At the centre of the whole affair is the Turkish Uzan family, which runs Rumeli Holding, a $1.6bn enterprise that includes construction, media, banking and power generation, as well as Telsim, which at the end of the first quarter of 2001 claimed 6m subscribers and is wholly-owned by the group. The New York lawsuit cites 13 counts of wrongdoing by the Uzan family- specifically the founder of the group Kemal Uzan, and his two sons Hakan and cem Uzan who now run the business. The suit also invokes four counts of criminal activity under the US Racketeer Influenced and Corrupt Organisations Act (RICO), essentially claiming that Telsim had never planned on paying the money back. The suit seeks to recover the loans amounting to around $3bn- $2bn for Motorola and $719m for Nokia. The judge also issued two temporary restraining orders freezing the Uzans nine residences in New York and the $8m in funds alleged to be in the US. He also barred the Uzans from transferring any Telsim assets, took into a depository the 73.5% stake in the company that was issued to Standart Telekom in April 2001, and prohibited the family from exercising their voting rights on shares created at a meeting on January 4th.
The Uzan family responded on January 30th with their own lawsuit, claiming in a statement that day that they would seek their own "legitimate legal rights", and that Telsim had tried in the previous week to come up with ways of settling the loan with Motorola. Telsim also said that depositing the 73.5% stake of the company with the court would result in it losing its mobile licence or its suspension- as Turkish law stipulates that 51% of the company has to remain in Turkish hands- leading to a possible collapse of the operator. The Uzan family demanded that Motorola's complaint be mediated according to Swiss law, also accusing Motorola of supplying defective and substandard equipment.
Since the default in May Telsim has blamed the economic crisis in Turkey for the problems in repaying the money, although $170m has been returned. Nokia and Motorola had lent it as part of a vendor financing agreement, an arrangement that had become popular in emerging economies with good growth prospects, under which companies lent customers the money to buy the required products, largely hardware. In statement in late September 2001 Motorola said that $2bn of its $2.7bn of its vendor financing loans were related to Telsim, which had in 1998 bought Turkey's second GSM licence for around $500m.
The loan was made with the foreign company receiving a stake in the operator as collateral, in this case Motorola got 66% of Telsim and Nokia 22%. When the Turkish company in May defaulted on its payments to both Nokia and Motorola it emerged that at a shareholders meeting in April the stake held as collateral had been weakened to around 7.5% of Telsim of 2.5% respectively, apparently without the knowledge of either foreign investor. This was allegedly brought about by issuing shares amounting to around 73.5% of the total to Standart Telekom.
Telsim had already been in trouble with the authorities in Turkey. In 1994 the Capital Markets Board, which regulates the country's financial markets, accused the Uzan family of transferring assets from two family-controlled but publicly-traded electricity companies to their own businesses. The dispute is still not resolved, but in 1995 Telsim was placed under the custody of state-owned Turk Telekom, only to be returned to the Uzans in mid-1996. In October 2001 the Rumeli-owned popular television station Star TV was ordered off the air for six days for acting "on behalf of its owners", according to the Radio and Television Authority.
The Turkish government has so far washed its hands of the problems with Motorola and Nokia. On February 1st the Transport and Communications Minister Oktay Vural said that his ministry would not get involved and that the matter was purely legal and not political. The US government appears to view the problem differently, with the subject brought up on a number of occasions since the summer, including during Prime Minister Bulent Ecevit's visit to the US in January.
Turkish businessmen are meanwhile concerned with the impression that foreign investors will have of Turkey in the light of these allegations. As part of the previous IMF stand-by agreement Ankara promised to encourage foreign investment by making the whole process less arduous and more inviting. This has not yet been implemented, but businessmen can take heart from a recent contract that Alcatel of France signed with Telsim, worth around $25m- with payment in advance.