Turkey: An Overview On The Foreign Capital Movements From The Perspective Of Financial Crimes

Last Updated: 12 August 2015
Article by Nil Tomul

Foreign capital has a significant place in the development of the Turkish economy in line with the trade idea of the global economy reaching out the macro dimensions exceeding the countries. Therefore, for example, Law No. 4875 on Foreign Direct Investments etc. legislations have been amended to encourage the foreign capital for investing to Turkey. As a result of these amendments in the legislation, the investments of the foreign capital companies in Turkey have increased, thus the investment based money flow from abroad has been accelerated.

Although the amendments in question in the legislation have ensured legitimate investments which caused an increase in the international economical and financial relationships, they have also caused illegitimate resources to be transferred to the country. Against the fact of money flow not based on a legitimate resource, it has required to establish financial intelligence units and effectively struggle against the national and international laundering of crime revenues. Therefore, the principles and methods related to the payment of the capital shares undertaken by the foreign partners of the companies are of great importance in terms of preventing the money transfers from being considered as a suspicious transaction by the banks and being subjected to financial investigation by the financial intelligence units. The Circular on Capital Movements of the Central Bank of the Republic of Turkey (TCMB) is evaluated below in the light of financial crimes.

BRINGING FOREIGN CAPITAL SHARE TO TURKEY

The cash capital brought by the foreign investor to the country for being used in establishing a company or branch with foreign capital, participation to the existing companies or share transfer or capital increase has to be deposited to a bank operating pursuant to the Banking Law No. 5411 and to be in a currency traded by the TCMB.

The Banks are liable for proving that the capital share amount, transferred or effectively brought, is actually received from the foreign partner abroad pursuant to the notice no. 55297 issued by the Undersecretariat of Treasury on September 10, 2003.

In this context, in order determine whether the foreign capital share amounts brought in effectively are actually from the foreign partner, the amount should be declared to the customs when entering the country and a cash statement form should be issued by the customs authorities. In order to recognize the amounts transferred from the free zones to Turkey as foreign capital, these amounts should have entered the free zone from abroad.

In line with article 344 "Payment of the Share Premiums" of the Turkish Commercial Law No. 6102, the cash payments brought in as a foreign capital share premium should meet the following in order to be deposited to a bank and to be accepted as a share premium by the relevant bank:

  1. The reason for bringing should be clearly stated as "foreign capital share" in the "Reason of Arrival" of the cash statement form,
  2. The identity of the person submitting the cash statement form should be made,
  3. The written statement of the person bringing the foreign capital share in cash should be sought for.

If the payments received as a foreign capital share premium are taken into Turkish Lira deposit account or foreign exchange account with a foreign exchange receipt document and a receipt is issued, then the following information should be available on the foreign exchange receipt certificate or the receipt:

  1. Name of the foreign capital company,
  2. Name of the foreign partner,
  3. Country where the foreign exchange or Turkish Lira is sent from,
  4. Receipt method of the foreign exchange or Turkish Lira (money transfer or effective),
  5. Type of foreign exchange, its amount/Turkish Lira amount
  6. US dollar equivalent (intermediary bank cross rate),
  7. Turkish Lira equivalent over the current foreign exchange buying rate of the intermediary bank,
  8. The reason for foreign capital share (capital increase, transfer related to affiliate, etc.),
  9. Industry or service line which the foreign capital share is received for.

PAYMENT OF FOREIGN CAPITAL SHARE

The amount sent by the foreign partner for being used in a company establishment or capital increase within the scope of the Turkish Commercial Law No. 6102 and deposited to a special account to be opened for the company in a bank regulated under the Banking Law No. 5411 will be paid by the bank to the company only upon submitting a letter to bank received from the trade registry office and stating that the company has gained a legal entity.

PAYING CAPITAL INCREASE FEE INSTEAD OF CAPITAL ADVANCE

In order to tighten the capital movement controls and to prevent the company from using the money received as a capital, an amendment has been made in the Circular on Capital Movements with the Circular no. 2013/YB-7 of TCMB on 29.03.2013, and the acceptance of capital advance payments is prevented. Accordingly, while it was free for the foreign capital companies to accept capital advance payment from the foreign partner and to use this amount for the company before the Circular no. 2013/YB-7 dated 29.03.2013 is issued, this freedom is abolished with the issuance of the circular. In this respect, the amount sent for capital increase will now be monitored as a capital increase amount from the date it is entered as a credit to the Turkish Lira deposit or foreign exchange deposit account to the date it is registered.

In case the capital increase amount is not registered as a capital and requested to be returned back to abroad, then the refunding of this account will be made according to the relevant principles and methods. On the other hand, it is also possible and probable that the credit received by the foreign capital company from the foreign partner is not refunded to abroad, and included to the capital as the foreign partner's capital share premium. In this case, when the process related to adding the amount in question to the capital, it is required to notify the General Directorate of Statistics Directorate of Payments Balance in writing that the credit of the bank, which has received the abroad credit, is not refunded and added to the capital.

ASSESSMENT FROM THE PERSPECTIVE OF FINANCIAL CRIMES

There are some liabilities imposed to the financial institutions and to the ones operating in some industries (for example investment trusts, insurance, reassurance and pension companies as well as insurance and reassurance brokers, investment fund directors, asset management companies) both in the international arena and with the domestic law in order to struggle against the laundering proceeds of crime and to prevent the use of the financial system by the criminals. Banks are among the top of the industries which a liability is imposed to.

Pursuant to article 4 of the Law on the Prevention of Laundering Proceeds of Crime no. 5549, in case of any information, suspicion or any sign requiring suspicion of the banks that the asset subject to the transaction carried out or attempted to be carried out before the banks are obtained by illegal means or used for illegal means, then the banks are obliged to inform about such transaction.

In this respect, considering that the cash capital brought by the foreign capital to the country has to be deposited to a bank operating pursuant to the Banking Law No. 5411 and any kind of transaction has to be completed before the banks, we believe the money transfers to be made before the banks related to the company establishment, capital increase and share transfer should be made pursuant to the Circular no. 2013/YB-7 of TCMB issued on 29.03.2013, in cooperation with the banks, in order to not consider them within the scope of suspicious transaction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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