Corporate Liability in Turkey

By Birtürk Aydin (Baker McKenzie Turkey)

I.              Corporate liability deriving from criminal activity

1.             Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company).

Under Article 20 of the Turkish Criminal Code No. 5237 (the “Turkish Criminal Code”), legal entities cannot be held criminally liable, but they can be subject to security measures.

The same article, however, declares that private legal entities can only be subject to the following security measures, as specified in Article 60 of the Turkish Criminal Code, if directors or representatives commit a crime in the interest of or for the advantage of the legal entity: (i) revocation of license/permit; and (ii) confiscation of property or material interests.

Other Turkish laws provide administrative sanctions such as prohibition from participating in public tenders and administrative fines (eg, the Public Procurement Law No. 4734, Establishment of Radio and Television Enterprises and the Media Services Law No. 6112, Electronic Signature Law No. 5070 and Misdemeanor Law No. 5326).

2.             Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise

Corporate liability under Turkish law arises only if the following crimes are committed:

  • International offenses: Genocide (Turkish Criminal Code, Article 76); crimes against humanity (Turkish Criminal Code, Article 77); setting up an organization for the purpose of committing genocide and crimes against humanity (Turkish Criminal Code, Article 78); smuggling of migrants (Turkish Criminal Code, Article 79); human trafficking (Turkish Criminal Code, Article 80)
  • Offenses against persons: Experiments on humans (Turkish Criminal Code, Article 90); trading of organs and tissues (Turkish Criminal Code, Article 91); threats (Turkish Criminal Code, Article 106); blackmail (Turkish Criminal Code, Article 107); violence (Turkish Criminal Code, Article 108); deprivation of liberty (Turkish Criminal Code, Article 109); violation of privacy of communication (Turkish Criminal Code, Article 132); wiretapping and recording of communications (Turkish Criminal Code, Article 133); violation of privacy (Turkish Criminal Code, Article 134); Recording of personal data (Turkish Criminal Code, Article 135); Unlawful acquisition or disclosure of data (Turkish Criminal Code, Article 136); destruction of data (Turkish Criminal Code, Article 138); robbery (Turkish Criminal Code, Article 141); abusing trust (Turkish Criminal Code, Article 155); Fraud (Turkish Criminal Code, Article 157)
  • Offenses against society: Pollution of the environment (Turkish Criminal Code, Article 181); production and trading of addictive or relieving/exciting drugs (Turkish Criminal Code, Article 188); obscenity (Turkish Criminal Code, Article 226); prostitution (Turkish Criminal Code, Article 227); arranging a place or facility for gambling (Turkish Criminal Code, Article 228); corruption in tenders (Turkish Criminal Code, Article 235); involvement in a fraudulent act during fulfillment of obligations (Turkish Criminal Code, Article 236); influencing prices (Turkish Criminal Code, Article 237); unauthorized access to a data processing system (Turkish Criminal Code, Article 243); hindrance to or destruction of the system, deletion or alteration of data (Turkish Criminal Code, Article 244); improper use of bank or credit cards (Turkish Criminal Code, Article 245)
  • Offenses against the nation and the state: Bribery (Turkish Criminal Code, Article 252); disrupting the unity and integrity of the state (Turkish Criminal Code, Article 302); collaboration with an enemy (Turkish Criminal Code, Article 303); incitement to war against the state (Turkish Criminal Code, Article 304); violation of the Constitution (Turkish Criminal Code, Article 309)
  • Capital market offenses: Insider trading (Capital Market Code, Article 106); manipulation (Capital Market Code, Article 107)
  • Offense of broadcasting without a license: Broadcasting without obtaining a broadcasting license (Establishment of Radio and Television Enterprises and their Media Services Law, Article 33)
  • Offenses related to electronic signature: Use of signature data without consent (Electronic Signature Law, Article 16); Forgery in electronic certificates (Electronic Signature Law, Article 17)
  • The bank-related offense of conducting banking activities without a permit: Conducting banking activities without a permit (Banking Law, Article 150)
  • Collusive tendering offense: Collusive tendering (Public Procurement Law, Articles 58, 59)
  • Offenses related to money smuggling: Conducting import, export or foreign exchange collusions in order to smuggle Turkish or foreign currency (Protection of the Value of Turkish Currency Law, Article 3)
  • Unfair competition offense: Offense of unfair competition within the scope of activities of legal entities (Turkish Commercial Code, Article 63)

3.             Identification of companies and entities to which liability may apply

Under the Turkish Criminal Code, criminal sanctions cannot be imposed on legal entities. Private legal entities, however, can be subject to security measures, as specified in Article 60 of the Turkish Criminal Code. The liability applies to all private legal entities, including companies, foundations and associations. Turkish laws, however, do not explicitly regulate criminal liability of public legal entities, including state-owned and state-controlled enterprises. There is no specific court ruling establishing the criminal liability of a public legal entity.

