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Turkey’s booming defense industry has become an attractive arena for international contractors and investors, given its rapid growth and global reach. Turkish defense exports have surged from about $2.3 billion in 2020 to over $7 billion in 2024, reflecting a dynamic ecosystem of state-affiliated firms and private innovators. However, partnering with Turkey’s semi-government-owned defense companies presents unique legal and operational risks that must be carefully navigated. These companies – exemplified by major players like ASELSAN, Turkish Aerospace Industries (TUSAŞ), HAVELSAN, and ROKETSAN – are deeply intertwined with the Turkish state and military. This intertwining brings opportunities for preferential access to projects, but also significant compliance, transparency, and governance challenges.
A Turkish ASELSAN anti-drone system showcased at an international defense fair. Turkey’s defense exports have grown exponentially in recent years, but foreign partners must remain vigilant about the compliance and procurement challenges in this sector.
Foreign defense contractors and investors need an informed legal strategy when dealing with these semi-state enterprises. Key issues include opaque procurement processes, potential preferential treatment of state-linked bidders, accountability gaps in oversight, conflicts of interest stemming from dual civilian-military control, and uncertainties in contract enforcement. Additionally, Turkey’s evolving export control environment and the political entanglements of defense deals introduce further complexity. In the following sections, we provide an advisory perspective – drawn from Turkish defense industry regulations and on-the-ground practice – to help international firms mitigate these risks while engaging in Turkey’s defense market.
An Opaque Procurement Landscape in Defense
One of the foremost challenges is the lack of transparency in defense procurement. Unlike ordinary public tenders, most defense and security acquisitions in Turkey are exempt from the general Public Procurement Law and instead follow a specialized regime. Under Public Procurement Law No. 4734, Turkey ordinarily mandates open, competitive bidding for government contracts. But defense procurements are carved out from these open tender requirements for reasons of national security and confidentiality. A dedicated Presidential Procurement Decree (No. 3373) governs military tenders, allowing methods such as negotiated or single-source contracts when “overriding interests” like national security or technological secrecy are at stake. In theory, competitive bidding is still the default, but in practice the broad national security exemption enables many contracts to be awarded without full competition.
Crucially, the details of defense tenders are often kept out of the public eye. Tender specifications and evaluations are managed case-by-case by the Presidency of Defense Industries (SSB) – the civilian authority overseeing defense projects – and decisions are made by the high-level Defense Industry Executive Committee. This structure means outsiders have little visibility into how contracts are decided. Indeed, Transparency International rates Turkey’s defense sector as “very high risk” for corruption, noting that it remains “extremely opaque and largely exempt from standard transparency and reporting requirements”, with secretive procurement processes undermining accountability.
For foreign firms, this opacity translates into uncertainty and compliance risk. It may be unclear why a particular semi-government competitor was selected for a contract, or what informal criteria influenced the decision. Preferential treatment of state-affiliated contractors is a known issue: Turkish authorities often prefer to channel contracts through defense firms linked to the government, such as ASELSAN, HAVELSAN or ROKETSAN. These firms, owned by a military foundation or the state itself, are frequently handed strategic projects or included as local partners in high-value programs. While this can benefit foreign companies who team up with an approved local champion, it also skews the level playing field. Competitors without the right political connections face a disadvantage, and even partners can find themselves navigating an insider-dominated process where formal rules are only part of the story. The challenge for investors is ensuring compliance with anti-corruption laws – avoiding any suggestion of impropriety – while engaging in a market where informal influence can sometimes tip the scales. Robust internal controls and due diligence on local agents or intermediaries are essential in this environment.
