Developing and establishing an effective anti-money
laundering ("AML") compliance program is a requirement for financial
institutions in order to combat laundering the proceeds of crime and terrorist
financing worldwide.

In this article, our aim is to reveal the scope and
the significance of developing and establishing AML compliance program in
Turkey.

(I)
Introduction

In Turkey, compliance program requirement is set forth
in the Regulation on Compliance Programs Regarding Obligations on Laundering
the Proceeds of Crime and Prevention of Financing of Terrorism ("Compliance
Regulation").

According to the Compliance Regulation, only the
foregoing obliged parties such as banks (except for Central Bank of Republic of
Turkey as well as development and investment banks), capital markets
intermediary institutions, insurance and pension companies, Post and Telegraph
Organization General Directorate (pertaining only to banking activities) oblige
to establish and operate a risk-based AML compliance program.

The AML compliance program requirement for each
category of covered obliged parties would also apply to their agents, branches,
commercial representatives or similar affiliates located in abroad to the
extent allowed by their local jurisdiction.

(II)
Scope of AML Compliance Program

The
scope of AML compliance program established with a risk-based approach is as
follows: (i) creating corporate policies and procedures, (ii) carrying out risk
management activities, (iii) performing monitoring and controlling activities,
(iv) assigning compliance officer and forming a compliance unit, (v) conducting
training activities, (vi) carrying out internal control activities.

The
risk management as well as monitoring and controlling activities are carried
out by compliance officers. Moreover, those activities are under obligation of
the board of directors of the obliged parties.

(1)
Corporate Policies and Procedures

Obliged parties must create corporate policies by
considering the size of the institution, the volume of the business and the
type of their transactions. Corporate policies must consist of at least risk
management, monitoring and controlling, training and internal control policies
under Turkish laws.

The purpose of establishing corporate policy is (i) to
determine strategies on ensuring obliged parties to comply with the obligations
pertaining to laundering the proceeds of crime and prevention of financing of
terrorism and on minimising risks to be exposed through assessing obliged parties'
customers, transactions and services with a risk-based approach; (ii) to
determine controls and measures within the institution, operational rules and
responsibilities and (iii) to make the employees aware of these matters.

Corporate policies and procedures are required to be
prepared in written form under the observation and coordination of the
compliance officer. The board of directors is under obligation to approve corporate
policies. Under the Compliance Regulation, compliance officers must deliver
corporate policies and any amendments to the corporate policies to the
Financial Crimes Investigation Board ("MASAK").

Obliged parties are also required to deliver corporate
policies to the employees by obtaining their signatures. MASAK Frequently Asked
Questions No. 105 states that corporate policies may be delivered
electronically on the condition that the relevant employee has electronic
signature. Moreover, e-mail
messages may also be used to deliver the amendments to the policies, provided
that the delivery is confirmed with read receipt method and that such method is
stated in the relevant policy or amendment policy.

(2)
Risk
Management Activities

Obliged parties are required to implement risk management
policies by considering the size of the institution, the volume of the business
and the type of their transactions. The purpose of the risk management policy
is to identify, grade, monitor, assess and minimise the risk that can be
exposed. Risk management policy must consist of at least internal measures and
operational rules regarding customer identification measures stipulated in the
relevant anti-money laundering legislation. In addition to preparing risk
management policy, obliged parties must also carry out risk management
activities such as developing risk identification, grading, classification and
assessment methods based on customer risk, service risk and country risk as
well as grading and classifying services, transactions and customers.

(3)
Monitoring
and Controlling Activities

Another requirement for obliged parties is to conduct
monitoring and controlling activities by considering the size of the
institution, the volume of the business and the type of their transactions. Protecting
obliged parties against risks and monitoring and controlling whether their
activities are carried out in accordance with AML and corporate policies and
procedures is the main purpose monitoring and controlling activities.

According to Article 15 of the Compliance Regulation,
the minimum scope of the monitoring and controlling activities is as follows: (i)
high risk customers and their transactions, (ii) transaction conducted with
risky countries, (iii) complex and unusual transactions.

(4)
Compliance
Officer and Compliance Unit

Pursuant to Article 16 of the Compliance Regulation, assigning
compliance officer is a must for obliged parties. Once it is notified by obliged
parties, MASAK assesses whether the relevant compliance officer candidate meets
the criteria stipulated in the Compliance Regulation. If not, obliged parties are
under obligation to assign a new compliance officer meeting the criteria.

