Serdar Paksoy and Begüm Nişli of Paksoy provide crucial insights into corruption, the protection available and strategies to employ when doing business in Turkey
Corruption creates major setbacks for business activities and is one of the reasons for declining foreign direct investment in emerging markets. A corruption-free business environment is necessary for emerging economies more so than in developed economies. Corruption leads to an irregular expenditure of public resources, by stealing funds from fundamental public services in health, infrastructure and education and channeling them towards rent-oriented and infertile projects obstructing sustainable growth. It widens the gap between rich and poor and encourages income inequality.
Corruption impedes foreign direct investment. Investors from countries with a solid culture of anti-corruption tend to prefer countries with a similar inclination and distance themselves from countries with a history or higher perception of corruption. As a result, less foreign investment leads to less employment and less contribution to the growth of the host country in terms of know-how and technology. On the local front, corruption acts as a deal-breaker for entrepreneurs who fear losing the battle: it increases the cost of doing business and it is a waste of time and money. It sabotages fair competition, destroys mutual trust between competitors and consequently intimidates entrepreneurs of all levels. The rule of law and the strength of institutions suffer as a result of corruption.
Most countries have detailed and thorough anti-bribery legislation and they are signatories to international conventions fighting domestic and foreign bribery.
Turkish corruption legislation
A solid legal framework
Turkey is a signatory state to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the Council of Europe Criminal Law Convention on Corruption, the Council of Europe Civil Law Convention on Corruption, the United Nations Convention Against Transnational Organised Crime, and the United Nations Convention against Corruption. It is a member of the Group of States against Corruption. In 2015, Turkey hosted the G20 summit and tackled the problem of corruption with ardour during the Anti-Corruption Taskforce meetings of B20. It provided a platform to discuss action plans in areas of customs, public procurement, training, beneficial ownership and enforcement of international conventions.
On the local front, Turkey has well-established legislation against bribery and corruption that are quite intertwined concepts in the eyes of the public. The Turkish legal framework against bribery is not particularly any less comprehensive and effective than those of developed economies or countries with a lower level of corruption.
The Turkish Criminal Code number 5237 (TCC) is the main piece of legislation governing the crime of bribery. It entered into effect in 2004 and was later amended in 2012 to include the matters of foreign bribery and facilitating payments, and to widen the definition of a public official. The prevailing version of article 252 of the TCC prohibits providing illegal benefits to public officials or to third persons appointed by public officials, directly or indirectly, for the purpose of inducing him/her to perform or not to perform a task within their duties. The crime is reciprocal: the bribe-receiver is penalised the same way as the bribe-payer. Mere agreement between the parties constitutes bribery, therefore even if the benefit has not yet been provided but has been promised, parties are deemed to have committed the crime.
Before the amendment of 2012, providing benefits to public officials for a task that was not contrary to their duties would not constitute the crime of bribery. Before the amendment, the preamble of the TCC expressly stated that the benefit should secure an unfair advantage and that bribery occurred if the benefit was provided in such a way as to induce the public official to perform a task that he/she should not perform or vice versa. Today, this distinction of contradicting the public official's duties no longer exists. As a result, 'facilitating payments' or 'grease payments' generally defined as a benefit provided to a public official for a task that he/she would normally perform, are prohibited under Turkish law and fall within the scope of bribery. In this regard, Turkey follows the same approach as the UK.
The prevailing version of article 252 considers public officials as individuals representing or acting on behalf of the following, regardless of their capacity to perform a public duty: (i) professional organisations that are public institutions, (ii) companies incorporated by the participation of public institutions or entities, or by professional organisations that are public institutions, (iii) foundations engaged in activities within public institutions or professional organisations that are public institutions, (iv) associations engaged in activities in the public interest, (v) cooperatives, and, (vi) publicly held joint stock companies.
As to foreign bribery, the TCC prohibits offering, promising or providing a benefit to foreign public officials for the purpose of performing or not performing a duty or to obtain or preserve unfair advantage. Foreign officials are listed as (i) officials elected or appointed in a foreign country, (ii) officials working in international or foreign or supranational courts, (iii) members of international or supranational parliaments, (iv) individuals performing a public duty for a foreign country including foreign public institutions, (v) foreign citizens or arbitrators appointed to arbitrate in dispute resolutions and, (vi) officials or representatives of international or supranational organisations. In addition, foreigners bribing foreign officials outside Turkey but in relation to a transaction involving Turkey, a public institution located in Turkey, a legal entity established under Turkish laws or where a Turkish citizen is involved, may be investigated and prosecuted in Turkey.
