As it strives to realise its investment potential, Turkey is plagued by alleged rule of law violations – a challenging context in which to advise, reports Marialuisa Taddia.
Ayse Bingöl Demir is a criminal lawyer based in Istanbul, where she has been practising for more than 10 years. But becoming a public prosecutor, let alone a judge, has not been an option. ‘I haven’t applied because I know I won’t be selected,’ she says. ‘I am of Kurdish origin. I am a human rights lawyer and stand for human rights, so this means I am not a pro-government person.’
The apparent discrimination in Turkey against people of Demir’s ethnicity and beliefs means competent lawyers like her are deterred from applying. Demir’s case also highlights problems in the country’s judiciary, which appears increasingly vulnerable to government interference. ‘Judges don’t feel they can act freely,’ she says. This is undermining public confidence. ‘People in Turkey don’t believe that the judiciary is independent and impartial,’ she adds.
The weakening of the rule of law in Turkey is an issue of concern both for perceived opponents of the government and foreign businesses – and the impact on the judiciary is only one aspect of it.
Although the situation has improved from ‘the very bad days of the early 1990s’, Tony Fisher, of the Law Society’s Human Rights’ Committee, says: ‘The prevailing atmosphere is still oppressive in relation to freedom of assembly, freedom of expression and in relation to the protection of the right of privacy’.
Fisher adds: ‘The position of lawyers and journalists is particularly tenuous within a regime which has brought prosecutions against thousands of individual lawyers and journalists, alleging terrorist activity or activity against the interests of the state.’ He attended as an observer the second Universal Periodic Review of Turkey’s human rights record at the UN in Geneva in January. Other minorities such as lesbian, gay, bisexual and transgender people continue to be discriminated against and persecuted.
President Recep Tayyip Erdogan’s government has since introduced controversial security laws, giving the police new powers, such as detaining people for up to 48 hours without court orders and the right to use firearms against protesters carrying petrol bombs and other weapons. The measures come ahead of the 7 June general election, and follow violent clashes involving Kurds in south-eastern Turkey in October, and the Gezi Park anti-government protests in 2013.
Chris Gaunt, chairman of the British Chamber of Commerce of Turkey, says that, with two major political events in less than a year – next Sunday’s parliamentary vote follows the first direct presidential election last August – investors are nervous.
‘There is still a large appetite for Turkey, but investors are holding back and waiting to see exactly what the elections will bring,’ he says. ‘The short term is unclear and it’s likely to create some instability. But when you look at the medium and long term we, and other foreign business organisations, still believe that Turkey has a lot of headroom for growth.’
UK-based law firms active in Turkey ‘seem to be doing reasonably well’, Gaunt observes. Indeed, despite the often difficult political climate, the foreign law firm contingent keeps growing. In July 2014, Bird & Bird set up an office in the country, joining Allen & Overy, Clifford Chance, DLA Piper and CMS Cameron McKenna, among others.
Under the ruling Justice and Development party (AKP) of President Erdogan, in power since 2003, Turkey has prospered.
Despite a slowing economy (2.9% in 2014), the average growth rate in the last decade was 5%, the fastest among Organisation for Economic Co-operation and Development countries, according to Foreign & Commonwealth Office (FCO) statistics. Turkey is expected to be in the top 10 economies in the world in the next 20 years, former Goldman Sachs chief economist Jim O’Neill predicts.
With more than $140bn of foreign direct investment flowing into the country between 2005 and 2014, according to the Central Bank of the Republic of Turkey, there are plenty of inbound work opportunities for foreign law firms.
John Fitzpatrick, corporate partner and international head at CMS Cameron McKenna, which opened an office in Istanbul in November 2013, points to Turkey’s energy sector, which needs an estimated investment of more than $130bn by 2023 to meet demand. Privatisation of energy production and distribution is ongoing, and this is attracting foreign investors to develop nuclear, solar and wind among other energy sources.
Project finance is another major area of focus for 800-partner CMS. ‘There is a lot of activity related to projects in Turkey at the moment,’ Fitzpatrick says, referring to new roads, bridges, high-speed railway lines, airports and hospitals. ‘Turkey is probably one of the few places in the world where there is a large number of projects in the pipeline with a real possibility of success,’ he says, pointing to the government’s determination to push ahead with mega-projects, including one of the world’s biggest airports in Istanbul and a new canal to bypass the Bosphorus.
Real estate development – the focus of the Gezi Park demonstrations – is dramatically changing the skyline in Istanbul and Ankara, among other cities, and foreign law firms are winning business on the back of it. CMS, for example, recently advised Singapore’s sovereign wealth fund, GIC Private Limited, on its acquisition of a stake in Renaissance Real Estate Investments, one of the largest real estate portfolios in Turkey; this deal was one of the largest cross-border investments into Turkey last year.
