Background
More than 10,000 financial institutions and corporations in over 200 countries use the Society for Worldwide Interbank Financial Telecommunication (“SWIFT“) to execute international money transfers, making it an integral part of global cross border banking transactions. Despite its widespread use, banks outside Turkey frequently question whether SWIFT can be used to enter into a valid and enforceable agreement under Turkish law.
SWIFT is a Belgium-based organization owned by its members which include banks, payment securities and market infrastructures, brokerage firms, custodian, corporates, exchanges and clearing houses and are dedicated to the promotion and development of standardized global interactivity for financial transactions. SWIFT operates a messaging service for interbank financial correspondence, concerning matters such as letters of credit, letters of guarantee, payments, and securities transactions, between member banks worldwide. Most importantly, SWIFT is a method of sending payment orders settled through correspondent accounts. SWIFT does not hold funds, manage accounts on behalf of customers, or store financial information on an ongoing basis.
SWIFT is (i) a secure network for transmitting messages between financial institutions, (ii) a set of syntax standards for financial messages, and (iii) a connection medium allowing financial institutions to transmit messages over the SWIFT network.
Validity and Enforceability of SWIFT under Turkish law
Formal requirements
As a general rule under Turkish law, agreements and other transactions are not subject to any form requirement unless otherwise specifically required by law.
Certain agreements that are used in banking and finance transactions are subject to certain formal requirements:
• Written form (adi yazılı şekil): surety (kefalet) agreements, guarantees issued by individuals, assignment of receivables agreements, and pledge agreements.
• Notarization: commercial enterprise pledge agreements.
• Registration: commercial enterprise pledge agreements and mortgage agreements.
As a general rule, SWIFT messages are sufficient to form a valid agreement or communication regarding a transaction except the transactions subject to special form requirements. Therefore, common banking transactions such as bank guarantees and letters of credit can be validly entered into through a SWIFT message.
Evidentiary requirements
Under Turkish law, legal transactions exceeding TRY 2,500 (approx. USD 800) can only be proven by a written document signed by the debtor. Although the Turkish Supreme Court of Appeals refers to SWIFT messages in its rulings, it has not yet formally discussed the evidential nature of SWIFT messages. The Supreme Court of Appeals has referred to SWIFT as evidence that can be used as evidence to prove the existence of a transaction. However, since SWIFT messages do not contain the debtor’s signature, using SWIFT as evidence relies on the exceptions in Turkish civil procedure rules:
• Evidence agreement: Parties to a transaction are allowed to enter into an evidence agreement to set out the further evidence to be accepted by the parties together with statutory evidence. Prior to joining the SWIFT system, banks undertake not to refuse any message sent by them through the SWIFT system. This undertaking may be considered an agreement of the parties as to the evidence to be used in respect of their transaction under Turkish law.
• Market practice: Legal transactions that are customarily carried out without a written document may be proven by witness statements. Considering that most international interbank transactions are conducted through SWIFT messages, SWIFT messages are considered part of the market practice in the interbank transactions. SWIFT messages supported by witness statements to prove the existence of a legal transaction between banks are, therefore, sufficient.
• Prima facie evidence: Prima facie evidence is evidence issued by the debtor showing the existence of a legal transaction with a high probability. A SWIFT message sent by a counterparty would likely be classified as prima facie evidence. Supported by other evidence, such as a witness statement, SWIFT messages are sufficient to prove the existence of the legal transaction.
Conclusion
Considering the widespread use of SWIFT, the formal and evidential validity of SWIFT messages is an important question throughout the world. Under Turkish law, SWIFT messages can only be used to enter into transactions which do not have formal requirements. Yet, due to the archaic rule requiring a written document bearing the signature of the debtor, SWIFT messages may create a risk that can be mitigated through an evidence agreement, i.e., the underlying SWIFT undertakings, supported by other corroborating evidence.