4.             Corporate liability for crimes committed abroad by its representatives or subsidiaries

Under Turkish law, the court in a place where a crime is committed is qualified to try the crime. Under normal circumstances, Turkish courts are not qualified to try crimes committed abroad.

The Turkish Criminal Code does not specifically recognize corporate liability for representatives or subsidiaries’ crimes committed abroad. However, Turkey is qualified to try Turkish citizens for crimes committed abroad if all these conditions are present:

  • The offender is located in Turkey.
  • The offender is not convicted abroad for the crime.
  • The penalty for the crime requires at least one year imprisonment under Turkish law.
  • The crime is prosecutable in Turkey.

Therefore, security measures for its representatives or subsidiaries’ actions abroad can be imposed on the legal entity located in Turkey if all these conditions are present:

  • The Turkish representative of the legal entity or subsidiary commits crimes abroad.
  • The penalty for the crime requires at least one year imprisonment under Turkish law.
  • They are prosecuted in Turkey.
  • The crime is committed in the interest of or for the advantage of the legal entity.

Turkish courts are authorized to try foreign citizens for crimes committed abroad to Turkey’s detriment (ie, the victim must be the Republic of Turkey) if all these conditions are present:

  • If the penalty for this crime requires at least one year imprisonment under Turkish law.
  • If the offender is in Turkey.
  • Upon the Ministry of Justice’s request (except for bribery or unlawful influence).

Turkey is authorized to try foreign citizens for crimes committed abroad to the detriment of a Turkish citizen (eg, murder and theft) or a private legal entity (eg, fraud) if all these conditions are present:

  • If the Turkish citizen or private legal entity files a complaint.
  • If the offender is in Turkey.
  • If the offender is not convicted abroad.

Turkey can try foreign citizens for crimes committed abroad to the detriment of a foreign citizen if all these conditions are present:

  • If the penalty for this crime requires at least three years of imprisonment under Turkish law.
  • If there is no extradition agreement or the demand of extradition is rejected by the country where the crime is committed or the state’s government of which the offender holds citizenship.
  • Upon the Ministry of Justice’s request.

Moreover, regardless of the offender’s citizenship, if committed abroad, Turkish criminal courts can also try certain crimes (eg, production and trading of addictive or relieving/exciting drugs).

5.             Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

The Turkish Criminal Code does not specifically regulate corporate liability for criminal activity in the case of transactions taking place after the commission of a crime.

  • Share transfer: Corporate liability, however, remains in the case of share transfers in the legal entity.
  • Change in form: Absent any explicit regulation under the Turkish Criminal Code, the legal entity will still be liable for crimes committed prior to the date on which the change in form becomes effective (eg, change from joint stock company to limited liability company), since under Article 180 of Turkish Commercial Code, a company transforming into a different type is deemed a continuity of the former entity.

Turkish law does not explicitly regulate corporate liability in the case a spin-off or a merger takes place after the crime has been committed.

II.            Applicable sanctions

1.             Type of sanctions applicable to the company

Under the Turkish Criminal Code, legal entities that obtain a benefit by committing crimes are subject to security measures. Private legal entities can only be subject to the following security measures as specified in Article 60 of the Turkish Criminal Code, administrative fines and the Public Procurement Law:

  • Revocation of license/permit if: (a) a private legal entity abuses its authority arising out of a license/permit granted to it by a public entity; and (b) the legal entity’s governing bodies or representatives participated in the entity’s actions. If so, the court may revoke the legal entity’s license/permit.
  • Confiscation of property or material interests: If the conditions of confiscation specified in the Turkish Criminal Code are satisfied, the court may confiscate the property or material interests connected to the offense/crime.
  • Administrative fines: Article 43/A of the Misdemeanor Law establishes the liability of legal persons in Turkey for a limited number of offenses (eg, bribery, collusive tendering, money laundering and smuggling). This ranges from TRY 16,409 up to TRY 3,282,503 for the year 2017.
  • Prohibition from participating in public tenders: Under the Public Procurement Law, if a legal entity commits a crime (eg, bribery) or otherwise acts in violation of the Public Procurement Law, it is prohibited from participating in tenders.

Other laws may regulate security measures for sectors (banking, etc.).

