Jonathan Spicer

ISTANBUL (Reuters – Turkey has been downgraded to a grey list by the International Watchdog for not preventing money laundering or terrorist financing. The decision could threaten foreign investment, which had suffered a long and painful exodus.

Financial Action Task Force, a group of developed economies that was established by G7 to safeguard the global financial system’s integrity, has also placed Mali (or “grey listing”) on its enhanced monitoring list.

It cited improvements and took Botswana & Mauritius off of the list. The current 23-country list now contains 23 countries.

Turkey was the biggest country to see its credit rating drop and must address serious supervision issues in banking, real estate, as well as with dealers of gold and precious stone, FATF President Marcus Pleyer stated at a press conference.

“Turkey must show that it effectively addresses complex money laundering and pursue terrorist financing prosecutions…and prioritize cases against U.N. designated terrorist organizations such as ISIL or al Qaeda,” he stated.

Research has shown that grey-listing can cause countries to lose their ties with foreign investors and banks. This could be a further weight on the, which reached a new record on Thursday.

The FATF issued a warning to Turkey in 2019 about its “serious deficiencies” and the need for improved measures to prevent terrorist financing as well as weapons of mass destruction proliferation.

Others countries on the FATF’s grey list include Pakistan, Morocco Albania, Yemen and Yemen.

International Monetary Fund’s research for this year has shown that grey-listing decreases capital inflow by 7.6% of Gross Domestic Product (GDP), and foreign direct investment (FDI), as well as portfolio flows.

UNINTENDED CONSEQUENCES

In recent years, Turkey has seen a rise in foreign investors fleeing the country due to political interference in monetary policies, high inflation, and low official foreign currencies reserves.

From 25% in 2005, foreign ownership is now down to around 5%. That’s a two-third loss of value for the Turkish lira against the dollar.

Turkey has implemented some FATF-recommended actions.

One law, however, was passed last year to curb weapons financing. It has since been harshly criticized for causing unintended harms to civil society organizations.

This week, the European Commission urged Turkey not to follow FATF’s recommendations. However, it also stated that the law was based on FATF recommendation and threatened civil society organizations. They now face sanctions as well as undue monitoring for fundraising.

Amnesty International stated that Turkey’s government would “almost certainly use” the law against non-profit organizations.

Amnesty stated that it is an unintended consequence of FATF policy “which are all to often misused to restrict rights by repressive government”, and urged the FATF for Turkish authorities to amend the law.

Pleyer stated that the FATF was aware of Turkey’s treatment non-profit organizations (NPOs) in Turkey.

He stated that Turkey must implement an effective risk-based approach for NPOs, and make sure authorities do not disrupt or discourage legitimate activities.

In August Reuters reported that in at least five other countries – Uganda, Serbia, India, Tanzania, and Nigeria – legislation passed to meet FATF standards was used by authorities to investigate journalists, NGO workers, and lawyers.