The Financial Action Task Force (FATF), an international crime watchdog, removed Türkiye from its gray list to address deficiencies identified in anti-money laundering and combating the financing of terrorism, opening the country to increased international resource inflows (AML/CFT).
FATF was established by the Organization for Economic Co-operation and Development (OECD) in 1989 to prevent the laundering of proceeds of crime, the financing of terrorism, and weapons of mass destruction. Countries that have agreed to comply with FATF recommendations but lack necessary monitoring mechanisms are placed on the Gray List, which can lead to a loss of credibility, making it more difficult for these countries to attract foreign investment and capital flow.
Türkiye's graylisting in 2021 had significant economic repercussions. Pakistan, which was placed on the gray list due to money laundering in 2018, has faced a drastic capital outflow of $10 billion since then. Similarly, Türkiye experienced heightened scrutiny, reducing investor confidence and leading to a decline in foreign direct investment (FDI).
The reason behind Türkiye’s outing from the Gray List lies behind Ankara’s "significant progress" in improving its regime of anti-money laundering and combating the financing of terrorism. “Türkiye strengthened the effectiveness of its regime to meet the commitments regarding the deficiencies that the FATF identified in October 2021,” the watchdog said last week. These efforts also included enhancing the transparency of financial transactions and adopting new legislation on cryptocurrencies. Türkiye’s large increases in taxes and interest rates have already driven a significant foreign capital of international investors that have poured $8.8bn into the country’s local-currency government debt market this year. Türkiye's FDI inflows were $1.5 billion in the first quarter, down 52% from the quarterly average in the three years previous, Türkiye International Investors Association said.
Despite the positive reception from economic leaders, some argue that the FATF's decision might be false. Sinan Ciddi, from the Foundation for Defense of Democracies, contends that Türkiye continues to be a significant hub for terrorism financing. He highlighted Türkiye's ongoing support for groups like Hamas, citing instances where the Turkish government has facilitated the operations of such organizations.
Despite the criticisms, FATF’s move continues to be a significant victory for Türkiye. “With this development, the confidence of international investors in the financial system of our country has been further strengthened,” said Turkish Vice President Cevdet Yılmaz, who has played a significant role in the country’s new economic program. Little market reaction was immediately seen after the move, which was widely expected, with the lira firming slightly to 32.8845 against the dollar and Istanbul's main share index increasing by 0.5%. Mehmet Şimşek, minister of finance, stated that “disenrollment from the list might be a significant achievement, but the main purpose here was to demonstrate that Türkiye’s financial markets function properly, and therefore the system here can be trusted.”
Türkiye's removal from the FATF gray list boosts investor confidence and attracts foreign capital, reflecting its strengthened anti-money laundering and terrorism financing measures. Despite some concerns, this move can be a key step towards Türkiye's economic stability.