Category: Turkiye

On November 18, 2020, the General Court of the European Union (“General Court”) upheld the European Commission’s (“Commission”) decision, in which Letuvos geležnkela AB (“Lithuanian Railway”) (“LG”) was found to have abused its dominant position in the Lithuanian rail freight market by removing a section of a railway track used by its competitors. In its appeal to the General Court, LG had requested that the Commission’s decision be annulled or in the alternative, the amount of the fine be reduced. While upholding the Commission’s decision, the General Court did reduce the amount of the fine imposed by almost a third, taking into account the duration and gravity of the infringement.

In this article, we will briefly explain the decision of the General Court and analyze how it compares with the Turkish Competition Board’s (“Board”) practices with regard to the application of “essential facilities doctrine” (“EFD”) particularly in the regulated sectors. We will also analyze the General Court’s findings on (i) the role of the parties’ subjective intention in establishing an abuse and (ii) how to determine remedies to bring the infringements of competition law to an end.  

Background of the Lithuanian Railway v Commission Decision

LG is active in both the provision of railway infrastructure and rail transport services in Lithuania. Based on an agreement dated 1999, LG provided rail transport services to Orlen Lietuva AB (“Orlen”), for the carriage of oil products from one of Orlen’s refineries located in Bugeniai, to the seaport of Klaipėda, the shipping hub in Lithuania from which these oil products were exported to Western Europe.

In 2008, following a commercial dispute between LG and Orlen, the latter decided to shift its export business from Klaipeda to the seaports in Latvia, namely Riga and Ventspils, and concluded an agreement with Latvijas dzelzceļš, the national railway company of Latvia (“LDZ”) for the transportation of oil from Bugeniai to the seaports of Riga and Ventspils. To provide that service, LDZ had to use the railway infrastructure provided by LG.

After Orlen’s termination of its contract with LG, LG had suspended traffic on a section of the railway route (“Track”) due to a deformation along the Track. This Track would have been used by LDZ for the provision of the relevant service to Orlen. One month later, the Track was entirely removed by LG, upon which Orlen made a complaint to the Commission.

In its decision, the Commission defined the relevant product markets as (i) the market for the management of railway infrastructure (upstream market) and (ii) the market for the provision of rail transport services for oil products (downstream market). The relevant geographic market for the management of railway infrastructure was defined as the Lithuanian national market, whereas the relevant geographic market for the rail transport services for oil products (on the basis of point of origin – point of destination approach) was deemed to be the market from the Orlen’s refinery to the seaports of Klaipėda, Riga and Ventspils.

The General Court confirmed these definitions and the Commission’s findings that (i) LG holds a legal monopoly on the upstream market and a dominant position on the downstream market, and (ii) LG abused its dominant position in the downstream market by removing the Track, thereby preventing the entry of LDZ into the market.

The Finding of the General Court on the Application of the Essential Facilities Doctrine in Regulated Sectors and its Implications

The General Court’s decision underlines the restrictive approach of the European Court of Justice (“ECJ”) to the application of EFD by citing its Bronner decision.In the relevant decision, the ECJ sets out three cumulative conditions that must be met for a finding of abuse: (i) the refusal needs to eliminate all competition in the downstream market, (ii) the refusal must be incapable of objective justification, and (iii) the access to the service must be indispensable to carrying on that business. For the last point, the service would be deemed indispensable if the duplication of the service is impossible or not economically viable.

Regarding the rationale behind the restrictive approach in relation to EFD, the General Court referred to the opinion of Advocate-General Jacobs in Bronner, in which he stated that:

“(…) In the long term it is generally pro-competitive and in the interest of consumers to allow a company to retain for its own use facilities which it has developed for the purpose of its business. (…) the incentive for a dominant undertaking to invest in efficient facilities would be reduced if its competitors were, upon request, able to share the benefits. Thus the mere fact that by retaining a facility for its own use a dominant undertaking retains an advantage over a competitor cannot justify requiring access to it.”

Advocate-General Jacob elaborated the point in following paragraphs:

It is on the other hand clear that refusal of access may in some cases entail elimination or substantial reduction of competition to the detriment of consumers in both the short and the long term. (…)

In assessing such conflicting interests, particular care is required where the goods or services or facilities to which access is demanded represent the fruit of substantial investment.”

In this particular case, the General Court held that the rationale behind the restrictive approach in relation to EFD does not apply. Accordingly, the General Court rejected the argument that the Commission erred in law by not considering whether (i) the access was indispensable to provide the transport services and (ii) all competition in the market was eliminated. It decided that the Commission does not need to analyze the conduct under the case-law regarding refusal to supply and it is sufficient for the Commission to show that the conduct was capable of preventing entry into market by making access to market more difficult, thereby leading to anticompetitive foreclosure effect.