To serve a young and tech-savvy urban middle class, Turkey also has a rapidly expanding technology, media and telecommunications industry. As Bird & Bird partner Peter Knight puts it: ‘In the medium to long term, TMT will be one of the fastest growing and most dynamic elements of the Turkish economy,’ with opportunities in mobile telephony, e-commerce and related electronic payment systems. That is one reason why last July Bird & Bird entered into a co-operation agreement with Istanbul-based BTS & Partners, a highly regarded TMT firm, whose clients include Facebook.
There is also plenty of outbound work, an area where international firms have a clear advantage over their Turkish counterparts, thanks to their global networks. Within four hours flying distance, Turkey reaches 1.5 billion customers in Europe, Eurasia, the Middle East and north Africa and markets worth $25tn of GDP, according to the FCO. The EU is Turkey’s number one import and export partner.
Turkey was therefore ‘a logical regional step’ for CMS, given the international firm’s presence in the Middle East, central and eastern Europe, Russia and the Commonwealth of Independent States. ‘We are also very strong in parts of Europe where Turkish companies have been active,’ Fitzpatrick says. For example, the firm has dedicated Turkish teams in Germany, which is one of Turkey’s main trading partners and where the firm has offices in nine cities, and the Netherlands. ‘Many Turkish companies incorporate outside Turkey, in the Netherlands,’ Fitzpatrick says.
Bird & Bird, too, carefully assessed Turkey’s key trading partners before taking the plunge. Like CMS, the firm has a significant presence in Germany, with four offices, as well as Italy (in Rome and Milan), which is Turkey’s fourth largest commercial partner and a supplier of luxury goods and automative parts. ‘You can begin to see why Turkey is important and how we have approached that market,’ says Knight, referring to the firm’s strategy of serving Turkey by following its key trading routes.
Turkish companies have traditionally invested heavily in emerging markets such as central Asia, Russia, the Middle East and north Africa, in part owing to strong cultural links dating back to the Ottoman Empire. But this is changing, Gaunt says: ‘We are now beginning to see an appetite from some of the major Turkish companies to come to the UK.’ One recent example is the £2bn acquisition of UK’s United Biscuits by Turkish conglomerate Yildiz Holding in November last year. The deal has been showcased by the British Chamber of Commerce of Turkey, sparking interest among other large Turkish corporates.
‘Turkey is a cash-rich country, and the big holding companies are cash rich as well. They are now looking for investment opportunities in a number of sectors,’ he says. Istanbul-based hospital group Florence Nightingale Hospitals is establishing its European headquarters in London, while some of Turkey’s largest business dynasties such as Koc, Sabancı and Sahenk are investing their family-owned funds in the UK.
‘There is quite a lot of money invested from these families’ funds in the UK, mainly because they see it as a safe haven; they do have the protection of the law and they have access to global finance,’ says Gaunt. ‘There is a little bit of instability and nervousness around at the moment and that makes London and the UK more attractive.’
Trade between the UK and Turkey is currently worth more than $11bn annually, with 65% coming from Turkey to the UK.
Rolling back rights
But there are real concerns that a roll-back in fundamental rights and freedoms, coupled with government interference in the economy, and sudden changes to legislation and regulation, is souring the investment climate.
‘There is a heck of a lot of uncertainty on regulatory issues, there is no question about that,’ Fitzpatrick says. Renewable energy, which the government wants to account for 30% of Turkey’s total energy output by 2023, is one such example. ‘The renewable sector has attracted a lot of attention from foreign investors and external companies, but the government tends to change the ground rules quite frequently, which causes a lot of concern,’ Gaunt says. This includes the licensing and granting of permits.
Between 2005 and 2014, there was more than $140bn of foreign direct investment in Turkey, according to the Central Bank of the Republic of Turkey
In the last decade, the average growth rate in Turkey was 5%, the fastest among the Organisation for Economic Co-operation and Development countries, according to Foreign & Commonwealth Office statistics
Within four hours’ flying distance, Turkey reaches 1.5bn potential customers and markets generating $25tn of GDP, according to the FCO.
Furthermore, any given market ‘can become highly politicised,’ Knight says, pointing to social media, which played a pivotal role in the 2013 anti-government demonstrations. Twitter and YouTube were temporarily banned before the local elections in March 2014. They were blocked again in April this year alongside Facebook. The government has been tightening control over the internet by introducing legislation that allows it to block websites for four hours without court authorisation.
For Jonathan Friedman, senior associate at risk consultants Stroz Friedberg, businesses operating in Turkey ‘generally face risks from two main sources: a politicised business landscape and underdeveloped institutions’. He says: ‘In Turkey, business is political. This makes it crucial that foreign investors understand the affiliations of their local partners. Choose a partner close to the ruling party, and you will benefit from access to public officials and speedier bureaucratic approvals.
