Memorandum On The Law No. 5549 For Prevention Of Laundering Of Crime Revenues

Article by Pekin & Pekin

Subject

The Law No. 5549 (For Prevention of Laundering of Crime Revenues) has been enacted upon promulgation in the Official Gazette dated 18.10.2006.

The Law No. 4208 FOR PREVENTION OF LAUNDERING OF BLACK MONEY has thus been repealed and superseded to a great extent. Only some of the provisions on (Controlled Delivery) of the Law No. 4208 were left in effect while its essential provisions and conditions base were repealed and abolished.

"Controlled Delivery that was left in effect in the Law No. 4208" – as known – was related with the controlled DELIVERY of the narcotic drugs and psychotropic substances to be distributed inside the country or to be brought from abroad and distributed inside Turkey or to be taken to abroad after their preparation in Turkey or to pass in transit through Turkey under the knowledge and supervision of the official authorities, for the purposes of identification of the perpetrators of criminal acts, and determination and collection of all kinds of evidences, and CONFISCATION of the illegal or suspected "commodities or funds". Therefore, excepting the "Controlled Delivery" provisions, we can now say that the Law No. 4208 For Prevention of Laundering of Black Money has been totally rescinded and superseded by the new Law No. 5549, including the concept of (Laundering of Black Money).

This study aims to bring explanations to the key provisions of the new Law No. 5549.

Law For Prevention Of Laundering Of Crime Revenues

1. Provision introduced by the Turkish Criminal Code

   Article 282 (Laundering of Assets and Proceeds Originating From Crime) of the new Turkish Criminal Code which has generally become effective as of 01 June 2005 introduces the crime of (Laundering of Assets and Proceeds Originating From Crime). This new provision has brought about changes in the concepts, prompting the introduction of a new law with the concept of (crime revenues) in place of (black money) in the center, also in consideration of the changes in the world.

2. Amendment in the Concepts Under Other Laws and Regulations

   The term of (BLACK MONEY) included to the other laws and regulations has been replaced by (ASSETS AND PROCEEDS ORIGINATING FROM CRIMES) under the stipulations of new Law No. 5549; similarly (BLACK MONEY LAUNDERING CRIME) shall from now on mean (MONEY LAUNDERING CRIME).

3. Provisions of the Law

3.1 Definition

MONEY LAUNDERING crime introduced under the Law For Prevention of Laundering of Crime Revenues shall mean the crime stipulated under Article 282 headed (laundering of assets and proceeds originating from crime) of the New Turkish Criminal Code No. 5237.

The meaning of the concept of (crime revenue) has been set as (assets and proceeds originating from a crime).

3.2 Determination of Identity

3.2.1 Professions and Businesses Charged with Making Identity Determination

The following professions and businesses (Liable Parties) are during their activities obliged to make identity determinations:

• banks
• insurance agencies
• private pension agencies
• capital markets
• providers of money lending and other financial services
• post and transportation
• operators of fortune and betting games
• dealers of (foreign exchange), (real property), (precious stones and mines, jewelry), (transportation vehicles), (construction works machinery), (historical works), (works of art and antiques)
• brokers of the above activities
• public notaries
• sport clubs
• those involved with other activities as may be determined by the Council of Ministers...

3.2.2 Obligation of Determination

The Liable Parties listed at (3.2.1) above are obliged to determine the identities of the persons "making" the transaction carried out or brokered by their organization and of the persons in whose names and accounts the subject transaction is carried out - before the subject transaction is realized.

3.2.3 Documents Regarding Determination

The Ministry of Finance is authorized to determine the types of the documents on which the identity determination will be based.

3.3.3 Transaction Types

(i) Types, (ii) value limits, and (iii) other principles and procedures regarding the transactions requiring identity determination shall be determined by a Regulation.

3.2.4 Issuing of Regulations

According to Article 27 of the Law, the issues to be determined by the Ministry and the Regulations required to be issued shall be identified and announced within six months – at the latest until 18 April 2007.

According to Provisional Article 1 of the Law, THOSE PROVISIONS OF THE EXISTING REGULATIONS WHICH ARE NOT IN CONTRADICTION WITH THE NEW LAW SHALL CONTINUE TO APPLY until the regulations or other legislative acts required to be enacted and issued by the Ministry are put into effect.

