed a tax administration reform law, with the goal of improving tax collection. (U.S. DoS 2007)

Turkey first criminalized money laundering in 1996. Under the law whoever commits a money laundering offense faces a sentence of two to five years in prison, and is subject to a fine of double the amount of the money laundered and asset forfeiture provisions. The Council of Ministers subsequently passed a set of regulations that require the filing of suspicious transaction reports (STRs), customer identification, and the maintenance of transaction records for five years. (U.S. DoS 2007)

The GOT has in recent years passed a number of key laws relating to ML and TF. A new money laundering offence was introduced in June 2005, and the stand-alone terrorist financing offence was introduced in July 2006. The confiscation framework in Turkey appears to meet most of the standards, but has not yet produced substantial results. (FATF 2007, p. 1)

The new AML law (Law 5549 of October 2006) provides, amongst other things, for a new and more comprehensive system for disclosures of cross-border movements of cash and monetary instruments to be implemented in the near future. While the scope of the new ML offence is broader than its predecessor, and it may produce better results in the future, the penalties provided for ML are low when compared to similar types of offences. No prosecutions have yet been brought using the new ML offence. Turkey has been actively combating terrorism for some years and has a counter terrorism system in place which predates the FATF standards. The new TF offence of July 2006 is generally broad, although it does not completely implement the International Convention on the Suppression of the Financing of Terrorism (1999). (FATF 2007, pp. 1-2)

The Turkish financial intelligence unit (FIU) (Mali Suçları Araştırma Kurulu, or MASAK) is the focal point for Turkish AML/CFT efforts and it is generally effective in its functions. Supervision is conducted by the FIU, the Banking Regulation and Supervision Agency, the Capital Markets Board and the Undersecretariat of Treasury. The AML/CFT system is overseen by a multi-agency Coordination Board for Combating Financial Crime. Competent authorities are capable and actively involved in the Turkish AML/CFT system. Prosecutors and judges do seem however to have limited awareness of AML/CFT issues. Turkey has generally complete international cooperation mechanisms and sound national and international cooperation in practice. Most authorities were able to provide useful statistics on AML/CFT and other matters, though these do not appear to be jointly examined by related authorities. (FATF 2007, p. 1)

The preventive system deals with customer identification and other AML/CFT obligations and applies to a range of financial institutions and a number of designated non-financial businesses and professions (DNFBPs). While some limited systems are in place for verification of identity, a number of other customer due diligence (CDD) requirements have not been implemented. While the number of suspicious transaction reports (STRs) submitted has increased substantially, the level of reporting remains low when the size and nature of Turkey's financial sector is considered. (FATF 2007, p. 1)

The Turkish FIU has been a member of the Egmont Group of FIUs since 1998. MASAK was established by the 1996 anti-money laundering law as part of the Ministry of Finance. MASAK became operational in 1997. MASAK receives suspicious transaction reports (STRs) and develops cases that are forwarded to the public prosecutor for action against ML. Turkish law enforcement authorities have comprehensive legal powers for gathering evidence and compelling the production of documents, and they can also use special investigative techniques. Nevertheless, there is little specialization among law enforcement or prosecutorial authorities in ML or TF financing matters. (FATF 2007, p. 2; U.S. DoS 2007)

According to the 2007 report by U.S. Department of State (DoS), with the passage of several new pieces of legislation, the GOT took steps in 2005 and 2006 to strengthen its anti-money laundering and counterterrorist financing regime. It now faces the challenge of aggressively implementing these laws. The U.S. DoS report recommends the following actions for Turkey to strengthen it AML regime: (1) Turkey should improve its coordination among the various entities charged with responsibility in its anti-money laundering and counterterrorist financing regime, including the various courts with responsibilities for these issues, in order to increase the number of successful investigations and prosecutions; (2) Turkey should also regulate and investigate alternative remittance networks to thwart their potential misuse by terrorist organizations or their supporters; (3) Turkey should consider expanding its narrow legal definition of terrorism; (4) Turkey should continue tax reform that will help minimize the underground economy; and (5) Turkey should also strengthen its oversight of charities. (U.S. DoS 2007)

