US embassy cable - 03ANKARA4832

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004832 
 
SIPDIS 
 
 
STATE FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR BRYZA 
 
 
E.O. 12958: DECL: 07/30/2013 
TAGS: EFIN, PGOV, TU 
SUBJECT: BRSA PRESIDENT ON IMAR BANK PROBLEMS (ACTION 
REQUEST) 
 
 
REF: A. (A) ANKARA 4770 
     B. (B) ANKARA 4386 
 
 
(U) Classified by Charge d'Affaires Robert Deutsch.  Reason: 
1.5 (b,d). 
 
 
1.  (U) This is an action request -- see para 9. 
 
 
2.  (C) Summary: Banking Regulation and Supervision Agency 
(BRSA) President Engin Akcakoca confirmed to us July 30 that 
the agency is facing serious difficulties trying to address 
the problems resulting from the discovery of massive fraud in 
the Uzan family-owned Imar Bank.  The fundamental problem is 
that BRSA is being beseiged by bank depositors waiving their 
bank books and demanding their money back (to the tune of 
billions of dollars), but the agency has no ability to verify 
accounts because Imar Bank owners/managers destroyed 
virtually all of the bank's records during and immediately 
after the takeover.  Akcakoca believes perhaps 50 percent of 
the accounts are fictitious -- bank books with no 
corresponding account -- and speculated that the Uzans may 
have handed out bank deposit books (not backed by any 
account) to would-be voters.   BRSA has asked public 
prosecutors to pursue the bank's major shareholders and 135 
managers believed involved in the fraud, and wants law 
enforcement officials to begin detaining and interrogating 
these people quickly; otherwise, they have little hope of 
piecing together how the bank operated.  Akcakoca added that 
initial indications are that an Uzan-owned bank in Northern 
Cyprus also has no records.  He confided that Hakan Uzan had 
approached BRSA with an offer to help resolve the Imar Bank 
problem in return for a GOT decision to lift the travel ban 
on the family and to return its recently-confiscated power 
plants in southern Turkey.  Given strong indications of 
massive fraud that could undermine BRSA and Turkey's efforts 
to refom/stabilize its banking sector, Embassy recommends 
that we highlight this issue at this Friday's IMF Board 
review and also approach the government at the ministerial 
level to urge aggressive investigation of this case and full 
GOT support for and assistance to the BRSA so it can do what 
is necessary to resolve the problems surrounding Imar Bank. 
End Summary. 
 
 
3.  (C) On July 30, BRSA President Engin Akcakoca provided us 
with his views on the problems associated with the agency's 
recent take over of Uzan-family owned Imar Bank.  As reported 
in reftels, BRSA took over management of the bank and 
responsibility for its $800 million in deposit liabilities 
early this month.  However, it has subsequently learned that 
the bank was keeping a second set of books and that total 
deposit liabilities were many times greater than officially 
reported, perhaps as high as $5 billion.  BRSA officials told 
us they thought a substantial amount of the "additional" 
deposits were either fictitious or consisted of offshore 
accounts transfered to the bank in recent days, while other 
accounts consisted of money legitimately deposited but never 
officially reported by the bank. 
 
 
4.  (C) Akcakoca said that bank managers had destroyed nearly 
all of the bank's records, including both "official" and 
"unofficial" books.  Financial crime investigators had 
managed to salvage a small amount of records, which BRSA 
authorities were using to piece together the bank's 
operations.  Akcakoca believes that perhaps one-half of the 
deposit liabilities consist of fictitious accounts, in which 
the bank appears to have given bank deposit books with 
fictitious entries to individual "customers" (he speculated 
perhaps to would-be voters) with no corresponding account, 
and with the "customer" not actually having made any 
deposits.  He also speculated that the bank had created a 
large number of such fictitious accounts in the weeks 
following the government's recent confiscation of the Uzan 
Group's power concessions in southern Turkey (ref b).  In 
addition, the "inflated" liabilities include an unknown 
number of accounts from an Uzan-family owned bank in Northern 
Cyprus, transferred to Imar Bank in recent days and 
backdated.  Akcakoca noted that the governor of the central 
bank of Northern Cyprus had sent auditors to the bank in 
question, at Akcakoca's request, and the auditors had been 
unable to find any bank records. 
 
