US embassy cable - 03ANKARA7145

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 007145 
 
SIPDIS 
 
 
STATE FOR E, EB/IFD, INR/B, AND EUR/SE 
TREASURY FOR JLEICHTER AND MMILLS 
NSC FOR MBRYZA AND TMCKIBBEN 
 
 
E.O. 12958: DECL: 11/11/2008 
TAGS: EFIN, PGOV, ECON, PINR, TU 
SUBJECT: ROILED WATERS AT THE BANK REGULATORY BODY 
 
 
REF: ANKARA 6377 
 
 
 Classified by Charge d'Affaires Robert Deutsch for reasons 
1.5 (b) and (d). 
 
 
1. (Sbu) Summary:  Under pressure over the failure to prevent 
the Imar Bank fiasco, bank regulatory body chairman Engin 
Akcakoca resigned November 5.  GOT claims not to have exerted 
pressure are suspect, given earlier GOT actions, raising 
questions about the Ak Party Government's commitment to an 
independent bank regulatory body.  The proposed replacement, 
while apparently qualified, is quite young and likely to be 
beholden to Ak leaders.  There are currently multiple 
investigations of senior BRSA officials. End Summary. 
 
 
GOT Denies Pressuring Akcakoca to resign: 
---------------------------------------- 
 
 
2. (Sbu) On November 5, in a joint press conference with GOT 
Deputy Prime Minister Sener, Engin Akcakoca, the Chairman of 
the Bank Regulatory and Supervision Agency (BRSA), announced 
his resignation.  Akcakoca and the GOT tried to put a good 
face on the event, with Akcakoca saying he had been 
contemplating resigning for some time, and GOT 
ministers--both Sener and Babacan--denying they had put 
pressure on him to resign. 
 
 
3. (C) Prior to the resignation, however, there were 
indications of intense GOT pressure on Akcakoca.  In recent 
months when econoffs met with Akcakoca and other senior BRSA 
officials, they were visibly under pressure, and, in some 
cases, under investigation.  In September, the head of the 
BRSA sworn auditors (i.e. the head of on-site bank 
inspection) resigned, citing personal reasons.  Selcuk Caner, 
an American of Turkish origin well-acquainted with the BRSA 
from his work as a U.S. Treasury technical advisor, told 
econoff that the Vice-Chairman of BRSA told him that Akcakoca 
had forced out the head auditor because of pressure over Imar 
Bank. 
 
 
4. (C) In mid-October, the BRSA Vice President responsible 
for off-site bank monitoring, Teoman Kernan, was suspended 
from his responsibilities.  Kernan, who was well and 
favorably known to econoffs and closely tied to Akcakoca, was 
removed because he was under investigation by an inspector 
from the Prime Minister's office.  Another BRSA V.P., Ercan 
Turkan, privately told econoff that the investigators were 
forcing Kernan's suspension on weak grounds.  The specific 
issue over which Kernan was suspended, according to Turkan, 
was BRSA's failure to notice and stop Imar Bank's unlicensed 
sales of government securities.  Turkan said the 
investigators cited Kernan's signature of a 1991 memo when he 
was at the Turkish Treasury, as evidence that he knew Imar 
Bank did not have a license to sell government securities, 
and therefore should have stopped the unlicensed sales.  Even 
if Kernan bears some responsibility for the Imar Bank 
failure, Turkan pointed out that many other regulatory 
agencies--the Capital Markets Board, tax inspectors, bank 
inspectors at Treasury and the Central Bank prior to the 
creation of BRSA--also should have been aware of Imar Bank's 
transgressions, yet only BRSA was being investigated. 
 
 
5. (C) The GOT was also working on new legislation to 
restrict the independence of all independent bodies.  Though 
the GOT may wish to exert better control over a variety of 
independent agencies, the draft legislation was widely seen 
as driven by a desire to get more control over BRSA in 
particular. 
 
 
6. (Sbu) Since Akcakoca's resignation, there has been another 
sign of government interest in putting the blame for Imar 
Bank on his shoulders.  On November 12 the police raided 
Akcakoca's Istanbul residence to seize copies of BRSA 
documents Akcakoca had taken with him when he left office, 
most likely in anticipation of the future need to defend 
himself.  According to press reports, the police raid was 
prompted by an informant who was aware Akcakoca took the 
copies with him.  Deputy Prime Minister Sener, perhaps in an 
attempt to distance the government from the police raid, said 
it was normal for Akcakoca to have taken copies of the 
documents when he left BRSA.  In a November 13 telephone 
conversation, Akcakoca confirmed to EconCouns that he was in 
"shock" and "never thought it would come to this." 
 
 
7. (Sbu) Between the Prime Ministry inspector's investigation 
of Kernan, and that of a parliamentary committe, as well as 
the new investigation of Akcakoca, investigators are swarming 
over BRSA.  With 3 top managers forced out in the past two 
months and the investigations, there is a danger to the 
proper functioning of BRSA in the coming months. 
 
 
Proposed Replacement: 
-------------------- 
 
 
8. (Sbu) At the same time Akcakoca announced his resignation, 
Deputy Prime Minister Sener announced that he would nominate 
Tevfik Bilgin to replace Akcakoca at BRSA.  Bilgin is 
currently the Director General of Halk Bank, one of the large 
state-owned banks that the GOT is supposed to restructure and 
privatize under its IMF and World Bank programs. Bio Note: At 
a meeting with econoffs November 6, Bilgin came across as 
young (37), but open and energetic.  Bilgin confirmed press 
reports that he had served over 9 years as a sworn auditor at 
the Turkish Treasury.  He has an MBA from the University Iowa 
and speaks fluent English.  Since the spring of 2003, Bilgin 
has been managing Halk Bank.  Prior to the Halk Bank 
appointment, Bilgin managed the consumer finance arm of 
Anadolu Holding, an Istanbul conglomerate.  At Anadolu 
Holding Bilgin worked for Tuncay Ozilhan who is also the 
President of TUSIAD, the association of major Turkish 
corporations.  End Bio Note. 
 
 
Comment: 
------- 
 
 
9. (C) The Ak Party has chafed over what it considered BRSA's 
selective independence since before the 2002 elections, and 
has taken numerous steps to undercut the agency.  Akcakoca's 
departure continues the trend weakening the independent bank 
regulatory agency (one of the cornerstone reforms of the 
current IMF program).  The raid on Akcakoca, and the apparent 
campaign to personalize the systemic problems that led to the 
Imar Bank disaster, is part of a pattern.  Turkish political 
leaders, including but not limited to those in the current 
government, respond to unhappy developments and events by 
launching corruption investigations against the relevant 
bureaucrats.  By undermining the BRSA senior officials in 
these investigations the Government is opening the banking 
system up to more failures, again. 
 
 
 
 
 
 
 
 
 
 
. 
DEUTSCH