ROILED WATERS AT THE BANK REGULATORY BODY

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.










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DEUTSCH