2.             Interim measures, cease and desist orders, bans and confiscatory measures

Interim measures: According to Article 133 of the Turkish Criminal Procedure Code, the court can nominate a trustee to manage the company during the investigation and prosecution process, if there is strong suspicion that a specific crime (eg, money laundering) has been committed involving a company’s activities.

Under the Turkish Criminal Procedure Code and Turkish Criminal Code, materials likely to be useful as means of proof or assets or financial gains may be seized or confiscated as an interim measure.

During the state of emergency declared on 21 July 2016 by Turkey’s Council of Ministers to eliminate threats to national security and finalize the proceedings of those who participated in the attempted coup by a faction of the military lead by the Fetullah Terror Organization (FETO) on the night of 15 July 2016 (“State of Emergency”), the Council of Ministers introduced certain additional interim measures (especially related to the companies allegedly owned by FETO).

3.             Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

Turkish law does not explicitly regulate directors’ or managers’ criminal liability for not having adopted measures to prevent a crime. The Turkish Commercial Code, nevertheless, recognizes directors and managers’ duty of care.

Any board members, managers or employees involved in the crime and acting willfully may be held liable. Their liability may be classified as direct, accomplice/aid, or participation in the crime and abetting, depending on their willful acts. The representative may also be subject to an administrative fine.

There may be a reporting obligation for those who are aware of the commission of a crime. Those who are only aware of the issues or the commission of a crime, and did not assist the employees or instruct them (ie, if they are neither the offender nor the abettor) must report the incident to the authorities under Article 278 of the Criminal Code, if the crime:

  1. Is still being committed during their term of office
  2. Was committed before their term of office, but the consequences of the crime can still be restricted or avoided or
  3. Was committed during their term of office and the consequences of the crime can still be restricted or avoided

If the crime (eg, fraud) is still being committed, the board members, managers or other employees (eg, the CFO), who are aware of the commission of the crime but are not involved, must report the crime to prevent or limit the consequences of the crime. Self-incrimination, however, is prohibited under Turkish law. Therefore, those involved in the commission of a crime (eg, the relevant managers) are not obligated to report the crime.

III.           Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1.             Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)

The Turkish Criminal Code does not specifically recognize a compliance model as an instrument to mitigate or eliminate legal entities’ liability. It is still recommended that companies adopt a compliance model to establish a compliance culture and ensure employees’ compliance in minimizing any liability risk. It does not, however, directly affect corporate liability for crimes committed by the company’s managers, directors or representatives.

Other laws may have specific compliance requirements for specific sectors (eg, banks).

2.             Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

Modality is not applicable in this case. However, other laws may have specific compliance requirements for specific sectors (eg, banks).

3.             Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body

Monitoring is not applicable in this case. However, other laws may have specific compliance requirements for specific sectors (eg, banks).

IV.          Judicial proceedings to determine corporate liability

1.             Court competent to decide the liability of and penalties applicable to the company

Under Turkish law, the court that is authorized to judge whether a company is liable for a crime committed by an individual is the same court that decides the extent of the personal liability of the individual charged with the crime.

2.             Possibility of the application of interim measures

The possibility of the interim measures being applied in this case is uncertain.

3.             Plea bargains and related effects on the corporate liability

Turkish law does not provide for any plea bargaining procedure.

4.             Imposition of sanctions against the company

The imposition of sanctions against companies varies and will depend on the type of the applicable security measure. For instance, confiscation of property or material interests is made through court decisions, whereas the relevant public authority and the competent court prohibit participation in public tenders.

5.             Permanence of corporate liability if the crime is extinguished

The Turkish Criminal Code provides no clear rule on permanence of corporate liability if the crime is extinguished.

V.           Corporate liability in multinational groups

1.             Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

The Turkish Criminal Code does not explicitly regulate the corporate liability of parent companies located abroad in case offenses are committed by the local company’s directors, managers or representatives. However, other laws may have specific regulations (eg, prohibition from participating in public tenders under the Public Procurement Law).

2.             Basis of liability and applicable sanctions

These do not apply in this case.

VI.          Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1.             Significant case law, if any

The Appellate Court, however, once decided that security measures must be imposed on a legal entity whose directors or representatives committed crimes for the benefit of the legal entity. The same court, however, imposed no security measures against the legal entity in its decision. (5th Penal Chamber of the Appellate Court Merit No. 2012/11217 and Decision No. 2013/325 of 14 January 2013).

2.             Proposed or contemplated new legislation

Although there is no proposed or contemplated new legislation, during the State of Emergency, certain executive orders regulating security measures and/or interim measures can be issued by Turkey’s Council of Ministers. These executive orders have the same legal force as laws.