The Principles

1. Legal Systems and Related Institutional Measures

EN

According to a 2007 Financial Action Task Force (FATF) report based on a mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, overall, Turkey's legal requirements to combat money laundering (ML) and terrorist financing (TF) are generally comprehensive. The government of Turkey (GOT) has in recent years embarked on a program of legislative renewal, in part related to the anticipated accession to the European Union (EU). The legislative renewal program has strengthened the AML/CFT system though, due to the recent implementation of a number of key laws, many elements of the system's effectiveness have not yet been tested. (FATF 2007, p. 2)

According to the FATF report, Turkey 'partially complies' and 'largely complies' with the FATF's requirements on criminalization of money laundering, namely recommendations 1 and 2. The report also indicates that Turkey 'partially complies' with special recommendations (SR) II and III on criminalization of terrorist financing and freezing of funds used for terrorist financing respectively. (FATF 2007, pp. 7,13)

While the scope of the new ML offence is broader than its predecessor, and it may produce better results in the future, the penalties provided for ML are low when compared to similar types of offences. No prosecutions have yet been brought using the new ML offence. Turkey has been actively combating terrorism for some years and has a counter terrorism system in place which predates the FATF standards. The new TF offence of July 2006 is generally broad, although it does not completely implement the 1999 International Convention on the Suppression of the Financing of Terrorism. It has not yet been tested in Turkish courts. The TF offence only applies in relation to terrorism against Turkey and its interests and it only applies to funding for the commission or attempted commission of specific terrorist acts. As with the ML offence, penal sanctions for the TF offence apply only to natural persons and license cancellation and confiscation provisions apply to legal persons. (FATF 2007, p. 2)

The 2007 FATF report indicates that Turkey 'largely complies' with recommendation 3 on confiscation, freezing and seizing of proceeds of a crime. The confiscation framework in Turkey appears to meet most of the standards, but has not yet produced substantial results. The new confiscation measures, introduced in June 2005, may assist in this regard. Turkey has implemented United Nations' Security Council resolution S/RES/1267 of 1999 and its successor resolutions via decrees of the Council of Ministers, but has not established formal procedures for, or guidance relating to, gaining access to frozen funds for necessary expenses, delisting, unfreezing or sanctions for failure to observe a freezing order. There is no system in place for communicating the decrees to Designated non-Financial Business and Professions (DNFBPs) and no deadlines are set for action by financial institutions in accordance with the decrees. In addition, Turkey does not have a mechanism that will permit it to freeze the assets of persons designated by other jurisdictions as foreseen by SR III in the context of United Nations' Security Council resolution S/RES/1373 of 2001. (FATF 2007, pp. 2, 7)

Turkey 'largely complies' with recommendation 23 and 'partially complies' with recommendations 30 and 32 on the Financial Intelligence Unit (FIU) and its functions. The Turkish financial intelligence unit (FIU) (Mali Suçları Araştırma Kurulu, or MASAK), has been a member of the Egmont Group of FIUs since 1998. MASAK receives suspicious transaction reports (STRs) and develops cases that are forwarded to the public prosecutor for action against ML. The FIU is a focal point for the Turkish AML/CFT efforts and is generally effective in its functions. (FATF 2007, pp. 2, 10-11)

Turkey 'partially complies' with recommendation 27 and 'largely complies' with recommendation 28 on law enforcement, prosecution and other competent authorities. Turkish law enforcement authorities have comprehensive legal powers for gathering evidence and compelling the production of documents, and they can also use special investigative techniques. Nevertheless, there is little specialization among law enforcement or prosecutorial authorities in ML or TF financing matters. The lack of awareness shown by the representatives of the prosecution and judicial authorities met by the evaluation team and the disproportionate level of acquittals are of concern. (FATF 2007, pp. 2-3, 11)

According to the FATF report, Turkey 'largely complies' with special recommendation IX on cross border declaration & disclosure. While Turkey currently has a limited declaration system relating to movement of currencies worth over USD 5,000, the new AML law (Law 5549 of October 2006) provides for a more comprehensive system to be implemented in the near future. (FATF 2007, pp. 3, 14)