But you will also have to manage heightened corruption risks and threats of regulatory scrutiny when the political tides change.’ Friedman adds: ‘A partner unaffiliated with the government may provide a more stable relationship over the long term. However, in the near term, you may be at a disadvantage – especially in sectors currently receiving high levels of public investment, such as infrastructure and healthcare.’
Mehmet Gün, founding partner of Gün & Partners, one of Turkey’s oldest and largest firms, warns that foreign firms need to be ‘extra careful’ when choosing local law firms to work with, given the variation in quality of services they offer. They also need to know what they can and cannot do.
Registered foreign practices are not permitted to advise on Turkish law, which is the domain of domestic firms. ‘When international law firms provide anything other than foreign or international law advice it is problematic and creates tension among local lawyers,’ Gün says. Despite the influx of foreign firms, the market is still dominated by domestic players, many of which are family-run.
Foreign firms are, however, permitted to form association agreements with Turkish counterparts. But Gün warns of Turkey’s ‘very patchy legal environment’, pointing to the absence in Turkey of a regulator similar to the UK’s Solicitors Regulation Authority. ‘The industry is not properly regulated, there is no standard for services,’ he says. ‘We have a bar which is similar to the Law Society but it is unable to deal with professional conduct issues.’
Turkey has 78 bar associations, the largest of which is the Istanbul Bar Association, which represents more than a third of Turkey’s 66,000 lawyers. All bars are joined up through the Türkiye Barolar Birligi – or the Union of Turkish Bar Associations.
In addition to Gün & Partners, there are a number of well-established Turkish outfits serving international corporate clients, including Bener Law Office, Pekin & Pekin and Sengüler & Sengüler. Although Gün & Partners wants to remain independent and works with a number of UK-based firms, Gün believes that co-operation between foreign and Turkish firms will help improve professional standards and the sector’s profitability.
Fair trial violations
It is not just a question of how the legal sector is regulated. ‘The judiciary is Turkey’s biggest problem, so in this environment you would not expect lawyers to actually improve or excel,’ Gün says, referring to the inefficiencies and the lack of impartiality and independence of the Turkish judicial system.
‘The human right to fair trial is breached not just in criminal proceedings but also in civil proceedings,’ says Gün, who has been practising for over 30 years as a civil and commercial litigator, including in complex patent disputes. ‘It makes my life really difficult. In almost all of the litigation that I have been involved in, the fair trial right is violated because proceedings can last for as long as 10 years or more. I have just come out of the Court of Appeal where a case has been running for 15 years.’
Inefficiencies are caused by work overload, limited resources and inadequate training, especially for the most complex cases. And there are no mechanisms in place or sanctions to stop parties from witholding the truth and evidence from the court, Gün says.
Leading lawyers will share their insights on the £450bn global legal market at the International Marketplace 2015: Going Global conference, to be held at the Law Society in London on 1 July. With panels on developing an international strategy and workshops on emerging markets, this conference will coincide with delegations of leading lawyers from Africa, China, India, Latin America and central Asia coming to London to develop their UK networks.
Society president Andrew Caplen will kick off this event at an international marketplace networking reception on 30 June (the reception is included in the cost of the conference).
Lawyers from boutique and regional law firms will contribute to a conference debate on developing an international business development strategy.
Panellists will also discuss the risks and opportunities of international law firm relationships through networks, formal best friends or informal alliances, as well as establishing offices in new markets.
International Bar Association president David Rivkin and the Law Society’s head of City and international, Stephen Denyer, will be among the speakers on the panel ‘Developing your international strategy: making the most of international organisations’. Panellists will discuss how solicitors can get involved with organisations such as the IBA, UIA, ABA and the Law Society’s own International Division through conferences, committees and other networking opportunities.
Delegates will be able to take part in workshops on exploring new markets in Latin America, Africa, central Asia, India and China.
Over the past five years, Gün and a local non-governmental organisation have been campaigning under the ‘Better Justice’ banner for judicial reform, and in particular for the implementation of full and frank disclosure of facts and evidence by the parties in the Turkish civil procedure. This would significantly reduce courts’ workload and delays, partly by promoting amicable settlements, he believes.
Meanwhile, arbitration for resolving commercial disputes between Turkish and foreign parties is on the increase. Knight says that international arbitration is the area where Bird & Bird has seen the most expansion. He points to the recent establishment of the Istanbul Arbitration Centre, which will deal with both domestic and international disputes, as a welcome development.
