The United States Department of State Bureau of International Narcotics and Law Enforcement Affairs provides an overview of the global drug trade and money laundering trends including detailed assessments of individual countries in its 2023 International Narcotics Control Strategy Report (INCSR) Volume II: Money Laundering. The section on Turkmenistan emphasizes the country’s isolation from the global financial system and the lack of transparency surrounding financial activities, particularly concerning offshore holdings and potential money laundering risks stemming from its proximity to Afghanistan and Iran.
In January 2019, to better combat economic crimes and strengthen law enforcement agencies the State Service for Combating Economic Crimes was merged with the Ministry of Internal Affairs. Turkmenistan has established a Financial Monitoring Service (FMS), within the Ministry of Finance and Economy, as its financial intelligence unit (FIU) and implemented customer due diligence and suspicious transaction reporting regulations. In 2021, the FMS received 271 reports of money laundering-related suspicious transactions and referred 19 cases to law enforcement agencies.
Similarly, Turkmenistan is gradually adopting digital technologies in its banking system, including cashless payments. The government has expressed interest in exploring cryptocurrency for financial transactions. Nevertheless, Turkmenistan faces challenges related to a lack of transparency, potential corruption, limited investigative capacity, and the need for reforms to align its Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regime with international standards.
Some of the key challenges are summarized below:
- Limited Integration with Global Finance: Turkmenistan is not considered a regional financial center and operates with relative isolation from the global financial system. It has a small number of domestic and foreign banking institutions, with Deutsche Bank serving as the primary conduit for international transactions.
- Offshore Holdings and Lack of Transparency: Turkmenistan operates with a high degree of opacity, making it difficult to assess the true extent of financial crimes and the effectiveness of its AML/CFT regime. The government’s reluctance to disclose information on financial flows and offshore holdings further exacerbates this issue. Turkmen citizens, including government officials and their families, are known to possess offshore accounts with minimal public scrutiny or accountability, raising concerns about potential illicit financial flows.
- Endemic Corruption: Corruption is widespread in Turkmenistan, serving as both a source of illicit funds and an impediment to successful prosecutions of financial crimes.
- Currency Conversion Restrictions: Strict limitations on foreign currency exchange make converting the local currency (manat) into foreign currency challenging, potentially pushing individuals towards informal and unregulated channels.
- Potential Money Laundering Risks: Turkmenistan’s shared borders with Afghanistan and Iran raise concerns about possible money laundering activities related to drug trafficking and domestic criminal activities, including corruption. However, concrete evidence of such activities remains elusive.
- Tax Exemptions and Potential Abuse: The tax code provides exemptions for certain sectors, including tourism and petroleum production, potentially creating opportunities for abuse and tax evasion.
- Limited Investigative Capacity: Law enforcement agencies lack the resources, expertise, and training to effectively investigate complex financial crimes. This capacity deficit is particularly pronounced in dealing with sophisticated money laundering techniques, including those involving digital currencies and online platforms. While Turkmenistan has invested in capacity building for law enforcement through seminars and training, a continued need for enhancement remains.
- Need for Reforms Aligned with International Standards: The existing AML/CFT regime requires significant reforms to meet international standards, particularly concerning beneficial ownership transparency, asset sharing with foreign jurisdictions, and effective supervision of financial institutions and designated non-financial businesses and professions (DNFBPs).