The General Court justified its holding by providing two reasons for why the relevant rationale is not valid for the case at hand. First, according to the General Court, the undertaking concerned does not enjoy an “unfettered exercise” of an exclusive property right, since the regulation applicable to the relevant undertaking’s conduct already imposes a duty (i) to grant access to the public railway infrastructure, (ii) to ensure the good condition of the railway and safe traffic on it and (iii) to restore the normal situation of the railway in case of any disturbance. It argued that the analysis on the balance between promoting the incentive to innovate and invest, and the reduction of competition, has already been made by the legislature when the regulation was enacted, and obliges the undertaking to provide access to an essential facility. The second reason provided by the General Court was that the undertaking’s dominant position derives from its legal monopoly. The General Court emphasized that it was not the investment of the LG but the public funds raised by the Lithuanian State that are used to create the Lithuanian railway network. Therefore, the General Court seems to focus on whether the right is a real “fruit” of the investment, as stipulated in the opinion Advocate-General Jacobs in Bronner. It may follow, a contrario, that the size of the investment may be considered as a factor to rule in favor of allowing a company to retain for its own use facilities since, such an allowance may be pro-competitive in the long run.

With respect to the corresponding regulatory practices under Turkish competition law, the case analyzed in Türk Telekom Facility Sharing has some common features with the LG v Commission case that was scrutinized by the General Court. In Türk Telekom Facility Sharing, the Board found that Türk Telekom A.Ş. (which had been initially established as the state-owned telecommunications service provider) abused its dominant position by refusing to grant access to the elements used to build a physical infrastructure. First, Türk Telekom A.Ş. acquired (i) the physical infrastructure which is used to provide telecommunication services, and (ii) the elements such as conduits, ducts, sub-ducts, manholes, poles and towers that are used to build such a physical infrastructure, as a result of its privatization in 2005. Second, pursuant to the relevant legislation and decisions of the Information and Communication Technologies Authority, Türk Telekom A.Ş. was obliged to grant access to those undertakings requesting to use the elements needed for building their own physical infrastructures.

Nevertheless, the Board’s analysis deviates from the General Court’s approach in the relevant case. After having found that Türk Telekom A.Ş. holds a dominant position both in (i) the market for the elements that are used to build a physical infrastructure such as conduits, ducts, sub-ducts, manholes, poles and towers and unlighted fiber (upstream) and (ii) the physical infrastructure market (downstream), the Board assessed Türk Telekom A.Ş.’s conduct under the EFD, as opposed to analyzing it as an uncategorized type of abuse. Accordingly, the Board held that (i) the relevant facility is indispensable because the replication is legally and physically difficult, if not impossible; (ii) the refusal to share eliminated effective competition in the downstream market where Türk Telekom A.Ş. holds a dominant position, and (iii) the refusal leads to consumer harm since if relevant undertakings accessed the facilities, they would be in a position to offer special products to consumers and develop their services in terms of variety and quality.

Therefore, unlike the approach of the General Court, the Board did not take into account the factors that (i) Türk Telekom A.Ş. obtained the facilities as a result of the privatization, (ii) Türk Telekom A.Ş.’s property right on the infrastructure was restricted under the relevant regulation and (iii) Türk Telekom A.Ş. already had the duty to improve and invest in the infrastructure under the applicable legislation. Furthermore, although the Board stated that it should consider whether the negative effect of refusal on the relevant market outweighs the long-term adverse effect of requiring Türk Telekom A.Ş. to share its facilities, it did not analyze the question on the relationship between promoting innovation and the protection of property rights in the relevant markets.

The approach of the General Court may have important future implications for both the EU and Turkish practice, especially with respect to the following issues:

First, while deciding that the Commission was right in refraining from applying the EFD in the case at hand, the General Court assumed that the additional requirements envisaged by the EFD have the exclusive aim of protecting dominant undertakings’ incentives to invest and to innovate.  Nevertheless, this conclusion may not be uncontroversial as one might argue that property rights deserve additional protection, even if such protection would not positively contribute to right-holders’ relevant incentives. As such, depriving property rights from the additional protection brought about by the EFD on a case-by-case basis, solely by taking into consideration the concrete incentives in the case at hand, may raise questions regarding the proportionality of the remedies that lead to a restriction of the property rights of dominant undertakings. It may be argued that the imposition of more restrictive remedies (e.g., duty to deal, as opposed to cease and desist) must be justified by proving that less restrictive alternatives would be ineffective, regardless of the effects of the more restrictive remedy, and that the only way to satisfy the required standard of proof is to apply the EFD.

