Three years ago, Türkiye was included in the grey list countries that require special scrutiny of the Financial Action Task Force ("FATF"). This inclusion posed significant challenges for Türkiye, as being on the FATF grey list historically restricts cross-border transactions, complicates its ability to obtain credit, and limits foreign investment inflows. The listing underscored concerns regarding Türkiye's efforts in combating money laundering and terrorist financing. However, through intense efforts and comprehensive reforms of government and stakeholders, Türkiye has made remarkable progress. These reforms included strengthening legal frameworks, taking adequate measures to address the concerns, enhancing oversight mechanisms, and improving international cooperation. In this regard, Türkiye's possible delisting from the grey list has been discussed for a while.
A few days ago, Minister of Treasury and Finance Mehmet Şimşek travelled to Singapore to participate in the FATF General Assembly meeting. On June 28, 2024, FATF President Raja Kumar held a press conference to announce the outcomes of the General Assembly, revealing that Türkiye has been removed from the grey list1. According to the Plenary, the decision-making body of the FATF, Turkey has made significant progress in strengthening its AML/CFT regime and is no longer subject to the FATF's increased monitoring process. This development reflects Türkiye's dedication to aligning with international standards and enhancing the integrity of its financial system.
In this article, we will discuss the significant outcomes of Türkiye's removal from the grey list, delving into the economic and financial implications of this development. We will also explore how this achievement is crucial for Türkiye, particularly in terms of boosting foreign investments and enhancing international trade.
What are the FATF and the Grey List?
The FATF, an independent international organization established by the G7 countries in 1989, operates at the OECD headquarters in Paris2. Initially founded with 16 countries, FATF's membership has since expanded to include 37 countries and 2 regional organizations (the European Commission and the Gulf Cooperation Council), totalling 39 entities. Türkiye has been a member of the FATF since 19913.
The primary objective of FATF is to assess whether member and non-member countries have implemented necessary measures against money laundering and terrorist financing. While FATF assessments are not legally binding, the organization aims to facilitate coordinated global intervention to combat organized crime, corruption, and terrorism. This approach generates a quasi-binding effect among states, non-member states, and regional organizations, influencing public opinion and promoting global cooperation.
The FATF 40 Recommendations ("Recommendations") are pivotal documents that establish and promote international standards in combating money laundering and terrorist financing4. The Recommendations, set a global standard, which countries should implement through measures adapted to their particular circumstances. In this regard, the Recommendations have been globally accepted as international standards for combating money laundering and terrorism financing.
Moreover, FATF publishes two lists namely the grey list and the blacklist. A country's placement on the black or grey list is determined by its adherence to these Recommendations. These lists are updated three times annually. Countries that fail to comply with the recommendations are placed on the blacklist, while those showing partial compliance are placed on the grey list. Being listed signifies that the country has not taken sufficient measures to combat money laundering and terrorism financing, leading to its designation as an unreliable country in the international financial markets.
In detail, countries on the blacklist are identified by FATF as "jurisdictions subject to a call for action due to high-risk areas for money laundering, terrorist financing, and financing of proliferation activities with serious strategic deficiencies"5. FATF member countries are called upon to take measures and actions against these countries to safeguard the international financial system. Currently, the blacklist includes three countries: Iran, North Korea, and Myanmar.
On the other hand, the grey list, termed "jurisdictions under increased (strict) monitoring" identifies countries actively collaborating with FATF to address strategic deficiencies in their regimes against the financing of terrorism and proliferation6. Placing a jurisdiction under increased monitoring by FATF signifies that the country has committed to swiftly resolving identified strategic deficiencies within specified timeframes while being subject to enhanced scrutiny during this period. Until its removal, Türkiye was on the grey list along with Bulgaria, Burkina Faso, Cameroon, Croatia, the Democratic Republic of Congo, Haiti, Jamaica, Kenya, Mali, Mozambique, Namibia, Nigeria, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Vietnam, and Yemen7. However, Türkiye has successfully been delisted from the list on June 28, 2024.
Türkiye's Removal from the Grey List
In October 2021, FATF announced Türkiye's inclusion on the grey list by publishing the 'Jurisdictions under Increased Monitoring' list8. According to this monitoring report, Türkiye was found to be compliant with 11 out of 40 recommendations, largely compliant with 20, partially compliant with 7, and non-compliant with 29. The FATF highlighted significant money laundering risks in Türkiye, attributed primarily to activities such as drug trafficking, migrant smuggling, human trafficking, and fuel smuggling, influenced by its geographical location10. Moreover, FATF underscored significant risks of terrorist financing in Türkiye, originating from both domestic and international sources11.
In response to these challenges, the Turkish Financial Crimes Investigation Board (Mali Suçları Araştırma Kurulu - "MASAK") implemented a series of robust measures aimed at strengthening the country's AML/CFT regime upon thoroughly assessing the Türkiye's current situation against the AML/CFT risks. These measures included enhancing the regulatory framework, increasing the number and quality of inspections, and providing extensive training for financial institutions to ensure compliance with international standards.
