One of the Greatest Fraud Case in the World:The Imar Bank Case from Turkey

Abstract

Turkey, a bridge between two continents, has experienced severe bouts of financial instability and came across into a severe financial crisis in 2001.  During the 1998-2001 period 20 banks were transferred to the Savings Deposit Insurance Fund (SDIF) due to the erosion of their equity. These banks, the half of the 40 commercial banks of Turkey which are operating at that time, were also audited. Except for one or two of these banks all had judicial process because of their improper loans, etc. operations. In 2002, after triple auditing (two independent auditing companies and a sworn bank auditor)  robust banks continued their activities. Imar Bank which was the one of these banks also was transferred to the Savings Deposit Insurance Fund in 2003. Imar Bank produced false financial statements to the creditors of the banks, including its depositors, and misleading reports to the supervisory authorities over a prolonged period. Fraudulent reporting of the bank showed that the management was able to misappropriate funds not reported in the financial statements by failing to account for a substantial volume of deposits. The examination revealed that there were discrepancies between the official deposit balances and actual balances. Total deposits of the bank amounted approximately 1,1 billion dollars according to the audited balance sheet prepared by the bank. However, based on the examination, the real amount was much higher than the reported. The actual amount was 6,1 billion dollars and 5 billion dollars  was unregistered. Deposits were paid to depositors by the government.  Unfortunately, it was the one of the greatest fraud case in banking sector in the world. During this crisis period it is indicated that there was a defect in the banking sector with regard to transparency. In this paper it is briefly discussed the underlying reasons behind this fraudulent reporting of Imar Bank and the failure of banking regulation and supervision functions in the country.

Keywords: Fraud, fraudulent reporting, Imar Bank, Turkey