Cablegate: Turkey: 2007 International Narcotics Control Strategy

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RR RUEHDA
DE RUEHAK #2970/01 3481517
ZNR UUUUU ZZH
R 141517Z DEC 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 4671
INFO RUEHIT/AMCONSUL ISTANBUL 3638
RUEHDA/AMCONSUL ADANA 2533

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SIPDIS

INL FOR JOHN LYLE

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REF: STATE 136780

E.O. 12958: N/A
TAGS: SNAR TU
SUBJECT: TURKEY: 2007 INTERNATIONAL NARCOTICS CONTROL STRATEGY
REPORT PART TWO

Turkey

Turkey is an important regional financial center, particularly for
Central Asia and the Caucasus, as well as for the Middle East and
Eastern Europe. It continues to be a major transit route for
Southwest Asian opiates moving to Europe. However, narcotics
trafficking organizations are reportedly responsible for only a
small portion of the total funds laundered in Turkey.

Money laundering takes place in banks, nonbank financial
institutions, and the underground economy. Money laundering methods
in Turkey include: the cross-border smuggling of currency; bank
transfers into and out of the country; trade fraud, and the purchase
of high-value items such as real estate, gold, and luxury
automobiles. It is believed that Turkish-based traffickers transfer
money and sometimes gold via couriers, the underground banking
system, and bank transfers to pay narcotics suppliers in Pakistan or
Afghanistan. Funds are often transferred to accounts in the United
Arab Emirates, Pakistan, and other Middle Eastern countries. A
substantial percentage of money laundering that takes place in
Turkey involves fraud and tax evasion. Informed observers estimate
that as much as 40-50 percent of the economy is unregistered. In
2005, the Government of Turkey (GOT) passed a tax administration
reform law, with the goal of improving tax collection. The GOT is
working on additional reforms to combat the unregistered economy and
move these businesses onto the tax rolls.

Turkey first criminalized money laundering in 1996. Under the law
whoever commits a money laundering offense faces a sentence of two
to five years in prison, and is subject to a fine of double the
amount of the money laundered and asset forfeiture provisions. The
Council of Ministers subsequently passed a set of regulations that
require the filing of suspicious transaction reports (STRs),
customer identification, and the maintenance of transaction records
for five years.

In 2006, the GOT enacted additional anti-money laundering
legislation, a new criminal law, and a new criminal procedures law.
The new Criminal Law, which took effect in June 2005, broadly
defines money laundering to include all predicate offenses
punishable by one year's imprisonment. Previously, Turkey's
anti-money laundering law comprised a list of specific predicate
offenses. A new Criminal Procedures Law also came into effect in
June 2005.

Under a Ministry of Finance banking regulation circular all banks,
including the Central Bank, securities companies, post office banks,
and Islamic financial houses are required to record tax identity
information for all customers opening new accounts, applying for
checkbooks, or cashing checks. The circular also requires exchange
offices to sign contracts with their clients. The Ministry of
Finance also mandates that a tax identity number be used in all
financial transactions. The requirements are intended to increase
the GOT's ability to track suspicious financial transactions. Turkey
has a new law, which protects the identity of those who file
suspicious transaction reports, and has helped to push suspicious
transaction reports above 2,000 for the first time as of October
2007. According to anti-money laundering law Article 5, public
institutions, individuals, and corporate bodies must submit
information and documents as well as adequate supporting information
upon the request of Turkey's Financial Crimes investigation Board
(MASAK) or other authorities specified in Article 3 of the law.
Individuals and corporate bodies from whom information and documents
are requested may not withhold the requested items by claiming the
protection provided by privacy provisions in order to avoid
submitting the requested items.

A new Banking Law was enacted in 2005 to strengthen bank
supervision. The Banking Regulatory and Supervisory Agency (BRSA)
conducts periodic anti-money laundering and compliance reviews under
the authority delegated by MASAK. The number of STRs currently being
filed is low, even taking into consideration the fact that many
commercial transactions are conducted in cash. In 2006, 1140 STRs
were filed. The upward trend continues as shown by the following
results: 2005: 352 STRs were filed; 2004: 288 STRs were filed; 2003:
177 STRs were filed. Year-end 2007 statistics are not available.

Turkey does not have foreign exchange restrictions. With limited
exceptions, banks and special finance institutions must inform
authorities within 30 days, about transfers abroad exceeding $50,000
(approximately 60,000 new Turkish liras) or its equivalent in
foreign currency notes (including transfers from foreign exchange
deposits). Travelers may take up to $5,000 (approximately 6,000 new
Turkish liras) or its equivalent in foreign currency notes out of
the country. Turkey does have cross-border currency reporting
requirements. Article 16 of the recently-enacted MASAK law (see
below) gives customs officials the authority to sequester valuables

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of travelers who make false or misleading declarations and imposes
fines for such declarations.

