Cablegate: Deposit Insurance Fund Seizes Control of Uzan

This record is a partial extract of the original cable. The full text of the original cable is not available.

190511Z Feb 04





E.O. 12958: N/A

REF: A. 2003 ANKARA 6377
B. 2003 ANKARA 5075
C. 2003 ANKARA 4386

Sensitive but Unclassified - not for internet distribution.

1. (U) This is a joint Embassy Ankara-Congen Istanbul cable.

2. (SBU) Summary: Turkey's Savings Deposit Insurance Fund
(SDIF) moved on Saturday, February 14 to seize control of 219
companies owned by the controversial Uzan family in the
latest episode of the protracted conflict between the family
and Turkish authorities. The family owes the state almost
7.5 quadrillion TL (5.7 billion USD) as a result of the fraud
surrounding its failed Imar Bank, and the SDIF described the
move as an effort to recover that debt. Youth Party leader
Cem Uzan, to date not charged in the burgeoning scandals,
linked the action to upcoming local elections and accused the
government of pursuing the family for political reasons, a
charge swiftly dismissed by government spokesperson Cemil
Cicek. Given the breadth of the now-crumbled Uzan empire,
the SDIF action will have major reverberations, in Turkish
politics, banking, telecoms, and media, as well as on efforts
by Motorola and Nokia to recover the large debts owed them by
Telsim, the Uzan-owned GSM operator. In addition to cracking
down on the Uzans, both the GOT and the
technically-independent SDIF are using the Uzan example to
try to pressure other owners of failed banks to come to the
negotiating table. End Summary.


3. (SBU) Management not Ownership: In a written statement
issued on February 14, the SDIF noted that it was acting
under the authority of last December's amendment to Turkey's
Banking Law, pursuant to which controlling shareholders and
their family members are responsible for repaying all the
debts of an insolvent bank. The amendment was a condition of
the IMF,s Sixth Review and ran into significant opposition
from bankers over the broad powers granted SDIF to seize
assets from the owners of failed banks. As a result of the
failure of Imar bank and the fraud surrounding it (refs), the
SDIF was forced to make provision for nearly 6 billion USD in
payments to depositors (a process that is now ongoing). The
SDIF noted that it had given Uzan Group officials repeated
opportunities to present a payment plan for the Group's
outstanding debts to SDIF, but that they had failed to do so.

4. (SBU) As a result, the SDIF moved to take control of the
companies and install temporary trustees to administer them.
The Fund made clear that it is taking over "management"
rather than "ownership," possibly in an attempt to avoid
assuming the group's debts. SDIF V.P. Binnur Berberoglu and
BRSA V.P. Ercan Turkan explained to Econoff that, under the
amended banking law, the SDIF cannot seize shares of
companies in the first stage. According to Berberoglu, the
law allows SDIF to assume control, and have all rights of
ownership except the right to receive dividends. At a
subsequent stage, once the companies have been fully
evaluated, the SDIF has the right to seize shares, and sell
or liquidate the companies.

5. (Sbu) Cem Uzan in recent public comments has for the first
time conceded that Telsim, the Group's GSM-operator,
owed Motorola and Nokia 3.5 billion USD, but had argued that
in the event of a takeover the SDIF became responsible for
this amount. Media reports cite a number of legal experts,
however, as suggesting that while the company is now under
state control, it retains its legal identity and retains
responsibility for its obligations.

6. (SBU) A Paper Empire? On paper, the Uzan empire is vast,
encompassing 219 companies and up to 40,000 employees.
Initial reports, however, indicate that
of this total only 124 companies were actually doing
business, and that the remaining 95 exist only on paper and
will soon be liquidated. Fund officials have declined to
comment publicly on these reports, stressing only that the
SDIF will decide what to do with individual companies after
reviewing their 2003 financial statements. Currently, new
company trustees are poring over company books in an attempt
to determine each company's actual operations and assets.

7. (SBU) The SDIF,s Berberoglu confirmed to econoff that one
of SDIF,s motivations was to ensure that the companies,
Uzan-appointed managers were not continuing to take money out
of the companies for the Uzans, use. Wednesday,s papers
reported that Telsim, like Imar Bank, had double sets of
books. According to the press reports, Telsim,s managers
used the double-accounting to underreport Value-added and
Special Communications taxes collected from customers and
keep the tax collections for themselves.