But arbitration does not apply to all cases, including those involving criminal and administrative law. There are concerns that the government is exerting increasing pressure on the judiciary; there are reportedly AKP-linked members sitting on the Supreme Board of Judges and Prosecutors, the board which appoints judges and prosecutors. Judges ‘feel threatened’ that if they give decisions contrary to the interests of the state they may be relocated to work in ‘remote places’, says Demir, who collaborates with many NGOs in Turkey and is a member of Savunmaya Özgürlük Platformu (Platform for a Free Defence) which promotes lawyers’ rights.
For the last two and a half years the Law Society’s Human Rights Committee, along with lawyers from the EU and US, have been observing the ongoing trial of 45 mainly Kurdish lawyers in Istanbul. This follows the mass arrest in November 2011 of Turkish and Kurdish lawyers associated with alleged membership of Abdullah Ocalan’s Kurdistan Workers’ Party, which has been waging a decades-long armed struggle against the Turkish state. The lawyers on trial have been charged with terrorist offences for representing at some point Ocalan, according to a recent trial observation report compiled by Fisher.
The hearings, attended by members of the international legal community, have been criticised for apparent breaches of articles 5, 6 and 8 of the European Convention on Human Rights: ‘The process itself is something that is hardly recognisable as a judicial process from a UK perspective,’ Fisher told the Gazette. This includes judges’ refusal to exclude evidence obtained illegally, for example through telephone intercepts or so-called technical searches, and to give reasons for decisions.
Turkish prosecuting authorities’ practice of identifying lawyers with their clients or their causes is not just confined to Kurdish or Turkish lawyers representing Ocalan. ‘It’s a practice directed to lawyers as a profession,’ Demir argues. ‘Whenever they come across government policies and they object, they become the subject of prosecution,’ she says. One example is the president of the bar association of Tunceli, who was recently sentenced to six years and three months’ imprisonment for alleged membership of an illegal organisation.
Compared with 20 years ago, the situation in relation to human rights has improved, driven by Turkey’s desire to join the EU, says Fisher. Turkey applied to join the then European Economic Community in 1987 and in 1997 it was declared eligible to join the EU with accession negotiations starting in 2005. As part of this process, Turkey’s new commercial code, introduced in July 2012, aligned Turkey with EU law and international market practices. However, in recent years interest in EU membership by the increasingly powerful Islamist government of Erdogan appears to have waned and so too efforts to conform to EU values.
It is important to note, also, that, civil rights lawyers have been targeted – not commercial or corporate lawyers.
But Fisher adds: ‘It is bad for the rule of law if lawyers are being persecuted for representing defendants. It is bound to have an effect eventually on the lawyers who are undertaking normal commercial activity because, if there is distrust in the system generally, it affects inward investment and it affects their work, even if they are not being persecuted.’
The Istanbul Bar Association, which mainly comprises lawyers who are not involved in human rights-related disputes, has been ‘very supportive’ of their colleagues under attack, Fisher notes. The president and the board of the Istanbul Bar Association were indicted in early 2013 (but acquitted in February 2014) on suspicion of influencing judges ‘after they stood up for the rights of lawyers, who had defended suspects in a mass-process’ (the Sledgehammer case), according to Dutch NGO Lawyers for Lawyers.
Observers do not believe the situation for lawyers – and the protection of other fundamental rights and freedoms – will improve much after 7 June, especially if Erdogan’s ruling AKP wins enough seats to change the constitution without a referendum, giving the president executive powers. Demir hopes that the pro-Kurdish Peoples’ Democratic Party (HDP) will win 10% or more of the seats, making constitutional change harder. HDP has won support in the non-Kurdish west with a more modern agenda which promotes fundamental freedoms, including minority rights and equality.
As one foreign lawyer, who prefers to remain anonymous, puts it: ‘This government has a lot of power and it is growing, not diminishing. Will it impact international law firms and deals? Probably not. Does it make civil rights lawyers nervous? I bet it does. Does it make your average Turkish commercial lawyer nervous? I am not sure it does – it might if they do public sector work.’
Compared with other emerging economies, Gaunt says that ‘Turkey is still the best place to do business, because you have got a private sector which is very well developed now in terms of operating to the standards that you would expect in any other western market’. A number of Turkish companies are listed on either the New York or London stock exchanges; earlier this year, Borsa Istanbul signed an agreement with the LSE, which will offer trading in futures and options on blue-chip Turkish companies.
Knight argues there are strong fundamentals that offer great promise for savvy law firms: ‘Turkey is a very commercial place with lots of opportunities for people to make money and to invest if they know what they doing.’
This week’s general election will hold the key to maintaining this pro-business climate, as well as progress on fundamental rights and freedoms, upon which western investment and UK lawyers also depend.
Marialuisa Taddia is a freelance journalist