Turkish Investors Need to Watch What They Say

In the dying days of 2012, Turkey’s parliament passed a new law to regulate capital markets, and in most respects it is a vast improvement on what existed.

One article, however, is so vague and so broad that it may presage a huge step backward toward the censorship of journalists and analysts who write about the Turkish economy.

The new Capital Markets Act will help Turkey’s equity and fixed-income markets approach the levels of transparency and regulatory efficiency that exist in developed economies. This will put Turkey miles ahead of most emerging-market rivals. So you would think the talk among Istanbul’s finance community would now be on how to implement the law and whether it can be leveraged to support the government’s ambitions to turn Istanbul into a regional financial hub. Not so.

Instead, questions are being asked about what the dismissal of the entire Capital Markets Board, in a last-minute government amendment to the draft bill, may say about the board’s future independence, and whether Article 107 of the new law has created a blunt tool with which to censor critical economic and financial commentary.

Imagine for a second that this new legislation were indeed to be used as a gag law. The global investment banks that the government wants to move their regional headquarters to Istanbul would have to consider that any analyses critical of government or central-bank policies could lead to the prosecution of both the author and the institution.


Any abuse of this kind would do severe damage to the integrity of Turkey’s economic-research community, a high-value financial service, driving investors to rely on reports written abroad. Analysts and investors would self-censor for fear of potential prosecution.

This is how the law has already started to work: Last week, Mark Mobius, the fund manager and frequent commentator on Turkey, where his Templeton emerging-markets fund has about $1 billion invested, Haberturk newspaper in an e-mailed response: “I can’t make any comment regarding the Turkish market in view of Turkish regulations.” Several banks, including Societe Generale SA and Commerzbank AG, said they were reviewing the law.

I called the Capital Markets Board, where a spokesman told me they were drawing up detailed regulations to accompany the law and that it would not be used to limit commentary or analysis, only to punish for-profit market abuse. In a statement this week, the board said the new law “provides the possibility of more room to maneuver for well-intentioned market commentators whose purpose is not in doubt.” I hope that’s how it turns out, but I’d be a lot more reassured if the language of the law was tightened and the one-size-fits-all penalties revised.

Regrettably, when it comes to freedom of expression, Turkey’s government and courts have a record of using ambiguities in the law to crush opponents and to silence inconvenient truths. I am concerned that the government has just broadened its efforts to stifle political and social dissent to the economy.

Here, in full, is what Article 107 says: “Those who provide untruthful, wrong or misleading information, start rumors, or provide news, analysis, commentary, or prepare reports with the intention of influencing investor decisions or the price or value of capital-markets instruments, and those who publish them, shall be punished with between two and five years in prison or with a judicial fine equivalent to 5,000 days.

“If the person who commits the crime mentioned in the first clause shows remorse and pays double the amount of benefit he/she obtained or helped obtain, which cannot be less than 500,000 Turkish liras to the Treasury:

a) before the investigation starts, there will be no punishment.

b) during the investigation, the punishment will be reduced by half.

c) during the prosecution, before a verdict has been passed, the punishment shall be reduced by one-third.”

Important Details

In one sense, the idea expressed here is uncontroversial. Spreading lies and rumors about financial instruments or institutions is universally considered an unethical market practice, punishable around the globe when it rises to insider trading or fraud.

Yet two details distinguish the new Turkish law. First, it is not clear from the text that in order to start an investigation, the Capital Markets Board must have evidence that a writer had a position in the markets to manipulate, or that he or she intended to profit by misleading investors. The fact that the offending publication intended to influence the market and succeeded, and that some people (as is inevitable) win or lose as a result, would appear to be sufficient to start a prosecution.

The penalties are also severe, especially given that there is no court arbitration involved. A simple majority of the seven-member Capital Markets Board will be sufficient to impose the 500,000 lira ($280,000) fine. Should the defendant have the temerity to insist on his innocence and appeal to an actual court, then he risks, in addition, five years in prison.

In another country, you might wait before declaring that this looks like a gag law. The ambiguity of Article 107 could be an honest mistake of poor drafting, or of overzealous legislators attempting to defend market participants from manipulation. Yet this is Turkey, which last year had more journalists in jail than any other country, including less-than-liberal China, with its 1.3 billion population. The ruling Justice and Development Party has had the opportunity to change the country’s laws to protect freedom of expression since coming to power more than a decade ago, but by and large it has not done so. Meanwhile, the number of cases opened against journalists has multiplied into the thousands, and thousands of Internet sites have been shut down.

Instructive Experience

The government has made several amendments to the statute that underpins Turkey’s broadcast media, resulting in a similar setup to the one just drafted for capital markets. The experience there is instructive. The 2011 Turkish Broadcasting Law allows the regulator to levy fines on any show that it deems to be in breach of a broad range of criteria, such as the laughably nebulous “insulting national character, family values or the sensibilities of the society.” If a channel repeats the offense, the regulator can suspend the program, take the channel off the air for a period, and eventually withdraw the broadcaster’s license. This has had a chilling effect on the choices that broadcasters make.

Just to give one recent example: In November, the regulator fined CNBC’s Turkish affiliate, CNBC-e, 53,000 liras for airing an episode of “The Simpsons” that poked fun at God. Other fines -- 94 were issued in the first three months of last year, according to the media monitoring group Bianet -- have been much larger.

Let’s hope the new people whom the government appoints to run the Capital Markets Board are well-intentioned. Even so, it is very likely that the pro-government press will begin to agitate for the punishments. The daily newspaper Sabah last year ran an extended campaign against an alleged “High Interest Lobby,” in which the paper targeted analysts and reporters -- including from Bloomberg News -- who dared to question the wisdom of the central bank’s unconventional monetary-policy choices. According to Sabah, a cabal of journalists and analysts -- foreign and domestic -- was trying to make the central bank raise interest rates in order to increase profits.

Perhaps we in Turkey have all become paranoid. I have just offered myself up as a guinea pig. If I am prosecuted for publishing this article, then you may safely conclude that the true intent of the new capital-markets law is to gag critics. By then, of course, it will be too late for this analyst.

(Atilla Yesilada is a country adviser for Turkey at GlobalSource Partners Inc. The opinions expressed are his own.)

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