Last week, Turkey fined a long list of Western financial institutions, including Goldman Sachs, Bank of America, JPMorgan, Credit Suisse, Barclays and others hefty fines for short selling without proper notification. The move comes just a week after foreign investors pulled nearly US$b. from Turkey’s stock and bond markets. While some analysts interpret these dynamics as action and reaction to President Recep Tayyip Erdogan’s firing of Central Bank Governor Naci Agbal in March, there is a strong case to be made that these are in fact the latest moves in an ongoing tit-for-tat banking war between the West and Turkey over terror financing and money laundering.
Israeli investors are being targeted in Turkey's banking war - opinion
Retribution for Turkey’s latest move will surely cause collateral damage to any Israelis still doing business with the Turkish banking system, and in particular its Northern Cypriot satellites.
In the mid 1990s, US law enforcement identified Saudi billionaire Yassin Al-Kadi as a key money launderer for Hamas, Osama bin Laden and al-Qaeda, using Turkish banks and a web of charities and nonprofits. Ever since, despite multiple law enforcement agencies – including the G7 intergovernmental Financial Action Task Force (FATF), the US Office of Foreign Assets Control (OFAC), UK’s Financial Services Authority and the EU – taking action against Turkey, it continues serving as a global hub for terror financing and money laundering. Al-Kadi, by the way, still operates freely in Turkey, President Erdogan stating publicly that he trusts Al-Kadi as he trusts his own father.
A 2019 report by Nordic Monitor, which covers religious, ideological and ethnic extremist movements, with a special focus on Turkey, highlights the role of Turkey’s National Intelligence Organization (MİT) in facilitating financing of al-Qaeda and al-Shabab via its banking system. And it does not stop there; Turkey is also a major hub for sanction circumvention by Iran and North Korea. Turkey’s second-largest public lender, Halkbank, is facing an indictment in the Southern District of New York for facilitating a $20 billion scheme to circumvent US sanctions on Iran. This indictment of Halkbank is the likely trigger of a tit-for-tat banking war, the results of which we are witnessing today.
Some of the earliest Turkish banks to be penalized by the West are, in fact, based in Turkish-occupied Northern Cyprus. OFAC has designated two such banks, the First Merchant Bank and Infobank, as financial institutions of “primary money laundering concern” and the UK’s Financial Services Authority fined the Northern Cyprus-headquartered Turkish Bank for anti-money laundering failures.
ISRAELI INVESTORS are currently being targeted and bombarded with online ads encouraging them to invest in Northern Cyprus’s real estate sector. The high-risk nature of doing business in Northern Cyprus and its banking sector is exemplified by multiple instances where foreign investors and depositors have been left unprotected and faced significant losses or difficulties in the absence of traditional regulatory safeguards. In 2012, HSBC was the subject of US litigation proceedings brought by foreign investors after HSBC solicited their investments into Northern Cyprus’ real estate sector despite the self-declared authorities having no sovereign right to issue property titles.
Owing to Northern Cyprus’s disputed political status, the territory is locked out of the international banking and SWIFT payment system; its security and financial infrastructure has been plagued by reports of money laundering and involvement in the illicit narcotics trade. The inadequacy of Northern Cyprus’s regulatory regime leaves fraud victims without international legal recourse: Mondial Private Bank has allegedly utilized the non-existent regulations in Northern Cyprus to execute an elaborate scheme under which it effectively defrauded a Brazilian-Dutch company for $35 million after failing to return the deposited funds.
Isaias Dahlak, a secretive Eritrean financier currently financing Eritrean forces in the Tigray conflict, reportedly utilizes Northern Cyprus’s offshore banking ecosystem, of which Mondial Private Bank is a part, to finance his illegal operations outside of the purview of the international community and law enforcement.
Israeli investors be warned: The Biden Administration has just asked Congress to increase the Treasury Department’s Financial Crimes Enforcement Network (FINCEN) by 50%. Retribution for Turkey’s latest move will surely cause collateral damage to anyone still doing business with The Turkish banking system, and in particular its Northern Cypriot satellites.
Get out while you still can.
The writer established and led the Mossad’s Asset Tracing Unit, where he spearheaded domestic and international efforts to combat terrorist financing. The prime minister of Israel later appointed him as his special adviser on Economic Warfare.