 
5.  (C)  Akcakoca said the BRSA had sent two thick files to 
the public prosecutor's office urging criminal investigation 
of Imar Bank's major shareholders and 135 managers believed 
to have been involved in or to have knowledge of the bank's 
fraudulent activities.  He said he "would have expected" law 
enforcement authorities to have detained and begun 
interrogations of some of these people by now, as such 
interrogations are the only way the BRSA is going to uncover 
the details of the fraud and other crimes. 
6.  (C) BRSA is now faced with a big problem.  Every day, 
dozens if not hundreds of Imar Bank "depositors" -- some 
organized by the Uzans, per Akcakoca -- are coming to BRSA 
headquarters waiving duly-signed bank books and demanding 
their deposits back.  BRSA officials know a good percentage 
of these accounts are fictitious or otherwise problematic, 
but -- with Imar Bank's records largely destroyed -- they 
have no way of knowing which are legitimate.  If they fail to 
make good on the BRSA deposit guarantee in this case, they 
could well undermine depositor faith in the guarantee writ 
large, perhaps triggering a ruinous banking run.  If, on the 
other hand, they pay back all the deposits, they reward 
fraud, undermine their own credibility, and create a fiscal 
problem for the Treasury. 
 
 
7.  (C) Akcackoca said BRSA's current approach consists of: 
(a) continuing to pore through all the records they can find; 
(b) counting on criminal investigations to encourage at least 
some bank managers to provide information; and (c) proposing 
new legislation.  The legislation, he said, would define 
deposit repayment terms in a way that would enable BRSA to 
transfer most accounts to another bank or to offer government 
bonds, limiting the amount of actual cash payments.  It also 
would make it a crime for anyone to apply for repayment of a 
deposit based on a claim that they knew was false (i.e., 
using a fictitiously-issued bank book not backed by a 
deposit).  Finally, it would enable the Savings Deposit 
Insurance Fund (SDIF) under BRSA to seize and confiscate 
assets not only of the bank, but also of bank shareholders 
and officers.  Akcakoca thought the courts might find the 
last provision unconstitutional, but argued that it was worth 
a try. 
 
 
8.  (C)  At the end of the meeting, Akcakoca confided to us 
that Hakan Uzan (Cem Uzan's brother) had approached BRSA with 
the suggestion that the family would help clear up the 
problems related to Imar Bank's liabilities in return for the 
government lifting the travel ban on them and returning their 
confiscated electricity companies.  Akcakokca, who appeared 
more frustrated than we have ever seen him, lamented that the 
public is blaming BRSA for the Imar Bank problems, even 
though it was the Uzan family who committed obvious fraud. 
He acknowledged our point that the BRSA had supervised a 
three-stage audit of the bank last year and pronounced it 
fit, but argued that no one had any indication that this type 
of massive fraud was underway. 
 
 
9.  (C) Action request:  Although it will take time for 
authorities to put together the details of this case, there 
are strong indications of massive fraud and other criminal 
activities at Imar Bank.  Moreover, the bank's activities 
could undermine the credibility of the BRSA and, to some 
extent, the progress made in reforming and stabilizing the 
Turkish banking system.  We suggest this should be an issue 
for discussion with IMF staff at the scheduled August 1 Board 
review, given that the situation has evolved since the LOI 
was accepted.  Embassy also recommends that we urge GOT 
authorities at the policy level to take steps to protect the 
banking system from a new, generalized crisis.  Such steps 
would include providing firm political support for BRSA, 
launching an aggressive investigation into this apparent 
fraud and, as needed, provision of technical assistance to 
the BRSA so that it has the resources it needs to complete 
this takeover successfully.  We recognize the political 
implications (AK Party versus the Uzans) of this matter. 
Nevertheless, we believe there is strong justification for 
the USG to press for a full, transparent, and legally-sound 
investigation and resolution of this case.  Doing so will 
also reaffirm our efforts to encourage the GOT's 
anti-corruption drive and enforcement of rule of law. 
DEUTSCH