Corporate Fraud Crime and Legal Process: Victim's Rights in Fraud Committed Through Companies

What is corporate fraud?

Corporate fraud is when a company, its director, partner, officer, or person acting on its behalf deceives an individual or another company through fraudulent conduct, resulting in financial loss for the victim and unfair advantage for the perpetrator or a third party.

The Turkish Penal Code does not contain a separate crime heading for "corporate fraud." However, fraudulent acts carried out through companies may be evaluated as simple fraud as defined in Article 157 of the Turkish Penal Code or aggravated fraud as defined in Article 158, depending on the nature of the event. According to Article 157 of the Turkish Penal Code, a person who deceives someone through fraudulent conduct and gains benefit for himself or another person at the expense of that person or another person shall be punished.

Corporate fraud is particularly significant because it involves the abuse of trust in commercial relationships. A company's registration in the commercial registry, the existence of a corporate website, issuing invoices, signing contracts, or presenting itself as a legitimate entity can build trust with the victim. However, if this trust is used as part of a fraudulent plan from the outset, the matter ceases to be merely a creditor-debtor relationship and becomes a crime of fraud under criminal law.

In what circumstances is corporate fraud considered aggravated fraud?

The most important provision regarding corporate fraud is Article 158/1-h of the Turkish Penal Code. According to this provision, fraud committed "by persons who are merchants or company managers, or who act on behalf of a company, during their commercial activities" is considered aggravated fraud. The same article also stipulates that fraud committed by cooperative managers within the scope of cooperative activities is also considered an aggravated offense.

Therefore, not every illegal transaction carried out through the company automatically constitutes aggravated fraud. For Article 158/1-h of the Turkish Penal Code to be applicable, the following conditions must be considered together:

The perpetrator must be a merchant, company director, or person acting on behalf of a company. The act must be carried out during the course of commercial activity. The victim must be deceived by fraudulent conduct. Damage must occur to the victim's or a third party's property. Unjust enrichment must be obtained by the perpetrator or another party.

According to the Turkish Commercial Code, a person who operates a commercial enterprise, even partially, in their own name is considered a merchant; commercial companies are also legal entities considered merchants. Therefore, in fraudulent activities carried out using limited liability companies, joint-stock companies, collective companies, or cooperatives, the perpetrator's status and connection to the company should be specifically investigated.

Elements of Corporate Fraud Crime

1. Fraudulent Behavior

The fundamental element of fraud is deception. However, not every lie or breach of contract constitutes fraud. The deception must be intense, skillful, and difficult to verify, capable of misleading the victim. In the practice of the Supreme Court, fraud is considered more serious than a simple lie; it is defined as a whole set of deceptive actions that affect the victim's decision-making power.

Examples of fraudulent behavior in corporate fraud include:

Establishing a fictitious company or presenting a non-existent company as active, creating the impression of significant commercial capacity when lacking solvency, submitting falsified balance sheets or bank statements, issuing fake invoices or delivery notes, accepting advance payments for goods that will not be delivered, collecting money with promises of investment, impersonating an authorized representative when not, and establishing fictitious distributorship or dealership relationships.

2. Deception

The fraudulent conduct must have an effect on the victim, and the victim must have taken action because of this fraud. For example, if the victim made a payment believing that the company would actually deliver the goods, or lent money trusting in the company's financial situation, then the element of deception arises.

In assessing the element of deception, the victim's position, business experience, the relationship between the parties, the nature of the documents used, and the sequence of events are all examined together. Everyone is expected to exercise a certain degree of caution in business; however, if the deception used by the perpetrator eliminates the victim's ability to investigate and verify, the crime of fraud may have occurred.

3. Damage and Unfair Advantage

In fraud cases, the victim must suffer economic damage to their property, and the perpetrator or a third party must gain an unfair advantage. This damage can manifest as a monetary payment, delivery of goods, issuance of a check or promissory note, transfer of company shares, provision of a letter of guarantee, provision of services, or waiver of a debt.

In corporate fraud cases, damages are often proven through bank transfers, current account transactions, invoice records, business ledgers, and correspondence. Therefore, it is not enough for the victim to simply say "I was defrauded"; the connection between the fraud, the damage, and the benefit must be demonstrated with concrete evidence.

4. Caste

Fraud is a crime that can only be committed intentionally. The perpetrator must have the intention from the outset to deceive the victim, gain an unfair advantage, and cause harm. This is the most critical distinction in corporate fraud cases, because not every unpaid debt, every undelivered item, or every failed business venture constitutes fraud.

If it is determined that the perpetrator had no intention of making the payment or delivering the goods from the outset; that the company was not actually operational; that money was collected from numerous individuals using the same method; that forged documents were used; that company officials could not be reached after the payment was received; and that the money was rapidly transferred to third parties, then the intent to commit fraud becomes more strongly considered under criminal law.

