Commercial Fraud and the Prudent Merchant Principle

An unpaid invoice, goods taken but never paid for, a cheque that bounces. The loss in each case is real. Whether any of it amounts to a criminal offence is a separate question, and the answer is often not the expected one.

The decisive element: deception

Fraud is deceiving a person through deceptive conduct and thereby obtaining a benefit to their detriment.

The decisive element is deception. The perpetrator must have acted to mislead the other party before the transaction was entered into: using false documents, displaying a capacity that never existed, presenting stock as available when it was not.

By contrast, payment difficulty arising afterwards in a genuine commercial relationship is, as a rule, a civil dispute rather than a crime. Business turned down, collections failed, the debt went unpaid. That is the subject of a civil claim.

A substantial share of criminal complaints end in a decision not to prosecute at exactly this point: the loss is real, but no deception existing from the outset could be shown.

Committed in the course of commercial activity

Where fraud is committed by merchants, company directors or those acting on behalf of a company in the course of their commercial activities, it is an aggravated form of the offence and the sentence increases markedly.

How the events occurred, and in what capacity, therefore needs to be set out correctly in the complaint. The same facts can be treated as an ordinary debt dispute when described incompletely, and investigated as aggravated fraud when the elements are properly established.

The indirect effect of the prudent merchant principle

Turkish law expects every merchant to act as a prudent business person in their commercial activities. This is not itself a rule of criminal law, but it has an indirect effect at the investigation stage.

A merchant who enters into a high-value transaction with no contract, without checking the counterparty's commercial history and without taking security will often find that the argument "I was deceived" is treated as a civil dispute. A level of trust that may be reasonable between individuals does not attract the same protection in a commercial relationship.

That does not mean the merchant who suffered the loss is in the wrong. It means the criminal route alone will not be enough.

Preventive measures

Four measures both prevent loss and strengthen the file if loss occurs:

• Written contracts and delivery records. Where a relationship runs on oral understandings, what was agreed cannot later be proved.
• Screening. Checking the counterparty's registry entry, authority to represent and credit record before the transaction.
• Security. A guarantee, mortgage or part payment in advance on high-value transactions.
• Records. Keeping correspondence, reconciliations and order confirmations in writing.

With those in place, a deception existing from the outset is also easier to establish.

If the prosecutor declines to prosecute

The decision may be challenged before the criminal judgeship within the prescribed period. Submitting new evidence and establishing deception through concrete facts can change the outcome.

A decision not to prosecute does not mean the loss cannot be recovered. Independently of the criminal route, the receivable can be pursued through enforcement and litigation, and claims in tort assessed separately.

Conclusion

The first step after a commercial loss is to categorise it correctly. A file opened in the wrong category wastes time and often weakens the civil claim as well.