Compliance and Accountability Gaps
The semi-government nature of many Turkish defense companies raises concerns about accountability and oversight. These entities occupy a gray zone between public and private sector. On one hand, they are instrumental to national defense and often receive public funds or contracts; on the other, their corporate structure (for example, ownership by the Turkish Armed Forces Foundation, or partial state shareholding) means they are not fully subject to the transparency rules of government agencies. In practice, this can lead to accountability gaps. External audits and public scrutiny that apply to normal government departments may not comprehensively cover foundation-owned defense firms. Independent oversight is limited, and as a result, financial management and operations can evade the level of scrutiny that taxpayers or investors might expect. Observers have noted a “general immunity from independent auditing or public accountability” for military-linked enterprises in Turkey.
This relative opacity elevates compliance risks, particularly in anti-bribery and ethics. The lack of routine transparency can mask issues like conflicts of interest or off-the-record payments. Notably, Turkey’s defense sector was assessed to have “very high corruption risk” with weak safeguards. For a foreign company, partnering with a semi-public Turkish firm means careful vetting of that partner’s integrity and controls. Are there clear internal ethics policies and financial controls? According to a Defence Companies Index, major Turkish firms like ASELSAN and ROKETSAN have only “limited” to “very low” public commitment to anti-corruption and transparency programs. This doesn’t imply wrongdoing, but it signals that international partners may need to proactively implement compliance measures. Joint ventures or offset arrangements should include strict anti-corruption clauses, training for all teams, and rights to audit expenditures, in order to ensure that the foreign investor does not become entangled in any unethical practices.
Transparency in bidding and reporting is gradually improving on paper, with the Turkish government issuing more detailed procurement guidelines and requiring defense companies to report ownership and activities to the authorities regularly. Yet much information (especially on military projects) remains classified. As an investor, insisting on as much contractual transparency as feasible – such as receiving debriefs on tender outcomes or including audit rights in contracts – can help mitigate the fog. Additionally, understanding the local legal context for oversight is key. For example, Turkey’s Court of Accounts (Sayıştay) typically audits public expenditures, but its remit over military-linked companies is limited by law and practice. Awareness of such limits helps foreign stakeholders adjust their risk management expectations and not assume government-affiliated equals government-supervised.
Conflict of Interest and Dual Oversight Challenges
A defining feature of Turkey’s defense industry is the blurring of lines between the state and the companies it owns. Many top defense firms are either partially state-owned or controlled by quasi-official foundations, creating inherent conflicts of interest in the procurement process. A striking example is Turkish Aerospace Industries (TUSAŞ): it is officially classified as a state-owned company, with about 54% of shares held by the Turkish Armed Forces Foundation and roughly 45% by the government’s Defence Industry Agency (SSB). In other words, the very agency that awards many defense contracts (SSB) is also a part-owner of one of the biggest contractors. This dual role naturally raises questions about impartiality – when TUSAŞ competes for a project, the government is essentially selecting a company it co-owns, which may incentivize favorable treatment. The same pattern holds for other firms: ASELSAN, for instance, was founded by the Army Foundation and the Turkish Armed Forces Foundation remains its major shareholder.
Beyond ownership, governance overlaps contribute to “dual oversight.” The boards and executive committees guiding these companies often include high-ranking government and military figures. The Turkish Armed Forces Foundation (TSKGV), which manages the military’s shareholdings, has a board of directors that historically included the Minister of Defense, the Deputy Chief of the General Staff, and the head of SSB – and since 2017 even the President of Turkey serves as its chair. This means a semi-government defense company might receive direction from multiple channels: political leadership, the military establishment, and its own corporate management. For foreign partners, this can complicate decision-making and approvals. A joint venture or supply contract might require not just corporate board approval, but tacit sign-offs from political or military authorities behind the scenes. Priorities can shift with changes in government or military leadership, leading to sudden strategic pivots in ongoing programs. For example, if the armed forces alter their requirements or a new defense minister pushes a different agenda, a project’s scope or funding could be adjusted with little warning to partners.