3.3 Reporting Doubtful Transactions

3.3.1 Obligation

The transactions:

• carried out, or
• ATTEMPTED to be carried out

in the presence of or by the liable parties as listed under the Paragraph (3.2.1) above are obliged to be reported by the referred persons to the Financial Crimes Investigation Board Chairmanship (MASAK) provided that there is any kind of (INFORMATION), (DOUBT) OR (ANY POINT REQUIRING DOUBT) to the effect that the asset subject to the transaction in question:

• has been obtained illegally, or
• has been/is being used for illegal purposes.

3.3.2 Non-Disclosure Obligations and Exceptions

Liable parties are BANNED to disclose to anyone – including to the parties of such transaction - the fact that they have reported a doubtful transaction to MASAK. Only (the supervisory personnel in charge of controlling the reporting obligation) and the (courts during the pending process of trials) are exempted from this ban.

We believe that the point that should be taken care of here regarding the (exceptions) is that the disclosure can be done to the supervisory personnel "CHARGED with controlling the obligations of the organization in charge of reporting" and not to all supervisory staff of MASAK. In other words, it is not enough that the supervision personnel are "authorized" but they should also be "charged" with the subject service.

3.3.3 Procedures and Principles of Reporting

The Law has provided that the Regulation will determine the cases which require reporting of doubtful transactions based on which "activities" of the Liable Parties and the "procedures and principles" this reporting will be based.

3.4 Authorities of the Ministry of Finance

The Ministry is authorized to identify the Liable Parties and the principles of implementation on condition of conformance with the objectives of the Law and also in consideration with the size and business volume of the operations on the subjects of:

• assigning "a person at ADMINISTRATIONAL level" having the required authorities, and
• "taking other measures" as may be required

for the purpose of ESTABLISHING

• Education systems
• Internal audit systems
• Control systems
• Risk management systems

and to ENSURE HARMONIZATION with the obligations.

In our opinion, banks should be CAREFUL and sensitive about the instructions that might be given by the Finance Ministry – as an authority which is outside the Banking Regulatory and Supervisory Agency – regarding (internal audit – control and risk management systems) on the subject of laundering of crime revenues. Additionally, the concept of "determining the obligations" as specified by the Law (in its Article 5) is also noteworthy.

3.5 Informing

3.5.1 Obligation to Inform Transactions with Certain Sums on a Permanent Basis

Liable Parties are required to inform MASAK the transactions they have been a (party) to or they have acted as (intermediary) with sums EXCEEDING THE SUM to be identified by the Finance Ministry. The Ministry shall separately determine:

• Types of transactions required to be informed,
• Mode and term of informing,
• Liable Parties to be excepted from the obligation to inform,
• Procedures and principles of application...

3.5.2 Information Requests from the Persons Other Than Liable Parties

The Law stipulates that in addition to the Liable Parties;

• Public institutions and organizations, and
• Institutions and organizations which are characterized as public institution and organization¹

may also be requested to inform MASAK on a permanent basis. The procedures and principles of such informing will be determined by the Regulation.

3.5.3 Obligation to Provide Information and Document

3.5.3.1 Providing All Kinds of Information and Documents

• Public institutions and organizations
• Real persons and legal entities
• Organizations having no legal personality

are obliged to submit ALL KINDS OF INFORMATION, documents, and the records in all and any media (meaning principally electronic media) containing thereof, all information and passwords required to access or make readable such records as may be required by MASAK and SUPERVISORY STAFF IN A COMPLETE AND CORRECT WAY, and to provide the required assistance and facility.

Those who are requested to provide information CAN IN NO WAY REFRAIN FROM PROVIDING SUCH REQUESTED INFORMATION AND DOCUMENTS ON THE GROUND OF THE WRITTEN PROVISIONS OF SPECIAL LAWS. In our opinion, banks can not shun from providing information in such a case on justifications of (banks' secrecy) clause stipulated by Banking Law.

