Category: Turkiye

Developing and establishing an effective anti-money laundering (“AML”) compliance program is a requirement for financial institutions in order to combat laundering the proceeds of crime and terrorist financing worldwide. 

In this article, our aim is to reveal the scope and the significance of developing and establishing AML compliance program in Turkey. 

(I) Introduction

In Turkey, compliance program requirement is set forth in the Regulation on Compliance Programs Regarding Obligations on Laundering the Proceeds of Crime and Prevention of Financing of Terrorism (“Compliance Regulation”). 

According to the Compliance Regulation, only the foregoing obliged parties such as banks (except for Central Bank of Republic of Turkey as well as development and investment banks), capital markets intermediary institutions, insurance and pension companies, Post and Telegraph Organization General Directorate (pertaining only to banking activities) oblige to establish and operate a risk-based AML compliance program. 

The AML compliance program requirement for each category of covered obliged parties would also apply to their agents, branches, commercial representatives or similar affiliates located in abroad to the extent allowed by their local jurisdiction.

(II) Scope of AML Compliance Program

The scope of AML compliance program established with a risk-based approach is as follows: (i) creating corporate policies and procedures, (ii) carrying out risk management activities, (iii) performing monitoring and controlling activities, (iv) assigning compliance officer and forming a compliance unit, (v) conducting training activities, (vi) carrying out internal control activities.

The risk management as well as monitoring and controlling activities are carried out by compliance officers. Moreover, those activities are under obligation of the board of directors of the obliged parties.

(1) Corporate Policies and Procedures

Obliged parties must create corporate policies by considering the size of the institution, the volume of the business and the type of their transactions. Corporate policies must consist of at least risk management, monitoring and controlling, training and internal control policies under Turkish laws. 

The purpose of establishing corporate policy is (i) to determine strategies on ensuring obliged parties to comply with the obligations pertaining to laundering the proceeds of crime and prevention of financing of terrorism and on minimising risks to be exposed through assessing obliged parties’ customers, transactions and services with a risk-based approach; (ii) to determine controls and measures within the institution, operational rules and responsibilities and (iii) to make the employees aware of these matters. 

Corporate policies and procedures are required to be prepared in written form under the observation and coordination of the compliance officer. The board of directors is under obligation to approve corporate policies. Under the Compliance Regulation, compliance officers must deliver corporate policies and any amendments to the corporate policies to the Financial Crimes Investigation Board (“MASAK”). 

Obliged parties are also required to deliver corporate policies to the employees by obtaining their signatures. MASAK Frequently Asked Questions No. 105 states that corporate policies may be delivered electronically on the condition that the relevant employee has electronic signature. Moreover, e-mail messages may also be used to deliver the amendments to the policies, provided that the delivery is confirmed with read receipt method and that such method is stated in the relevant policy or amendment policy.

(2) Risk Management Activities

Obliged parties are required to implement risk management policies by considering the size of the institution, the volume of the business and the type of their transactions. The purpose of the risk management policy is to identify, grade, monitor, assess and minimise the risk that can be exposed. Risk management policy must consist of at least internal measures and operational rules regarding customer identification measures stipulated in the relevant anti-money laundering legislation. In addition to preparing risk management policy, obliged parties must also carry out risk management activities such as developing risk identification, grading, classification and assessment methods based on customer risk, service risk and country risk as well as grading and classifying services, transactions and customers. 

(3) Monitoring and Controlling Activities

Another requirement for obliged parties is to conduct monitoring and controlling activities by considering the size of the institution, the volume of the business and the type of their transactions. Protecting obliged parties against risks and monitoring and controlling whether their activities are carried out in accordance with AML and corporate policies and procedures is the main purpose monitoring and controlling activities.

According to Article 15 of the Compliance Regulation, the minimum scope of the monitoring and controlling activities is as follows: (i) high risk customers and their transactions, (ii) transaction conducted with risky countries, (iii) complex and unusual transactions.

(4) Compliance Officer and Compliance Unit

Pursuant to Article 16 of the Compliance Regulation, assigning compliance officer is a must for obliged parties. Once it is notified by obliged parties, MASAK assesses whether the relevant compliance officer candidate meets the criteria stipulated in the Compliance Regulation. If not, obliged parties are under obligation to assign a new compliance officer meeting the criteria. 