Conflict of interest risks also extend to personnel. It is common in Turkey for retired military officers or former defense officials to take up roles in the defense industry (and vice versa). This “revolving door” can be beneficial for experience, but it also poses a risk of undue influence. Procurement officials are bound by ethics rules, yet enforcement can be uneven. For foreign companies, it’s prudent to identify if key counterparts in a Turkish partner firm have recent government backgrounds or family ties that could present a conflict. While such connections are not illegal per se, they require careful handling to ensure that any interaction remains above-board. Utilizing local counsel to navigate these relationships can be invaluable – they can advise on acceptable hospitality, how to structure agreements to avoid conflicts, and how to document decisions to withstand scrutiny. Ultimately, understanding the dual oversight structure – that a Turkish defense contractor is not an entirely independent commercial actor but influenced by state stakeholders – will help investors set realistic expectations and engage with the true decision-makers.
Uncertain Contracting and Enforcement Environment
When entering contracts with Turkish semi-state defense companies, foreign firms should pay close attention to dispute resolution and enforcement provisions. While Turkey has a robust legal system, the involvement of state interests in defense deals can introduce uncertainties if conflicts arise. It is telling that many defense procurement contracts in Turkey prefer to include international arbitration clauses or other alternative dispute mechanisms, rather than relying on local courts. Arbitration in a neutral venue provides reassurance that a dispute will be decided impartially, without the potential home-court advantage that a state-linked entity might enjoy in domestic courts.
However, this practice can vary. In instances where contracts are channeled through foundation-owned companies (like ASELSAN or ROKETSAN) instead of directly with a government ministry, the choice of dispute forum may lean towards Turkish courts. From the Turkish perspective, keeping disputes in local jurisdiction can protect sensitive security information and leverage familiarity with local law. For a foreign contractor, though, facing litigation in Turkish courts against a semi-government opponent can be daunting. There may be perceptions (real or not) of political influence – judges could be cautious to rule against a company closely tied to the state’s military interests. Moreover, certain defenses might be raised under Turkish law that are less available in international arbitration, such as claims of sovereign immunity or public interest that could limit liability.
Enforcement of judgments or arbitral awards is another consideration. A judgment against a Turkish state-affiliated firm may be enforceable against its assets, but if those assets are intertwined with defense or sovereign functions, practical enforcement could be elusive. Thus, foreign investors should negotiate robust contractual protections upfront. Key recommendations include: insisting on arbitration (e.g. under ICC or LCIA rules) with a seat in a neutral country; incorporating waiver of sovereign immunity clauses where applicable; defining clear termination and compensation provisions if the government alters or cancels a program; and even securing partial pre-payments or bank guarantees from the Turkish party to hedge against non-payment risks. It’s worth noting that Turkish defense authorities do typically ensure budget availability for signed contracts, so the risk of non-payment due to budget shortfall is low. The bigger risk is delay or non-performance due to shifting priorities or export/license issues – scenarios in which the contract might need to be suspended or adjusted.
By aligning on dispute resolution at the outset, both sides can avoid surprises. In practice, many foreign firms have successfully enforced their rights via arbitration when collaborations soured. And conversely, maintaining good relations and open dialogue with Turkish counterparts (including the SSB) can often resolve issues without formal disputes. As always, having experienced legal counsel draft and review any defense contract in Turkey is vital – seemingly minor clauses about governing law, force majeure (especially relevant to export restrictions or sanctions), and intellectual property rights can have outsized impacts if things go wrong. Clarity and detail in contracts are the best antidote to legal uncertainty.
Export Controls and Political Entanglements
Doing business with Turkey’s defense sector does not occur in a geopolitical vacuum. On the contrary, it often sits at the intersection of national and international politics, meaning foreign partners must navigate export control regimes and political winds that can shift abruptly. Turkey’s government tightly controls the export of military goods and technology. Any export of designated military equipment from Turkey requires a license from the authorities, and the state can deny or delay permissions based on foreign policy considerations. A joint venture intending to sell a product to a third country could be stymied if Ankara’s diplomatic relations with that country deteriorate. Foreign investors should be mindful of which markets are sensitive – for example, exports to certain conflict zones or sanctioned countries will be scrutinized or blocked.
