US embassy cable - 05ANKARA2552

UNCLAS SECTION 01 OF 04 ANKARA 002552 
 
SIPDIS 
 
SENSITIVE 
 
TREASURY FOR INTERNATIONAL AFFAIRS, OFAC, FINCEN, TFFC 
 
E.O. 12958: N/A 
TAGS: KTFN, EFIN, PTER, TU 
SUBJECT: BANK COMPLIANCE 
 
REF: ANKARA 1664 
 
THIS CABLE WAS COORDINATED WITH CONGEN ISTANBUL. 
 
1. (SBU) Summary.  In a round of meetings with Turkish 
bankers, Econoff obtained their perspective on Turkey's 
anti-money laundering and terrorist financing regime. 
Currently, Turkish banks are following a less vigilant 
framework of policies and procedures than those of their 
foreign bank counterparts in Turkey who have followed strict 
AML/CTF policies for the past 20-30 years.  The Bank 
Association and Turkey's financial intelligence unit, MASAK, 
are working together to develop a set of uniform guidelines 
for banks that seeks to address the weaknesses in the bank 
system's financial crimes prevention and identification 
procedures and to help banks be in compliance with 
international guidelines such as those of the Financial 
Action Task Force (FATF), which is due to conduct a country 
review of Turkey at the end of 2005/beginning of 2006.  End 
Summary. 
 
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AML/CTF Regulatory Framework 
---------------------------- 
 
2. (U) The 1996 Law on the Prevention of Money Laundering is 
the basis for the GOT,s anti-money laundering (AML) and 
counter-terrorism finance (CTF) regime.  The Financial Crimes 
Investigation Board, MASAK, was established under this law. 
MASAK,s main duties are to receive, analyze and, if 
necessary, refer suspicious transaction reports (STRs) for 
investigation by the six authorized government inspection 
units.  MASAK serves as Turkey,s financial intelligence unit 
(FIU) and is the main link between the financial sector and 
law enforcement agencies for financial crime.  Since the 
enactment of the 1996 Law, MASAK has issued several general 
communiques to Turkish banks regarding customer 
identification rules, suspicious transaction reporting, and 
terrorist financing.  These communiques, the anti-money 
laundering law, and various international guidelines on 
financial crimes shape Turkey,s regulatory framework on AML 
and CTF. 
 
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Bank Compliance: Turkish Banks 
------------------------------- 
 
3. (U) Econoffs recently visited the headquarters of three 
Turkish banks*Ziraat Bank, Disbank, and Yapi Kredi Bank*and 
spoke with bank officials who are in charge of compliance 
with the GOT,s AML and CTF regulations.  According to the 
officials, each of these banks has an internal 
inspection/auditing team which ensures that their bank is 
complying.  The inspection unit uses a central database to 
check the bank,s accounts and transactions against USG and 
international lists of individuals/entities who are involved 
in terrorist financing.  The AML law dictates that a branch 
must record identifying information (name, address, tax 
identification number) for all transactions exceeding 12,000 
Turkish Lira (approximately $8,900).  If a transaction is 
believed to be &suspicious,8 regardless of the amount, a 
bank must file a suspicious transaction report (STR) with 
MASAK within ten days of detecting the transaction.  Bank 
officials noted that most of the STR,s filed in 2004 were 
for transactions involving foreign-related accounts. 
 
4. (U) In addition to the laws and regulations mentioned 
above, each bank also applies internal measures unique to its 
own bank.  Ziraat is working on a method to merge each of its 
branch's customer information records into its central 
database.  Disbank emphasized that it enforces strict rules 
for foreigners and non-residents who want to open 
accounts*the customer,s identification documents must be 
approved by headquarters before an account can be opened. 
Disbank is also planning to initiate an electronic program in 
which individuals who initiate or receive wire transfers will 
automatically be checked against the U.S. Office of Foreign 
Assets Control (OFAC) list.  Disbank has risk level ratings 
for each of its branches and those branches with higher 
ratings receive more frequent spot inspections.  According to 
bank officials, Disbank,s branches in the southern and 
southeastern parts of Turkey are especially vulnerable 
because the quality of the staff is lower and the staff often 
uses personal trust and relationships as an operational guide 
rather than following procedures. 
 
