https://nordicmonitor.com/2024/06/turkey-forced-to-take-steps-to-exit-fatfs-grey-list-for-money-laundering-and-terrorism-financing/

The Turkish government has finally decided to enact legislation concerning cryptocurrency, with the relevant proposal approved by parliament’s Planning and Budget Committee. Hoping to exit the Financial Action Task Force’s (FATF) grey list at its annual meeting in Singapore on June 28, Ankara has been accused since 2021 of failing to implement fundamental reforms related to money laundering and terrorist financing. Various reports have indicated that terrorist groups, particularly the Islamic State in Iraq and Syria (ISIS), have been using intermediaries in Turkey, cash transfer apps and cryptocurrency to fund their activities.

The recent proposal to amend the Capital Markets Law introduces a comprehensive regulatory framework for crypto asset service providers, covering the operations of crypto-asset platforms, the custody of crypto assets and the trading and transfer activities on these platforms by individuals residing in Turkey. Under the new regulations, the establishment and operation of crypto asset service providers will require authorization from the Capital Markets Board (Sermaye Piyasası Kurulu, SPK).

Unauthorized activities will be subject to criminal penalties, including imprisonment. The principles and guidelines that crypto asset service providers must adhere to during their operations will be determined by the SPK through secondary legislation.

Crypto asset service providers will be held accountable for unlawful activities and breaches of information security. Additionally, members of their boards of directors will also be held liable and subject to embezzlement provisions in such cases.

Existing crypto asset service providers will be required to apply for an operating license from the SPK within one month from the date the law is enacted. Foreign crypto firms will be also required to cease their activities directed at residents of Turkey within three months, or they will be classified as unauthorized crypto asset service providers.

The FATF included Turkey among countries that were subjected to increased monitoring,  publicly referred to as being on the “grey list,” in October 2021.

During a parliamentary committee meeting on May 30 opposition party members criticized the government for its inaction on cryptocurrency-related irregularities until now, arguing that the new regulations are overdue. Peoples’ Equality and Democracy Party (DEM Party) MP Heval Bozdağ reminded lawmakers that the FATF long ago had warned Turkey about terrorist groups like al-Qaeda and ISIS, as well as other money launderers, illegally channeling funds into the Turkish real estate market. Once laundered through the real estate sector, the funds were then integrated into other sectors of the economy.

The government’s delay in taking these steps is related to the wealth amnesty bill enacted on July 1, 2022. According to the bill, individuals and entities had until March 31, 2023 to bring cash, gold and other capital wealth that was not previously disclosed in Turkey into the country from abroad. The bill does not allow for any audit or investigation into such assets under any circumstances, providing total immunity for money launderers, drug traffickers and others who transfer their wealth to Turkey. Those who were already under investigation by government auditors would also be able to exploit this law if they claimed that the wealth under audit was obtained through such transfers. The government waited for as much money as possible to enter the country.

On January 30, 2024, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned a Turkish cybersecurity specialist linked to ISIS. This individual provided ISIS leaders and supporters with cybersecurity training, facilitated their use of virtual currencies and aided in the group’s recruitment efforts. Furthermore, OFAC targeted an ISIS financial facilitator who was involved in transferring funds to individuals associated with ISIS in Syria. “Today’s actions hinder ISIS’s ability to transfer funds, particularly through cryptocurrencies, and exploit its online presence for recruitment and propaganda,” said Brian E. Nelson, under secretary of the Treasury for Terrorism and Financial Intelligence. According to OFAC, in mid-2020 Faruk Güzel, based in Turkey, received several transfers from ISIS supporters for associates of ISIS in Syria via a money remittance service. Güzel subsequently disbursed the funds to individuals affiliated with ISIS.