2. Preventive Measures - Financial Institutions

NC

According to a 2007 Financial Action Task Force (FATF) report based on a mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, the preventive side of the Turkish AML/CFT regime was originally instituted through the Law on Prevention of Money Laundering (Law 4208 of 19 November 1996), the Regulation supporting this law and four Turkish financial intelligence unit (FIU) (Mali Suçları Araştırma Kurulu, or MASAK) Communiqués. After the mutual evaluation, Turkey enacted a new AML law (Law 5549 of October 2006), which replaces and strengthens a large number of the provisions contained in Law 4208. Both the new and old laws deal with customer identification and other AML/CFT obligations and apply them to a range of financial institutions. Turkish AML/CFT measures are not based on risk in the manner set out in the revised FATF 40 Recommendations, and in particular, do not allow for enhanced due diligence. However, recent non-mandatory guidance issued by MASAK does describe the concept of risk and appears to take different risk situations into account. (FATF 2007, p. 3)

The range of obliged parties subject to AML/CFT regulation is broad and includes necessary financial institutions. The focus of AML regulation is customer identification, reporting suspicious transactions, record keeping and submission of information. There is limited ongoing offsite control of financial institutions. The suspicious transaction reports (STRs) statistics reveal that almost all reports in the last five years (prior to 2007) have been submitted by banks, suggesting inadequate AML/CFT supervision of other obliged parties. There is no consolidated supervision for the insurance and securities sectors. (FATF 2007, p. 4)

According to a 2007 Financial Action Task Force (FATF) report, Turkey is 'non compliant' with all but one recommendation relating to customer due diligence (CDD). It is partially compliant with recommendation 8. The only explicit CDD requirement is customer identification. It is not specified whether identification must be conducted for occasional transactions or for linked transactions below the TRY 12,000 threshold. Customer verification of natural persons only partially complies with international standards. There are no verification requirements for legal persons, associations, and foundations. Measures for collection of information on the purpose and nature of the relationship for legal persons. Similarly, 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. There are no requirements for CDD to be ongoing, very limited requirements for identification of beneficial owners and no requirements for application of enhanced due diligence. Measures have not yet been stipulated in relation to correspondent banking or misuse of new technologies. (FATF 2007, pp. 3, 7-8)

Turkey is 'non compliant' with recommendation 9 relating to third parties and introduced business. Only the securities sector is subject to provisions on the use of third parties to perform CDD under Turkish law. Obliged parties are not required to investigate the purpose of complex/unusual large transactions or to keep such records. Financial institutions are required to include the name of the originator in wire transfer instructions but are not required to include other originator information. (FATF 2007, pp. 3, 8)

Turkey is 'largely compliant' on recommendation 4 regarding financial institution secrecy or confidentiality, however, is 'non-compliant' with special recommendation VII on wire transfer rules. Recommendation 10 regarding recording keeping is assessed as 'compliant' in Turkey. The regulatory system is implemented and supervised by four primary agencies: MASAK, the

Banking Regulation and Supervision Agency, the Capital Markets Board, and the Undersecretariat of Treasury; and it is overseen by the multi-agency Coordination Board for Combating Financial Crime. All competent authorities have the power to obtain documents and information without any secrecy limitations and are able to share this information. (FATF 2007, pp. 3, 7, 10, 14)

According to the FATF report, Turkey is 'non-compliant' with recommendations 11 and 21 relating to monitoring of unusual transactions and higher risk countries. There is no requirement for financial institutions to give special attention to business relationships and transactions with persons from or in countries which do not sufficiently apply the FATF Recommendations. (FATF 2007, pp. 3, 8, 10)

Turkey is 'partially compliant' with 3 of the recommendations relating to suspicious transaction reports (STRs) and other reporting, 'largely compliant' and 'compliant' with the other 2. Recommendation 19 on other forms of reporting is being full complied with by Turkey. While the number of STRs submitted to MASAK from 2002 to 2005 was more than three times that submitted in the previous four year period, the level of STR reporting is low when the size and nature of the financial sector is considered. Some STRs relating to TF have been submitted despite the fact that there is an incomplete obligation to report STRs on terrorism financing to MASAK. The prohibition on 'tipping off' does not explicitly apply to the natural persons within obliged parties, and the practice of some financial institutions to automatically suspend transactions that are the subject of an STR may inadvertently alert the customer to fact that a report has been made. (FATF 2007, pp. 3, 7-14)