Second, it should follow, a contrario, that a restrictive approach must come into play (i.e., the EFD must be applied) in case the remedy that is required to terminate a breach involves imposing a restriction on the property rights of undertakings that do enjoy unfettered exercise of an exclusive property right. Hence, if the Commission and the Board adopt the General Court’s reasoning, they may need to apply EFD in all cases whereby the remedy to be imposed could restrict relevant undertakings’ previously unrestricted property rights, regardless of the characterization of the conduct in question (e.g., even when the conduct being examined is not refusal to supply).

Abuse as an objective concept and the effect of intent on the analysis

The General Court’s emphasis in Lithuania Railways v Commission on the objective nature of the abuse is also noteworthy. The applicant claimed that (i) the Commission should have proven that the applicant had acted in bad faith, to hinder LDZ`s entry into market at the time when it removed the Track, and (ii) the Commission cannot rely on its subjective intention after that time.

The General Court held that the Commission does not need to prove the anticompetitive intent of the party to identify the infringement; as the abuse is an objective concept relating to a conduct which “through recourse to methods different from those governing normal competition in goods or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing on the market or the growth of that competition.”

However, it also noted that the assessment of abuse must necessarily include the analysis on the business strategy of the undertaking, which, according to the General Court, legitimizes the Commission’s reference to motives underlying the business strategy. By citing Tomra Systems and Others v Commission, where the ECJ considered the anticompetitive intent of the undertaking in its pricing strategy to decide whether it was abusive, the General Court further noted that the anticompetitive intent may be taken into consideration as one of a number of facts that shows the existence of abuse.

Finally, the General Court concluded that the Commission did not solely rely on the intent of LG, rather it established the finding of an abuse based on the analysis of objective factual circumstances, including the fact that LG had removed the Track, contrary to the practice in the sector, without having secured the necessary funds or taking any preparatory measures for its reconstruction.

As regard to the Turkish competition law, the provisions set forth under the Guidelines on Abusive Exclusionary Conduct by Dominant Undertakings (“Guidelines”) enacted by the Board are in line with the General Court’s aforementioned approach. Indeed, paragraph 26 of the Guidelines specifically provides that the intent of the undertaking when it engaged in the conduct may be taken into account as one of the factors to be considered when the Board assesses the anticompetitive foreclosure. The same paragraph states in its closing sentence, that, “Direct and indirect evidence may be used in a complementary manner when analyzing the intent.”. It further explains that internal documents regarding an exclusionary strategy, such as a detailed plan to exclude the competitor or evidence of concrete threats of exclusionary action may establish direct evidence, and deductions from the conduct in question, may constitute indirect evidence to identify the intent. In addition, in line with the Tomra Systems and Others v Commission decision, paragraph 55 of the Guidelines provides that it is possible to rely upon direct evidence such as a detailed plan to exclude a competitor, to establish that the pricing behavior of the undertaking is predatory and abusive.

Remedies Imposed to Bring the Infringement to an End

In its decision, as per Article 7 of the EC Regulation No 1/2003, the Commission had required Lithuanian Railway to restore the competitive situation that existed before the Track was removed, either by reconstructing the Track itself, or by eliminating the disadvantages faced by potential competitors on the alternative routes to the seaports of Klaipėda, Riga and Ventspils, to put an end to the infringement. The Commission also set out several structural or behavioral remedies that could be relevant to achieve that end. In the case at hand, the General Court examined the applicant’s argument that the remedy imposed was disproportionate and unprecedented.

In its analysis the General Court used the relevant case-law to emphasize the principles of proportionality and demonstrate how the Commission would exercise them, such as:

1. “…when there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued”
2. “…the Commission may impose on the undertakings concerned any behavioral or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end”
3. “…it was not for the Commission to impose on the parties its choice from among all the various potential courses of action which were in conformity with the Treaty, nor to decide on the precise arrangements for implementing the various courses of action.”

More importantly, the General Court analyzed whether the Commission had in fact left the undertaking free to decide on how to terminate the infringement, especially if it does not choose to reconstruct the Track. Accordingly, the General Court questioned whether, as the applicant argued, the elimination of the disadvantages that the competitors were facing on the alternative routes, would necessarily require the unbundling of ownership with a view to divest the functions of railway infrastructure manager to another entity, which would require a legislation to be adopted by the Lithuanian parliament and would not be economically viable for the applicant. It concluded that there are ways other than an unbundling, such as ensuring the full independence of the infrastructure manager.