MASAK was established by the 1996 anti-money laundering law as part
of the Ministry of Finance. MASAK became operational in 1997, and it
serves as Turkey's Financial Intelligence Unit (FIU), receiving,
analyzing, and referring STRs for investigation. MASAK has three
functions: regulatory, financial intelligence, and investigative.
MASAK plays a pivotal role between the financial community and
Turkish law enforcement, investigators, and judiciary.

In October 2006, Parliament enacted a new law reorganizing MASAK
along functional lines, explicitly criminalizing the financing of
terrorism, and providing safe harbor protection to the filers of
STRs. The law also expands the range of entities subject to
reporting requirements, to include art dealers, insurance companies,
lotteries, vehicle sales outlets, antique dealers, pension funds,
exchange houses, jewelry stores, notaries, sports clubs, and real
estate companies. It also specifies sanctions for failure to comply.
The law gives MASAK the authority to instruct a number of different
inspection bodies (such as the bank examiners, the financial
inspectors or the tax inspectors) to initiate an investigation if
MASAK has reason to suspect financial crimes. Likewise, MASAK can
refer suspicious cases to the Public Prosecutor and the Public
Prosecutor can ask MASAK to conduct a preliminary investigation
prior to referring a case to the police for criminal investigation.
In August 2007, the regulation on money laundering crime was enacted
enforcing MASAK's authority to combat these crimes.

However, neither the current draft of the legislation, nor a June
2006 set of amendments to Turkey's antiterrorism laws, expanded upon
Turkey's narrow definition of terrorism applicable only in terms of
attacks on Turkish nationals or the Turkish state.

According to MASAK statistics, as of December 31, 2006 it had
pursued 2,231 money laundering investigations since its 1996
inception, but fewer than ten cases resulted in convictions.
Moreover, all of the convictions are reportedly under appeal. Most
of the cases involve nonnarcotics criminal actions or tax evasion;
as of December 31, 2005 41 percent of the cases referred to
prosecutors were narcotics-related.

The GOT enforces existing drug-related asset seizures and forfeiture
laws. MASAK, prosecutors, Turkish National Police, and the courts
are the government entities responsible for tracing, seizing and
freezing assets. According to Article 9 of the anti-money laundering
law, the Court of Peace-a minor arbitration court for petty
offenses-has the authority to issue an order to freeze funds held in
banks and nonbank financial institutions as well as other assets,
and to hold the assets in custody during the preliminary
investigation. During the trial phase, the presiding court has
freezing authority. Public Prosecutors may freeze assets in cases
where it is necessary to avoid delay. The Public Prosecutors' Office
notifies the Court of Peace about the decision within 24 hours. The
Court of Peace has 24 hours to decide whether to approve the action.
There is no time limit on freezes. There is no provision in Turkish
law for the sharing of seized assets with other countries.

MASAK's General Communiqu No. 3, dated February 2002, requires that
a special type of STR be filed by financial institutions in cases of
suspected terrorist financing. However, until the amendments to the
criminal code were enacted in June 2006, terrorist financing was not
explicitly defined as a criminal offense under Turkish law. Various
existing laws with provisions that can be used to punish the
financing of terrorism include articles 220, 314 and 315 of the
Turkish penal code, which prohibit assistance in any form to a
criminal organization or to any organization that acts to influence
public services, media, proceedings of bids, concessions, and
licenses, or to gain votes, by using or threatening violence. To
commit crimes by implicitly or explicitly intimidating people is
illegal under the provisions of the Law No. 4422 on the Prevention
of Benefit-Oriented Criminal Organizations. The GOT distributes to
GOT agencies and financial institutions the names of suspected
terrorists and terrorist organizations on the UNSCR 1267 Sanctions
Committee consolidated list, as well as U.S.-designated names.

Another area of vulnerability in the area of terrorist financing is
the GOT's supervision of nonprofit organizations. The General
Director of Foundations (GDF) issues licenses for charitable
foundations and oversees them, although they have a limited number
of auditors to cover more than 70,000 institutions. The Ministry of
Interior regulates charitable nongovernmental associations (NGOs).
GDF, as part of the Ministry of Interior, keeps central registries
of the charitable organizations they regulate and they require
charities to verify and prove their funding sources and to have
bylaws. Charitable organizations are required to submit periodic
financial reports to the regulators. The regulators and the police

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closely monitor monies received from outside Turkey. The police also
monitor NGO's for links to terrorist groups.

