Financial Crime World

TCC Exposes Board Members and Senior Management to Claims from Shareholders and Creditors

The Turkish Commercial Code (TCC) has introduced a significant shift in its liability framework, exposing board members and senior management to claims not only from shareholders but also from creditors. This change places the burden of proof on the board members, who must demonstrate that they have acted in line with their duties.

Liability Principles

The TCC’s liability principles are based on a company’s internal bylaws, which outline guidelines for governance and define the board members’ and senior management’s duties. These bylaws also provide guidance on liability allocation, stating that if powers are delegated, liability will attach to those powers.

Key Takeaways

  • The TCC’s liability principles are based on a company’s internal bylaws
  • Bylaws outline guidelines for governance and define board members’ and senior management’s duties
  • Liability allocation is guided by the delegation of powers

Differentiated Liability

The new differentiated liability system replaces the previous joint and several liability regime, where all directors were held liable for damages incurred by the company due to breach of duties and responsibilities. Under this new system, board members and senior management who have delegated certain powers or duties will not be held liable for the actions or decisions of their delegates provided they acted with reasonable diligence in delegation, instruction, or supervision.

Key Takeaways

  • The TCC introduces a differentiated liability system
  • Board members and senior management are only liable for their own actions
  • Reasonable diligence is required when delegating powers or duties

Personal Liability

Senior management and auditors of banks can also be held personally liable for losses incurred by the bank due to breach of banking regulations. Additionally, board members may face personal liability for unpaid public debts such as taxes or social security payments if the company is unable to pay them.

Key Takeaways

  • Senior management and auditors of banks can be held personally liable
  • Board members may face personal liability for unpaid public debts
  • Personal liability can result in significant financial consequences

Administrative Consequences

Board members and senior management who fail to comply with certain provisions can be subject to administrative monetary fines. The Capital Markets Code grants broad powers to the Capital Markets Board (CMB) to impose sanctions, including cancelling signatory authorities, dismissing individuals from their duties, appointing temporary individuals to vacant positions, or issuing administrative fines.

Key Takeaways

  • Administrative monetary fines can be imposed for non-compliance
  • Sanctions can include cancelling signatory authorities and dismissing individuals
  • The CMB has broad powers to impose sanctions

Criminal Liability

Members of governing bodies and senior management can also face criminal liability under the Turkish Criminal Code for breaches such as bribery, embezzlement, forgery, insider trading, market manipulation, or forgery of company books. These crimes can result in imprisonment or judicial monetary fines.

Key Takeaways

  • Criminal liability can result in imprisonment or judicial monetary fines
  • Breaches include bribery, embezzlement, and forgery
  • Criminal liability is a serious consequence for non-compliance

Recent Cases

A recent example of corporate risk management failure involved a Turkish regional airline company that was sold without proper due diligence being conducted by the purchaser and seller. The deal led to criminal proceedings for fraud against the seller.

Key Takeaways

  • A recent case highlights the importance of proper due diligence
  • Failure to conduct due diligence can result in criminal liability
  • Risk management is critical in corporate transactions

Government Obligations

The Turkish government has implemented legislation on risk and compliance management in the public sector, introducing concepts such as internal control and internal audit. Public administrations and state-owned enterprises are required to establish an internal control system that includes internal audit and risk management.

Key Takeaways

  • The Turkish government has implemented legislation on risk and compliance management
  • Public administrations and state-owned enterprises must establish internal control systems
  • Internal audit and risk management are critical components of compliance

Digital Transformation

While there is no specific framework for digital transformation, all entities and organisations are expected to comply with the law and implement best practices for risk and compliance management. The Turkish Criminal Code introduces certain crimes that can only be committed by government officials, highlighting the importance of compliance in both public and private sectors.

Key Takeaways

  • Digital transformation requires compliance with the law
  • Best practices for risk and compliance management are essential
  • Compliance is critical in both public and private sectors