This record is a partial extract of the original cable. The full text of the original cable is not available.

190511Z Feb 04

UNCLAS SECTION 01 OF 03 ANKARA 000953 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EUR/SE, AND EB/IFD 
TREASURY FOR OASIA - JLEICHTER AND MMILLS 
NSC FOR BRYZA AND MCKIBBEN 
 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV TU
SUBJECT: DEPOSIT INSURANCE FUND SEIZES CONTROL OF UZAN 
COMPAN 
 
 
REF: A. 2003 ANKARA 6377 
     ¶B. 2003 ANKARA 5075 
     ¶C. 2003 ANKARA 4386 
 
 
Sensitive but Unclassified - not for internet distribution. 
 
 
¶1. (U) This is a joint Embassy Ankara-Congen Istanbul cable. 
 
 
¶2. (SBU) Summary: Turkey's Savings Deposit Insurance Fund 
(SDIF) moved on Saturday, February 14 to seize control of 219 
companies owned by the controversial Uzan family in the 
latest episode of the protracted conflict between the family 
and Turkish authorities.  The family owes the state almost 
7.5 quadrillion TL (5.7 billion USD) as a result of the fraud 
surrounding its failed Imar Bank, and the SDIF described the 
move as an effort to recover that debt.    Youth Party leader 
Cem Uzan, to date not charged in the burgeoning scandals, 
linked the action to upcoming local elections and accused the 
government of pursuing the family for political reasons, a 
charge swiftly dismissed by government spokesperson Cemil 
Cicek.  Given the breadth of the now-crumbled Uzan empire, 
the SDIF action will have major reverberations, in Turkish 
politics, banking, telecoms, and media, as well as on efforts 
by Motorola and Nokia to recover the large debts owed them by 
Telsim, the Uzan-owned GSM operator.  In addition to cracking 
down on the Uzans, both the GOT and the 
technically-independent SDIF are using the Uzan example to 
try to pressure other owners of failed banks to come to the 
negotiating table. End Summary. 
 
 
DEPOSIT GUARANTEE FUND SEIZES UZAN GROUP COMPANIES: 
 
 
¶3. (SBU) Management not Ownership: In a written statement 
issued on February 14, the SDIF noted that it was acting 
under the authority of last December's amendment to Turkey's 
Banking Law, pursuant to which controlling shareholders and 
their family members are responsible for repaying all the 
debts of an insolvent bank.  The amendment was a condition of 
the IMF,s Sixth Review and ran into significant opposition 
from bankers over the broad powers granted SDIF to seize 
assets from the owners of failed banks.  As a result of the 
failure of Imar bank and the fraud surrounding it (refs), the 
SDIF was forced to make provision for nearly 6 billion USD in 
payments to depositors (a process that is now ongoing).  The 
SDIF noted that it had given Uzan Group officials repeated 
opportunities to present a payment plan for the Group's 
outstanding debts to SDIF, but that they had failed to do so. 
 
 
 
 
¶4. (SBU) As a result, the SDIF moved to take control of the 
companies and install temporary trustees to administer them. 
The Fund made clear that it is taking over "management" 
rather than "ownership," possibly in an attempt to avoid 
assuming the group's debts.  SDIF V.P. Binnur Berberoglu and 
BRSA V.P. Ercan Turkan explained to Econoff that, under the 
amended banking law, the SDIF cannot seize shares of 
companies in the first stage.  According to Berberoglu, the 
law allows SDIF to assume control, and have all rights of 
ownership except the right to receive dividends.  At a 
subsequent stage, once the companies have been fully 
evaluated, the SDIF has the right to seize shares, and sell 
or liquidate the companies. 
 
 
¶5. (Sbu) Cem Uzan in recent public comments has for the first 
time conceded that Telsim, the Group's GSM-operator, 
owed Motorola and Nokia 3.5 billion USD, but had argued that 
in the event of a takeover the SDIF became responsible for 
this amount.  Media reports cite a number of legal experts, 
however, as suggesting that while the company is now under 
state control, it retains its legal identity and retains 
responsibility for its obligations. 
 
 
¶6. (SBU) A Paper Empire?  On paper, the Uzan empire is vast, 
encompassing 219 companies and up to 40,000 employees. 
Initial reports, however, indicate that 
of this total only 124 companies were actually doing 
business, and that the remaining 95 exist only on paper and 
will soon be liquidated.  Fund officials have declined to 
comment publicly on these reports, stressing only that the 
SDIF will decide what to do with individual companies after 
reviewing their 2003 financial statements.  Currently, new 
company trustees are poring over company books in an attempt 
to determine each company's actual operations and assets. 
 
 
¶7. (SBU) The SDIF,s Berberoglu confirmed to econoff that one 
of SDIF,s motivations was to ensure that the companies, 
Uzan-appointed managers were not continuing to take money out 
of the companies for the Uzans, use.  Wednesday,s papers 
reported that Telsim, like Imar Bank, had double sets of 
books.  According to the press reports, Telsim,s managers 
used the double-accounting to underreport Value-added and 
Special Communications taxes collected from customers and 
keep the tax collections for themselves. 
 
 
¶8. (SBU) Political Countercharges: Cem Uzan, the only leading 
family member not in hiding, reacted to the latest move with 
typical bravura, reiterating his favorite charge that the 
government was persecuting his family out of fear of the 
political threat posed by his "Genc" or Youth Party. Swiftly 
asserting that the charge was false, Government Ministers, 
including Finance Minister Kemal Unakitan, said the action 
was undertaken by the SDIF in full accordance with Turkish 
law. 
 