8. (SBU) Political Countercharges: Cem Uzan, the only leading
family member not in hiding, reacted to the latest move with
typical bravura, reiterating his favorite charge that the
government was persecuting his family out of fear of the
political threat posed by his "Genc" or Youth Party. Swiftly
asserting that the charge was false, Government Ministers,
including Finance Minister Kemal Unakitan, said the action
was undertaken by the SDIF in full accordance with Turkish


9. (SBU) Pressure on other owners of failed banks: Though the
costly Imar Bank failure provided ample reasons for the SDIF
to move against the Uzans, the move also put pressure on
other owners of failed banks who have yet to negotiate
payment plans with SDIF. According to a Milliyet article,
there are nine bank owners who have yet to work out a payment
plan, even though their banks were taken over two or three
years ago. On Tuesday, Prime Minister Erdogan explicitly
referred to the other bank owners, saying the SDIF is
inviting them to the negotiating table

10. (SBU) Telecom: Government officials have told us
privately for weeks that they intended to take over Telsim
(probably the most profitable company in the Uzan Group), and
to re-sell it quickly. At this early stage, it is not clear
what impact the takeover will have on Motorola's attempts to
recover its debts from Telsim. SDIF officials indicated that
their priority is to recover debts owed to the Turkish state,
but refrained from making clear statements about debts to
third parties. Some independent legal analysts have noted
that such third-party
liabilities would only be repaid after the group met its
extensive liabilities to the state. When Prime Minister
Erdogan was asked about the debts to Motorola and Nokia, he
said the State was not "the interlocutor" on the issue.

11. (SBU) &Star8 Journalists Claim Press Censorship:
The &Star8 media group, which includes &Star8 newspaper
(circ. 250,000) and a handful of popular television channels,
played an important role in the Uzans, political
aspirations. It served as a mouthpiece of Cem Uzan,s Genc
Party and a platform through which Uzan could criticize the
AKP government with impunity and without concern for balanced
coverage. The takeover of &Star8 management has had an
immediate, visible impact in the media formerly controlled by
the Uzans. Monday,s &Star8 newspaper, for example,
featured a lengthy justification from the Savings Insurance
Fund about the reasons for the takeover. The article
portrayed the action as an effort to recover looted funds
owed to Turkish depositors. Pro-Uzan political columnists
have been notably absent from the pages of &Star8 since the
weekend. The newspaper continues to publish, but the
pro-Uzan slant and the relentless criticism of the AKP has

12. (SBU) The changes at &Star8 have provoked outrage among
some employees of the &Star8 media group. For weeks,
employees of &Star8 television channel have used their
nightly newscast to rant against the government for
&blocking8 their salaries. In today,s &Cumhuriyet8 (the
opposition newspaper most reflective of Kemalist
establishment views), &Star8 media president Can Atakli
accused the government of &religious, fascist, dictatorial
pressure8 against the media. &Star8 columnist Hayrullah
Mahmud said that the government &doesn,t want to see things
it doesn,t like in the papers or on the TV screen.8
Pro-Uzan forces at &Star8 received support yesterday from
the Turkish Journalists, Council. Oktay Eksi, the
Council,s President (a staunch opponent of the AKP
Government), said that the &discrimination8 against
&Star8 media was ¬ just an effort to silence the
opposition media, but to turn that media into a mouthpiece
for the government.8

13. (SBU) Comment: Leaving aside the legal issue of
government interference in media content, the
characterization of &Star8 as &opposition media8 is both
incomplete and disingenuous. &Star8 media under the Uzans
was, by any standard, completely irresponsible and without
moral scruple. &Star8 newspaper routinely fabricated
&news8 to discredit its targets, which included the
government, the United States, and this embassy, while
attempting to build a personality cult for Cem Uzan to
further Genc Party interests. Although there may be a
legitimate debate here about freedom of the press, we
shouldn,t pretend that &Star8 had any redeeming value as a
media outlet. End Comment.

14. (SBU) Political Dimension: Our contacts in and close to
AK Party have consistently told us that, while Erdogan and AK
have made a big deal about using the example of action
against the Uzans to demonstrate resolve in combatting
corruption, Erdogan has been out to get the Uzans more for
personal and political reasons. Our Law Enforcement
exchanges underline this point, as they highlight the paucity
of effort at building a case to prove the seemingly-evident
Uzan embezzlement from Imar Bank. Erdogan has never
forgotten Cem Uzan's public insult -- denigrating Erdogan's
piety -- at a rally in Bursa in mid-2003. Moreover, as one
contact with immediate access to Erdogan has just confided to
us based on recent conversations with Erdogan and his inner
circle, Erdogan has set an ambitious nation-wide target for
AK in March 28 local elections and wanted to use this
opportunity to rid himself of Cem Uzan's Genc Party, which
Erdogan feared would be the principal rival in key
urban-sprawl areas. By this action, and Cem Uzan's tearful
(i.e., unmanly) reaction on television, Erdogan has slashed a
political rival. However, Erdogan has not yet addressed the
deep alienation in urban-sprawl areas which Uzan had fed off
to launch Genc and which will provide the political Petrie
dish for the next populist-nationalist political movement.

15. (SBU) Comment: Saturday's takeover represents another
nail in the coffin of the Uzan business empire, and it is
increasingly difficult to see how the family will ever
recover. Given his infamous clan's unsavory track record, it
is doubtful that Cem Uzan's attempt to turn the issue to his
political advantage will succeed.


© Scoop Media

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