3.5.3.2 Supervisory Staff to Whom All Kinds of Information can be Disclosed

The Law stipulates that supervisory staff of:

• Fiscal Inspectors
• Senior Accountants
• Customs Inspectors
• Revenue Controllers
• Banks' Sworn Comptrollers
• Treasury Controllers
• Specialists of Banking Supervisory and Regulatory Agency
• Specialists of Capital Markets Board

are persons to whom all and any kind of information can be disclosed – on condition of their having been authorized; i.e. the existence of a request by MASAK Chairmanship (Article 11/2).

3.6 Keeping and Maintaining Documents

3.6.1 Retention and Presentation Period

Liable Parties (banks and any other Liable Party) are required to (retain) and (present) to the authorities as required the documents in all "media" regarding the obligations and transactions stipulated by the Law for a period of EIGHT YEARS starting from (the date of preparation of such documents), the books and records starting from (the date of their final registration), and the identity determination documents starting from (their final transaction date).

3.6.2 Our Opinion About the Term Requirements in Other Laws

At this point, we deem it would be beneficial to establish the relationship of this time requirement with the term requirements stipulated under other laws, and to present our opinions on this subject.

3.6.2.1 Turkish Commercial Code

Article 68 of the Turkish Commercial Code stipulates that (persons obliged to keep books and their successors and assigns for trading operations) are obligated to (retain their books for a period of TEN YEARS starting from the final registration date, and other accounts and papers obliged to be retained starting from the dates written on them.

3.6.2.2 Banking Law

Article 42 of the Banking Law imposes the obligation that "the documents concerning the letters received and the activities involved should be retained in the bank for a period of TEN YEARS".

3.6.3.4 Taxation Procedures Law

Retention period for the documents and books is FIVE years under Taxation Procedures Law.

3.6.3.4 Our Opinion

In our opinion, the terms set forth for the corporations having commercial identity and for the banks under Turkish Commercial Code and the Banking Law respectively should continue to apply. It would be more appropriate to deem that no change has been made in the term of TEN YEARS that applies to commercial enterprises.

On the other hand, organizations which do not have a commercial identity and a legal entity according to the provisions of the Turkish Commercial Code, and similar organizations such as sports clubs are required to comply with the term of EIGHT YEARS. We believe that the documents concerning the tax issues should also be retained for a period of (eight years) provided that it is found out that they are connected with a crime.

3.7 Liable Parties and Provisions Concerning Obligations

3.7.1 Two Provisions Stipulated for Protection of the Liable Parties

3.7.1.1 Non-liability

Real persons and legal entities – including banks - performing their legal functions CAN "in no way" BE HELD LIABLE on CIVIL and CRIMINAL grounds or law provisions.

3.7.1.2 Security of the Personnel Reporting Doubtful Transaction

No information can be given to third persons, institutions and organizations (except the courts) concerning the persons who have (reported doubtful transaction), and the identity of these persons, institutions and organizations shall be kept CONFIDENTIAL, even though there is no provision in the special laws in this direction. The COURTS take the PRECAUTIONS as may be required for the security thereof.

3.7.2 Supervision of Obligations

3.7.2.1 Principles

Supervision of the obligations is performed by the (supervisory staff) listed under Paragraph (3.5.3.2) above.

MASAK may request the supervision of the Liable Parties to be carried out INDIVIDUALLY or in accordance with a SUPERVISION PROGRAM.

The "authorized" supervisory staff is entitled to inspect all and any documents and records, and to request all kinds of information and documents.

3.7.2.2 Obligation to Notify

Supervision staff is obliged to notify MASAK all violations of obligations they detect during their performance of their "duties" they have been assigned by their organization on the subjects "which are within the scope of their responsibility".

3.7.3 Effective Date of Memoranda of Agreement

MASAK CHAIRMAN is authorized to sign "memoranda of agreement" – WHICH ARE NOT INTERNATIONAL TREATIES – with the Chairmen of the counterpart organizations in foreign countries for the purpose of international exchange of information on the subjects related with the duty of MASAK. These "memoranda of agreement" take effect by the decision of the Council of Ministers.

3.7.4 Administrative Fines

3.7.4.1 Sum of Administrative Fines

Liable Parties are imposed an administrative fine of YTL 5,000 by the MASAK Chairmanship, if they do not comply with the obligations of (identity determination), (informing on a permanent basis) and (notifying the doubt).

