Turkish adoption of crypto assets is amongst one of the highest in the world. With the advent of Bitcoin, widely viewed as ‘digital gold’ – and other cryptocurrencies – savers in Turkey seeking to protect their purchasing power have rushed into the alternative asset class.
Because crypto has been deemed to be a commodity (and not currencies) under Turkey regulations, payments in the asset are no longer legal. The government has made clear that cryptocurrency as an investment vehicle will remain legal, and additionally, new stipulations have come into force in recent months in regards to AML.
Turkey is a member state of the Financial Action Task Force (FATF) – the global AML watchdog – and seeks to implement a similar framework for cryptocurrency as the regulatory body. Turkey has a comprehensive AML/CFT framework and failure to follow the law will result in fines and/or prison sentences for offending parties.
Is Cryptocurrency Legal in Turkey?
Yes, cryptocurrencies are legal in Turkey.
It is legitimate for retail investors to buy, sell and own crypto. Crypto assets can be purchased through exchanges, peer-to-peer and via Bitcoin/crypto ATMs.
AML for Cryptocurrencies in Turkey
Money laundering has been a criminal offence in Turkey since 1996, with the passing of Law No. 4208 Prevention of Money Laundering. This legislation incorporated a number of predicate offenses; terrorist activities, illicit drugs-related activities, antiquities and gun smuggling, forgery, and human and organ trafficking.
On 18th October, 2006, the passing of Law No: 5549 on Prevention of Laundering Proceeds of Crime imposed a number of stipulations on obligated entities. This regulation also enhanced the scope of the Financial Investigative Unit (FIU), the Financial Crimes Investigation Board (MASAK) to oversee AML in Turkey.
The AML requirements for crypto entities in Turkey include;
- Client Id (Know Your Customer)
- STR (Suspicious Transaction Reports)
- Employee Training and Risk Management Procedures
- Audit by MASAK
- Documentation Retention
All Suspicious Transaction Reports (STRs) must be submitted to MASAK. Documents from all reporting requirements, customer Id documents and other related materials to compliance must be kept by crypto asset trading firms for a period of 8 years after the last transaction of the counterparty/client.
For obligated parties that release information on STRs to outside entities not authorized to receive them, and those that fail to follow proper document retention and submission requirements – the aforementioned party will receive a prison sentence of between 1 and 3 years.
In the FATF’s December 2019 Mutual Evaluation Report into Turkey’s AML risks, the body found owing to Turkey’s “geographic location, the country faces the greatest money laundering risks from drug trafficking, migrant smuggling, human trafficking and fuel smuggling. The country also faces significant terrorist financing risks from both national and international threats.”
On May 1st, 2021, all cryptocurrency exchanges, custodians and those dealing in crypto assets in Turkey have been made to follow Anti-Money Laundering and Combatting the Financing of Terrorism rules by presidential decree, and thus taking immediate effect.
The decree makes it clear that firms facilitating the trade of crypto assets are to be covered by AML/CFT regulations in the jurisdictions along with other obligated entities such as financial institutions and payment providers etc.
Crypto Tax in Turkey
Currently, crypto assets are not yet taxed, although this is soon set to change as the government is in the process of drafting laws for the purpose.
In April of 2021, the Sabah daily, a Turkish government-aligned news outlet, outlined that “a new tax regulation concerning the purchase, acquisition, sale and transfer of the crypto financial assets will be introduced,” the report stated. “In order to protect the investors, the new regulation will strengthen the inspection and surveillance mechanisms of cryptocurrency trading.” In the same month, the current central bank Governor Sahap Kavcioglu, echoed that the government was working on the tax.
As there are no tax regulations applicable to crypto assets in Turkey, exchanges and custodian businesses that deal in crypto must follow the regular tax of tax for businesses (20% corporation tax rate for the 2021 fiscal year).
Is Crypto Mining Legal in Turkey?
There is no specific regulation dealing with crypto asset mining in Turkey.
Crypto Payment Processing in Turkey
It is now illegal in Turkey to use cryptocurrency in payments.
On 16th April, 2021, a government ban on payments with cryptocurrency came into law – the Regulation on Non-Use of Crypto-Assets in Payments – with an effective date of 30th April, 2021. This law was the first regulation specifically created with crypto assets in mind, cnd cited transaction risks as a leading issue.
The central bank stated that “their [cryptocurrencies] use in payments may cause non-recoverable losses for the parties to the transactions … and include elements that may undermine the confidence in methods and instruments used currently in payments.”
Although the regulation does not allow payment and electronic money institutions to both facilitate the transfer of crypto assets or build models around their use, banks are able to facilitate the transfer of funds to and from cryptocurrency exchanges.
ICO/STO Regulations in Turkey
There is no specific regulation dealing with ICO/STO regulations in Turkey. The closest laws to ICOs and STOs applicable are those to ‘Public Offering’ (IPOs), which may be covered by the general Capital Markets Law.
“Capital Markets Law a. 3/1 (f):
Public offering: A general call made by any means for the purchase of the capital market instruments, and the purchase after the call.”
Tokens and coins may fall under the scope of other capital market instruments, including derivative instruments, and investment contracts – and thus be subject to Capital Markets Law.
Central Crypto Custodian Bank
The Turkish government has also explored the option of a central custodian for crypto assets in the wake of two large exchanges – Thodex and Vebitcoin – halting trading in the face of severe accounting problems and fraud allegations.
If the central crypto custodian bank is created, it would be the first of its kind in the world and would open mainstream adoption and trust of the industry. In addition, the announcement allayed fears of a total outright ban on the asset class.
Outright total crypto asset bans are notoriously difficult to enforce. It is significantly easier for digital assets to proliferate on the internet than it is to monitor physical asset trade within borders. Most governments have recognized that the best way to deal with the asset class is to properly regulate them with AML/CFT regulations.
Turkish Plans for a CBDC
Turkey’s central bank – the Central Bank of the Republic of Turkey (CBRT) – also has plans for a Central Bank Digital Currency (CBDC). The then-Governor of the central bank, Naci Ağbal, told members of parliament in December 2020 that “there is an R&D project initiated on digital money. Currently the conceptual phase of this project has been completed. We aim to start pilot tests in the second half of 2021.”
This follows on from many central banks exploring the benefits of a CBDC.
