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

UNCLAS SECTION 01 OF 02 ISTANBUL 001577 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV CASC TU
SUBJECT: SDIF CHIEF REVIEWS A SUCCESSFUL BUT TURBULENT YEAR 
 
REF: A. ISTANBUL 43 
 
     ¶B. ISTANBUL 644 
 
This message is sensitive but unclassified and contains 
privacy act information.  Not for internet distribution. 
This message was coordinated with Embassy Ankara. 
 
¶1. (SBU) Summary: In a wide-ranging conversation with 
visiting Ankara Econ Counselor and Istanbul P/E Chief, the 
Chairman of Turkey's Savings Deposit Insurance Fund (SDIF), 
Ahmet Erturk, reviewed his organization's progress in 
recouping Turkey's losses from the 2001 banking crisis. 
Noting that the fund this year for the first time made a 
significant payment to the Turkish Treasury, he expressed 
hope it ultimately would collect up to 10 billion USD.  On 
specific cases, Erturk predicted that the fund will soon 
reach a settlement with Motorola regarding its outstanding 
receivable from Telsim (the Uzan-owned cellphone operator the 
TMSF has seized and will sell on December 13).  Regarding the 
situation of American citizen Clifford Polley (reftels), who 
has been subject to a TMSF travel ban since 2002, he noted 
that a proposal permitting him to travel will soon be 
presented to the TMSF board.  Erturk conceded that his 
organization wields extraordinary and almost unfettered 
power, but argued that "extraordinary circumstances require 
extraordinary solutions."  He concurred with the judgment of 
many bankers here that institutionalization of such powers in 
Turkey's new banking act is not a long-range solution, and 
that these provisions should be revisited.  End Summary. 
 
¶2. (SBU) A Busy Agenda: Erturk noted that he has been much 
preoccupied of late with the recently concluded 
non-performing loan sale (NPL) won by a partnership between 
Lehmann Brothers and Turkey's Finansbank.  He stressed that 
the sale is close to the final phase, though he predicted 
that there will be legal disputes and challenges.  He added 
that the fund has already turned over 1.5 billion USD to the 
Turkish Treasury, and will focus in coming months on selling 
Uzan family assets to recoup losses from the major fraud that 
was perpetrated at the family's Imar Bank.  The assets are 
divided into three groups: the media group (with 10 sale 
units: two television stations, seven radio stations, and 
"Star" newspaper), the cement factories (nine in total), and 
Telsim, which will be sold on December 13.  Questioned about 
a letter the Consulate and Embassy recently received from the 
Uzan's lawyer warning U.S. nationals away from the planned 
sales, Erturk was dismissive, pointing out that the Fund has 
been taken to court 200-300 times and has yet to lose. 
 
¶3. (SBU) A Motorola Deal: Erturk noted that the fund is in 
intense negotiations with Motorola to settle its 
multi-billion dollar claim against Telsim (resulting from a 
deal in which the Uzans defrauded Motorola out of 2.2 billion 
USD).  He conceded that the negotiation has taken a long 
time, and said that the problem has centered not on the 
financial side but on the question of a payment guarantee 
from the Turkish government in the event the sale of Telsim 
were overturned, given that the payment was to come out of 
sale proceeds for the company.  Erturk said the two sides 
have agreed to change the model: Motorola will still receive 
20 percent of the sale price of Telsim (at least 500 million 
USD), but it will receive a major portion in advance, so the 
guarantee issue can be set aside.  Erturk termed the proposed 
settlement a good transaction for both the GOT and Motorola: 
the fund will sell a "clean" asset, resulting in a higher 
valuation, while Motorola will avoid a long legal labyrinth. 
He added that the fund's agreement with Nokia (which was 
similarly defrauded) has already been finalized.  That 
company will receive 7.5 percent of the sale proceeds, and 
may request renegotiation to match Motorola's payment terms, 
if it finds them more favorable. 
 
