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Tiptoing in Turkey

Tiptoing in Turkey

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A CEE Legal Matters special report on how international firms operate in Turkey – and the echoing silence that greets attempts to investigate.

“A conspiracy of silence, or culture of silence, describes the behavior of a group of people of some size, as large as an entire national group or profession or as small as a group of colleagues, that by unspoken consensus does not mention, discuss, or acknowledge a given subject.”

The relationship between international law firms and their domestic counterparts takes a number of different forms across CEE, with some of the region’s emerging markets doing more to protect their local champions than others. Turkey, unbound by the EU’s pro-competition requirements, has restrictive (though rarely invoked) bar rules applicable to international firms wishing to capitalize on the still-significant potential of the market.

And yet, despite those restrictions, and while local law firms roll their eyes, a number of international firms in fact operate in Turkey, staying quiet and doing everything they can to avoid waking the bear.

The Ottoman Omerta

Under Turkey’s Lawyers’ Code of 2001, only Turkish lawyers are allowed to practice Turkish law or to have rights of audience with clients. “Foreign attorney partnerships” – that is, international law firms – “can only offer services of consultancy in foreign laws and international law.” As a result, those international firms wishing to open up shop in Turkey can not directly offer advice or representation on matters of Turkish law.

To satisfy this rule, most international law firms have entered into some form of association agreement – as compared to full partnerships – with Turkish firms (see Bridging the Bosphorus Box, on page 48). The websites of the ILFs often share the same design as their associated Turkish firms indicating a unified presence, and some openly state on their websites that they have lawyers in Turkey who advise on all aspects of the law, apparently indicating that they are disregarding the literal language of the rule precluding them from advising on Turkish law, have found a legally effective way of avoiding the rule, or – most likely – are speaking in general terms on their international websites about the ability of their associated Turkish firms to assist clients with Turkish law matters.

Either way, it appears most of the international firms interpret the rule loosely. As a result, one authority says with a smile, “you’ll see the same design language in the local office as you do in the international firm, but you just have a Turkish name on the door. Behind the name of the local partners, however, will simply be another ‘Markby, Markby, and Markby.”

Still, and although nobody we spoke to was able to recall even one sanction being imposed for violations of the law, few international law firms are confident enough about their compliance to discuss it publicly. In fact, each and every one of the ten international firms that advertise a Turkish presence on their website declined our invitation to go on the record about the rule – sometimes abruptly, and with more than one requesting that we not even mention our attempt to contact them.

In fact, several of those we reached out to predicted – while still insisting on their own anonymity – that it would be “nearly impossible” to find anyone from an international firm willing to contribute to this article. Similarly, their clairvoyance extended to the bar associations, as several predicted – again accurately – that it would be difficult to find someone at the Bar to speak to on the subject (and indeed, neither the Istanbul Bar nor the over-arching Union of Turkish Bar Associations replied or responded to our multiple requests, made by both phone and email, for comment).

If it Ain’t Broke, Don’t Fix It

Despite sharing the general skittishness, a partner at one international law firm in Turkey – we’ll call him Yusuf – is willing to speak candidly on the subject, as long as he can do so anonymously. “The rules allow only Turkish lawyers to practice Turkish law and advise clients,” he says. “Foreign firms can register, but only to practice and give advice on international law. It’s all crazy if you ask me.”

Continuing, Yusuf insists that the rules that prohibit international firms from serving clients on matters of Turkish law are “adverse to globalization” and “go against the fact that capital has torn down national borders.”

To a large extent, Yusuf says, the situation can be traced back to White & Case’s arrival in 1985 at the invitation of the Turkish government. According to Yusuf, the unique circumstances surrounding the White Shoe firm’s arrival meant that it was on the ground before rules about foreign firms had even been created. As a result, he says, despite the subsequent creation of a legal framework for foreign law firms, “this approach set the standard for how international firms continue to operate in Turkey to this day.”

Still, in its early years, Yusuf reports, “White & Case faced a lot of investigations by the Istanbul Bar.” In fact, he says, “up until 2010, the Bar was quite harsh in trying to enforce these strict rules, especially with some local firms filing complaints and adding pressure on the Bar to act.”

After 2010, Yusuf says, the Istanbul Bar seemed to back down. “The Bar knows that these firms are out there but they are not pursuing them and are no longer trying to enforce the rules aggressively. [Lawyers from our firm] actually met with the Chairman of the Istanbul Bar, and we were quite transparent from the get-go about being above board on everything and, because we never explicitly broke any rules – we’re good.” Other firms are benefitting from the tacit permission to keep operating on this basis as well, he says, noting the absence of any fines or penalties “at least in the past ten years – and if there were any issues it was all kept quiet.”

