Turkey was just placed on the Financial Action Task Force (FATF) 'Grey List', for failing to combat money laundering and terrorism financing.
Turkey could lose over $23 billion in revenue because of the decision, a heavy blow to Turkey's fragile economy. Since the beginning of this year, the Turkish lira has lost nearly 20 percent of its value.
An international watchdog downgraded Turkey to a so-called grey list on Thursday for failing to head off money laundering and terrorist financing, a decision that could further erode foreign investment after a years-long exodus.
Turkey, the largest to be downgraded, needs to address “serious issues of supervision” in its banking and real estate sectors and with gold and precious stones dealers, FATF President Marcus Pleyer told a news conference.
“Turkey needs to show it is effectively tackling complex money laundering cases and show it is pursuing terrorist financing prosecutions...and prioritizing cases of U.N.- designated terrorist organizations such as ISIL and al Qaeda,” he said.
“Despite our work on compatibility, placing our country on the grey list is an undeserved outcome,” the Turkish Treasury said in a statement late on Thursday.
“In the coming period, necessary measures will continue to be taken in cooperation with FATF and all relevant institutions, to ensure that our country is removed from this list, which it does not deserve, as soon as possible.”
In 2019, the FATF warned Turkey about “serious shortcomings” including the need to improve measures to freeze assets linked to terrorism and weapons of mass destruction proliferation.
Other FATF grey-listed countries include Pakistan, Morocco, Albania and Yemen.
International Monetary Fund research this year found that grey-listing reduces capital inflow by an estimated 7.6% of gross domestic product (GDP), while foreign direct investment (FDI) and portfolio flows are also hit.
Foreign investors have fled Turkey in recent years, citing political interference in monetary policy, double-digit inflation and low official foreign currency reserves.
Foreign ownership of bonds is down to about 5% from 25% five years ago, a period in which the Turkish lira has shed two-thirds of its value against the dollar.