Likewise, foreign governments’ export controls come into play. If a defense project in Turkey relies on U.S.-origin components or technology, it may be subject to U.S. International Traffic in Arms Regulations (ITAR). European or other partner nations also impose restrictions on re-export of their tech. A recent high-profile case illustrates the impact: Turkey’s purchase of the Russian S-400 air defense system triggered U.S. sanctions under CAATSA in 2020, which directly targeted Turkey’s Presidency of Defense Industries (SSB) and key defense officials. The repercussions were felt by Turkish companies and their foreign partners alike. For instance, one major joint program – the Turkish Utility Helicopter Program to co-produce T70 helicopters with a U.S. company – faced severe delays as U.S. export licenses for parts were held up or denied due to the sanctions. Lockheed Martin, the U.S. contractor, had to declare force majeure and suspend some operations when it could not secure approvals to ship technology to Turkish Aerospace (TUSAŞ). This example underscores how political decisions (Turkey’s alignment with Russia) led to an export control response (U.S. sanctions) that rippled through industry projects.
A Turkish T70 utility helicopter, co-produced by Turkish Aerospace Industries and a U.S. defense firm, on display. International partnerships can be vulnerable to geopolitical shifts – U.S. sanctions on Turkey’s defense agency in 2020 caused delays in joint programs by restricting export licenses.
Political entanglement can also manifest as defense deals being used as leverage in diplomacy. Turkey’s defense procurements and exports have occasionally become bargaining chips – for example, debates within NATO or with the EU have led to talk of arms embargos or technology restrictions on Turkey. Conversely, Turkey has used lucrative defense contracts (like fighter jet upgrades or new drone sales) to build strategic relationships. A foreign investor must be prepared that a contract might suddenly be subject to government review or public controversy if the geopolitical context shifts. This calls for flexibility and contingency planning. Mitigation measures include diversifying supply chains (to avoid single points of failure from one country’s export approval), including contract clauses that allow schedule relief for regulatory delays, and staying in close contact with both Turkish and home country regulators to anticipate changes.
Finally, political influence within Turkey is a factor. Defense is a highly prestigious sector, championed personally by Turkey’s leadership as a symbol of national sovereignty. Projects can attract publicity and political interest, which can be double-edged: support from the top can expedite approvals, but it can also mean decisions are not purely business-driven. A change in administration or policy emphasis (for instance, a push for greater self-reliance in certain technologies) could alter the outlook for foreign involvement. Thus, maintaining a low political profile, where possible, and letting the Turkish partner take lead in public interfacing can shield foreign companies from becoming political targets. It’s wise for investors to have a stakeholder map – understanding which political figures, ministries, or military commands have influence over their business – and engage through formal channels to build trust. By appreciating the highly political nature of Turkey’s defense realm, foreign contractors can better align their strategies with Turkey’s national interests, reducing the risk of being caught off-guard by policy swings or public sentiment.
Mitigating Risk: Best Practices for Foreign Partners
Despite the complexities outlined, Turkey’s defense market remains navigable and often rewarding for those who approach it with diligence and foresight. International contractors and investors can mitigate risks through a combination of careful planning, contractual safeguards, and local expertise. Below are key strategies to manage the legal and operational risks when dealing with semi-government-owned defense companies in Turkey:
- Thorough Due Diligence & Compliance Programs: Before entering any partnership, conduct in-depth due diligence on the Turkish company’s ownership, governance, and reputation. Understand exactly how much state influence exists and who the key decision-makers are. Implement strong internal compliance programs that address Turkish anti-corruption laws and international standards (such as the FCPA or UK Bribery Act). Regular training and clear policies for all employees and intermediaries will set the right tone. Remember that Turkey’s defense sector is considered high-risk for corruption and opacity – proactive compliance is your best defense.