The crime of bribery warrants imprisonment from four to 12 years for bribe-demanding public officials and bribe-paying natural persons. If the bribe-demanding public official performs a judicial duty, or is an arbitrator, expert, notary public or certified public accountant, his/her sentence is increased by one-third to a half. Legal entities may have security measures imposed upon them, such as confiscation of property and cancellation of licences. The Law on Misdemeanours number 5326 provides for administrative fines that may vary between TL 14,969 and TL 2,994,337 ($5245 to $1.05 million) upon legal entities if, a natural person, who is not a representative of a legal person, but who nevertheless has undertaken a task falling within the scope of the activities of the legal entity, commits bribery to the benefit of the legal entity.
Despite the promising legal panorama, Turkey and other emerging countries alike, lack enforcement, or suffer from enforcement-related issues. The lack of enforcement and the consequent belief in immunity lead to the metastasis of corrupt activities. As a result, corruption may become more and more widespread and constitute a substantial impediment to growth, development and a solid economy. The Organisation of Economic Co-operation and Development's (OECD) latest report titled 'Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Turkey' issued in 2014 explicitly criticised Turkey for its lack of enforcement and pro-activity in detecting, investigating and prosecuting foreign bribery. Similarly, Turkey's score in Transparency International's Corruption Perceptions Index (CPI) is not improving: Turkey was ranked 66th among 168 countries. A survey conducted by Transparency International Turkey in February 2016 revealed that 67% of the participants believed that corruption had not decreased in the preceding two years and 50% believed that it had in fact increased. Participants affirmed that the most bribery-prone areas were public procurements (50%), zoning (48%) and customs and foreign trade (44%). The same survey asserted that there was a strong belief (81%) that the private sector made a remarkable contribution to corruption through illicit payments such as bribes and gifts.
How to be risk-alert against corruption
In light of the foregoing data, we will touch upon how the private sector should act in an environment of institutionalised corruption and bribery, how to surpass the unfavourable conditions when entering and doing business with actors of an emerging market, and generally how to err on the side of caution.
Risk assessment emerges as the first reflex. Risks when entering a new market may be assessed on many levels. The type of contemplated transaction, for example, whether it is a merger, acquisition, awarding distributorship, or purchase of goods and services, is the first thing to consider and upon which to base the specific risk assessment. Especially for US or UK-affiliated entities, the type of the transaction may entail successor liabilities that may cause them substantial problems in their home countries.
Geographical assessment should come next when conducting a risk assessment. Transparency International's CPI and the Global Corruption Barometer are very reliable indicators, but are not the ultimate tools. The World Bank's 'Doing Business' reports are complementary guides detailing the target country's economy and tackling specific issues such as starting a business, registering a property, dealing with construction permits and paying taxes, among other things. The press coverage and the global perceptions of a country should also be consulted when assessing risks within this scope.
A country's global rankings are not necessarily the only measure upon which to base commercial decisions: corruption may vary from sector to sector in any given country. In the Turkish example, the findings of the abovementioned survey conducted by Transparency International Turkey suggest that the first four areas where bribes are the most demanded are education, zoning, interactions with municipalities and the health sector. Another eye-opening survey was conducted by Turkish Industry and Business Association (TUSIAD) in 2014 titled 'Business Perspectives on Corruption'. It revealed that the sectors perceived as having 'quite frequent' corruption activities were construction (46% in both frequency and volume), accommodation (29% in frequency and 23% in volume), transport (22% in frequency and 25% in volume), wholesale and retail (22% on both indicators) and manufacturing (19% in frequency and 20% in volume). Not surprisingly, a higher level of government interaction (for example, public procurement contracts, permits, licences), entails a higher level of corruption.
Staying on the geographical track, cultural particularities are not to be ignored: according to TUSIAD's abovementioned survey conducted with 801 participants from the private sector in a number of cities, giving New Year or religious holiday gifts such as garments and jewellery to public officials was not considered corruption or was 'not exactly' corruption according to more than 55% of the participants. Thirty percent of the participants believed that market manipulation by the largest companies of an industry was not or was 'not exactly' corruption. Twenty percent thought that the request for a donation to certain foundations, associations or clubs by public officials in return for work undertaken was not or was 'not exactly' corruption. According to Transparency International Turkey's abovementioned survey, 24% of youth aged from 18 to 24 believed it to be normal to give gifts or kickbacks to public officials.
Once this macro-level risk assessment is completed, foreign entities should focus on the particular business partner or target company's background. Compliance due diligence, particularly in the area of anti-bribery compliance, is becoming more and more frequent in M&A transactions. It aims to unfold the local entity's relationship with government individuals and entities, business culture, gifts and hospitality policies and the personal relationships between its shareholders or managers and the government. Agreements, whether a share purchase agreement or distributorship or consultancy, must include provisions regarding the parties' compliance with domestic and international anti-bribery laws and any breach thereof must entail penalties.
When faced with bribery demands
Assuming that foreign entities have invested in or acquired a local entity or established other kinds of business partnerships with a local entity or person, the fight against bribery remains an important part of conducting business in the host country. It is true that simply saying 'no' to such demands could produce negative effects on the legal entities, such as delays in obtaining or refusals of a permit and consequently the loss of money and time. Below we will touch upon the tools available against extortion or bribery demands.