Additionally, as per Article 18 of the Compliance Regulation, in order to ensure that compliance officer perform its duties and responsibilities effectively, board of directors is required to ensure establishment of compliance unit to execute compliance program by considering the size of the institution, the volume of the transaction, the number of the branch and personnel or the level of the risks it may expose to.

Duties and responsibilities of compliance officers are stipulated in Article 19 of the Compliance Regulation. Accordingly, compliance officers’ duties and responsibilities are including but not limited to conduct necessary works to ensure that obliged parties comply with the AML legislation; conduct necessary communication and coordination with MASAK; establish corporate policies and procedures and submit corporate policies for approval of the board of directors; establish risk management and monitoring and controlling policies and carry out risk management and monitoring and controlling activities; submit her/his works regarding training program on laundering proceeds of crime and terrorist financing for the approval of the board of directors and ensure effective implementation of the approved training program and report suspicious activities to MASAK.

(5) Training Activities

Obliged parties are ordered to constitute a training policy including the matters such as operation of training activities, the person who would be responsible for conducting training activities, determination and training of employees and trainers to be participated to training activities as well as training methods. The purpose of implementing a training policy is to ensure compliance with obligations within the scope of Turkish AML legislation and raise awareness of the employees.

In addition to implementation of a training policy, obliged parties are also required to carry out training activities in compliance with the size of the institution, the volume of the business and changing conditions for prevention of laundering proceeds of crime and terrorist financing.

Trainings to be presented to the employees need to include the following subjects: terms of laundering proceeds of crime and terrorist financing; stages and methods of laundering proceeds of crime and case studies on this matter; legislation on prevention of laundering proceeds of crime and terrorist financing; risk areas; corporate policies and procedures; principles on customer identification and suspicious activity reporting; obligation of archiving and submission; obligation of providing information and documents; sanctions to be implemented in case of breach of obligations; international regulations on combating laundering and terrorist financing.

(6) Internal Control

Obliged parties are required to ensure, annually and on a risk-based approach, examination and controlling of corporate policies and procedures, risk management, monitoring and controlling activities, sufficiency and efficiency of training activities and risk policy and whether the transactions are carried out in compliance with AML legislation and corporate policies and procedures. Internal control units and supervisory boards of obliged parties carry out internal control activities and report such activities to the board of directors. 

(III) The Significance of Anti-Money Laundering Compliance Program

As stated above, compliance programs are implemented by compliance officers. However, the ultimate responsibility for carrying out compliance program adequately and efficiently lies with the board of directors. The board of directors may delegate some or all of its authorities to one or more board member(s). Delegation of an authority cannot remove the responsibility of the board of directors.

It is important to note that in case non-compliance with obligations as to training, internal control and risk management system, obliged parties must be given at least 30 days in order to correct deficiencies and take necessary measures. If obliged parties do not correct deficiencies and take necessary measures, an administrative fine of TRY 15,035 (~ EUR 2,300) could be imposed by MASAK. If the obliged party is a bank, insurance and pension company or capital market institution, an administrative fine of TRY 30,070 (~ EUR 4,600) could be imposed. For each breach, the total amount of administrative fines applied to the obliged parties within the year of the breach cannot exceed TRY 1,709,600 (~ EUR 255,165) and TRY 17,096,120 (~ EUR 2,551,650) for banks, insurance and pension companies or capital market institutions. If the obliged parties subject to upper limit on fines (i.e. banks, insurance and pension companies or capital market institutions) do not comply with these obligations in the following year, the limit shall be applied twofold.

Therefore, it is crucial to comply with obligations pertaining to setting and implementing compliance program to not to face with the administrative burdens and reputational risk.

(IV) Conclusion

In light of the foregoing, institutions subject to the AML legislation are under obligation to establish and implement risk-based compliance programs proportionate to the size and volume of their businesses. The consequences of non-compliance with establishment and operation of AML compliance program might be subject to administrative fines and reputational damage to the relevant institution.  