- Clear Contracts with Dispute Protections: Invest time in negotiating contracts that anticipate potential pitfalls. This means precisely defining deliverables, timelines, and payments to reduce ambiguities that could be exploited. Include dispute resolution clauses favoring neutral arbitration forums, or at least mitigate jurisdictional risks if Turkish courts must be used. Build in clauses for what happens if export licenses fail or if political events (sanctions, embargos) intervene – for example, force majeure provisions covering regulatory blocks, with mechanisms to pause or renegotiate obligations. If possible, secure performance bonds or guarantees to protect against non-performance. A well-drafted contract is not just a legal document but a strategic tool to manage uncertainty.
- Engage with Both Civilian and Military Stakeholders: Acknowledge the dual oversight structure by ensuring you communicate effectively with all relevant authorities. Compliance with formal procurement requirements (tender rules, licensing) is essential, but so is relationship management. This might involve periodic meetings with SSB officials to stay aligned on expectations, as well as maintaining respectful ties with end-user military representatives who influence project outcomes. Demonstrating that you understand and respect Turkey’s security needs can build trust. However, exercise caution to keep interactions professional and well-documented to avoid any perception of impropriety or undue influence.
- Monitor Political and Regulatory Developments: Given the fluid geopolitical context, dedicate resources to horizon-scanning for changes that could affect your venture. This could mean tracking proposed changes to defense laws, being aware of election outcomes and shifts in defense leadership, or monitoring international developments like NATO policies and sanctions regimes. In practice, having a knowledgeable local legal team or consultant is invaluable – they can provide early warning of regulatory changes (for example, new export control rules or local content requirements) and advise on compliance adjustments. Additionally, maintain flexibility in operational plans; for instance, have backup suppliers in case export controls from one country tighten, or design products to be ITAR-free where feasible.
- Leverage Local Legal Expertise: Finally, engage a reputable Turkish law firm with deep defense sector experience. An experienced counsel can guide you through the maze of Turkish procurement decrees, permit regulations, and bureaucratic processes. They can help interpret unwritten norms – such as how bids are really evaluated or how to obtain required approvals efficiently. While we avoid direct self-promotion, it is evident that local expertise can be the bridge between foreign businesses and Turkey’s defense establishment. From structuring a joint venture to ensuring compliance with Law 5201 (which regulates private production of war materials) and other sector-specific laws, local counsel will help tailor your approach to mitigate risk. This kind of informed guidance enables foreign investors to focus on the opportunities – such as Turkey’s growing defense market and innovation potential – while confidently managing the legal complexities.
Entering into business with semi-government-owned defense companies in Turkey is a venture that mixes high reward with high risk. The country’s defense industry success – now a source of national pride with rapidly expanding exports – offers foreign defense contractors and investors a chance to be part of ambitious projects and a gateway to regional markets. Yet, the intricate web of procurement rules, state affiliations, and political currents means such engagements must be handled with care. Transparency is limited, and one must be prepared for a less predictable bidding environment. Governance is dual-natured, blending civilian and military influences that can sometimes conflict or change with little notice. Contracts and commitments are subject to forces beyond pure commerce, from shifting national strategies to international sanctions.
For an international audience of defense firms and financiers, the overarching advice is this: go in with eyes open and safeguards in place. By understanding Turkish legal frameworks and cultural context – and by implementing the risk mitigation practices highlighted above – one can successfully navigate the minefields and find a path to mutual benefit. Turkey’s defense sector is evolving toward greater self-reliance and global integration, and foreign partners who align with these goals, while protecting their legal and ethical position, will find Turkey to be a valuable ally in business. In short, prudence and preparation are key. With the right approach, the formidable challenges of doing business with Turkey’s semi-state defense contractors can be managed, allowing you to focus on innovation, collaboration, and the substantial opportunities that this dynamic market presents.