3.7.4.2 Imposition of Fines in Two-Folds

This administrative fine is imposed in TWO FOLDS if the subject Liable Party is:

• bank
• finance company
• factoring company
• lender
• financial leasing company
• insurance and reassurance company
• pension company
• capital markets institution², or
• authorized institution³.

3.7.4.3 Imposition of Fines to the Personnel

Real person officers of the Liable Parties who omit making (identity determination) and who do not report the (doubts) are imposed an administrative fine of YTL 2,000.

3.7.4.4 Other Provisions About Fines

Liable Parties who do not abide by the warnings served to them for the establishment of (training, internal audit, control and risk management systems), and who fail to implement the (other) required precautions are also imposed an administrative fine of YTL 5,000.

No fine is imposed on the Liable Parties if a period of FIVE years has passed over the date of violation.

Procedures and principles about the administrative fines will be identified by a Regulation.

3.7.5 Provisions About Judicial Punishment

Those who:

• Disclose the names of the personnel who have reported a doubtful transaction
• Refuse to give information and documents to the supervisory personnel and to MASAK
• Fail to retain the information and documents for a period of EIGHT YEARS and present such information and documents within this period

are sentenced a prison term STARTING FROM ONE YEAR UP TO THREE YEARS and imposed judicial fine of up to 5,000 days.

Not declaring a transaction even though such a transaction has been entered in the name of another person requires a prison sentence STARTING FROM SIX MONTHS UP TO ONE YEAR, and imposition of a judicial fine of up to 5,000 days.

3.7.6 Fines at Customs

All passengers during their trips to abroad are required to provide COMPLETE and CORRECT explanations to the Customs Authority – provided that they address a question to them concerning their belongings in:

• Turkish lira
• Foreign currency, and
• The notes and other documents used for payments in the above.

Untrue and misleading answers may lead to the conclusion of RETENTION of the belongings of the subject passenger at the customs. In this case, the passenger is imposed an administrative fine at the sum of ONE TENTH of the "total value of the belonging" if no announcement was made by the passenger, or ONE TENTH of the difference between the value of the belonging and the announced value if a wrong announcement has been made. The provisions of this Paragraph do not apply to the differences up to YTL 1,500.

3.7.7 Confiscation

If "money laundering" and "financing of terrorism" is in question or if there exists such a doubt; subject assets may be confiscated. (See Law No. 5271.) In cases where possible delays may bear negative consequences, confiscation decision may also be given by the Public Prosecutor on condition of endorsement of this decision by the Judge within 24 hours. (Article 17.)

Decisions of "confiscation" or "no requirement for an investigation" are notified to MASAK.

3.8 MASAK Chairmanship and Coordination

MASAK Chairmanship reports directly to Minister of Finance.

Coordination between the institutions and organizations concerned with appraisal and application is carried out by (Coordination Board for the Fight with Financial Crimes). This Board is consisted of Undersecretaries, General Managers, Chairmen and Inspection Personnel of various public departments as regulated under the Law, and meet at least TWICE A YEAR.

Sufficient number of (financial crimes investigation specialists and associate specialists) is employed at MASAK services.

3.9 Disclosure of Secrets and Punishment

"Related Officials" can not disclose or use the secrets they learn throughout their life.

Informing the COUNTERPART organizations in foreign countries does not mean (disclosure) in this sense.

Those who disclose the secrets are sentenced with a prison term STARTING FROM ONE YEAR TO FOUR YEARS. If the crime includes any material interests, the term of the prison sentence can not be less than TWO YEARS.

3.10 Increase of Fixed Sums of Fines Provided by the Law

Administrative fines imposed in cases of violations of obligation and the fines imposed due to misstatements at the Customs Authority are increased by the "revaluation rate" determined by the Finance Ministry every year.

Footnotes:

^{1 Article 135 of the Constitution of Republic of Turkey has regulated (professional organizations which are characterized as public organization).}

^{2 See Article 39 of Capital Markets Law.}

^{3 Offices authorized with dealing Foreign Exchange are meant.}