Finally, LG also claimed that the remedy would be disproportionate if the potential beneficiaries of the new facility do not contribute to the costs of the reconstruction of the Track. The General Court dismissed that claim by stating that imposing such an obligation on the beneficiaries would allow the dominant undertaking to benefit from its abuse.

As to how these evaluations could provide assistance in the Turkish practice; the Board should take the General Court’s analysis into account when imposing remedies under Article 9 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”), which corresponds to Article 7 of the EC Regulation No 1/2003. Accordingly, the Board should not de facto choose among various remedies that could effectively put an end to infringement and allow the undertaking to make the final choice on which remedy would apply to terminate the infringement. As an additional note, the discretion of the undertakings would necessarily be more restricted while making a choice among potential remedies determined by the Board per Article 9 of the Law No. 4054, when compared to a situation whereby they design the appropriate commitments under Article 43 of the Law No. 4054, which corresponds to Article 9 of the of the EC Regulation No 1/2003.

 Conclusion

The General Court’s Lithuanian Railway decision may have important implications as it (i) lowered the threshold for imposing remedies that restrict property rights of dominant undertakings in regulated sectors, and in cases where the undertakings’ dominant position derives from the acquisition (especially via privatization) of an infrastructure built with public funds, (ii) emphasized that the Commission should not be in a position to choose (or force undertakings to choose) a specific remedy, among various remedies that are equally effective to terminate the infringement and (iii) reiterated the established case law which sets forth the objective nature of abuse of dominance.

The first and second points mentioned above may be instructive for the Board. Specifically, the Board may entertain the idea that the characteristics of relevant markets (e.g. existence of ex-ante regulations), dominant undertakings (e.g. their incentives to invest) and inputs in question (e.g. use of private and public funds in their establishment) could play a role in determining whether to apply the EFD or not. It may also benefit from the General Court’s assessments when determining the right amount of discretion to be provided to undertakings in choosing between different remedies to be imposed by the Board to bring the infringement to an end.

(First published by Mondaq on January 5, 2021)

By Gonenc Gurkaynak, Partner, Baris Yuksel, Counsel, Can Yildirim, Associate, and Zeynep Ayata Aydogan, Associate, ELIG Gürkaynak Attorneys-at-Law

Akol Law has advised Yapi Kredi & Halkbank on the restructuring of Can Komur’s facilities for the Can-2 Thermal Power Plant, which are guaranteed by Can Komur’s parent company, Odas Enerji.

According to Akol Law, “the facility agreement is amended in a manner to extend maturities of project financings and also provisions regarding [Can Komur’s] IPO.”

The Akol Law team consisted of Partners Gokhan Ozmen and Gunes Yalcin and Senior Associate Damla Keskin.

The Turunc Law Firm has advised Vinci on an unspecified venture capital investment in the Izmir-based ShipsGo logistics company. Pruva Hukuk was counsel to ShipsGo on the deal.

Vinci is a venture capital investment fund affiliated with Inci Holding, a family-owned, industrial holding company active in the manufacture of wheels, car and industrial batteries, hotel equipment, and logistics services. 

ShipsGo, which was founded in 2016, provides container tracking, route search, and advertising services for the international maritime trade using big data forecasting and instant satellite data. ShipsGo founder and CEO Merdan Erdogan, commented that: “We are very happy to see Vinci among us as our first investor. We are confident that Vinci will both contribute to the institutionalization of our company and will help us take ShipsGo to the next level with its experience and expertise in supply chain and logistics and gain a bigger place in the global market”.

The Turunc team was led by Partner Kerem Turunc and lawyer Yasemin Kerestecioglu.

Okan Arican has been made Partner and Head of M&A and Corporate Transactions at Turkey’s BTS & Partners.

According to BTS & Partners, “Okan advises local and international clients on corporate law and also on the resolution of commercial disputes.” The firm reported that Arican specializes in “corporate and transactional [matters], with a focus on the FDI, NGOs, VCs, and private equity funds, as well as entrepreneurs.”

Arican began his career at the Koksal Attorney Partnership in 2009 and moved to BTS & Partners in 2015. He obtained his Bachelor of Laws degree at Koc University in 2009.

Ayca Aydin Suzer has joined TEB Cetelem as Head of Legal in Turkey.

TEB Cetelem (or TEB Financing A.S.), a BNP Paribas Personal Finance and TEB Holding A.S. Partnership, is a financing company operating in Turkey since 1995. BNP Paribas Personal Finance holds a 86% share of TEB Cetelem.

