(Bloomberg) — Turkey is expected to be removed from financial regulators’ “grey list” as soon as next month, a move that could be a boon for one of the Middle East’s largest economies in an effort to curb illicit financial flows.
A visit by the Paris-based Financial Action Task Force (FATF) to the country earlier this month yielded significant progress, according to people familiar with the matter. That means Turkey could be removed from the list of countries and territories under increased scrutiny on the final day of the FATF’s general meeting in Singapore on June 28, said the people, who asked not to be identified because the discussions are private. No final decision has been made.
Turkey’s banking index reversed losses and rose 2% on the news. As of 3:24 p.m. Istanbul time, the index was down 0.5%.
The expected changes will boost Turkey’s efforts to attract capital to its $1.1 trillion economy after years of unorthodox monetary policies that encouraged investors to shun lira assets. Investors are starting to return to Turkey about a year after it adopted more traditional economic policies and some of the most aggressive interest rate hikes in the world. Turkey’s economy is the second largest in the region after Saudi Arabia.
“While the FATF move alone will not lead to a surge in inflows, it will help Simsek’s efforts to restore economic orthodoxy and promote Turkey as a solid investment destination,” said Emre Peker, European director at Eurasia Group in London, referring to Turkish Finance Minister Mehmet Simsek.
Read more: Simsek predicts record capital inflows will boost Turkey’s long-term debt
For Turkey to be removed from the list, a majority of FATF member states would have to vote that Turkey has made sufficient progress. Even a small number of dissenting votes – which can be influential in some member states – could result in Turkey being taken off the list, the people said. Members include individual countries as well as regional organisations such as the European Commission.
Simsek said last week he was “determined” to remove Turkey from the list. “We hope that political considerations will not get in the way,” he said.
The FATF and Türkiye’s finance ministry declined to comment.
reform
The FATF said Turkey had “substantially completed its action plan” after its most recent plenary meeting in February. The FATF said at the time that the plan included key reforms to the implementation of sanctions against terrorist financing and increased funding for the National Financial Intelligence Unit, known by its Turkish acronym, “Masak.”
The government is also working with the US to freeze terrorist assets and this month proposed a bill to regulate cryptocurrency platforms in response to the FATF’s final recommendations on “emerging technologies”.
Read more: Global Task Force on Tracking Dirty Money: QuickTake
Turkey was originally added to the FATF’s list of countries under increased surveillance in October 2021. The country has faced increased scrutiny from Western governments since it emerged as one of the destinations for wealthy Russians to send remittances after the 2022 invasion of Ukraine.
According to a 2021 report from the International Monetary Fund (IMF), the designation has historically led to a “statistically significant reduction in capital inflows.”
Turkey is currently one of two G20 countries – the other being South Africa – on the list; the region’s leading economy, the United Arab Emirates, was removed in February.
–With assistance from Firat Kozok.
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