* Deadline falls on Feb. 22
* Blacklist could curb foreign dealings with banks
* Law would allow easier freezing of suspect accounts
By Ozge Ozbilgin and Jonathon Burch
ANKARA, Jan 25 (Reuters) - Turkey is scrambling to push through a long-awaited anti-terrorism financing law before a deadline next month to avoid being expelled from an international watchdog and placed on its blacklist alongside Iran and North Korea.
Turkey is already on a "grey list" of countries drawn up by the 36-member Financial Action Task Force (FATF), a money-laundering watchdog, for not implementing the legislation required by its members despite pressing Ankara for years.
The FATF has warned Turkey if it does not pass the necessary legislation, which would allow alleged "terrorist" accounts to be frozen without a court order, by Feb. 22, it will be expelled as a member of the group and blacklisted.
Such a move could restrict foreign activity with Turkish banks, hamper Turkey's ability to raise funds abroad and could affect its credit rating, which received a boost last year when Fitch raised the country to investment grade.
"Potentially, this would be a crippling blow to Turkish banks as they look to be more international in outlook, and have been active in seeking to finance themselves increasingly offshore in recent months," said Timothy Ash at Standard Bank.
On Friday, a parliamentary commission passed the draft bill, which has been stalled since 2011, after two days of debates. Despite strong resistance from the country's main opposition party, Turkish officials have voiced confidence that the legislation would be adopted by next month's deadline.
Part of the reason the bill has been held up is Turkey's existing terrorism legislation. Opposition lawmakers fear the law could be used to wrongly label people as terrorists.
Turkey has one of the highest arrest rates in the world for terrorism charges and faces increasing criticism from the United Nations and rights groups over what they see as poorly-defined and broad-based laws which are regularly abused.
Around 100 journalists are in prison in Turkey, as well as thousands of activists, lawyers, politicians, military officers and others. Most are accused of plotting against the government or supporting outlawed Kurdish militants.
Turkey already has existing laws on money-laundering but these do not refer to the concept of "terrorism". While the current bill under debate would meet the FATF's minimum requirement, it falls short of laws enacted by other members.
"As often is the case in Turkey ... it has been difficult to get policymakers to focus on the need for urgent reform until the last minute," said Ash, who heads Standard Bank's emerging markets research.
"All our plans are pointing towards meeting the Feb. 22 deadline. Not meeting the Feb. 22 deadline is not on our agenda," said a justice ministry official who asked not to be identified.
The bill is expected to go before parliament in the first week of February and would take at least one to one-and-a-half weeks to be enacted but some officials said it would likely take longer because of strong opposition to the law.
The FATF estimated last year that money-laundering and related financial crimes cost between 2 percent and 5 percent of global gross domestic product.
The watchdog body can make recommendations to any of the 36 countries that have signed a membership charter, as well as other nations, but it has no power to carry out sanctions. Turkey signed on as a member in 2001. (Writing by Jonathon Burch; Editing by Nick Tattersall and Mark Heinrich)