5. (U) Ziraat Bank, Disbank, and Yapi Kredi Bank employees 
receive regular training on financial crime, STR reporting, 
and &Know Your Customer" rules.  Yapi Kredi Bank offers this 
training through computer-assisted education programs and 
announces new procedures or regulations to its staff via 
electronic circulars.  Disbank is attempting to implement an 
e-learning project to train its staff and keep them updated 
on new AML and CTF regulations.  Disbank also has a 
legislative portal on the bank,s intranet site to which it 
can post new regulations.  Additionally, Disbank has a book 
on money laundering and suspicious transactions and has 
distributed it to all its branches and customers.  Though all 
the banks attend information sessions given by MASAK, none of 
them receive significant financial crimes training from 
MASAK.  Apparently, banks provide their own training to their 
staff. 
 
------------------------------ 
Bank Compliance: Foreign Banks 
------------------------------ 
 
6. (SBU) Econoffs also visited the Turkey headquarters of 
Hong Kong Shanghai Bank Corporation (HSBC) and Citigroup. 
Officials at both banks believe their bank policies and 
regulations on financial crime are far advanced compared to 
those currently enforced by the GOT.  For example, Citigroup 
sets its own AML policy for its Turkish subsidiary which is 
not only compliant with local Turkish policy, but also with 
regional Citigroup policy, FATF rules, E.U. requirements, and 
U.S. laws, including the Bank Secrecy Act and Patriot Act. 
(Though the GOT is in the process of amending its laws and 
regulations, its current legislative framework on financial 
crimes is not yet compliant with FATF rules and EU 
policies--reftel).  The Citigroup official said that she had 
attended a presentation at MASAK which was almost identical 
to the training her own bank had developed for its employees. 
 Both Citigroup,s and HSBC,s compliance officers claimed 
that MASAK often seeks their advice on financial crime 
policies and training material since these foreign banks have 
been applying their policies for the past 20-30 years, 
whereas Turkey,s AML policies were enacted less than 10 
years ago. 
 
7. (SBU) Like the Turkish banks, HSBC and Citigroup have 
internal inspection teams to ensure that the banks are 
monitoring transactions and accounts as well as reporting 
transactions in accordance with Turkish regulations.  HSBC 
and Citigroup provide their staff with training and refresher 
courses on financial crimes policies, and neither bank, like 
the Turkish banks, receives much training from MASAK.  HSBC 
believes MASAK does not have the expertise or the resources 
to give sufficient training to all banks. 
 
8. (U) MASAK has been in the process of drafting a new law 
which affects the organization of MASAK and the prevention of 
money laundering and corruption.  MASAK sent its draft law to 
the Bank Association who will review it and make 
recommendations to MASAK.  MASAK also sent a copy of the law 
to Citigroup for its recommendations and expertise.  The 
Citigroup compliance officer told us that the draft is 
&basically a carbon-copy of the FATF regulations.8  She 
added that the draft law &is coming closer to the policies 
Citigroup has been implementing for years.8 
 
------------------------------------ 
Bank Association/MASAK Working Group 
------------------------------------ 
 
9. (U) In light of this new draft law, the Bank Association 
(comprised of 48 commercial and investment banks) is working 
with MASAK to develop a set of principles and standards on 
combating money laundering and other financial crimes.  This 
will serve as a guide for all of its member banks.  The 
Credits and Operations Control Manager at Turkish Economic 
Bank, Alpaslan Cakir, explained to EconOff that the Bank 
Association has been drawing on several references and 
international guidelines, including the U.S.A. Patriot Act 
and the FATF Special Recommendations on Terrorism Finance, to 
establish a basic standard for Turkish Banks.  The Bank 
Association is also using this opportunity to harmonize 
regulations with those of the EU.  For example, Italian 
anti-financial crime experts, as part of their EU Twinning 
Project, are working with MASAK to develop a standard set of 
suspicious transaction reporting guidelines for use in Turkey. 
 
