Cablegate: Bank Compliance

Published: Wed 4 May 2005 01:58 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
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
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.
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 ,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 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
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
a carbon-copy of the FATF regulations.8 She
added that the draft law 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
--For all electronic transfers, banks will provide complete
information, i.e. full name and address of sender and
--The guidebook will include effective ways to carry out
internal bank audits.
--There will be suggestions on how to determine
regions,8 transactions,8 and 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.
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.
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