September 29, 2022 | Policy Brief

Turkish Banks Suspend Use of Russia’s Mir Payment System

September 29, 2022 | Policy Brief

Turkish Banks Suspend Use of Russia’s Mir Payment System

Three Turkish state-owned banks suspended their use of the Russian payment system “Mir” — Moscow’s alternative to the Brussels-based SWIFT messaging service — on Tuesday. This move comes amid pressure from both U.S. and European authorities and likely reflects Ankara’s fear of triggering U.S. sanctions.

Turkey has faced Western scrutiny for its alleged facilitation of illicit financial transfers from sanctioned Russian individuals and entities. This summer, U.S. Deputy Secretary of the Treasury Wally Adeyemo issued verbal and written warnings to the Turkish government and associated business organizations to stop enabling Russian transfers. By September, the European Union indicated that it, too, would increase pressure on Ankara, specifically targeting several large Turkish banks that have integrated Mir.

On September 15, the U.S. Treasury Department imposed sanctions on Vladimir Komlev, CEO of the state-controlled company that operates Mir. Days later, two privately owned banks, Is-Bank and Denizbank, apparently dropped Mir to avoid the risk of being sanctioned for doing business with a designated person.

Despite the reversal by Is-Bank and Denizbank, three state-owned banks — Halkbank, Vakifbank and Ziraat Bank — hesitated to act. Senior Turkish officials informed the press that President Recep Tayyip Erdogan would hold a high-level meeting to “address agreements with Russia, recent heavy volatility on the Istanbul stock exchange and the general economic situation,” There is no confirmation that this meeting took place, yet the remaining banks that accepted Mir declared they would cease Mir operations on September 27.

It is more than likely that Erdogan, who exercises tight control over state entities, instructed the three banks to stop accepting Mir, mainly lest they trigger sanctions. Mir is the most convenient way for Russians to send money abroad, which Turkey had been glad to facilitate, as it allowed Ankara to maintain cordial ties with Moscow. With Turkey exiting Mir, only a handful of countries, such as Cuba, Vietnam, South Korea, and several former Soviet republics, are believed to accept the Russian messaging service.

Although Turkey’s decision will be welcomed by Washington, it is worth noting that Ankara is likely to continue playing a double-game as far as Russia is concerned: on the one hand, it condemns Russia’s invasion of Ukraine and sells drone capabilities to Kyiv. On the other, Turkey refrains from taking severe measures towards Moscow, such as halting energy imports or joining the West in imposing a barrage of financial sanctions. Erdogan has ample reason to avoid a political crisis with Vladimir Putin, which could result in the curtailment of natural gas supplies to Turkey.

Severing ties with Mir indicates that Erdogan is responsive to pressure, especially when his political standing is at risk. Had Washington designated the Turkish banks in question, it would have inflicted further damage on Turkey’s already fragile economy at a time when Erdogan is seeking re-election. The United States should see this as an opportunity to encourage Ankara to implement further punitive measures against Moscow by highlighting Putin’s weakened position in the Ukrainian war and offering to offset Turkey’s cost of imposing sanctions.

Sinan Ciddi is a non-resident senior fellow at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Turkey Program and Center on Military and Political Power (CMPP). For more analysis from Sinan, the Turkey Program, and CMPP, please subscribe HERE. Follow Sinan on Twitter @SinanCiddi. Follow FDD on Twitter @FDD and @FDD_CMPP. FDD is a Washington, DC-based, nonpartisan research institute focused on national security and foreign policy.

Issues:

Military and Political Power Russia Turkey