(First published by Mondaq on May 3, 2019)

By Gonenc Gurkaynak, Partner, Damla Dogancalı, Counsel and Busra Ustuntas, Associate  ELIG Gürkaynak Attorneys-at-Law

For a long time, Turkey has been a significant manufacturing hub for supplying the European market, and its significance has become even greater since joining the customs union with the European Union. Following a significant fall in the value of the Turkish lira in 2018, manufacturing costs in Turkey are now lower. As setting up manufacturing operations in a new country often entails a number of pitfalls and requires local insight from specialists of various fields, here is a short guide for Turkey.

Corporate Vehicles

The most common company forms in Turkey are joint stock companies and limited liability companies. The two are usually compared from the perspectives of director/manager liability, shareholder liability, and tax liability upon transfer of shares.

While joint stock companies are governed by a board of directors, limited liability companies are governed by one or more managers, who can also form a board. In limited liability companies, at least one of the shareholders must also be a manager fully authorized to represent the company. The liability of both directors and managers is fault-based for financial losses suffered due to mismanagement. Directors and managers may also both be held liable for unpaid public debts of the company or criminal acts committed by the company, among other things.

Shareholder liability in joint stock companies is limited to the share capital, whereas in limited liability companies shareholders are liable for the company’s public debts (e.g., taxes and social security payables).

Finally, in terms of tax liability due to capital gains arising from transfer of shares, there is none for joint stock companies if the shares were held for at least two years, as opposed to limited liability companies, where a share transfer is fully taxable.

Real Estate and Construction

Companies incorporated in Turkey are generally free to acquire title and rights in rem over real estate assets in Turkey, albeit subject to a governorship clearance confirming that the property in question is not located within a military zone.

There are a wide variety of construction agreement forms and precedents available in Turkey. The level of detail and sophistication of an agreement used in a deal depends on the transaction size and the profile of the transacting parties, and ranges from short and simple contracts to FIDIC standard forms.

Utilities

Companies which consume electricity over a certain threshold are allowed to purchase electricity from any supplier of their choosing. This frees these companies up to negotiate their own terms for their energy needs. Others are required to purchase electricity from the authorized electricity company in the region. Plants may install their own renewable energy or cogeneration facilities and sell any unused energy output.

Employment

There is a statutory minimum wage in place. For 2019, the gross minimum wage is TL 2,558.40 (approximately EUR 420 as of writing). Employers also pay statutory social security premiums by withholding the employees’ shares and adding to that the employer’s share.

A trade union can acquire access to a workplace and become entitled to enter into collective bargaining agreements with the employer: (a) if 1% of the employees working in the line of work of the trade union are union members; (b) if more than half of the employees working at a workplace are members of the trade union; or (c) in case of an enterprise consisting of more than one workplace, if 40% of the employees working at the enterprise (i.e., 40% of the total number of employees in all work places of the company) are members of the relevant trade union.

Suppliers

Under Turkish law, there are certain rules and regulations protecting small-scaled suppliers against bigger enterprises. These include, inter alia: (i) a restriction regarding the maximum amount of payment term that may be imposed on a supplier, (ii) bigger enterprises automatically defaulting without the supplier having to serve a default notice, and (iii) bigger enterprises being required to pay suppliers special statutory interest at a higher rate than the standard commercial interest rate.

A number of commonly-used collateral types are also used for protection against commercial and insolvency-related risks of suppliers. Bank guarantee letters are the best for protection, but small-scaled enterprises in particular may sometimes have difficulties obtaining them, and even if they can, they are usually too costly. Other than that, mortgages, movable pledges, share pledges, bonds, cheques, personal sureties, and third party guarantees are the most common examples of provided securities. Cheques are a good means of security as they lead to blacklisting by the banks if they bounce. Mortgages take too much time to perfect, and it is not possible to enforce any agreed private sale mechanisms for movable and/or share pledges. 

By Selim Keki, Partner, and Ali Can Goren, Associate, Balcioglu Selcuk Akman Keki Attorney Partnership

This Article was originally published in Issue 6.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Joe Clinton is a Partner at Allen & Overy in Istanbul, where he advises sponsors, borrowers, and lenders on a range of transactions, including project development and financing as well as real estate, leveraged and structured financing transactions, and general lending, with particular emphasis in the Middle East and Eastern European energy and infrastructure sectors.