Turkey is 'partially compliant' with recommendation 15 on internal controls, compliance and audit, and 'non compliant' with recommendation 22 on foreign branches and subsidiaries. Turkey has requirements in place for internal controls in banks, participation banks and companies operating in the capital markets. Financial and other businesses subject to AML obligations are obliged to train, conduct internal audits and assign compliance officers. Financial institutions are not however required to have internal audit procedures and policies in relation to TF, and it appears few obliged parties have appointed AML/CFT compliance officers. There are some requirements in law and regulation for banks to apply CDD and internal control systems to overseas branches, though on the whole these have not been implemented. (FATF 2007, pp. 3, 7-14)

There is no explicit prohibition on establishment of shell banks. The FATF report indicates that Turkey is 'partially compliant' with the requirements for recommendation 18 on shell banks. (FATF 2007, p. 9)

Turkey is 'partially compliant' with recommendations relating to the supervisory and oversight system, competent authorities and self regulatory organizations (SROs), namely recommendations 17, 23, 25, 29, 30, and 32. MASAK is authorized to examine obliged parties to determine whether they fulfill their AML obligations, and the primary financial sector supervisors can through their controls take into consideration AML requirements. Any AML violations found by other supervisors must be communicated to MASAK for investigation. Sanctions can be applied to the persons who execute transactions which violate AML/CFT laws and regulations but not to the directors and senior managers of these companies. The number of detected violations is low, and the number of sanctions imposed where violations were detected is low compared to the number of institutions supervised. A limited range of sanctions is available, and this is not flexible and proportionate to the various potential AML/CFT violations. The availability of administrative fines under the new AML law is likely to allow for a more effective sanction system, though there is a relatively low limit on the fines that can be applied. Regulations dealing with the ownership and/or control of banks are in place, though the qualifications and fit and proper tests for persons operating in senior roles in this sector are at times vague. The list of offences of which these persons must not have been convicted does not include the TF offence. There is no corresponding regulation dealing with the ownership and/or control of other financial sector companies. (FATF 2007, pp. 4, 7-14)

MASAK and the Turkish Banks Association (TBA) work cooperatively and have issued a number of non-binding guidelines to assist obliged parties to implement and comply with AML/CFT requirements. This guidance does not address all areas of the FATF recommendations however. The non-mandatory guidelines issued by the TBA are the most extensive, though these are only produced for banks. Other competent authorities have not issued guidance for this purpose. (FATF 2007, p. 4)

Turkey is 'partially compliant' with special recommendation VI dealing with money or value transfer services. (FATF 2007, p. 14)

3. Preventive Measures - Designated non-Financial Business and Professions

NC

According to a 2007 Financial Action Task Force (FATF) report based on a mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, a number of the relevant categories of Designated non-Financial Business and Professions (DNFBPs) are covered by the AML/CFT obligations set forth in law, but there is limited indication that the currently listed obliged DNFBPs are in fact implementing preventive measures. While guidance for DNFBPs has been limited, the Turkish financial intelligence unit's (FIU) (Mali Suçları Araştırma Kurulu, or MASAK) recently issued guideline for financial institutions and DNFBPs provides useful description and analysis by sector. (FATF 2007, p. 4)

No systems exist for monitoring and ensuring compliance of DNFBPs with AML/CFT requirements and little training has been provided to DNFBPs. DNFBPs are not required to conduct in-house training or screen potential employees. Limitations identified generally in relation to financial institutions apply also to the DNFBP sector. No suspicious transaction reports (STRs) have been submitted by DNFBPs. Lawyers, accountants and other legal professionals are notably absent from the list of obliged parties. They are not required to submit STRs and are not subject to other AML/CFT measures. Turkey is effectively working to move more transactions to secure payment systems. (FATF 2007, p. 4)

Turkey is 'non compliant' with recommendation 12 dealing with customer due diligence (CDD) and record-keeping, 'non compliant' with recommendation 16 dealing with suspicious transaction reporting, and 'non compliant' with recommendation 24 dealing with regulation, supervision and monitoring of DNFBP. However, recommendation 20 on other non-financial businesses and professions is 'compliant' and Turkey 'partially complies' with recommendation 25 on guidelines and feedback. (FATF 2007, pp. 9-10)

4. Legal Person and Arrangements & Non-Profit Organizations

EN

According to a 2007 Financial Action Task Force (FATF) report based on a mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, Turkey 'partially complies' with the recommendations relating to this principle, namely recommendation 33 and special recommendation VIII. Recommendation 34 is not applicable to Turkey as trusts do not exist under Turkish law. (FATF 2007, pp. 12, 14)

