Today’s post is by TRACE intern Asli Aksoylu, a Turkish attorney who recently received an LLM degree from Northwestern University School of Law.
A. Corruption of Turkish Officials by Foreign Companies
The Securities and Exchange Commission (“SEC”) announced on Sept. 24, 2012 that it had reached a settlement with Tyco International Ltd. (“Tyco”) following illicit payments by Tyco’s subsidiaries to foreign public officials in various countries, including Turkey. According to the SEC’s press release, Tyco’s subsidiary arranged illicit payments for a Turkish public entity in order to purchase microwave equipment. The name of the Turkish entity was not announced; however an employee e-mail of Tyco’s Turkish subsidiary indicated that “everyone knows you have to bribe somebody to do business in Turkey.”
Not surprisingly, Tyco is not the only investigation that US authorities initiated in connection with corrupt payments by intermediaries operating in Turkey. In 2007, the SEC found that a Turkish subsidiary of Delta&Pine had made improper payments to officials of the Turkish Ministry of Agriculture and Rural Affairs, and thereby violated the Foreign Corrupt Practices Act (“FCPA”) and the Securities Exchange Act of 1934. The investigation revealed that the Turkish Deltapine’s payments induced officials to omit performing certain acts that were part of their lawful duty and caused them to violate the relevant Turkish laws while granting reports and certifications to the company. As a result, Delta&Pine and its Turkish subsidiary Turk Deltapine settled with the SEC, and jointly agreed to pay a civil penalty amounting to $300,000.
In another investigation, a joint venture that Germany-based automobile company Daimler AG (“Daimler”) and several Turkish companies established in Turkey, namely Mercedes Benz Turk, was involved in a bribery scheme. In 2006, Daimler’s corporate audit department found evidence indicating that nearly half of the payments of Mercedes Benz Turk, made in connection with vehicle export transactions, were improper payments and gifts to foreign government officials. The revenue reaped from these transactions was approximately €95 million. During the time of this improper conduct, Daimler was required to comply with the provisions of FCPA as its predecessor registered its shares with SEC in 1993. As a result of the investigations, Daimler settled with the DOJ and SEC, agreeing to pay approximately $185 million in total as criminal and civil fines without admitting or denying the charges.
Corruption in the Health-Care System
Aside from these examples, doctors in state-owned hospitals in Turkey were caught in the spotlight when the DOJ focused its investigations on the health-care industry. Investigations in this area are presumed to have started with Johnson & Johnson’s investigation, as the DOJ press release indicated that Johnson & Johnson’s cooperation played an important role in identifying corrupt practices in the life sciences industry. According to public information available, Medtronic is currently under investigation for potential violations of the FCPA in several non-US countries, including Turkey, in connection with improper payments made to government-employed doctors for the sale of Medtronic medical devices. However, Medtronic was not the only company allegedly dealing with corrupt practices in Turkish health-care industry. According to the DOJ, Micrus also made payments to doctors in Turkey and several other countries without obtaining requisite permits in order to induce hospitals to purchase Micrus products. As a consequence of the investigations, Micrus and its Swiss subsidiary entered into a deferred prosecution agreement with the DOJ under which they agreed to pay $450,000 in penalties.
B. Corruption within Turkish Entities Operating Abroad
UN Oil for Food Programme
Illicit payments to officials in the Iraqi government in order to secure contracts during the period of UN Oil for Food Programme has been another major focus of FCPA enforcement. Even though Turkey did not initiate investigations of the 139 Turkish companies that are alleged to have been involved in this corrupt practice in Iraq according to the 2005 Final Report of the Independent Inquiry Committee, internal investigation of multinationals revealed corrupt conduct in Turkey. One example is York International Corporation (“York”), a US corporation that acknowledged liability for the misconduct of its subsidiaries in Delaware and Dubai, which allegedly made improper payments to the Iraqi government in connection with the Oil for Food Programme. During its investigation, York discovered that its subsidiaries paid bribes and kickbacks to obtain and retain business on government projects in Turkey along with other countries.
In 2008, Siemens settled charges with DOJ and SEC with the record-breaking penalty and fine amounting to $800 million. The Turkish subsidiary of Siemens, Siemens A.S., formed part of this investigation as well. Three years after the settlement, the Turkish Prime Ministry Inspection Board initiated an investigation against Siemens’ Turkish subsidiary in relation to alleged bribery of the company in Turkey and Iraq from 1999 to 2007. These payments in Iraq are presumed to be made in connection with the United Nations Oil for Food Programme. In this context, the Republic of Iraq filed an action before the US District Court for the Southern District of New York claiming damages against 93 defendants including Siemens A.S.
Kazakh company in which a Turkish telecommunications company holds a stake under investigation within the scope of FCPA
Aside from the above mentioned examples, a company in which Turkcell Iletisim Hizmetleri A.S. (“Turkcell“) holds a stake was under investigation (see earlier TRACEblog post, here). Turkcell is the leading Turkish telecommunications company, and is currently the only NYSE-listed company in Turkey. The company that was the subject of investigation is KCell, a mobile operator in Kazakhstan that is partly owned by Fintur Holdings B.V., in which Turkcell holds 42.5% of the shares. Turkcell disclosed in its 2011 F20-F, however, that the allegations were not substantiated after the completion of an internal investigation.
For companies doing business in Turkey, TRACE offers due diligence reports on commercial intermediaries and model compliance policies. TRACE members have access to the Resource Center, which contains summaries of applicable Turkish law, guidelines on gifts and hospitality, and research on corporate best practices. For information, click here, or visit TRACEinternational.org.