10. (U) The aim of the Bank Association/MASAK working group 
is to develop consensus among the banks on a set of basic 
uniform guidelines so that banks can develop their own 
policies based on these guidelines.  Banks will, in turn, 
make adjustments to their existing regulations.  The Bank 
Association wants to finalize these standards in the form of 
a guidebook before the FATF review scheduled for the end of 
2005/beginning of 2006. 
 
----------------------------------------- 
Highlights of Bank Association Guidelines 
----------------------------------------- 
 
11. (U) Below is a list of some of the new procedures the 
Bank Association hopes to include in its guidelines for 
preventing, monitoring, and reporting potential financial 
crimes. 
 
--For all electronic transfers, banks will provide complete 
information, i.e. full name and address of sender and 
recipient. 
 
--The guidebook will include effective ways to carry out 
internal bank audits. 
 
--There will be suggestions on how to determine &risky 
regions,8 &risky transactions,8 and &risky sectors.8 
 
--The guidebook would include lists of FATF,s 
non-cooperative countries; the OFAC list; major 
drug-traffickers list; all lists of major drug-traffickers 
published by the U.S.; OECD list of tax haven countries; and 
the Banks Union list of risky regions.  Banks will use these 
lists together with their filtering systems to filter through 
accounts and incoming and outgoing money transfers*checking 
for matches to names on the respective reference lists.  The 
filter would be operated by each bank,s internal auditing 
section and requires detailed information*especially for 
high risk regions. 
 
--Risky transactions will include cash and electronic 
transactions, foreign currency transactions, personal checks 
and safe deposit boxes.  Risky sectors will include certain 
cash-based sectors of the economy.  Banks will also use 
information from previous money laundering cases as a 
reference for determining risky entities. 
 
-------------------- 
Current Deficiencies 
-------------------- 
 
12. (U) Despite the best efforts of the Bank Association and 
MASAK to strengthen policies, Bank compliance officers told 
Econoffs that there are still gaping holes in the system. 
For example, at the moment, there is no way for banks to 
share information with each other about which 
individuals/entities have been turned down for opening 
accounts or making transactions.  The Bank Association is 
working on a way to develop a system through which they can 
share this information.  Also, there are compliance officers 
in banks and special finance houses, but not in exchange 
bureaus, insurance agencies, and other entities through which 
money can be transferred and exchanged for illicit purposes. 
 
13. (SBU) Citigroup and HSBC said that until the GOT,s 
policies are changed and enforced, foreign banks that apply 
advanced financial crimes regulations and procedures will be 
at a competitive disadvantage.  Turkish banks are not asking 
their customers the same types of questions HSBC and 
Citigroup are required to ask their customers.  HSBC and 
Citigroup officials said that the GOT needs to standardize 
these questions, enforce them, and penalize noncompliant 
parties.  They believe Turkish banks do not fully comply with 
even the existing minimal regulations. 
 
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Comment 
-------- 
 
14. (SBU) New legislation based on international standards 
and FATF recommendations, a set of uniform guidelines and 
procedures, greater information sharing, and accurate 
filtering systems could bolster the banking community,s 
ability to prevent and identify financial crime.  Turkish 
banks, however, may have a tougher time adjusting to more 
rigid regulations since they lack the expertise, training, 
and experience of foreign banks like HSBC and Citigroup. 
Nevertheless, the proposed changes mentioned above are an 
integral part of Turkey's efforts to strengthen it's AML/CTF 
regime.  In order to improve the GOT's track record on 
preventing and identifying financial crime, the government 
must show a willingness to enforce the new legislation and 
penalize non-compliance. 
EDELMAN