Additionally, as per Article 18 of the Compliance
Regulation, in order to ensure that compliance officer perform its duties and
responsibilities effectively, board of directors is required to ensure
establishment of compliance unit to execute compliance program by considering
the size of the institution, the volume of the transaction, the number of the
branch and personnel or the level of the risks it may expose to.

Duties and responsibilities of compliance officers are
stipulated in Article 19 of the Compliance Regulation. Accordingly, compliance
officers' duties and responsibilities are including but not limited to conduct
necessary works to ensure that obliged parties comply with the AML legislation;
conduct necessary communication and coordination with MASAK; establish corporate
policies and procedures and submit corporate policies for approval of the board
of directors; establish risk management and monitoring and controlling policies
and carry out risk management and monitoring and controlling activities; submit
her/his works regarding training program on laundering proceeds of crime and
terrorist financing for the approval of the board of directors and ensure
effective implementation of the approved training program and report suspicious
activities to MASAK.

(5)
Training
Activities

Obliged parties are ordered to constitute a training
policy including the matters such as operation of training activities, the
person who would be responsible for conducting training activities,
determination and training of employees and trainers to be participated to
training activities as well as training methods. The purpose of implementing a training
policy is to ensure compliance with obligations within the scope of Turkish AML
legislation and raise awareness of the employees.

In addition to implementation of a training policy,
obliged parties are also required to carry out training activities in
compliance with the size of the institution, the volume of the business and
changing conditions for prevention of laundering proceeds of crime and
terrorist financing.

Trainings to be presented to the employees need to
include the following subjects: terms of laundering proceeds of crime and
terrorist financing; stages and methods of laundering proceeds of crime and
case studies on this matter; legislation on prevention of laundering proceeds
of crime and terrorist financing; risk areas; corporate policies and
procedures; principles on customer identification and suspicious activity
reporting; obligation of archiving and submission; obligation of providing
information and documents; sanctions to be implemented in case of breach of
obligations; international regulations on combating laundering and terrorist
financing.

(6)
Internal Control

Obliged parties are required to ensure, annually and
on a risk-based approach, examination and controlling of corporate policies and
procedures, risk management, monitoring and controlling activities, sufficiency
and efficiency of training activities and risk policy and whether the
transactions are carried out in compliance with AML legislation and corporate
policies and procedures. Internal control units and supervisory boards of
obliged parties carry out internal control activities and report such
activities to the board of directors.

(III)
The Significance of Anti-Money Laundering Compliance Program

As
stated above, compliance programs are implemented by compliance officers. However,
the ultimate responsibility for carrying out compliance program adequately and efficiently lies with the board of
directors. The board of directors may delegate some or all of its authorities to
one or more board member(s). Delegation of an authority cannot remove the
responsibility of the board of directors.

It
is important to note that in case non-compliance with obligations as to
training, internal control and risk management system, obliged parties must be given at least 30 days in order to correct
deficiencies and take necessary measures. If obliged parties do not correct
deficiencies and take necessary measures, an administrative fine of TRY 15,035 (~
EUR 2,300) could be imposed by MASAK. If the obliged party is a bank,
insurance and pension company or capital market institution, an administrative fine of TRY 30,070 (~ EUR 4,600) could
be imposed. For each breach, the total amount of administrative fines applied
to the obliged parties within the year of the breach cannot exceed TRY
1,709,600 (~ EUR 255,165) and TRY 17,096,120 (~ EUR 2,551,650) for banks, insurance
and pension companies or capital market institutions. If the obliged parties
subject to upper limit on fines (i.e. banks, insurance and pension companies or
capital market institutions) do not comply with these obligations in the
following year, the limit shall be applied twofold.

Therefore, it is crucial to comply with obligations pertaining to setting and
implementing compliance program to not to face with the administrative burdens
and reputational risk.

(IV)
Conclusion

In
light of the foregoing, institutions subject to the AML legislation are under
obligation to establish and implement risk-based compliance programs
proportionate to the size and volume of their businesses. The consequences of
non-compliance with establishment and operation of AML compliance program might
be subject to administrative fines and reputational damage to the relevant
institution.

Authors:
Gönenç Gürkaynak, Esq., Damla Doğancalı and Büşra Üstüntaş, ELIG Gürkaynak Attorneys-at-Law

(First published by Mondaq on May 3, 2019)