Guest Post: The OECD Phase 3 Report on Turkey

GAB is pleased to welcome back Gönenç Gürkaynak, the managing partner and head of the Regulatory and Compliance Department at ELIG, Attorneys-at-Law (Istanbul), who contributes the following guest post:

The OECD Working Group on Bribery (“WGB”) has published its Phase 3 Report on Turkey, following the Phase 2 and Phase 2Bis Recommendations (“Follow-Up Report”) of March 2010, to assess Turkey’s efforts in implementing the OECD Anti-Bribery Convention. The Phase 3 Report is dominated by criticism of Turkey’s low level of enforcement and its inaction with respect to detecting, investigating, and prosecuting acts of foreign bribery. This result is consistent with the assessment provided by Transparency International in its 2014 Exporting Corruption report, which found that Turkey had “little or no enforcement” of its foreign anti-bribery laws. Indeed, despite the fact that Turkey is the 17th largest economy in the world, and has trade relations with many countries presenting potentially high risks of foreign bribery, Turkey has had only six foreign bribery investigations (only one of which was a result of pro-active detection by Turkish authorities) and no foreign bribery convictions in the 14 years since the Convention entered into force in Turkey. Thus the Phase 3 Report is yet another reminder that Turkish law enforcement regarding foreign as well as domestic bribery has still a long way to go.

As one might imagine given the disheartening enforcement statistics just noted, many of the WGB Phase 3 recommendations emphasize the need for improvements in Turkey’s mechanisms for gathering information to ensure effective detection of foreign bribery allegations and to enhance investigations by engaging with other investigative authorities. But there are three other important features of the Phase 3 report that are at least as important, and deserve more attention: First, the ambiguity of Turkey’s corporate liability laws; second, the inadequacy of Turkey’s whistleblower protections; and third, the significance of Turkey’s recent controversies over domestic anticorruption enforcement issues.

First, with respect to corporate liability for foreign bribery: This issue has long been controversial within Turkey, and a point of contention between Turkey and the WGB. An earlier amendment to the Turkish Criminal Code that added an article on corporate criminal liability was subsequently cancelled by the Constitutional Court. Following the WGB’s extensive criticism of Turkey, in the Phase 2 and Phase 2bis Reports, for failing to provide for criminal liability of legal persons, Turkey eventually amended the Law on Misdemeanors to provide (in Article 43/A) for a fine on legal persons, among others, that commit foreign bribery offenses. But the Phase 3 Report, while acknowledging that step, criticizes the existing law for its ambiguity on two crucial points:

  • First, it is unclear whether Article 43/A covers state-owned and state-controlled enterprises (“SOEs” and “SCEs”, respectively), in addition to private legal persons. Indeed, the WGB itself may not fully appreciate how far this problem extends. Even if Turkey were to adopt the WGB’s recommendation to clarify that SOEs and SCEs are covered by the provision on corporate liability, this may be insufficient in practice, due to a recent amendment in the Court of Accounts regulation that may prevent the Court of Accounts from auditing the accounts of public institutions (including most SOEs and SCEs) for another three years. As a result, while the transparency and accountability of private companies are provided through internal and external audits, even if SOEs and SCEs are to be included in the relevant provision, their accounts may not be duly audited to detect a potential act of foreign bribery.
  • Second, it is also unclear whether a conviction of a natural person is necessary for a fine to be imposed on a legal person under Article 43/A, and indeed the wording of the provision and the explanations of Turkish authorities suggest that it might be.

The next serious concern raised by the WGB concerns whistleblower protection. As the Phase 3 Report observes, Turkey does not have any legal mechanisms for the protection of whistleblowers in neither of the public and private sectors. While Turkish authorities have asserted that general principles of Turkish labor law would protect whistleblowers against retaliation, in fact those general provisions are not appropriately tailored to the particular case of whistleblower to provide the necessary protection. In order to provide appropriately robust whistleblower protection, Turkey should introduce a specific provision into the Labor Law regarding whistleblowers’ protection against retaliation and their wish to keep their identity confidential.

Finally, and perhaps most interesting, the recent Phase 3 report raises a new concern, one that had not featured prominently in earlier WGB reports on Turkey’s compliance with the Convention: the worry that the prosecution of foreign bribery cases might be politicized. This concern may be connected to Turkey’s handling of the high-profile domestic corruption investigation that erupted in December 2013, and attracted massive international media coverage. Although this domestic corruption issue is not directly connected to foreign bribery, and therefore might seem beyond the scope of the OECD Convention, the WGB is not indifferent to the re-shuffling of police officers and prosecutors that took place in the aftermath of the allegations, or to the verdict of non-prosecution issued for 96 individuals allegedly involved in the corrupt scheme. The WGB appeared dissatisfied with the explanations provided by Turkish authorities that the reassignments in the police force, as well as public prosecutors and the judiciary, were normal practice. Consequently the WGB has raised legitimate questions about the independence and impartiality of law enforcement in Turkey, which might well affect the detection and prosecution of foreign bribery.

What does this all mean going forward? Clearly, there are serious questions about Turkey’s compliance with its obligations under the OECD Convention. Some of these deficiencies might be addressed through relatively simple changes to existing laws, such as the laws on corporate liability and whistleblower protection. Others, like the overall commitment to robust and impartial enforcement, present a much greater challenge. But Turkey has good reason to try to meet these challenges. Being a signatory to the OECD Convention has undoubtedly benefitted Turkey, and Turkey has so far implemented the recommendations emphasized in prior WGB reports, so as to avoid the adverse reputational consequences of openly breaching the Convention in the international arena. The WGB has invited Turkey to submit a written follow-up on the implementation of WGB recommendations in 2016, and despite the challenges, there are reasons to be cautiously optimistic that the WGB Phase 3 report will prompt some positive changes.

One thought on “Guest Post: The OECD Phase 3 Report on Turkey

  1. Thanks for this post. I really appreciate your parsing the Phase 3 Report and highlighting these particular areas of interest. One thing that jumped out at me is the possibility that a legal person cannot be fined under Article 43/A unless there has a natural person has already been convicted of the same underlying bribery conduct. If this is indeed the case, and no revisions are carried out in the near term, this could create a dynamic very different than what we have seen in the United States.

    For years, one of the principal criticisms that the Department of Justice’s FCPA unit has faced is that it has targeted corporate wrongdoers for large settlements while not prosecuting the responsible individual employees and agents. The department has responded to this criticism by ramping up its prosecution of individuals, but it has done so in large part by leveraging the responsible companies for assistance in building a case against the relevant natural persons.

    I suspect the situation in Turkey is quite different. First, if it is uncertain whether Turkish prosecutors can target companies with large standalone fines for foreign bribery, the state may not have much of an incentive to ramp up its foreign bribery prosecutions. In fact, precisely because many of the individual targets in a foreign bribery action are overseas and beyond the reach of domestic prosecutors, it may be that many corporate wrongdoers will remain beyond the reach of Turkish authorities. Second, if both the desire and ability of Turkish prosecutors to target legal persons are substantially reduced, then Turkey may lack the investigative and negotiating leverage that has been crucial to helping American authorities build cases against natural persons.

    I appreciate your optimistic take on Turkey’s potential, but I guess I may be a bit more pessimistic about the compounding problems introduced by the weakness of Article 43/A and the lack of a robust concept of corporate criminality in Turkey.

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