Turkey places economic hopes on repatriating assets, unregistered cash

A string of developments in Turkey’s struggling economy sector have prompted the Erdoğan administration to attach its last hopes to assets abroad, as well as undeclared, unregistered cash within the country.

The central bank has spent tens of billions of dollars of its foreign exchange reserves defending the Turkish lira, which has been repeatedly hitting record lows in the last few weeks, alarming those considering to invest in Turkey.

It is in this context that the ruling Justice and Development Party (AKP) submitted a bill to parliament calling for a Cash Repatriation Law. The temporary law would effectively allow for individuals and companies to transfer their money, gold, foreign currency, movable property and other assets to Turkey without tax inspection, criminal investigation, penalty or fine.

Legal amendments made under the original Cash Repatriation Law, which was first enacted during the 2008 global financial crisis, were made into law a total of six times since. Should the latest amendments included in the omnibus bill become enacted, they will mark the seventh time financial regulations have been eased for undeclared or secretly sourced wealth.

The latest regulation submitted to parliament – which rules out any inquiries into the source of money, jewellery, moveable and immovable property and promises no tax payments for the aforementioned items – underlines the scale of the finance crisis the Turkish government is facing.

During the law’s previous applications, finance ministers at the time reported the total value of assets being maintained abroad (cash, precious metals, moveable properties, jewellery, etc.) totalled between $130-220 billion. Estimates for the upcoming law’s enactment bring this figure close to $259 billion. This is why AKP is promising to not ask questions or tax anything to ensure that more wealth is brought – declared and laundered – into Turkey.

On the other hand, there is increasing apprehension with a soaring tendency by local courts to dismiss the rulings of the Constitutional Court. This raises concern about whether these courts, which are snubbing the highest court in the country, would uphold the government’s assurances vis-à-vis the Cash Repatriation Law.

What will assurances would individuals and companies have when Turkey’s finance and tax courts opt to ignore the law and possibly seize their assets?

The regulation set to be implemented this time differentiates between domestic and foreign assets. Accordingly, persons and legal entities may declare money, gold, foreign currency, movable assets and other capital market vehicles until and including June 30, 2021, and are given three months to complete their transfers. This will allow them to maintain free ownership over their assets.

All real and legal entities in Turkey – both domestic and foreign – will also be able to take advantage of this opportunity to bring their assets from abroad into the country. However, the law does not apply to those who are not subject to income or corporation tax in Turkey.

In 2008, the total value of assets declared in the first regulation remained very low and reached 14 billion liras. In the second regulation in 2013, the amount received remained at 10.5 billion liras. The amounts declared in subsequent regulations have not been officially disclosed. The regulation’s four-time extension in 2019 over a span of six months indicates there is no wealth declaration at an expected level.

This latest regulation coincides with a period in Turkey in which political, economic, judicial and institutional damage have become more evident. It is a period in which the economy is contracting, borrowing has reached its highest level and tensions in domestic and foreign policy are at their peak. The ruling political alliance snubbed the highest judicial institution, the Constitutional Court, divided the bar associations, undermined the parliament, brought the death penalty back to the agenda, labelled the Turkish Medical Association (TTB) and professional chambers as traitors and further restricted social media and the internet. 

It is an environment in which the inflow of foreign investments has stopped while domestic capital outflows have escalated rapidly, and the possibility of conflict on four to five fronts is discussed on a regular basis. It is a period in which Saudi Arabia, as well as the United States and European Union, frequently threaten sanctions. Detentions and mass arrests are widespread, and the constitution and laws are violated. Thus, it is not realistic to believe that people would bring their assets to Turkey just because of assurances provided by an article within the omnibus bill.

The results of similar regulations in the last 12 years are obvious. If the government manages to bring back 1 percent of assets abroad, which is valued at $250 billion, in this situation, it should consider it as a miracle. Because even when Turkey-EU relations experienced its best period and Turkey experienced immense global capital inflows, the amount reached $10-14 billion.

Otherwise, the last hope of the government will be exhausted.