According to the FATF 2007 report, Turkey has a good Trade Registry system for legal persons though there is no requirement to disclose information on beneficial ownership to the Trade Registry or to other government authorities. While the current paper-based Trade Registry has some limitations in terms of real-time access to information, it is expected that the database system which is due to be operational in 2007 will improve access and searchability. Turkish legal system does not allow for the creation of trusts, and the legal concept of trust does not exist under Turkish law. Turkey has a large non-profit sector, primarily comprising associations and foundations, which is closely regulated. Both associations and foundations are subject to registration systems. However the mutual evaluation did not identify any information which demonstrates that Turkey periodically reviews the sector in order to assess TF or ML vulnerabilities. (FATF 2007, p. 4)

5. National and International Co-operation

EN

According to a 2007 Financial Action Task Force (FATF) report based on a mutual evaluation of Turkey's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, the Coordination Board for Combating Financial Crime provides a good means of domestic coordination at a policy level and has been an important forum encouraging recent legislative developments. Turkey's AML/CFT system would benefit from active involvement of the public prosecutors in the Coordination Board. While ongoing operational coordination and information sharing between competent authorities does occur, it could be strengthened, particularly in relation to the various reports the financial sector must make to different supervisors and the reporting by multiple supervisors direct to the public prosecutor's office. The FATF report indicates that Turkey 'largely complies' with recommendation 31 on national cooperation and 'partially complies' with recommendation 32 on statistics. (FATF 2007, pp. 5, 11)

Turkey 'partially complies' with recommendations 35 and special recommendation I on implementation of United Nations (UN) conventions and special resolutions. Turkey has ratified the 1988 UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention), the 2001 UN Convention Against Transnational Organized Crime (the Palermo Convention) and the 1999 UN Convention for the Suppression of the Financing of Terrorism. (FATF 2007, pp. 5, 12-13)

Turkey 'largely complies' with recommendation 36 on mutual legal assistance (MLA), and recommendation 37 on dual criminality. It is only 'partially compliant' on recommendation 38 and special recommendation V on MLA on confiscation and freezing and international cooperation respectively. Turkey is party to treaties which provide the legal basis for providing and requesting mutual legal assistance though it has not signed the Second Additional Protocol (2001) to the European Convention on Mutual Legal Assistance in Criminal Matters. Turkey has a generally clear and complete framework for providing international cooperation, and Turkish authorities appear to be committed to cooperating with their international counterparts. However, there is little information evidencing regular effective cooperation in practice. While Turkey requires dual criminality in order to apply extradition provisions and some areas of mutual legal assistance (search, seizure and confiscation), it does not define this restrictively, and neither dual criminality nor the principle of reciprocity have been used as a grounds to refuse mutual legal assistance. Turkey does not apply disproportionate or undue conditions that can hamper provision of mutual legal assistance. While Turkish authorities do appear able to assist foreign countries with measures available for domestic investigations or criminal proceedings, there are no specific provisions that extend the scope of domestic laws for mutual legal assistance purposes. (FATF 2007, pp. 5, 12)

The new criminal code (Law 5237 of June 2005) provides a robust basis to cooperate at international level in extradition matters, though the procedure for extradition does seem complex. Money laundering (ML) and terrorist financing (TF) are extraditable offences in Turkey. Turkey will not extradite its own nationals, but if requested by a foreign country it will instead initiate domestic proceedings. (FATF 2007, pp. 5-6)

Turkey is 'largely compliant' on recommendation 40 relating to other forms of cooperation. Memoranda of Understanding (MOUs) signed by the Turkish financial intelligence unit (FIU) (Mali Suçları Araştırma Kurulu, or MASAK) and foreign authorities require a decree from the Council of Ministers to enter into force, a requirement that could limit the effectiveness of international cooperation as envisaged by recommendation 40. Authorities in Turkey have conducted joint controlled operations with foreign counterparts. Turkey does not however have arrangements for coordinating seizure or confiscation actions with other countries. There is no asset forfeiture fund, and no indication Turkey has considered establishing one. Turkey does not share confiscated assets with other countries which have participated in coordinated action, and there is no indication it has considered establishing a system to do so. (FATF 2007, pp. 6, 13)