Global finance watchdog adds Turkey to gray list

The global financial watchdog known as the Financial Action Task Force, or FATF, today announced that Turkey has been added to its “gray list” of countries under increased terrorist financing watch, money laundering and institutional corruption. The move will further damage Turkey’s uneven image and likely further weaken the pound, which had already fallen to a new low today following a larger-than-expected 2% rate cut by the bank central. Adding to the ever-louder anti-Western growls of the country’s authoritarian – and increasingly erratic – president, Recep Tayyip Erdogan, Turkey is starting to look more like Iran than a valued member of NATO .

The FATF said that despite “some progress in all areas of concern” Turkey had “serious problems”.

The 39-member watchdog did not elaborate on what issues drove Turkey, along with Mali and Jordan, along with 22 other nations.

Turkey has been on notice for some time amid a flurry of allegations involving Erdogan associates in drug trafficking, oil for gold and other illicit deals with Maduro’s regime in Venezuela, among other criminal activities. A 2019 report by Europol and the European Monitoring Center for Drugs and Drug Addiction (EMCDDA) noted that Turkish organized crime groups are increasingly setting up their own operations to transport cocaine directly from Latin America to Latin America. Europe.

At the same time, the US Department of the Treasury has designated seven groups of people based in Turkey since April 2019 to provide a range of financial and travel facilitation services to al Qaeda, Islamic State and other networks. terrorists.

“Turkey’s gray list of the FATF will further tarnish the country’s image as a permissive jurisdiction for illicit financial activities,” said Aykan Erdemir, senior director of the Turkey program at the Foundation for the Defense of Democracies, a group of Washington-based think tank. “This move will exacerbate capital flight from an economy that has experienced net capital outflows in recent years,” Erdemir told Al-Monitor. Foreign direct investment totaled $ 5.7 billion in 2020, up from a peak of $ 19 billion in 2007, when Erdogan and the Justice and Development Party were busy implementing democratic and financial reforms on the now blocked path towards full membership of the European Union.

Fourteen years later, the Turkish economy is in a downward spiral. The lira has lost 20% of its value against the US dollar since the start of this year. It lost another 2% following today’s central bank announcement, hitting an all-time high of 9.50 Turkish lira for a greenback. The bank is believed to have bowed to pressure from Erdogan, who sacked three members of the monetary policy committee last week over their stated resistance to lower interest rates. He has already sacked three governors for the same reason because, contrary to the widely held consensus, he claims that high interest rates stimulate inflation.

Combined with rising inflation – currently at 20% – generalized youth unemployment and worsening poverty, the picture looks increasingly grim.

Oya Ozarslan, of the international watchdog Transparency International, said: “Due to this designation, Turkey could potentially face sanctions from the World Bank, the European Bank for Reconstruction and Development, or meet with difficulties in obtaining loans from them. Private investors, in turn, are also likely to hesitate. Turkey ranked 86th out of 189 countries according to Transparency International’s Corruption Perceptions Index in 2020. “Turkey and Hungary have fallen in the past eight years,” Ozarslan told Al-Monitor.

The graylist is meant to warn countries to get in shape or risk ending up on the blacklist alongside Iran and North Korea. It is also a first sign that the banking sector in the listed country cannot or does not have enough controls in place to stop money laundering or terrorist financing. This in turn means that doing business with financial institutions in the gray list countries creates exposure to increased risk of illicit financing.

Under the FATF protocols, the countries on the gray list “undertake to resolve” the problems reported. But so far Turkey has done little to prove such a commitment. In August, the government introduced legislation to crack down on questionable beneficial ownership practices whereby the primary owner of the assets of a given business, which mainly benefits from its income, hides behind another name. Ozarslan noted, however, that the measure is weak and difficult to enforce. Even when stricter laws are put in place, “they are rarely implemented,” she added.

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