January 4, 2022 | Policy Brief

Erdogan’s Wealth Amnesty Offers Illicit-Finance Loophole for the Eighth Time

January 4, 2022 | Policy Brief

Erdogan’s Wealth Amnesty Offers Illicit-Finance Loophole for the Eighth Time

Turkish President Recep Tayyip Erdogan issued a decree on December 31 extending the country’s wealth amnesty law. This decree, the eighth episode of wealth amnesties that Erdogan has declared since 2008, will solidify Turkey’s status as a permissive jurisdiction for a wide range of illicit financial activities.

Turkey’s wealth amnesty law allows individuals and entities to repatriate previously undisclosed offshore assets and to declare previously undisclosed domestic assets. Those who do so are exempt from any legal scrutiny or tax penalties.

Erdogan’s latest wealth amnesty comes amid a dramatic meltdown in Turkey’s foreign currency reserves. The Turkish president admitted selling $165 billion of the Turkish central bank’s foreign currency reserves in 2019 and 2020 alone to maintain the lira’s value. The Turkish central bank’s net international reserves plunged to just $8.6 billion during the last week of 2021, bringing them to their lowest level since Erdogan’s Islamist-rooted Justice and Development Party (AKP) rose to power in 2002.

If one excludes the Turkish central bank’s attempts at window dressing, which entail currency swaps with local banks and with China, Qatar, and South Korea, Turkey’s net international reserves are in the negative to the tune of $55.7 billion.

Although Erdogan has long hoped that no-questions-asked wealth amnesties would help replenish the country’s depleted foreign currency reserves, these stopgap measures have failed to undo the damage caused by his economic mismanagement. Instead, the Turkish president’s wealth amnesties have allowed 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 AKP and his allies in the far-right Nationalist Action Party. Garo Paylan, a lawmaker from the pro-Kurdish Peoples’ Democratic Party, warned last year that the repatriated funds are “actually assets stolen from the country and its people by government-allied companies and individuals who transferred their billion dollars’ wealth into tax havens.” Charging that “[c]orruption, nepotism, graft, and tender rigging were used to obtain” the stolen funds, Paylan accused the AKP of “attempting to whitewash those illicit assets because it knows it will be voted out soon.”

Turkey is already under global scrutiny for being a permissive jurisdiction of illicit finance. Last October, the Financial Action Task Force, the Paris-based global money laundering and terror finance watchdog, added Turkey to its “grey list,” placing the country under increased monitoring alongside 22 other jurisdictions, including Pakistan, Syria, and Yemen. Turkish banks also face multiple lawsuits in U.S. courts for sanctions evasion and terror finance.

Since April 2019, the U.S. Treasury Department has issued seven sets of sanctions 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.

Besides pressuring Ankara to adopt a zero-tolerance policy toward illicit finance, the Biden administration should take steps to protect the integrity of the U.S. financial system from potential exposure to illicit financial flows from Turkey. Specifically, Treasury should build on its steady stream of sanctions designations to target 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