Under article 250 of the TCC, if a public official, by misuse of his/her authority, forces a person to provide or promise benefits to a public official or to a third party designated by the public official, he/she can be sentenced to imprisonment of between five and 10 years. 'Forcing' occurs when the person, faced with the public official's unfair attitude or behaviour, fears that a legitimate transaction will never be duly or at least completed in a timely manner and feels obliged to provide benefits to the public official or to a third party designated by the public official. Supervising public officials who willingly allow extortion to take place are considered as accomplices and also risk being sentenced to imprisonment for a period of between three months and three years as per article 251 of the TCC.
Every type of request or filing with public authorities has certain time limitations that public officials should abide by. As a general principle, under article 257 of the TCC, public officials who cause unjust treatment of a person, or damage to the public or obtain an unfair benefit for himself/herself or for a third party, can be sentenced to imprisonment for a period of between six months and two years. Similarly, public officials who neglect or delay their duties and cause the foregoing effects can be sentenced to imprisonment for a period of between three months and one year.
To promote ethical behaviour among public officials, the Council of Ethics for Public Officials was established in 2004. It is commissioned and authorised to determine ethical principles that public officials should abide by while performing their duties, to conduct necessary investigations on the basis of applications claiming the violation of ethical principles by senior public officials and to convey to the relevant authorities the result of those investigations that must be completed, all within three months. The Regulation on Ethical Behaviour of Public Officials and on the Regime and Principles of Application stipulates ethical behaviour such as compliance with service standards, integrity and impartiality, conflicts of interest, abuse of power for personal gain, receiving gifts and obtaining benefits, and transparency and accountability. It provides a comprehensive list of gifts and hospitality that public officials can and cannot accept. The unethical behaviour of a public official who is a general director or superior may be reported to the Council of Ethics for Public Officials as per Law number 5176 on the Establishment of the Council of Ethics for Public Officials.
Trials of public officials are governed by Law number 4483 on Trials of Civil Servants and Other Public Officials. When a person is faced with bribery demands or extortion or other types of misconduct of public officials, he/she can file a criminal complaint with the public prosecutor. The public prosecutor then asks the relevant authority for permission to prosecute the public official in question. The relevant authority varies depending upon the position of the public official. Upon receipt of the permission request from the public prosecutor, the relevant authority starts a preliminary investigation which may also be conducted by the superiors of the public official assigned by the relevant authority. The relevant authority is required to render its decision on permission to prosecute the public official upon the preliminary investigation report and within 30 days following the public prosecutor's request.
The Public Officials Law number 657 stipulates disciplinary penalties applicable to public officials. As per article 125, the promotion of public officials who obtain benefits in relation to the performance of their duties or who willingly do not perform their duties, is suspended for a period of between one and three years.
Despite the legal tools available against demands of bribery and other kinds of misconduct of public officials, most demands for bribes remain undetected and unpunished. Inadequate, inconsistent and unfair enforcement of laws and regulations cause reluctance in individuals encountering demands of bribery to act upon them. It becomes a common belief that instead of refusing and combating the demand and risking business, it is easier to bear with it, since it may offer short-term benefits to bribe-payers. This is the main contributing factor towards making corruption a bigger problem. The private sector must not succumb to illegal requests of government officials and must report any and all corrupt behaviour to the authorities to protect themselves, fair competition, a clean conduct culture and the future.
First published by our sister publication IFLR magazine. Take your free trial today.
About the author
Serdar Paksoy is the founder and senior partner of Paksoy. For over 25 years he has been actively advising foreign investors and assisting them in their transactions and disputes work in Turkey and abroad. His practice focuses on investigations and litigation across a wide range of sectors from financial services, banking, retail, transportation, logistics and manufacturing to energy, insurance, health care and pharmaceuticals.
Paksoy is the head of the litigation and dispute resolution practice of Paksoy and he is an active trial lawyer and advocate in tribunals, courts, investigative panels and administrative agencies. He has extensive experience acting for clients in contentious matters including commercial litigation, administrative lawsuits, insolvency, investigations, white-collar crimes and providing crisis advisory services.
He has represented investors and sovereigns in international arbitrations before various arbitral institutions. He is the country chair and representative of Dispute Resolution International (DRI) in Turkey.
About the author
Begüm Nişli specialises in compliance and investigations, mostly in anti-corruption and bribery matters, in addition to her general corporate and in-house counsel experience.
Nişli has conducted comprehensive internal investigations concerning Turkish anti-bribery and FCPA legislation, as well as US sanction matters.
She is also experienced in general corporate matters, including drafting and reviewing contracts such as shopping mall leases, distribution, sale and purchase, supply and provision of services and other contracts involving the retail sector.
She advises retainer clients in their day-to-day business in their particular areas of activity and also works in various stages of M&A projects, both on the buyer's and seller's side.