The issuing of arrest warrants for Kemal and Hakan Uzan, two of the most important members of the Group’s owning family, came after a string of major blows to the Uzans, beginning back in June with the seizure of their two electricity distribution utilities.
Meanwhile, although the family’s best known son, tycoon-turned-politician Cem, is not being sought by Turkish authorities, attention has focused on the political future of his creation, the Youth Party (GP). Riding second to the ruling Justice and Development Party (AKP) in many polls, the Uzans have claimed that the string of attacks on their business empire is politically motivated. Yet AKP supporters see their party’s tough stand as part of its promise to crack down on corruption.
Whatever the case, this has been a rough summer for the Uzans. After the seizure of the electricity utilities Cukurova Elektrik and Kepez Elektrik, the Banking Supervisory and Regulatory Authority (BDDK) then seized the Uzan Group’s main bank, Imar Bank. A few days later, a US court then ruled against the Uzans’ GSM network, Telsim, in a case brought by Motorola and Nokia.
The US judge ordered Telsim to pay the mobile phone giants USD4.26bn. The case concerned a vendor financing deal between the three, under which Motorola and Nokia lent money to Telsim so that Telsim could buy Motorola and Nokia products to establish its network. As a guarantee, the two international companies had been given a share of Telsim and seats on the board. The court found Telsim guilty of then watering down this share, effectively removing Motorola and Nokia from any influence on the board. Telsim had also then failed to pay back the money originally lent. The case also saw the family’s assets in the US, Britain and Germany frozen.
Yet the offensive against the Uzans did not stop there. The Imar Bank take over exposed fears that a huge number of off-book transactions may have taken place within the bank, with millions of dollars siphoned off to fund other Uzan Group companies.
According to the BDDK, total deposits at the bank amounted to USD535m. However, much of this is believed to comprise fake accounts opened by individuals close to the Uzan family.
The seizure of Imar Bank also cast doubt on the Uzan Group’s successful bid for the state petrochemical company, Petkim. The Uzan controlled Standard Kimya had won the bid, but its letter of guarantee of funding to buy the 88.6% stake was issued by Imar Bank. The privatisation authorities refused to accept this, putting Petkim’s sell off back to square one.
Turkey’s Capital Markets Board (SPK) then launched an investigation into Uzan family investments and now believes it has grounds for new indictments. The BDDK also took over the Uzans’ second bank, Ada Bank, allegedly finding similar suspicious transactions.
With a new law on personal responsibility in banking operations passed in July 2003, the investigation then focused on family members themselves, with the authorities cordoning off one of the family’s villas on the Bosphorus and raiding two of their three luxury yachts. To date though, no members of the Uzan family wanted by the authorities have been found.
Questions are also being asked about the future of Telsim, Turkey’s second largest GSM operator. Telsim has 6.7m subscribers and controls 28% of the mobile telephone market. Uzan family members on the board all resigned their posts in early August to try and avoid liability, yet the hefty US court award and declining confidence in the group are hitting the company badly.
Opinion in Turkey has been split about the wider affects of the Uzan case. Some have cheered Ankara’s hard stand against the Uzan family. Others remain suspicious, seeing the AKP’s aggressive pursuit of the Uzan family as an attempt to sideline an important source of opposition. Earlier, Hakan Uzan described the investigation as “an organised, political campaign against my family, solely based on the fact that my brother is running in politics.”
With the only other party in parliament, the People’s Republican Party (CHP), unable to gain much traction, Uzan’s GP was considered the primary threat to the AKP’s control of parliament. The investigation has undermined much of the party’s support.
Outside the political arena, analysts are busy assessing the case’s economic ramifications. Some have argued that the investigation should shore up investor confidence regarding the government’s willingness to enforce the rule of law. Others see the Imar Bank scandal as evidence of shortcomings in the country’s banking system, restructured after the 2001 financial crisis. After seizing more than 20 banks, the BDDK had confidently announced that there were no bad apples left in the system. It appears the banking watchdog had overlooked Imar and Ada Banks.