July 2, 2021 | Policy Brief

The Turkish Laundromat — Erdogan Offers Illicit-Finance Loophole for the Seventh Time

July 2, 2021 | Policy Brief

The Turkish Laundromat — Erdogan Offers Illicit-Finance Loophole for the Seventh Time

Turkish President Recep Tayyip Erdogan issued a decree on Wednesday extending the country’s wealth amnesty law, which allows individuals and entities to repatriate previously undisclosed offshore assets and to declare their domestics assets without facing any legal scrutiny or tax penalties. This decree, the seventh wealth amnesty Erdogan has declared since 2008, risks turning Turkey into a global laundromat for a wide range of illicit financial activities.

Erdogan’s wealth amnesties serve multiple purposes. Turkey suffers from a chronic current-account deficit, and the Turkish president has hoped over the years that a no-questions-asked inflow of assets would help remedy it. In April, Turkey’s net international reserves fell to their lowest level since 2003, deepening Erdogan’s need for foreign currency. If one excludes the Turkish central bank’s attempts at window dressing, which entail currency swaps with local banks as well as with the Chinese and Qatari governments, Turkey’s net international reserves are estimated to be in the negative to the tune of $60 billion.

Erdogan’s wealth amnesties allow his corrupt circle of associates to launder graft proceeds at home and abroad, some of which they use to help fund his political machine. The amnesties also help distribute spoils to the clients of Erdogan’s ruling Justice and Development Party and his allies in the ultranationalist Nationalist Action Party. Transparency International Turkey Chair Oya Ozarslan further warned last week that Turkey’s policy can “create a risk of introducing black money … into the system” by laundering drug money or facilitating terror finance.

According to Bloomberg’s Turkish franchise, Bloomberg HT, individuals and entities have declared nearly 200 billion Turkish liras’ worth of assets abroad and at home to benefit from various wealth amnesties since 2008. Given that the actual inflow of assets stays below the amount of declared assets and no data are available for 2020 and 2021, it is difficult to estimate the exact amount of wealth that Erdogan’s amnesties have helped legalize over the last 13 years.

These amnesties also facilitate tax evasion. Although the first two amnesties in 2008 and 2009 required a symbolic tax of 2 percent to be paid on repatriated assets, Ankara rolled backed the rate to zero beginning with the 2016 amnesty, with the exception of a 1 percent tax levied for the 2019 amnesty.

Turkey is already under global scrutiny for being a permissive jurisdiction for terrorists, and its banks face multiple lawsuits in U.S. courts for sanctions evasion and terrorism finance. Since April 2019, the U.S. Department of the Treasury has issued five sets of designations targeting Turkey-based jihadist networks, including entities and individuals affiliated with the Islamic State, al-Qaeda, Hamas, the Islamic Revolutionary Guard Corps-Quds Force, and Harakat Sawa’d Misr.

The U.S. Department of Justice took steps last Monday to extradite Sezgin Baran Korkmaz, a Turkish businessman Austrian authorities arrested on June 19 for his alleged role in money laundering schemes that attempted to defraud the U.S. Treasury of over $1 billion. Korkmaz has close links to Erdogan and his inner circle.

The Biden administration should urge Ankara to adopt a zero-tolerance policy toward illicit finance and end its permissive policies, including its never-ending wealth amnesties. Treasury should keep up the pressure by continuing to issue sanctions against the entire range of Turkey-based and Turkey-linked terror financiers, sanctions evaders, and illicit financial schemes.

Aykan Erdemir is a former member of the Turkish parliament and senior director of the Turkey Program at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Aykan, the Turkey Program, and CEFP, please subscribe HERE. Follow Aykan on Twitter @aykan_erdemir. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


Sanctions and Illicit Finance Turkey