¶4. (SBU) Law and Power: Erturk conceded that his organization 
has unmatched (and almost untrammeled) authority, but argued 
that the special situation resulting from the 2001 banking 
crisis and other banking abuses such as Imar Bank required 
such an approach.  Without such power, he stressed, the Fund 
would have been unable to recover any assets, as it could not 
have "followed the money."  Regarding the legal situation of 
Demirbank and Kentbank, the takeovers of which were later 
overturned by the Council of State (Danistay), Erturk noted 
that the SDIF is not a party to the case, rather the Turkish 
Banking authority (BDDK) was the defendant. 
 
¶5. (SBU) Suzer Group: When asked his response to the argument 
that the Suzer Group has been advancing in Washington that 
the Turkish government has failed to respect the rule of law 
in refusing to return Kentbank to it in accord with the 2004 
Danistay decision, Erturk characterized the decision as 
"devoid of meaning."  If it had been taken immediately after 
the takeover, he argued, it could have been implemented, but 
coming after passage of several years, and after the bank had 
been merged into other institutions, it could not be carried 
out.  Instead, he suggested, the Suzers should pursue a case 
for monetary damages.  He predicted, however, that given the 
government's expediture of 2 billion USD to settle claims 
against Kentbank, the court would likely find there was no 
equity in it.  As an aside, Erturk suggested that the Suzers' 
concern about legalities is not unreserved: another court has 
ruled that its Suzer Plaza Building housing the Ritz Carlton 
should be torn down-- a decision the family is obviously not 
eager to see carried out.  (Note: Erturk appears to have been 
referring to a Danistay decision that the permit for the 
building was improperly granted.  A separate case by Istanbul 
Technical University seeking the demolition of the structure 
also is working its way through the courts.  End Note.) 
Erturk added that the Fund has also had difficulty with the 
Suzers in that they have "stolen" assets by moving them 
offshore where they "cannot be followed." 
 
¶6. (SBU) Banking Law: Regarding Turkey's new banking law, 
Erturk concurred with concerns we have heard from some 
bankers that the new banking law goes too far in making 
permanent the SDIF's power and criminalizing normal banking 
activity (under the draft, bankers are personnally liable for 
twenty years for any bad loans they approve, and they and 
their relatives can be pursued legally to recover damages). 
He said "they are right" in arguing that the provisions are a 
disincentive to banking, and added "there are articles in the 
law I would not accept."  He disputed the suggestion that the 
SDIF is responsible for the provisions, however, attributing 
them to the will of the Turkish Parliament.  As a result, the 
law makes no distinction between the "normal risk taking" 
that is involved in banking and fraudulent activities.  The 
provisions, he concluded, should be revised in the near 
future. 
 
¶7. (SBU) Clifford Polley: Erturk indicated that he has 
received Congressional correspondence on the case of Clifford 
Polley, who has been under a SDIF travel ban since 2002 as a 
result of his brief service on the board of his 
father-in-law's (Dinc Bilgin's) Etibank, which was taken over 
during the crisis.  Erturk believes the matter will soon be 
resolved, and said he has directed the drafting of a 
recommendation to the SDIF board permitting Polley to travel. 
 It could be considered as early as September 16, he said, if 
the paperwork in the file is complete.  (Note: Consulate 
subsequently arranged a meeting between Polley and the Fund 
on September 14 to ensure that all necessary material has 
been presented.  End Note.)  As an aside, Erturk noted that 
collections from Bilgin's Media Holding Group have been 
significant, and that most of the group's debt to the 
government should ultimately be recovered. 
 
¶8. (SBU) Assistance: In closing, Erturk expressed 
appreciation for the Treasury Department's continuing 
technical assistance to the Fund, which he characterized as 
extremely helpful to the Fund's successful completion of its 
initial sale of non-performing loans.  He noted that 
cooperation with U.S. entities is continuing on other fronts, 
as the Fund works with the FDIC in its efforts to implement a 
new system of deposit insurance that charges premiums to 
banks based on their risk profile.  The SDIF will be able to 
focus increasingly on this core function, he predicted, as it 
wraps up its collection activities. 
 
¶9. (SBU) Comment: Erturk was relaxed and open during the 
meeting, divulging more on the Motorola case, for instance, 
than he had in previous sessions.  As his continued media 
blitz also demonstrates, he appears comfortable with what the 
Fund as accomplished to date, and believes he has a good 
story to tell the public.  End Comment. 
JONES