CEELM: Run us through your background, and how you ended up in your current role with Allen & Overy.

Joe: I joined A&O as a trainee in London, qualifying into the Projects team in 2005. After a few years in London I moved out to our Moscow office for a two-year secondment. At the time the market in Moscow was growing quickly, but then the financial crisis happened. Although the Russian economy was badly affected, I managed to keep myself busy working on some projects in the Middle East. When the secondment finished, I relocated to Dubai as I had done a lot of work with the office there. 

I was in Dubai when we were planning to open in Istanbul. The firm wanted someone with a Projects background who could operate in an emerging market and was willing to move. I was asked if I wanted to go out and help establish the office, which was a really exciting opportunity. I have been in Istanbul for over six years now.

CEELM: Was it always your goal to work abroad?          

Joe: Yes, the opportunity to do part of my training contract in an overseas office was one of the reasons I joined A&O. I spent a very enjoyable six months as a trainee in Tokyo. However, I hadn’t necessarily envisaged I would then spend over ten years (and counting) abroad in three different overseas offices after I qualified! I enjoy the personal challenge that comes with living in a different culture as well as the variety of work.

CEELM: Tell us briefly about your practice, and how you built it up over the years.       

Joe: I qualified into the Projects team in London and therefore project finance has always been the core of my practice – particularly large-scale energy projects. However, one of the nice things about being in a smaller office in an emerging market is the variety of the work and the need to turn your hand to different things. My practice therefore covers the full range of banking work, from bilateral corporate loans to various types of structured lending. I think the most important way to build a practice is to do a good job on-deal. Particularly in this region, you frequently come across the same people – whether as clients or across the table – and you will find your reputation very quickly precedes you, whether good or bad.

CEELM: How would clients describe your style?    

Joe: I like to think of myself as pragmatic. Particularly in project finance there is a shared objective in getting the relevant infrastructure built, and therefore it lends itself to a more consensual than adversarial approach to negotiations. I think clients quickly get frustrated by lawyers who try to score points unnecessarily in a negotiation and therefore it is important to identify the material points that are worth fighting for and to try to be sensible about the rest. 

CEELM: There are obviously many differences between the Turkish and English judicial systems and legal markets. What idiosyncrasies or differences stand out the most?        

Joe: One obvious idiosyncrasy is the value that people put on relationships when doing business – more so than many other jurisdictions I have worked in. It is generalizing, but often I feel like having a strong contract is less important than the relationship with the counterparty. The legal system in Turkey has been through some considerable changes itself recently with the constitution moving from a parliamentary system to an executive presidency where the president can issue decrees. I think we are still to see how that will work in the long-term and so Turkey itself is still trying to work out how different its own legal system is now.

CEELM: How about the cultures? What differences strike you as most resonant?    

Joe: Turks pride themselves, rightly, on their hospitality, and Istanbul is surprisingly friendly for a megacity. People are always willing to help, especially for foreigners, which cannot always be said of London. They are also very willing to try to communicate with foreigners who speak terrible Turkish! 

My wife and I have two small children, both born in Istanbul, and the other thing we have noticed is just how family-friendly everyone is. You have to be ready for complete strangers to pinch their cheeks and possibly walk them around a restaurant for a bit, but at least it gives you a chance to finish your meal!

CEELM: What particular value do you think a senior expatriate lawyer in your role adds – both to a firm and to its clients?

Joe: For the firm, having a senior expat in Istanbul reaffirms our commitment to the market and ensures that the firm as a whole is focussing on the opportunities in Turkey. We have a small team of English lawyers on the ground in Istanbul which allows us to execute deals from the office. I think clients really appreciate this – they are getting people who really know and understand the market who are also available to go round for a face-to-face meeting on short notice. They know it is a market that we are taking seriously.

CEELM: Do you have any plans to move back to the UK at some point?            