Prior to joining TEB Cetelem, Suzer was Legal & Compliance Manager at ViTO Energy and Investment. Before moving in-house in 2018, she worked as an Associate with the Cetinel Law Firm and the AYA Law Firm and an intern with the Esin Law Firm and the Cerrahoglu Law Firm.

TEB Cetelem is a prominent consumer financing company committed to promoting responsible and sustainable consumption,” commented Suzer. “Being a part of this organization is a highly motivating opportunity as a legal counsel. I am looking forward to this fulfilling challenge after several years in construction and infrastructure.”

Originally reported by CEE In-House Matters.

Burcu Boso has joined the Balcioglu Selcuk Ardiyok Keki Attorney Partnership’s Banking & Finance practice in Istanbul.

Boso, who joins as a partner, specializes in banking and finance transactions, in particular project and acquisition finance, refinancing, real estate and corporate financing, commodity finance, ship finance, restructurings, syndicated lending and Islamic finance. According to BASEAK, “Burcu has extensive experience in representing banks, financial institutions, sponsors and other transaction parties in local and international banking and finance transactions and representing banks and financial institutions on bank regulatory matters. Burcu has a particular focus on Turkish foreign exchange regulations and the structuring of funding methods.”

Boso, who joins from the YBK Law Firm in Cooperation with CMS, is a 2003 graduate of the Galatasaray University Faculty of Law, and obtained an LL.M from Galatasaray in 2006 as well.

The Law Proposal on Preventing the Proliferation of Financing Weapons of Mass Destruction (“Proposal”) which provides several and significant amendments to the Law No. 5549 on Prevention of Laundering of Crime Revenues (“Law No. 5549”) has been accepted by the Grand National Assembly of Turkey and is expected to be published in the Official Gazette in the upcoming days with the law number 7262. One of the most remarkable provisions introduced within the Proposal is the amendment to the Law No. 5549 which introduces Know Your Client (KYC) requirements to independent attorneys by way of defining them as one of the “obliged parties”.

1. Scope in terms of Independent Attorneys

With the recent amendment, independent attorneys will be deemed an “obliged party” and thus be obliged to conduct KYC checks before transactions, limited to the following transactions:

– Purchase and sale of real estate,

– Establishment and abolition of limited real rights,

– Incorporation, merger, management, assignment and liquidation of companies, foundations and associations and financial transaction with respect to such,

– Management of banks, security and all sorts of accounts along with assets in these accounts.

The foregoing scope excludes (i) the information obtained with respect to first paragraph of Article 35 of the Attorney Law No. 1136 (i.e. judicial procedures) and (ii) information obtained due to professional studies conducted within the scope of alternative dispute resolution methods. The foregoing will also be applicable to the extent that it does not violate any other laws in terms of the right to defense.

2. KYC Obligations

The persons under the scope of the definition of “obliged parties” are obliged to identify the persons carrying out transactions and the persons on behalf or for the benefit of whom the transactions are conducted within or through the obliged parties, before the transactions are conducted.

In that regard, independent attorneys will be obliged to identify client’s identity (i) for permanent business relationships, (ii) for the cases that require suspicious transaction reporting or (iii) if there is a suspicion on the accuracy or the sufficiency of the previously obtained customer information. None of these three circumstances are subject to a monetary threshold. Financial Crimes Investigation Board (MASAK) will probably determine what would constitute “permanent business relationship” for the independent attorneys through its guidelines.

For instance, an independent attorney conducting a transaction regarding purchase of a real estate will be obliged to conduct a KYC check, if such transaction requires suspicious transaction reporting, regardless of the amount of the transaction.

In terms of monetary thresholds, (i) if the amount of the electronic transfer or the sum of more than one correlative transaction exceeds 2,000 Turkish Liras or (ii) if the transaction amount or the sum of more than one correlative transaction exceeds 20,000 Turkish Liras, independent attorney will be obliged to identify client’s identity, as well. 

For instance, an independent attorney will be obliged to do a KYC check regarding the incorporation of a company, the expenses of which exceed 20,000 Turkish Liras (which is the case in most of the incorporation transactions). The amount to be taken into consideration here would be the transaction amount (and not the attorney expenses to be paid to the independent attorney), but this will likely be further explained through the guidance of Financial Crimes Investigation Board (MASAK).

3. Reporting of Suspicious Activities

In case there is any information, suspicion or reasonable grounds to suspect that the asset, which is subject to the transactions carried out or attempted to be carried out within or through the obliged parties, is acquired through illegal ways or used for illegal purposes, independent attorneys will also be under the obligation to report such activities to MASAK as obliged parties. 

