Turkey's Terror Finance Problem

Jonathan Schanzer

February 7, 2013 5:35 PM

Last week’s suicide bombing outside the U.S. embassy in Ankara, carried out by a Marxist Leninist group known as DHKP-C, drew condemnation from across the Turkish political spectrum. But the timing of the attack and the subsequent comments could not have come at a more awkward moment for Turkey. Prime Minister Recep Tayyip Erdoğan’s government is now under heavy pressure to adopt legislation on the financing of terrorism. If it fails to do so by February 22, the Financial Action Task Force (the U.N. of terrorism finance) will add Turkey to the black list, which is currently only comprised to two countries: Iran and North Korea.

With two weeks to comply, Turkey is scrambling. But it didn’t have to be that way. Ankara was first notified of its deficiencies in 2007, when a FATF team (an Italian, a Russian, a French, an American and a specialist from the FATF’s Paris office) alerted the Turks that, after a “mutual evaluation,” it had not adequately criminalized terrorism finance in the country.  Nor had it done enough to put in place infrastructure that could help identify and freeze terrorist assets.

According to Amit Kumar, a former terror finance official at the United Nations Secretariat, the expectation was that Turkey would move quickly to redress the situation. However, Turkey did nothing for five years, which ultimately led to the FATF issuing a blacklist warning on October 19, 2012. A blacklisting could have a detrimental impact on Turkey’s economy, which has been booming of late, and expected to rise by four percent in 2013.

It’s not clear why Turkey’s response to the FATF has been so slow. One reason perhaps is that the ruling Justice and Development Party (AKP) doesn’t view terrorism in the same way that the FATF does.

For one, Turkey has emerged in recent years as one of the primary patrons of Hamas, designated a terrorist organization by Washington, the EU, and most of Western Europe. In early December 2011, Erdoğan reportedly “instructed the Ministry of Finance to allocate $300 million to be sent to Hamas’ government in Gaza.” Turkey has also earmarked funds for hospitals, mosques, and schools in the Gaza Strip, with other funds slated to help rebuild the territory after the Hamas war with Israel in November 2012.

Turkey reportedly began providing financial support to Hamas after Iran, suffering under a US-led sanctions regime for its illicit nuclear program, found it increasingly difficult to part with its foreign currency reserves. But now, in a strange twist of fate, Turkey is helping Iran skirt sanctions. 

Iran has been receiving payment for its natural gas in Turkish Lira, which has then been deposited in Turkey’s Halkbank. Iran has reportedly used Lira to purchase gold. In May 2012, Turkey’s trade with Iran rose a whopping 513 percent. In August 2012, “nearly $2 billion worth of gold was sent to Dubai on behalf of Iranian buyers.” By December, Iran was considering the creation of a joint barter company with Turkey to evade U.S. sanctions.  The Turkish Zaman news outlet indicates that the Iranian gas-for-gold scheme continues, although recent reports note that Dubai gold dealers are scurrying, for fear of sanctions.

Meanwhile, the aforementioned state-owned bank, Halkbank, has reportedly played a role in facilitating several important deals with Iran. In February 2012, the Wall Street Journal reported that Halkbank was one of the only Turkish banks still doing business with Iran, processing “payments from third parties for Iranian goods.” Among other things, Halkbank “processed payments for Indian refiners unable to pay Tehran for imported oil through their own banking system for fear of retribution from Washington.” In November 2012, a Turkish banking watchdog announced Halkbank’s transactions with Iran had met regulations. But the bank’s website indicates that it still maintains a representative office in Tehran.

Against the backdrop of this troubling track record, Turkey is now laboring to issue laws that would avert an FATF blacklisting. The laws are easy to write. Enforcing them in Erdoğan’s Turkey is another issue entirely.

Jonathan Schanzer, a former terrorism finance analyst at the U.S Department of the Treasury, is vice president for research at Foundation for Defense of Democracies.

Source URL: http://www.weeklystandard.com/blogs/turkeys-terror-finance-problem_700428.html