Alternative remittance systems are illegal in Turkey, and in theory
only banks and authorized money transfer companies are permitted to
transfer funds. Trade-based money laundering, fraud, and underground
value transfer systems are also used to avoid taxes and government
scrutiny. There are 21 free trade zones operating in Turkey. The GOT
closely controls access to the free trade zones. Turkey is not an
offshore financial center.

According to MASAK statistics, no assets linked to terrorist
organizations or terrorist activities were frozen in 2006. Turkey
has a system for identifying, tracing, freezing, and seizing assets
that are not related to terrorism, although the law allows only for
their criminal forfeiture and not their administrative forfeiture.
Article 7 of the anti-money laundering law provides for the
confiscation of all property and assets (including derived income or
returns) that are the proceeds of a money laundering predicate
offense (soon to be expanded to crimes punishable by one year
imprisonment), once the defendant is convicted. The law allows for
the confiscation of the equivalent value of direct proceeds that
could not be seized. Instrumentalities of money laundering can be
confiscated under the law. In addition to the anti-money laundering
law, Articles 54 and 55 of the Criminal Code provide for
post-conviction seizure and confiscation of the proceeds of crimes.
The defendant, however, must own the property subject to forfeiture.
Legitimate businesses can be seized if used to launder drug money or
support terrorist activity, or are related to other criminal
proceeds. Property or its value that is confiscated is transferred
to the Treasury.

In the months after 9/11, the Council of Ministers decreed
(2482/2001) all funds and financial assets of individuals and
organizations included on the UNSCR 1267 Sanctions Committee's
consolidated list be frozen. However, the tools available at that
time under Turkish law for locating, freezing, seizing, and
confiscating terrorist assets were cumbersome, limited, and
ineffective. In late 2001, the Council of Ministers froze the funds
of one individual accused of financing terror in Turkey. This
individual filed an appeal in 2001, and in June 2006 the 10th
Chamber of the Turkish Administrative Court overruled the original
Council of Ministers decision on technical grounds. The 10th
Chamber's decision was appealed, and upon review, in February 2007
the Highest Chamber Council of the Turkish Administrative Court
upheld the original decision to freeze the individual's assets on
the grounds that there were no legal irregularities in the original
decision. The assets of the 1267-listed individual continue to be
frozen. Since then changes in the law relating to MASAK, Turkish
criminal code, and anti-terrorism law give more authority to seize
and freeze assets quickly and make the Turkish system more compliant
with international standards.

The GOT cooperates closely with the United States and with its
neighbors in the Southeast Europe Cooperation Initiative (SECI).
Turkey and the United States have a Mutual Legal Assistance Treaty
(MLAT) and cooperate closely on narcotics and money laundering
investigations. Turkey is a member of the Financial Action Task
Force (FATF). Since 1998, MASAK has been a member of the Egmont
Group, which is a coalition of international financial intelligence
units that meet regularly to improve cooperation, information
exchange, and the sharing of expertise. Turkey is a party to the
1988 UN Drug Convention, the UN International Convention for
Suppression of the Financing of Terrorism and the UN Convention
against Transnational Organized Crime. Turkey has signed and
ratified the COE Convention on Laundering, Search, Seizure, and
Confiscation of the Proceeds of Crime, which came into force on
February 1, 2005. In 2006, Turkey became a party to the UN
Convention against Corruption.

With the passage of several new pieces of legislation, the
Government of Turkey took steps in 2006 and 2007 to strengthen its
anti-money laundering and counterterrorist financing regime. The
GOT now faces the challenge of aggressively implementing these laws.
In 2007, the GOT established a High Coordination Council on
Financial Crimes, which consists of MASAK, Finance Ministry, Capital
Markets Board, and Central Bank representatives. The aim of this
board is to improve coordination among the agencies to combat
financial crimes and support the work of MASAK. MASAK must improve
its automation to be able to access to banks' and other financial
institutions' data bases to speed up their process and refer cases
more quickly to prosecutors. The GOT should also regulate and
investigate remittance networks to thwart their potential misuse by
terrorist organizations or their supporters. The GOT should consider
expanding its narrow legal definition of terrorism, which currently
is limited to crimes committed in Turkey and against Turks. The GOT
should also strengthen its oversight of foundations and charities,

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which currently receive only cursory overview and auditing.

Wilson

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