Suspicious transaction is the case where there is any information, suspicion or reasonable grounds to suspect that the asset, which is subject to the transactions carried out or attempted to be carried out within or through the obliged parties, has been acquired through illegal ways or used for illegal purposes and is used, in this scope, for terrorist activities or by terrorist organizations, terrorists or those who finance terrorism (Article 27/1 of the Regulation on Measures regarding Prevention of Laundering of Crime Revenues and Financing of Terrorism).

4. Content, Verification and Retention

Information to be obtained for KYC and the verification of such information varies depending on the person concerned such as real persons, legal entities registered in trade registries, legal entities resident abroad etc. For instance, name, surname, birth place and date, parents’ name, nationality, Turkish ID number for Turkish citizens, identity certificate type and number will be obtained from real persons to fulfill the identification obligation. As for legal entities, trade name, trade registry number, field of activity, company address, contact information, authorized representative’s name, surname, place and date of birth, parents’ name, nationality, Turkish ID number for Turkish citizens, identity certificate type and number, representative authorization and signature circular will be obtained. The information to be collected should also be verified through the documents regulated in the legislation such as identity certificates or trade registry records which also depends on the type of the person concerned.

Independent attorneys should keep documents on customer identification for eight (8) years as of the last transaction date and should provide these documents upon request of the authorized bodies.

 5. Sanctions

In case of failure to fulfill the obligation on client identification, non-compliance may be subject to an administrative fine of 30,000 Turkish Liras. Failure to comply with the obligation to report suspicious transactions may be subject to an administrative fine of 50,000 Turkish Liras, with the new amendment. Before the amendment, both of these fines were 5,000 Turkish Liras (subject to re-evaluation rate).

(First published by Mondaq on December 31, 2020)

By Gonenc Gurkaynak, Partner, Ceren Yildiz, Partner, Noyan Utkan, Associate, and Elifcan Cepoglu, Associate, ELIG Gürkaynak Attorneys-at-Law

The Law No. 7262 on Preventing the Proliferation of Financing Weapons of Mass Destruction was approved by the Turkish Grand National Assembly on December 27, 2020 (“Law No. 7262”). In the general reasoning of the proposal, it is stated that main aim of the law is to fulfill a number of recommendations of FATF (Financial Action Task Force) in several different areas in order to fight against money laundering and financing of terrorism. The Law No. 7262 mandates changes in various laws.

It is expected that the Law No. 7262 will be approved by the President of the Republic of Turkey and published in the official gazette very soon and it will enter into force on the publication date, except for the changes introduced to the Turkish Commercial Code (“TCC”) which will become effective on April 1, 2021.

In this article, our aim is to reveal significant changes introduced with the Law No. 7262.

Adoption of Sanctions of United Nations Security Council

Law No. 7262 regulates rules and principles related to implementation of sanctions of the United Nations Security Council (“UNSC”) regarding prevention of financing of proliferation of weapons of mass destruction. 

Article 2 of the Law No.7262 forbids the following, depending on scope of the decisions of the UNSC: (i) collection of or providing any funds to or for the benefit of or entering into joint ventures or other business relations with the persons or entities stated in the decisions of the UNSC or persons or entities controlled directly or indirectly by them or acting on their behalf or for their account and (ii) collection of or providing any funds to or for the benefit of entities which are related to the nuclear, ballistic missile programs or other activities forbidden with the decisions of the UNSC or persons or entities controlled directly or indirectly by them or acting on their behalf or for their account. 

Moreover, persons, entities or organizations stated in the decisions of the UNSC or persons or entities controlled directly or indirectly by them or acting on their behalf or for their account cannot open representation offices, carry out activities in Turkey directly or indirectly. In addition, banks of such parties cannot incorporate branches or representation offices or enter into joint ventures in Turkey and it is also forbidden to enter into joint venture, capital partnership or establish correspondent bank relationship with their banks.

Unless permitted by the UNSC, depending on the scope of the relevant decisions; import, export and transit of substances, materials and equipment and, transfer of technology or contribution or support to nuclear activities or the development of nuclear weapon launch systems are also forbidden.

This new legislation entitles the President to freeze assets and marine transportation vehicles of persons, entities or organization stated in the decisions of the UNSC or persons or entities controlled directly or indirectly by them or acting on their behalf or for their account. The Law No. 7262 also stipulates imprisonment, judicial fines and administrative fines in case of breach of obligations related to implementation of the sanctions of the UNSC.

