Turkey removed from FATF's grey list as it makes 'significant progress'

Shoppers at a spice market in Istanbul. Turkey's economy has been battered by high inflation and pressure on the lira. Bloomberg

The Financial Action Task Force has removed Turkey from its “grey list” of countries that face tighter monitoring for money laundering and terrorism financing, citing “significant progress” in the country's fight against illicit actions in the sector.

The move is expected to boost investor confidence in Turkey's economy, which has been grappling with high inflation and pressure on its currency.

“Turkey strengthened the effectiveness of its AML/CFT [anti-money laundering and combating the financing of terrorism] regime to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in October 2021,” the Paris-based FATF said in a statement on Friday.

Turkey held discussions with the FATF last month to assess its strategy on dealing with illicit financial activity, after the global body that combats money laundering and terrorism financing in February said Ankara had “substantially completed its action plan”.

The country, however, “should continue to work with the FATF to sustain its improvements in its AML/CFT system, including by continuing to ensure its oversight of the NPO [non-profit organisation] sector is risk-based and in line with FATF standards”.

The move will support international investors' confidence in the country's financial system, Turkey's Vice President Cevdet Yilmaz said on X.

The decision will have “extremely positive consequences” for the financial sector, “accelerate international resource inflow and have a positive impact on borrowing costs”, he added.

The move could help improve Turkey's economic prospects and make it more attractive for foreign investment, agreed Rania Gule, a market analyst at XS.com.

“It would positively impact its standing and economic strategy by boosting its reputation, potentially increasing foreign direct investment, improving credit ratings, lowering borrowing costs and facilitating international trade,” she said.

Money laundering and terrorist financing are among the biggest problems in the financial world. Activities related to these crimes in one country can have seriously adverse effects across borders and sometimes have global ramifications, according to an International Monetary Fund report last year.

The FATF, an initiative of G7 economies, was set up in 1989 to lead the worldwide action to tackle money laundering and terrorism and proliferation financing.

The 39-member body sets international standards to ensure national authorities can effectively clamp down on funds linked to drug trafficking, illicit arms trade, cyber fraud and other serious crimes.

More than 200 countries and jurisdictions have committed to adopt the FATF’s standards and they are assessed with the help of nine associate member organisations and other global partners, such as the IMF and World Bank.

An estimated €715 billion ($765.7 billion) to €1.87 trillion of global GDP is tainted by money-laundering activities, representing 2 per cent to 5 per cent of total worldwide economic activity, according to data from Europol, the EU's law enforcement agency.

Getting off the FATF grey list was vital for Turkey, which is facing chronic inflation after years of President Recep Tayyip Erdogan's unorthodox policies. After winning the election last year, he installed a new team to stabilise the economy and control consumer prices.

However, inflation jumped to 75.45 per cent last month, the country's national statistics office reported this month, although Ankara expects the economy to improve steadily and inflation to drop to about 36 per cent by the end of this year.

The Turkish lira is among the worst performers of emerging market currencies tracked by Bloomberg.

On March 21, Turkey’s central bank delivered a surprise interest rate rise, increasing its benchmark rate to 50 per cent from 45 per cent, tightening monetary policy further to fight stubbornly high inflation.

In May, S&P Global Ratings upgraded Turkey's credit rating outlook, citing the government's strategy of taking a more balanced approach that was expected to generate confidence in its economy.

“Being on the grey list made it challenging for the Turkish government to attract foreign investment, particularly at a time when the country is already facing financial hardship and economic challenges,” Ms Gule said.

On Friday, the FATF also removed Jamaica from its grey list, citing progress in the Caribbean island nation's fight against money laundering.

“Jamaica strengthened the effectiveness of its AML/CFT regime to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in February 2020,” the FATF said.