Following these efforts, FATF released a new report named "Follow-up Report & Technical Compliance Re-Rating" ("Follow-Up Report") in June 202312. According to the Follow-Up Report, there are no longer any areas considered as non-compliant with the Recommendations. Under this Report, Türkiye was assessed as largely compliant with 25 recommendations and compliant with 14 recommendations. Only one Recommendation numbered 15 "New Technologies" was partially compatible. In this regard, Türkiye has taken a step towards this Recommendation and regulated crypto assets, which have become very popular as an investment and payment instrument in recent years, as crypto assets are favourable for use in money laundering or terrorism financing.
Minister Mehmet Şimşek played a vital role in this process. In numerous statements, Şimşek emphasized the government's unwavering commitment to addressing the FATF's concerns and restoring confidence in Türkiye's financial system and stated that Türkiye has "substantially completed" the necessary steps to be removed from its grey list. He also highlighted the significant progress made in recent years, noting that Türkiye had implemented a comprehensive action plan that addressed all of the Recommendations.
What's next: The potential implications of the removal
Removal from the FATF grey list is of great importance, especially for international reputation and foreign investments. Being on the grey list had created a perception of higher risk among international investors, leading them to be cautious and hesitant to invest in Türkiye.
The removal of Türkiye from the FATF grey list would have significant implications for the country, particularly in terms of international investment and economic activities. Concurrently, many international investment funds are restricted from investing in countries on the grey list due to legal regulations. As Türkiye is removed from the grey list, these funds will be able to invest in Türkiye, potentially increasing foreign direct investment and stimulating economic growth. Delisting will increase the investors' confidence to Turkish market. Indeed, many investors consider a country's status on the Grey List before making investments. Hence, being on the Grey List also a crucial role in due diligence processes and can sometimes be a decisive deal breaker. In this sense, this removal could lead to improved access to capital for businesses operating within Türkiye, fostering expansion opportunities and job creation.
Moreover, being on the grey list imposes various restrictions on cross-border transactions and makes it more challenging to obtain credit. Financial institutions in grey-listed countries often face higher scrutiny and stricter compliance requirements, which can limit their access to international financial networks and increase transaction costs. Therefore, delisting from the grey list would alleviate some of these burdens for Turkish businesses and financial institutions, facilitating smoother cross-border transactions and potentially reducing borrowing costs.
Another side of the coin, being on the grey list severely affects a country's reputation and perception among international investors and business partners. Indeed, being on the grey list of the FATF signal concerns about a country's commitment to combating money laundering and terrorist financing, which in turn deters potential investors and affects the overall business environment. Therefore, removal from the Grey List demonstrates that Türkiye has implemented adequate measures to combat money laundering and terrorism financing, significantly enhancing its international reputation. This milestone reflects the country's commitment to financial transparency and regulatory compliance, restores confidence among foreign investors, and international partners of its stable and secure financial environment.
Conclusion
Removal from the Grey List should not be underestimated as a matter of prestige. It notably positions Türkiye as a preferred partner in international financial collaborations by instilling confidence in foreign financial institutions and investors. Beyond prestige, delisting from the grey list is crucial for projecting an image of an economy where rules are enforced and efforts for AML/CFT are effectively managed. Lastly, delisting the Grey List also signifies the cessation of increased monitoring process by FATF.
As a result, Türkiye's delisting from the FATF grey list marks a significant milestone for the country's economy and financial system. The steps taken during this process not only facilitated Türkiye's delisting from the grey list but will also strengthen its financial infrastructure, positioning it more competitively on the international stage. This milestone not only signifies Türkiye's commitment to global financial standards but also opens new avenues for economic growth and stability. Moving forward, Türkiye is expected to maintain its compliance with these standards, supporting the sustainable growth of its economy.
We wish for the continuation of Türkiye's progress in combating money laundering and terrorism financing.
Footnotes
1. FATF, https://www.fatf-gafi.org/en/publications/Fatfgeneral/outcomes-fatf-plenary-june-2024.html, Last Accessed: 28.06.2024.
2. History of FATF, https://www.fatf-gafi.org/en/the-fatf/history-of-the-fatf.html#:~:text=The%20FATF%20was%20established%20in,of%20weapons%20of%20mass%20destruction. , Last Accessed: 28.06.2024.
3. Please see. https://www.fatf-gafi.org/countries/#Turkey
4. FATF, https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html, Last Accessed: 27.06.2024.
5. FATF, https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Call-for-action-february-2024.html, Last accessed on 27.06.2024.
6. FATF, https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2024.html, Last accessed on 28.06.2024.
7. FATF, https://www.fatf-gafi.org/en/countries/black-and-grey-lists.html, Last accessed on 28.06.2024.
8. FATF, https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-october-2021.html, Last accessed on 28.06.2024.
9. FATF, https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-october-2021.html, Last accessed on 28.06.2024.
10. FATF, https://www.fatf-gafi.org/en/countries/detail/Turkey.html, Last accessed on 26.06.2024.
11. FATF, https://www.fatf-gafi.org/en/countries/detail/Turkey.html, Last accessed on 26.06.2024.
12. FATF, https://www.fatf-gafi.org/en/publications/Mutualevaluations/turkiye-fur-2023.html, Last Accessed: 27.06.2024.
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