TR-TR 
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Introduction
International defense contractors and investors eyeing opportunities in Türkiye’s growing defense sector should approach with caution. Turkey’s defense industry is dominated by state-affiliated entities and unique governance structures that create a challenging business environment. Key processes often lack transparency, and foreign partners face complex regulations at the intersection of civilian government oversight and military influence. These advisory outlines the major legal and operational risks associated with engaging Turkish state-linked defense organizations, and offers best practices to mitigate these risks when doing business in Türkiye.
Opaque Procurement and Lack of Transparency
One of the foremost challenges is the opacity of Turkey’s defense procurement process. Defense contracts are frequently exempt from the normal public tender rules applied to civil sectors. In fact, Turkish law allows defense and security procurements to bypass the general Public Procurement Law, citing national security confidentiality. This means many defense deals occur through closed or classified procedures rather than open tenders, with minimal public information. External oversight is tightly restricted – financial management and procurement decisions are treated as state secrets, undermining accountability. As a result, foreign firms may find it difficult to obtain clear information on bidding processes, criteria for contract awards, or even basic procurement timelines. This lack of transparency heightens the risk of unexpected changes or favoritism in contract awards, and makes it hard for outsiders to navigate or anticipate how decisions are made.
Preferential Treatment of State‑Linked Companies
Another structural pattern is the preferential treatment given to companies with political or state affiliations. Many leading Turkish defense firms are either state-owned or closely linked to government stakeholders (for example, owned by a military-affiliated foundation), and they often enjoy advantages in securing contracts. There have been allegations that politically connected private firms have received unfair advantages in tenders, even at the expense of other state-owned competitors. In practice, this means foreign entrants partnering with local firms might find the playing field uneven. State-favored enterprises may get direct contract awards or better terms, leveraging their insider status. For an outside contractor, competing against or collaborating with these favored entities can be challenging – they may have informal support, priority in decision-making, or early access to project information that is not equally available to others. This environment of potential nepotism and cronyism introduces uncertainty and reputational risk for foreign investors, who must be careful not to rely solely on formal rules when informal networks can heavily influence outcomes.
Dual Civil–Military Oversight and Governance Complexity
Engaging with Turkey’s defense sector also means dealing with an unusually complex governance structure where both civilian authorities and the military establishment exert influence. Oversight of defense programs is shared between political leaders and military institutions, often blurring lines of authority. For example, high-level decisions on defense projects are made by a Defense Industry Executive Committee (Savunma Sanayii İcra Komitesi, or SSİK) that includes the President and key ministers alongside the Chief of the General Staff. This dual composition means procurement priorities must satisfy both political directives and military needs, which can complicate and slow down decision-making.
Moreover, the largest defense firms are owned by a dedicated Armed Forces foundation (a quasi-state entity) rather than directly by the government, adding another layer of governance. This foundation-owned structure is not subject to standard governmental audits or parliamentary scrutiny. In effect, Turkey’s state-affiliated defense companies sit in a gray zone: they are deeply integrated with the state (and often led by ex-military or government officials), but can operate with the autonomy of private entities. For foreign contractors, this means navigating multiple stakeholders – a civilian procurement agency, military end-users, and the foundation’s management – each with their own oversight and approval processes. The dual civilian-military control can lead to overlapping bureaucratic requirements and potential internal power struggles, requiring patience and a clear understanding of who the true decision-makers are for any given project.
Constraints on Technology Transfer and IP Control
Foreign defense firms in Turkey are typically expected to share technology and know-how as the price of market entry. The Turkish government prioritizes building its indigenous capabilities, so offset obligations and technology transfer requirements are built into most defense deals. It is common for contracts to mandate that 50–60% of the contract value involve local content or partnerships, forcing foreign suppliers to localize production, invest in Turkish industry, or transfer key technologies and training to Turkish entities. For example, if a foreign company is supplying a missile system, it may need to co-produce propulsion or guidance subassemblies in Turkey and disclose technical data to the Turkish partner as part of the agreement. These requirements raise significant intellectual property (IP) and control issues. Once technology is transferred, the foreign firm may have limited control over how it is used or further disseminated. Protecting proprietary information becomes harder, and there’s a risk of creating future competitors if the Turkish side leverages the acquired know-how.