Aid Collection

Aid collection procedures are generally regulated in the Aid Collection Law No. 2860 (“Law No. 2860”).

With the Law No. 7262, launching online aid campaigns are also included within the scope of the Law No. 2860, and thus if it is understood that an unauthorized online aid campaign is carried out, relevant governorship and the Ministry of Interior will be authorized to request removal of the content within 24 hours, or to request criminal court of peace to order access ban through if they cannot reach the campaign provider or notification cannot be delivered due to technical reasons.  

Article 10 of the Law No. 7262 set forth administrative fines for unauthorized aid collections.  

Novelties Regarding Associations

Law No. 7262 includes branches of associations, higher organizations of associations and foundations, branches and representation offices of the associations and foundations which have headquarters abroad and other non-profit organizations within the scope of the Law No. 5253, and thus all of these entities become subject to the provisions of the Law No. 5253 on Associations (“Law No. 5253”).

Article 12 of the Law No. 7262 sets forth that those convicted of crimes within the scope of the Law on the Prevention of Financing of Terrorism No.6415 (“Law No. 6415”) or of crimes of drug trafficking and laundering criminal proceeds are prohibited from taking office in the organs of associations other than the general assembly, even if the past sentences of those persons were pardoned. In the event that an investigation is initiated against those who work for an association, due to the crimes of manufacturing and trade of drugs or stimulants or of laundering the proceeds of crime within the scope of the activities of the association, Article 15 of the Law No. 7262 allows the Ministry of Interior to dismiss these individuals or may immediately apply to the court to request temporary suspension of activities of the association.

As per Article 19/2 of the Law No. 5253, the Ministry of Interior or local authorities may audit associations to determine whether they carry out their activities in accordance with the purposes stated in their by-laws and if they keep their books and records in line with the legislation. Within the scope of such audits, information and documentation may be requested from public institutions and organizations, as well as real and legal persons “limited to the scope of audit” including banks and these persons are required to provide information and documents upon the request of the auditors.

Article 14 of the Law No. 7262 regulates aids to be made abroad by the associations and requires prior notification to the relevant local authority. The method and content of the notifications will be regulated by a secondary legislation.

Amendments to the Law No. 5549 on Prevention of Laundering of Crime Revenues (“Law No. 5549”)

Article 20 of the Law No. 7262 extends scope of the “obliged parties” includes independent attorneys to run Know Your Customer Checks and financial groups are also included within the scope of the Law No. 5549.

Accordingly, independent attorneys will be subject to provisions of the Law No. 5549 for certain transactions, namely: purchase and sale of immovable properties; establishment and abolition of limited real rights on immovable properties; incorporation, merger, management, assignment and liquidation of companies, foundations and associations and financial transaction with respect to such; management of banks, security and all sort of accounts along with assets in these accounts.

The foregoing scope excludes (i) the information obtained with respect to first paragraph of Article 35 of the Attorney Law No. 1136 (i.e. judicial procedures) and (ii) information obtained due to professional studies conducted within the scope of alternative dispute resolution methods. The foregoing will also be applicable to the extent that it does not violate any other laws in terms of the right to defense.

The other addition to the scope of the Law No. 5549 “financial group” is also defined in Article 20 of the Law No. 7262 as follows; a group consisting of financial institutions resident in Turkey and their branches, agencies, representatives and commercial agents as well as similar affiliated units, which are affiliated with an institution whose headquarters is in Turkey or abroad or under control of such institution.

It is important to note that Turkish lawmakers intended to include independent attorneys within the scope of anti-money laundering legislation for the similar transactions and a similar provision was included in the Regulation on Measures Regarding Prevention of Laundering of Crime Revenues and Financing of Terrorism. However, the Council of State ordered suspension of execution for this provision and thereafter, this provision was repealed by 10^th Chamber of Council of State with the merit no. 2008/1675 and decision no 2013/508 on the grounds that this provision was introduced with a regulation and not with the Law No. 5549.

Article 23 of the Law No. 7262 has increased amounts of administrative fines to be imposed in case of breach of provisions of the Law No. 5549. An administrative fine of TRY 30,000 may be imposed on those who fail to fulfill obligations related to client identification and periodic reporting. Further, an administrative fine of TRY 50,000 may be imposed on the persons breaching obligation related to suspicious transaction reporting. If the obliged party is a bank, finance company, factoring company, money lender, financial leasing company,  insurance and reinsurance company, pension company, capital market institution, authorized institution as well as payment and electronic money institutions and other financial institutions to be determined by the regulation, these administrative fines will be multiplied by two.

