International Financial Monitor FATF Moves Turkmenistan to "Improving" List
Last month, the semi-official turkmenistan.ru misleadingly reported that the Financial Action Task Force (FATF), the international group which combats money laundering, had allegedly recognized Turkmenistan as a "no risk country" at its plenary meeting in Amsterdam on June 25. Turkmenistan.ru claimed that among the reasons for the recognition was Turkmenistan's accession as a full member to the Eurasian Group on Combating Money Laundering and Terrorist Financing (EAG), as well as progress in passing amendments to the Turkmen criminal code and creating a national system for combating money laundering and terrorism financing (AML/CFT).
FATF keeps lists of country assessments with the following categories -- "high-risk and non-compliance jurisdictions," "jurisdictions improving but with strategic deficiencies" and "jurisdictions in compliance" -- and makes pronouncements on levels of risk for various countries, and in fact had not pronounced Turkmenistan as "no risk". Yet the generally pro-government publication turkmenistan.ru could make such a claim because in fact, FATF did move Turkmenistan off its high-risk designation in June to its "improving" category.
Back in February, FATF had announced that it was including Turkmenistan among "jurisdictions that may pose a risk to the international financial system." But not long after this public shaming, since Turkmenistan had agreed to pass laws penalizing money-laundering and the financing of terrorism and made other written commitments to implement action plans to address specific deficiences identified by FATF, it was then graduated from the FATF's worst "high-risk" list to the "improving" list.
That's often how multilateral institutions have to work if they are to create genuine incentives in countries and not be accused of moving the goal posts: they assess a given country's commitment to standards by its willingness to pass legislation and national action plans, and they have to acknowledge progress when a country makes such gestures, even as implementation is still awaited.
Of course, FATF looks for real compliance as well, and has encouraged the EAG to assist Turkmenistan in meeting its obligations. Turkmenistan was admitted to the EAG in June, and EAG itself was admitted into FATF at the same time. EAG is now working with Ashgabat to establish a national system for AML/CFT in compliance with international standards, "which will promote the further integration of the state into the international financial system" as turkmenistan.ru reported.
As FATF said in its statement:
The governments of Angola, Ecuador, Ethiopia, Pakistan and Turkmenistan made high-level written commitments to implement action plans to address specific AML/CFT deficiencies. Based on these commitments and on progress made, these countries have been moved from the Public Statement dated 18 February 2010 to the public document ´Improving Global AML/CFT Compliance: On-going Process”dated 25 June 2010. The FATF welcomes these commitments and looks forward to working with these countries to implement their action plans.
The "improving" category is still short of turkmenistan.ru's claim of being a "no-risk country" and still shows a list of "strategic deficiencies," relating to further reforms needed in the law, the functioning of a financial intelligence unit (FIU) and strengthening of international cooperation:
However, the FATF has determined that certain strategic AML/CFT deficiencies remain. Turkmenistan will work on implementing its action plan to address these deficiencies, including by: (1) addressing the remaining issues with the criminalisation of money laundering and terrorist financing (Recommendation 1 and Special Recommendation II), (2) implementing adequate procedures to identify and freeze terrorist assets without delay (Special Recommendation III); (3) ensuring a fully operational and effectively functioning FIU (Recommendation 26), (4) developing collaboration between the FIU and domestic counterparts, including supervisory authorities, and (5) strengthening international cooperation. The FATF encourages Turkmenistan to address its remaining deficiencies and continue the process of implementing its action plan.
Thus, in a matter of a few months, Turkmenistan went from being declared a high-risk country for investors on par with Iran or North Korea to getting on the "improving" list and being accepted into the EAG, largely on the strength of passing laws and pledging to continue working with the regional and international financial monitoring bodies. This development is similar to the trends this year from the European Union, the United States, and the Organization for Security and Cooperation in Europe, all of which have decided to engage and involve Turkmenistan in international programs rather than to condemn and isolate it.
The question is how international bodies can accurately assess Turkmenistan when they will be entirely dependent on government reports. The Turkmen public still doesn't know exactly what the national and regional budgets of their country are, and the state media is not free to report critically on state expenditures, for example, on myriad high-priced construction projects, many involving foreign firms.
Turkmenistan has evidently participated in the prosecution of a tangled case of alleged large-scale embezzlement of nearly $20 million from the Central Bank of Turkmenistan (CBT) to the Russian Deposit Bank (RDP). The case involves a Russian, Savel Burshtein, and a Turkmen, Asoltan Niyazova, who has now disappeared and is wanted by police. Other Russians now behind bars are also said to have been involved in the case. Burshtein's lawyers say no documentation was supplied to the court proving that the money came from Turkmenistan. The Russian business daily Kommersant.ru says that in 2002, German intelligence found that Arslan Kakayev, an official at the CBT's international payments department who had access to the SWIFT codes was able to siphon off $41 million to Deutsche Bank and then on to other foreign banks.
The international non-governmental group Global Witness has reported on the secret bank account that past Turkmen dictator Saparmurat Niyazov maintained at Deutsche Bank. Soon after he came to office, President Berdymukhamedov vowed to investigate and clean up the Niyazov slush fund -- but then fell silent.
Now Turkmenistan appears to be trying to demonstrate it is willing to take measures to improve its financial system. Last week, President Berdymukhamedov met with top officials from Deutsche Bank. The official government website portrayed the German bankers as expressing interest in the "extreme attractiveness of the Turkmen market and the conditions conducive to business activity including the favorable business climate." Turkmenistan also announced last week a tender for an international audit of the Turkmenbashi Bank, which serves the energy sector.
It remains to be seen whether Turkmenistan will really make good on its pledges to clean up its murky banking system, ravaged by the plundering of past dictator Niyazov, and whether foreign investors eager to lock the Nabucco pipeline and other projects into place will be hasty in accepting Turkmenistan's words rather than deeds.
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