In addition, Turkey often imposes ownership and control restrictions on strategic defense ventures. Joint ventures in sensitive fields (e.g. cryptographic systems, advanced weaponry) may cap foreign ownership at 49%, ensuring Turkish partners retain majority control in line with national security policy. The Presidency of Defense Industries (SSB) – Turkey’s defense procurement authority – closely vets these arrangements, reviewing foreign partnerships for their impact on national security and approving terms related to IP rights and licensing. From the foreign investor’s perspective, these constraints mean less operational control and the possibility that critical design decisions, exports, or intellectual property exploitation will ultimately require Turkish consent. Careful negotiation is needed to balance Turkey’s localization demands with the foreign firm’s need to safeguard its core technology.
Limited Accountability and Audit Gaps
Engaging in Turkey’s state-affiliated defense sphere also entails accepting a lower level of public accountability and oversight than many international investors may be accustomed to. The defense budget and major programs are shrouded in secrecy, limiting outside scrutiny. The Turkish Parliament has virtually no effective oversight over defense spending or procurement – it does not get to substantively review the defense budget or monitor military procurement decisions. Although laws technically call for external audit reports on defense expenditures to be presented to Parliament, these requirements are routinely ignored. In practice, much of the defense sector’s financial activity (including the use of special funds and revenues from the Armed Forces foundation) goes unaudited in any public sense.
This lack of independent oversight creates audit gaps and potential accountability issues. Internal auditing within the Ministry of Defense is under-resourced and opaque, and while Turkey’s Court of Accounts is charged with auditing defense expenditures, its effectiveness has been severely limited – detailed audit findings are often classified and withheld from the public. For foreign contractors, these conditions present risks such as unnoticed cost overruns, misuse of funds, or unethical practices that might not be caught early through normal audit mechanisms. It can also mean limited recourse if irregularities occur; without transparent records or reporting, raising concerns or claims about financial discrepancies is more difficult. Simply put, the usual checks and balances are weak: defense projects proceed with minimal checks by watchdog bodies, so foreign firms must do their own due diligence to ensure contractual obligations (like payments or cost-sharing) are being met appropriately.
Dispute Resolution and Contract Enforcement Challenges
When entering contracts with Turkish state-linked defense entities, foreign companies need to pay special attention to how disputes will be resolved. The default approach in many Turkish defense contracts is to include arbitration clauses – indeed, arbitration (often in neutral forums) is commonly used for government defense procurement contracts. However, an important nuance is that if the deal is structured through a Turkish state-affiliated defense company (for instance, a military-owned foundation company acting as the prime contractor), that company may insist on Turkish law and local jurisdiction. In several cases, state defense firms have opted to handle disputes in Turkish courts rather than international arbitration. This can put a foreign contractor at a disadvantage: litigating in local courts may raise concerns about impartiality, procedural differences, and the influence that a state-associated opponent could wield on home turf.
Enforcing contractual rights can also become problematic if national security is invoked. Turkish defense agreements often include provisions (either formally or in practice) that allow the government to suspend or cancel obligations on grounds of national security. Indeed, under Turkish regulations, licenses or permissions for defense work can be revoked for national security reasons at the authorities’ discretion. While defense contracts in Turkey are generally treated as commercial/civil agreements (not administrative acts) – meaning disputes should be settled under civil law – the line between commercial and sovereign acts can blur in sensitive projects. In extreme scenarios, a foreign supplier might face a contract termination or halt of work by government order. The usual remedies (like claiming breach of contract) become harder to enforce if the termination is justified by public interest or security needs. Essentially, sovereign immunity and public policy defenses could shield Turkish entities from paying damages or honoring arbitral awards, especially if no explicit waiver is in place. Therefore, ensuring a robust dispute resolution clause (ideally providing for neutral arbitration and waiver of immunity) is critical, as is understanding that even a favorable award might be difficult to enforce without the Turkish side’s cooperation.
Bureaucratic Delays and Administrative Hurdles
Foreign defense companies should be prepared for potential delays due to Turkey’s bureaucratic processes in the defense sector. The procurement and project execution cycle involves numerous stakeholders and formal steps that can slow things down. At the highest level, major defense investments require approval from multi-member councils and committees (as noted, the Executive Committee and a Coordination Council) before they even reach the contract stage. These bodies do not meet continuously; scheduling and securing all necessary sign-offs can push timelines out for months. Even after high-level approval, implementation is overseen by the SSB and relevant ministries, each with their own procedures for vetting contracts, issuing permits, and releasing funds. The layered decision-making – strategic planning, executive decision, and agency execution – means projects can stall at any phase if one cog in the machine turns slowly or if priorities shift.