Obliged parties, who fail to comply with the obligations stated in Article 5 of the Law No. 5549, which are related to training, internal control and risk management, are given at least 30 days in order to remove deficiencies and to take necessary measures. If the obliged parties do not remove deficiencies and take necessary measures then an administrative fine of TRY 500,000 may be imposed. With the notification of the administrative fine, a new period, not less than 60 days, is granted. In the event that the deficiencies are not removed at the end of this grace period, an administrative fine that is twice the first administrative fine may be applied. In case the deficiencies are not corrected within 30 days as of the notification of the second administrative fine, activities of the obliged party may be restricted or suspended for a certain period of time or to take measures for the cancellation of the activity permit certificate. In addition, ¼ of the administrative fines imposed on the obliged party may be imposed on the responsible board member or senior manager who fails to fulfill these obligations.

Moreover, persons, institutions and organizations who fail to comply with the obligations of electronic notification specified in Article 9/A of the Law No. 5549 may be subject to an administrative fine of TRY 40,000 for each breach.

It is also worth mentioning that administrative fines within the scope of the Law No. 5549 cannot be imposed after eight years as of the date of breach of obligation.

Changes to the TCC

With the amendments made to the TCC, the Ministry of Trade becomes authorized to introduce an obligation to keep resolution books and share ledger electronically.

It is also stipulated that holders of the bearer share certificates in a joint stock company and the information as to the shares have to be notified the Central Registry Agency (“MKK”). This is a significant novelty in terms of Turkish corporate law practice. An administrative fine of TRY 20,000 may be imposed on those who fail to fulfill this notification obligation. In this regard, only persons who prove that they possess the bearer share certificates and have informed MKK about their possessions will be authorized to exercise their shareholding rights against the company.

Similarly, transfer of bearer shares will become effective upon the notification to be made to the MKK by the transferee shareholder. An administrative fine of TRY 5,000 may be imposed on those who fail to fulfill this notification obligation.

Under Article 34 of the Law No. 7262, those who have bearer shares must apply to the joint-stock companies with their share certificates and then, the board of directors of such companies notifies the Central Registry Agency about these shareholders and their bearer share certificates within five (5) business days. Such notification process has to be completed until December 31, 2021. If the shareholders do not apply to the joint-stock company, they cannot use their shareholding rights until the necessary application is made. The foregoing administrative fines are imposed on those who fail to fulfill this notification obligation.

Amendments to the Law No. 6415

The definition of the assets within the scope of the Law No. 6415 has been extended with Article 35 of the Law No. 7262. Accordingly, assets are defined as follows: (i) funds and income that are owned or possessed by real and legal persons or under their direct or indirect control and any benefit and value derived from them or from their conversion and (ii) funds and income that are owned or possessed by real or legal person acting on behalf or account of a real person and any benefit and value derived from them or from their conversion. The Law No. 7262 authorizes the Ministry of Finance and Treasury to freeze the said “assets” and removal of such status under the certain conditions stipulated in the Law No. 7262.

(First published by Mondaq on December 31, 2020)

By Gonenc Gurkaynak, Partner, Nazli Nil Yukaruc, Partner, Selen Ernanli Sakar, Associate, and Busra Ustuntas, Associate, ELIG Gürkaynak Attorneys-at-Law

Zeynep Unlu has been promoted to equity partner at BTS & Partners in Turkey.

Unlu began her career in law at Koksal Attorney Partnership in 2007, where she spent the following seven years. Since moving to BTS & Partners in 2014, the firm reports she has been “involved in a large number of transactional and non-transactional projects for leading local and multinationals in a wide range of industries, especially IT.” She was promoted to partner at the beginning of this year (as reported by CEE Legal Matters on January 17, 2020).

She obtained her bachelor’s degree from Koc University in 2007.

“We’re wishing all the best and success to Zeynep as our new equity partner and look forward to contributing to BTS & Partners’ future together,” the firm said in a statement.

The Balcioglu Selcuk Akman Keki Attorney Partnership has advised Arzum on its initial public offering.

According to BASEAK, Arzum, a Turkish home appliances company, went public through “the full exit of its private equity shareholder SDA International S.a.r.l.” According to the firm, the IPO got “53.6 times more demand from Turkish retail investors and 18.7 times from Turkish institutional investors.” Yapi Kredi Yatirim was the lead manager on the IPO.

BASEAK’s team included Partner Mufit Arapoglu and Associates Cenk Yilgor, Sena Mutlu, Erkin Tuzcular,  Gozde Ozturk, Ceren Koksoy, Ege Alpaykut, Hazal Durak, and Berk Uysal.