The Difference Between Corporate Fraud and Commercial Dispute

The most common defense in corporate fraud cases is that the incident is a "commercial dispute" or a "debt-credit relationship." Indeed, the mere existence of a contract, the issuance of an invoice, or a current account relationship between the parties does not, by itself, constitute fraud.

However, for a commercial transaction to fall under criminal law, the perpetrator must have deceived the victim through fraudulent conduct. For example, if a company has genuinely purchased goods but is unable to pay due to an economic crisis, this is generally a private law dispute. Conversely, if the company has purchased goods without any intention of paying from the outset, sent forged payment receipts, and defrauded numerous individuals using the same method, the crime of fraud may arise.

Making this distinction correctly is crucial for both the victim and the suspect. The victim needs to prepare an effective criminal complaint, while the suspect must mount a strong defense against the unfair transformation of a simple commercial dispute into a criminal case.

Types of Corporate Fraud

Fake Company Fraud

Company fraud involves extorting money from victims through companies that do not actually operate or are established solely for fraudulent purposes. In such cases, simply being registered in the commercial registry does not guarantee safety. The company's business address, tax registration, actual employees, commercial history, and bank transactions must be investigated.

Fraud of Failure to Deliver Goods or Services

Fraud can occur when a company receives advance payment with the promise of delivering goods or services, but has no intention of delivering them from the outset. Such cases are frequently seen, particularly in the import, construction materials, medical products, electronics, vehicle sales, and wholesale trade sectors.

Fraud through promises of investment and partnerships

Collecting money through company formation, share transfer, profit-sharing, franchising, dealership, or promises of high returns can also be considered corporate fraud. The crucial factor here is whether the investment promise is based on a genuine commercial project or is used to deceive the victim.

Using Fake Invoices and Fake Receipts

The use of forged invoices, fake bank statements, false payment orders, or forged contracts can constitute strong evidence in fraud cases. Furthermore, depending on the nature of these documents, other crimes such as forgery of official documents, forgery of private documents, tax evasion, or money laundering may also come into play.

Corporate Fraud Through Information Systems

Today, a significant portion of corporate fraud occurs through websites, email correspondence, social media accounts, fake corporate panels, or online payment systems. Under Article 158/1-f of the Turkish Penal Code, using information systems or banks or credit institutions as tools is also regulated as a qualified form of fraud.

Penalty for Corporate Fraud

The crime of simple fraud is punishable under Article 157 of the Turkish Penal Code with imprisonment from one to five years and a judicial fine of up to five thousand days.

The penalty for aggravated fraud is more severe. According to Article 158 of the Turkish Penal Code, aggravated fraud carries a sentence of three to ten years imprisonment and a fine of up to five thousand days. Furthermore, in certain aggravating circumstances, the minimum sentence of imprisonment can be four years, and the amount of the fine cannot be less than twice the benefit obtained from the crime.

According to Article 158/3 of the Turkish Penal Code, if the crime of fraud is committed jointly by three or more persons, the penalty is increased by half. If the crime is committed within the scope of the activities of an organization established for the purpose of committing crimes, the penalty is doubled.

Therefore, in corporate fraud cases, the number of perpetrators, the division of labor within the company, to whom the money flowed, who prepared the forged documents, and whether the act was organized should be examined in detail.

Complaint Process in Corporate Fraud Cases

Individuals or companies who have been victims of corporate fraud can file a criminal complaint with the Public Prosecutor's Office. The complaint should describe the events chronologically, clearly specify the fraudulent behavior, and include supporting evidence.

The following documents are important in filing a criminal complaint:

Contracts, invoices, delivery notes, bank statements, payment receipts, checks and promissory notes, WhatsApp conversations, email records, audio or video recordings, trade registry records, tax certificates, company website screenshots, social media correspondence, shipping records, delivery receipts, current account statements.

The complaint should not only request the recovery of the debt; it should clearly indicate the fraudulent actions the perpetrator used to deceive the victim, the reasons why the victim made the payment, how the damage occurred, and where the money was transferred.

Procedures that can be followed in a prosecutor's investigation

The prosecutor's office may request the retrieval of bank account statements, the procurement of the company's trade registry records, the examination of tax records, the investigation of telephone and call records, the examination of digital materials, the obtaining of expert reports, and, if necessary, an investigation by MASAK (Financial Crimes Investigation Board) in a corporate fraud investigation.

Especially when money is transferred to numerous accounts, directed to cryptocurrency accounts, collected through fictitious individuals, or quickly converted to cash, the investigation may need to be evaluated not only from the perspective of fraud but also from the perspective of money laundering.

The most important step for the victim is to initiate legal proceedings before evidence is lost and suspects abscond with their assets. In this context, in addition to a criminal investigation, precautionary attachment, debt collection lawsuits, enforcement proceedings, or commercial litigation can also be considered.

Is there mediation in corporate fraud cases?