In practice, foreign contractors often encounter extended timelines for approvals and clearances. For instance, establishing a joint venture or local subsidiary in defense requires SSB’s prior consent; the review of ownership structure, security checks, and license terms typically takes several months under standard protocols. Obtaining a production permit from the Ministry of National Defense (a legal requirement for making war materiel) involves facility inspections and background checks that add time. Similarly, export/import licenses for defense articles must go through the electronic system (TAREKS) and multiple ministry reviews. Each of these administrative steps can introduce delays – sometimes compounded if agencies have questions or if political developments put sensitive approvals on hold. Bureaucratic delays may also arise from shifting requirements or documentation demands, as regulations are updated or officials change. Foreign firms need to build in time buffers and maintain close communication with Turkish counterparts to keep projects on track, as it is common for milestone dates to slip due to red tape and changing governmental approvals.
Export Control Constraints and Political Exposure
Engaging with Turkish defense entities brings complex export control obligations and political risk exposure that foreign companies must manage. Turkey is a member of all major arms control regimes (such as the Wassenaar Arrangement and the Missile Technology Control Regime), and it has a robust legal framework to control defense-related exports and imports. Any defense-related goods or technology that a foreign firm brings into or takes out of Turkey will be subject to Turkish export licensing through the TAREKS system. This means meticulous compliance work – registering each controlled item, obtaining export/import permits, providing end-user certificates, and tracking the items’ movement in line with Turkish regulations. A misstep in licensing or documentation can lead to customs seizures or administrative penalties in Turkey, so foreign contractors must integrate Turkish export control procedures into their supply chain and project planning from the outset.
Additionally, foreign companies must consider overlapping international export controls. If the project involves U.S.-origin technology, for example, U.S. International Traffic in Arms Regulations (ITAR) or Export Administration Regulations (EAR) may apply on top of Turkish law, requiring U.S. government approvals for re-exports or technical data transfers. Similar considerations apply for components subject to EU dual-use rules or other national controls. This overlapping compliance burden not only complicates operations but can also create risk if geopolitical tensions rise. Turkey’s defense relationships have at times prompted sanctions or embargo threats from its allies. Notably, U.S. CAATSA sanctions were imposed on Turkey’s main defense procurement agency (SSB) in recent years, and Western countries have suspended export licenses for certain military items during political disputes. Such developments can directly impact foreign contractors: companies have had export licenses frozen or deliveries delayed due to diplomatic fallouts, leaving them caught between competing legal regimes and political pressures. The risk is that a change in Turkey’s foreign relations or defense policy (for example, purchasing sanctioned equipment or engaging with blacklisted entities) could suddenly make a foreign partner’s home-country approvals much harder to obtain, or even expose the company to penalties. In short, doing business with Turkish state-affiliated defense firms requires constant vigilance to international political currents and a robust compliance strategy to navigate export controls.
Access Restrictions and Security Clearance Issues
Lastly, foreign personnel and investors will confront strict access and security clearance restrictions when working with Turkish defense projects. Turkey classifies most defense industrial activities as sensitive national security matters, which triggers mandatory facility and personnel clearance procedures. Any company involved in producing war materiel in Turkey must obtain a facility security clearance (Tesis Güvenlik Belgesi) for its operations, and ensure that key staff have appropriate personal security clearances. The Ministry of National Defense conducts thorough audits of facilities – reviewing physical security measures, IT security, and safeguarding of classified information – before granting these clearances. For foreign-invested ventures, this can be a demanding process: sites may need upgrades to meet Turkish standards, and foreign nationals on the project will likely be vetted by Turkish authorities.