 
BANKING, TELECOM, MEDIA, AND POLITICAL REVERBERATIONS: 
 
 
¶9. (SBU) Pressure on other owners of failed banks: Though the 
costly Imar Bank failure provided ample reasons for the SDIF 
to move against the Uzans, the move also put pressure on 
other owners of failed banks who have yet to negotiate 
payment plans with SDIF.  According to a Milliyet article, 
there are nine bank owners who have yet to work out a payment 
plan, even though their banks were taken over two or three 
years ago.  On Tuesday, Prime Minister Erdogan explicitly 
referred to the other bank owners, saying the SDIF is 
inviting them to the negotiating table 
 
 
¶10. (SBU) Telecom:  Government officials have told us 
privately for weeks that they intended to take over Telsim 
(probably the most profitable company in the Uzan Group), and 
to re-sell it quickly.  At this early stage, it is not clear 
what impact the takeover will have on Motorola's attempts to 
recover its debts from Telsim.  SDIF officials indicated that 
their priority is to recover debts owed to the Turkish state, 
but refrained from making clear statements about debts to 
third parties.  Some independent legal analysts have noted 
that such third-party 
liabilities would only be repaid after the group met its 
extensive liabilities to the state.  When Prime Minister 
Erdogan was asked about the debts to Motorola and Nokia, he 
said the State was not "the interlocutor" on the issue. 
 
 
¶11. (SBU) &Star8 Journalists Claim Press Censorship: 
The &Star8 media group, which includes &Star8 newspaper 
(circ. 250,000) and a handful of popular television channels, 
played an important role in the Uzans, political 
aspirations.  It served as a mouthpiece of Cem Uzan,s Genc 
Party and a platform through which Uzan could criticize the 
AKP government with impunity and without concern for balanced 
coverage.  The takeover of &Star8 management has had an 
immediate, visible impact in the media formerly controlled by 
the Uzans.  Monday,s &Star8 newspaper, for example, 
featured a lengthy justification from the Savings Insurance 
Fund about the reasons for the takeover.  The article 
portrayed the action as an effort to recover looted funds 
owed to Turkish depositors.  Pro-Uzan political columnists 
have been notably absent from the pages of &Star8 since the 
weekend.  The newspaper continues to publish, but the 
pro-Uzan slant and the relentless criticism of the AKP has 
stopped. 
 
 
¶12. (SBU) The changes at &Star8 have provoked outrage among 
some employees of the &Star8 media group.  For weeks, 
employees of &Star8 television channel have used their 
nightly newscast to rant against the government for 
&blocking8 their salaries.  In today,s &Cumhuriyet8 (the 
opposition newspaper most reflective of Kemalist 
establishment views), &Star8 media president Can Atakli 
accused the government of &religious, fascist, dictatorial 
pressure8 against the media.  &Star8 columnist Hayrullah 
Mahmud said that the government &doesn,t want to see things 
it doesn,t like in the papers or on the TV screen.8 
Pro-Uzan forces at &Star8 received support yesterday from 
the Turkish Journalists, Council.  Oktay Eksi, the 
Council,s President (a staunch opponent of the AKP 
Government), said that the &discrimination8 against 
&Star8 media was ¬ just an effort to silence the 
opposition media, but to turn that media into a mouthpiece 
for the government.8 
 
 
¶13. (SBU) Comment: Leaving aside the legal issue of 
government interference in media content, the 
characterization of &Star8 as &opposition media8 is both 
incomplete and disingenuous.  &Star8 media under the Uzans 
was, by any standard, completely irresponsible and without 
moral scruple.  &Star8 newspaper routinely fabricated 
&news8 to discredit its targets, which included the 
government, the United States, and this embassy, while 
attempting to build a personality cult for Cem Uzan to 
further Genc Party interests.  Although there may be a 
legitimate debate here about freedom of the press, we 
shouldn,t pretend that &Star8 had any redeeming value as a 
media outlet.  End Comment. 
 
 
¶14. (SBU) Political Dimension: Our contacts in and close to 
AK Party have consistently told us that, while Erdogan and AK 
have made a big deal about using the example of action 
against the Uzans to demonstrate resolve in combatting 
corruption, Erdogan has been out to get the Uzans more for 
personal and political reasons.  Our Law Enforcement 
exchanges underline this point, as they highlight the paucity 
of effort at building a case to prove the seemingly-evident 
Uzan embezzlement from Imar Bank.  Erdogan has never 
forgotten Cem Uzan's public insult -- denigrating Erdogan's 
piety -- at a rally in Bursa in mid-2003.  Moreover, as one 
contact with immediate access to Erdogan has just confided to 
us based on recent conversations with Erdogan and his inner 
circle, Erdogan has set an ambitious nation-wide target for 
AK in March 28 local elections and wanted to use this 
opportunity to rid himself of Cem Uzan's Genc Party, which 
Erdogan feared would be the principal rival in key 
urban-sprawl areas.  By this action, and Cem Uzan's tearful 
(i.e., unmanly) reaction on television, Erdogan has slashed a 
political rival.  However, Erdogan has not yet addressed the 
deep alienation in urban-sprawl areas which Uzan had fed off 
to launch Genc and which will provide the political Petrie 
dish for the next populist-nationalist political movement. 
 
 
¶15. (SBU) Comment: Saturday's takeover represents another 
nail in the coffin of the Uzan business empire, and it is 
increasingly difficult to see how the family will ever 
recover.  Given his infamous clan's unsavory track record, it 
is doubtful that Cem Uzan's attempt to turn the issue to his 
political advantage will succeed. 
 
 
ARNETT 
EDELMAN