Joe: No, not currently. My family moved to Jersey when I was eight and are still there, so they are not on mainland UK, and despite meeting my wife in a bar in Camden she is Canadian – so there is no family pull on either side to go back. While we won’t be in Turkey forever, we are pretty open-minded about what the future might bring. For the time being, however, the whole family is very happy in Istanbul.

CEELM: What’s your favorite place to take visitors in Istanbul?  

Joe: Of the usual tourist sights the one that our visitors usually find the most impressive is the Basilica Cisterns as no one really knows what to expect from an ancient underground cistern. They always come out raving about it. Off the beaten track, we like to take them to an area called Rumeli Hisari which is further up the Bosphorus than the usual tourist areas. There is a simple restaurant which does an amazing Turkish breakfast that we like to take people to. Next to it is the remains of a 15th century castle that makes for an interesting visit and then it is a nice walk down the Bosphorus from there.  

This Article was originally published in Issue 6.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Turkey’s Law Regarding Procedures for Initiating Legal Proceedings for Monetary Claims Deriving from Subscription Agreements numbered 7155 (“Law No. 7155”), which was published in the Official Gazette on December 19, 2018, has certainly opened a new period in Turkish Mediation Law. Law No. 7155 has introduced mandatory mediation for commercial disputes into the Turkish Commercial Code and set the procedural rules for mandatory mediation under the Civil Mediation Law.

Mediation as a Cause of Action 

The articles of Law No. 7155 related to mediation entered into force on January 1, 2019, and made mediation, as “a cause of action,” mandatory for commercial disputes based on monetary claims or compensation claims, regardless of the value of the dispute in question. For such claims, the claimant now has to exhaust mediation proceedings before applying to the court. Failure to do so will result the court dismissing the lawsuit due to a lack of cause of action on procedural grounds without any review of the merits. 

Applicability of Mandatory Mediation

Mediation proceedings are not mandatory for those commercial disputes already pending before the courts on January 1, 2019. There is no question that this is a very reasonable transitional provision; on the other hand, it does not sufficiently account for counterclaims that are made after January 1, 2019 to claims already pending before the courts on that day. The requirement to pursue mediation should theoretically apply to such counterclaims, even though the main claim itself falls out of the scope of the provision. However, courts are likely to exempt such counterclaims from the provision as well on the grounds of economy of procedure.

Furthermore, as mandatory mediation was introduced to the legal system to ease the burden of the courts, the requirement to pursue them does not apply to commercial disputes for which it is mandatory under a special law to pursue arbitration or another alternative dispute resolution method, or where there is an arbitration agreement executed by the parties. Needless to say, these all mainly serve the same purpose.

Mandatory Mediation Proceedings

A mediator can be selected from registered mediators either by the relevant mediation bureau or the parties upon their mutual agreement. Mediation processes for commercial disputes must be finalized within six weeks of the date when the mediator is appointed, and they can only be extended by the mediator for an additional two weeks. During the mediation process, statutes of limitation periods do not lapse until the date the final minutes are issued by the mediator. 

Results of Mediation Proceedings

Any settlement reached by parties at the end of mediation proceedings are considered final judgments, meaning that no lawsuit can be initiated on the matters upon which the parties have agreed. On the other hand, if the parties were not able to reach a settlement, they can now bring the commercial dispute to the court. In such cases, the certified mediation minutes regarding the disagreement of the parties are required to be submitted to the court by the party initiating the lawsuit. A failure to do so may lead the court to grant a definite period of one week for its submission. 

Comments 

Mandatory mediation, which was first introduced for employment disputes in Turkey, played a relatively major role in easing the burden of the courts and expediting the legal process. However, it can easily be argued that mandatory mediation cannot do the same for all commercial disputes as it does for employment disputes. Indeed, it is not realistic to expect to enjoy the same outcomes and benefits, considering the complex nature of commercial disputes, which mostly require an analytical approach. For less sophisticated commercial disputes, on the other hand, the requirement that mediation be attempted can significantly simplify the process for the parties as an effective alternative method of dispute resolution.

By Onur Ergonen, Partner, and Asli Tezcan, Counsel, Acer & Ergonen Law Firm.

This Article was originally published in Issue 6.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.