Foreign personnel often face limitations in access until they have been cleared (which can be a lengthy process, if it is granted at all). Certain highly classified programs or military sites may simply be off-limits to non-Turkish citizens, regardless of their role. In collaborative projects under NATO classification, even stricter rules apply – participants might require NATO security clearance in addition to Turkish clearance. This means a foreign engineer or executive might not be permitted to physically enter certain production areas or to review certain technical documents unless a waiver or special bilateral arrangement is in place. Moreover, Turkish regulations ensure that roles like security managers and export liaisons in defense companies are held by trusted (usually Turkish) personnel. Joint ventures typically reflect this by installing Turkish nationals in key managerial positions, such as a rotating Turkish chairman or security director, to satisfy local security requirements. For foreign companies, the practical impact is that they must trust local team members with critical aspects of operations and accept a degree of limited visibility into sensitive aspects of the project. Navigating these restrictions requires foresight – identifying early which tasks or information will require clearance and planning to hire or delegate to cleared personnel as needed.
Best Practices for Mitigating Risks
While the challenges of engaging with Turkey’s state-linked defense entities are significant, prudent planning and risk management can help mitigate these issues. International defense firms and investors can take several steps to protect their interests and navigate the Turkish defense landscape more effectively:
- Conduct Thorough Due Diligence: Before partnering or investing, perform deep due diligence on any Turkish defense entity. Understand its ownership (e.g. ties to the military foundation or political figures), track record in procurement, and the transparency of its operations. This can illuminate potential preferential relationships or hidden liabilities early on.
- Leverage Local Expertise: Engage reputable local counsel or consultants experienced in Turkish defense law and procurement. An advisor who knows the ins-and-outs of SSB procedures and regulatory exemptions can guide you through obtaining necessary approvals, licenses, and clearances, and help interface with government bodies. Local expertise is invaluable in interpreting informal expectations and unwritten rules that may apply.
- Negotiate Robust Contracts: Insist on clear contractual provisions that account for the unique risks. Where possible, include international arbitration clauses for dispute resolution and explicitly waive sovereign immunity in the contract to ensure the Turkish entity can be held to account. Define key terms like what constitutes a force majeure event or termination-for-convenience, as Turkish law narrowly construes these concepts (e.g. force majeure is typically limited to specific events like natural disasters or government mobilization). A well-drafted contract should also address IP rights (e.g. stipulating how transferred technology can be used and limiting its re-transfer) and include audit rights or reporting obligations to increase transparency.
- Plan for Export Compliance: Implement a rigorous export control compliance program. Before transferring any technology or equipment, verify the Turkish control list requirements and secure all needed export/import licenses in both Turkey and your home country. Keep an eye on political developments – for example, if sanctions are threatened, assess how that could impact license approvals or existing authorizations. Building flexibility into supply chains (such as alternative sourcing for controlled components) can help reduce vulnerability to sudden export restrictions.
- Allow Buffer for Approvals: Incorporate generous time buffers into project plans to accommodate bureaucratic delays. Assume that obtaining SSB approvals, production permits, or security clearances could take several months longer than in a less regulated market. Start these processes early and maintain regular contact with the relevant Turkish officials to monitor progress. Patience and persistence are often needed to shepherd a defense project through Turkey’s administrative channels.
- Secure Clearances and Build Trust: Proactively address the security clearance issue by identifying which of your personnel will need clearance and initiating that process early (in coordination with your Turkish partner and the government). Be prepared to staff certain sensitive positions with Turkish nationals if required, and invest in trust-building with them so you are comfortable delegating critical responsibilities. Ensuring that your team strictly follows all facility security protocols and respects Turkish classification rules will also build confidence and may smooth access over time.
- Monitor and Adapt: Finally, continuously monitor the governance environment. Turkey’s political and regulatory landscape can shift – for instance, new decrees can alter procurement rules or political changes can affect which companies are in favor. Stay alert to any signs of changing tides (such as new directives from the Presidency affecting SSB or defense funds) and be ready to adapt your strategy. Engage in regular dialogue with your Turkish counterparts and consider maintaining relationships with multiple stakeholders (both civilian and military) so you are not blindsided by internal shifts in influence.
By following these best practices, foreign defense contractors and investors can better navigate the legal labyrinth and operational challenges of doing business with Turkish state-affiliated defense entities. The key is to approach Türkiye’s defense market with eyes open – appreciating both the opportunities and the structural risks – and to manage those risks through informed, proactive measures and strong legal safeguards. With careful planning and expert guidance, it is possible to engage successfully while minimizing exposure to the pitfalls outlined above.