Accordingly, it appears unlikely that the formal requirements will change anytime soon. The rules remain on the books, with no real push to have them revised or removed, and for the time being, Yusuf believes, the status quo is “pretty much accepted.” According to him, “international law firms go about their business, the Bars do not touch us, and the local law firms are not as vocal in their call to action anymore.” He smiles. “There seems to be a ‘don’t ask don’t tell’ approach here. We stay out of each other’s business and keep our heads down.”

Not Everyone is Laughing

Like their international counterparts, unaffiliated Turkish firms are cautious about speaking out on the matter. Still, those we reached out to rejected the suggestion that they are satisfied with the current arrangement.

“The way these firms operate is that they find a local partner, they include them in their global structure – a partnership, a franchise, or something similar – and they put two names on the walls – a domestic one and a foreign one – and then claim that it is two different firms,” says Eymen (not his real name), a partner at an Istanbul-based law firm. “Behind the scenes, however, they share the entire infrastructure, back-office systems, document management systems, and IT. It’s all integrated. Even if the ‘local’ firm uses a different domain name, for example, the differences are purely cosmetic and are in place to go around the rules.”

Eymen considers this a “dishonest” way of doing business, one that he believes clearly violates the spirit of Turkish law. “Our legal system specifically goes against workaround solutions – not just in this area, but in all areas,” he says. “That’s how it achieves the goals of its legal provisions – it cannot be interpreted only textually.” What the international firms are doing, he says, is “pure form over substance.”

He insists that he is not opposed to foreign firms practicing law in Turkey, but he wants “them to play the game fairly.” Instead, Eymen says, the current system puts firms like his at a real disadvantage. “Turkish law firms are subjected to a higher standard of regulation than foreign firms, for example when it comes to billing. A foreign firm often charges its client via a tax haven and thus avoids the Turkish tax system altogether – which is a clear privilege and an advantage that local firms that play by the rules cannot have!” At the end of the day, he says, they should “stop pretending and play by the rules, comply with the law, and stop with these cosmetic differences.”

Defne (not her real name), also a partner at a prominent Istanbul-based law firm, echoes Eymen about the financial advantage international firms may be receiving under the current system. “Not just invoicing from abroad, but also employing their lawyers from abroad – this creates a financial advantage,” she says. “Also, international law firms have a stronger footprint on the global market and do marketing far better than any of the local firms can – especially in Turkey where lawyers are explicitly prohibited from advertising in any way.” Indeed, she says, the marketing ban is so rigid in Turkey that lawyers are “not allowed to refer to themselves as experts in any way or to talk about their clients and practice. The greatest extent of advertising allowed is displaying one’s academic title!”

Defne acknowledges the great value foreign firms have added, especially in the early years. “At the start, everything was new and exciting,” she recalls. “Foreign law firms brought a lot of know-how with them, especially in areas such as M&A, banking & finance, and securities law.” Still, she says, the good feelings didn’t last forever. “The legal market benefited greatly from their presence, but, over time, the local firms started feeling disadvantaged.”

Thus, Defne says, “the international law firms are successfully going around the rules – not just the ones that apply to local firms, but also the ones that apply to foreign firms advising on foreign law. They get the best of both worlds, so why should they desire change?”

Still, Defne insists that she does not feel threatened by the presence of international firms. “I feel no animosity,” she says. “Quite the opposite in fact. Like I’ve said before, the know-how these firms bring is great for us as well, and we’re able to learn a lot and improve our own practices.” She also says that foreign firms, while they may excel in some practices, “do not have an advantage over local firms when it comes to disputes, litigation, and arbitration. So there’s enough for everyone when it comes to work!”

Despite the concern of the international firms, the frustration of unaffiliated Turkish firms, and the potential threat of severe penalties, nobody believes things are likely to change in the near future. “The ban will likely remain in place and the Code of Lawyers will probably not change at all,” Defne says. “There aren’t even any discussions on this right now.”

Eymen agrees. “The Bar is well aware of this blatant violation of the law and is doing nothing about it, mostly because Turkey is not exactly known for 100% compliance with legal norms, and because the Bar has more pressing matters, like the recent changes to the Law on Lawyers, human rights issues, and overall Turkish problems.” He sighs. “A bunch of M&A lawyers hating on each other is not a priority.”

* CEE Legal Matters believes that these unique circumstances justify an exception to our normal policy of requiring that sources be identified by name. We welcome comment and feedback from our readers on this, as on all, our stories.

– The editors

This Article was originally published in Issue 7.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.