Simple fraud is among the offenses subject to reconciliation under Article 157 of the Turkish Penal Code and Article 253 of the Code of Criminal Procedure. However, the provisions for reconciliation generally do not apply to aggravated fraud committed by a company manager or a person acting on behalf of a company during their commercial activities. Therefore, determining whether the incident falls under Article 157 or Article 158 of the Turkish Penal Code is of great importance for the course of the investigation.

What should the victimized company do?

Victims of corporate fraud should prioritize preserving all written and digital evidence. Confirmation emails should be sent after phone calls, WhatsApp conversations should be saved as screenshots, and bank statements and invoice records should be filed.

Secondly, the other party's company information should be investigated. Their trade registry records, MERSİS registration, company partners, authorized personnel, address changes, and past activities should be examined. Thirdly, the criminal complaint should be prepared with as much concrete evidence as possible. Instead of a vague statement like "They took my money and didn't pay," it should clearly state "with what statement, with what document, on what date, and to which account the payment was made.".

Fourthly, reliance should not be placed solely on the criminal case file. While criminal proceedings ensure the perpetrator is punished, legal avenues such as debt collection, provisional attachment, or compensation claims should also be planned to enable the victim to recover their money.

Company Directors' Responsibility

Although a company's legal entity is a separate legal subject, criminal liability is personal. Therefore, in fraud cases, criminal liability arises only for the individuals who committed the fraudulent act. The company director, board member, partner, accounting officer, sales representative, or any person who actually acts on behalf of the company may be held liable as the perpetrator, instigator, or accomplice, depending on their degree of participation in the act.

However, not every company partner or manager can be automatically considered guilty. Criminal liability requires that the individual be aware of the fraudulent scheme, participate in it, or gain an unfair advantage. Therefore, in corporate fraud cases, signature authority, bank account usage, correspondence, instructions, money transfers, and internal division of labor within the company must be meticulously examined.

Conclusion

Corporate fraud should not be viewed merely as a debt dispute; it is a type of crime with serious criminal consequences when proven with solid evidence. Specifically, when a merchant, company manager, or person acting on behalf of a company profits through fraudulent conduct during their commercial activities, the crime of aggravated fraud under Article 158 of the Turkish Penal Code comes into play.

The most critical point for the victim is gathering evidence proving the element of fraud from the very beginning of the incident. When contracts, invoices, bank statements, correspondence, trade registry records, forged documents, witness testimonies, and financial transactions are evaluated together, an effective legal roadmap can be created in a corporate fraud case.

In such cases, criminal investigation, enforcement proceedings, compensation claims, provisional attachment, and asset investigation should be conducted simultaneously. This is because the goal in fraud cases is not only to punish the perpetrator but also to compensate the victim for the damage suffered in the fastest and most effective way possible.

Frequently Asked Questions

What is the crime of corporate fraud?

Corporate fraud is when a company or individuals acting on its behalf deceive a victim through fraudulent conduct, causing the victim harm and enabling the perpetrator to gain an unfair advantage.

Is every unpaid business debt a form of fraud?

No. Not every unpaid debt is fraud. For a crime of fraud to occur, the perpetrator must deceive the victim through fraudulent behavior from the outset and obtain an unfair advantage.

Would a company executive be held responsible for fraud?

Yes. If a company director, a person acting on behalf of the company, or a merchant has obtained a benefit through fraudulent conduct during commercial activities, they may be held liable for aggravated fraud under Article 158 of the Turkish Penal Code.

What is the penalty for corporate fraud?

Simple fraud carries a penalty of one to five years imprisonment and a fine. Aggravated fraud, on the other hand, carries a penalty of three to ten years imprisonment and a fine of up to five thousand days' worth of daily wages.

What evidence is important in corporate fraud cases?

Contracts, invoices, bank statements, WhatsApp and email correspondence, trade registry records, forged documents, current account statements, witness testimonies, and money transfers are all important pieces of evidence.

Where do I report corporate fraud?

The victim can file a criminal complaint with the Public Prosecutor's Office. Additionally, legal avenues such as enforcement proceedings, debt collection lawsuits, compensation lawsuits, or provisional attachment can be considered to recover the damages.

Is it possible to get your money back in cases of corporate fraud?

A criminal case ensures the perpetrator is punished; however, recovering the money often requires pursuing both enforcement and legal avenues simultaneously. Asset investigations and precautionary attachments are crucial in this process.

Is receiving money through a fake company considered fraud?

Yes. Fraudulently collecting money through companies that do not actually conduct commercial activity or are used solely for the purpose of collecting money from victims can constitute the crime of fraud.

Is mediation possible in corporate fraud cases?

Simple fraud is subject to mediation. However, if the incident falls under the category of aggravated fraud, mediation provisions generally do not apply.

Why is legal support important in a corporate fraud case?

These files require the accurate establishment of evidence regarding fraud, damage, benefit, money flow, and the perpetrator's connection. Incomplete or abstract criminal complaints may result in dismissal. Therefore, presenting evidence on a legal basis is of paramount importance.