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Turkey to adopt new digital asset laws in effort to get back into FATF’s good graces

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Turkey’s finance minister Mehmet Simsek recently revealed to a parliamentary commission that the government plans to introduce dedicated digital asset laws in order to get the country taken off the Financial Action Task Force’s (FATF) grey list, according to Reuters report.

The lack of a dedicated legal regime for digital assets in Turkey has been cited by the FATF as the last remaining area of non-compliance for the country.

“The only remaining issue within the scope of technical compliance is the work related to crypto assets,” Simsek is quoted as saying.

“We will submit a law proposal on crypto-assets to the parliament as soon as possible. After that, there will be no reason for Turkey to stay in that grey list, if there are no other political considerations.

FATF is an intergovernmental organization focused on tackling money laundering and terrorist financing around the globe, setting international standards aimed at stymying such illegal financial activity. One of the ways it does this is by maintaining a so-called ‘grey list’ of jurisdictions which have weak or otherwise deficient AML/CFT controls. Grey list countries are subject to increased FATF monitoring and must identify and address shortcomings within a set time frame.

Inclusion on the FATF grey list can have tangible consequences for countries. For example, a recent study by renowned law firm White & Case revealed that on average, grey list countries experience a 2% reduction in the ratio of foreign direct investment to GDP. It also leads to a reduction of up to 10% in payments coming into the country.

Turkey was added to the FATF grey list in 2021, with the FATF noting that the country had ‘serious shortcomings’ in its efforts to freeze assets linked to terrorism. In July of this year, FATF reported on Turkey’s progress in addressing the identified concerns, acknowledging that Turkey had been re-rated as at least ‘largely compliant’ in all but one of FATF’s areas of concern: digital assets. The report noted that while Turkey had issued some regulations relating to the misuse of digital assets, the regime governing digital assets in the jurisdiction is still minimal. For example, FATF identified that there is no licensing requirement for exchanges and other digital asset service providers in Turkey, and there are no requirements for such companies to take any steps to identify and mitigate AML/CFT risks within their businesses.

The role that digital assets play in money laundering and in particular terrorist financing has come under the spotlight in recent months. Binance has long been thought to be under investigation for facilitating transactions with Hamas and Iran, which is under international sanctions, with internal communications showing that Binance staff were well aware that their platform was being used to fund terrorists. This scrutiny has only intensified since the Israel-Gaza war erupted in October.

The Turkey experience is a reminder that digital asset regulation is not just needed in order to validate or otherwise massage the egos of digital asset companies, but is an indispensable part of the international fight against money laundering and terrorist financing. It’s clear that there is an international expectation that countries that are courting the digital asset industry take steps to address these risks—and that failure to do so can have real economic consequences.

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