On January 17, the Supreme Court will hear oral arguments in the United States v. Turkiye Halk Bankasi S.A. (Halkbank), a case that brings criminal charges against a Turkish bank for laundering Iranian assets in violation of US sanctions regimes, bringing new issues under the Foreign Sovereign Immunities Act (FSIA). The case’s arrival at the Supreme Court serves as a time capsule harking back to the time when former Attorney General Bill Barr headed the Justice Department and a reported pressure campaign by Turkish President Recep Tayyip Erdogan.
The case concerns a novel issue regarding the application of the FSIA to criminal matters and the scope of the “commercial activity” exception. The statute’s exception permits jurisdiction over sovereign entities in three circumstances: when the allegations relate to “commercial activity conducted in the United States by a foreign state; … an act performed in the United States in connection with a foreign country’s commercial activity elsewhere; or … an act outside the United States in connection with a foreign country’s commercial activity elsewhere [that] has direct effect in the United States.” In this case, the government argues that the FSIA applies only to civil cases, not criminal cases, and that even if the Act were applicable, the commercial activity exception would allow Halkbank to continue to be prosecuted. Halkbank, on the other hand, argues that the FSIA applies to criminal matters, but the exceptions only apply in a civil context, and its conduct is not subject to the commercial activity exception.
Also at issue is the government’s ability to extend federal criminal jurisdiction to foreign state-owned commercial entities under 18 U.S.C. §3231, an act that determines the jurisdiction of the federal court in criminal cases. §3231 grants federal district courts “original jurisdiction, excluding the courts of the United States, for all offenses against United States law.” The government argues that the conferral of jurisdiction in §3231 extends to Halkbank even though it is a foreign SOE. However, Halkbank argues that it is exempt from prosecution under § 3231, both by sovereign immunity and by a proper interpretation of the statute. The bank also argues that prosecuting a sovereign in national courts is an act without precedent on an international scale.
Halkbank is a Turkish financial institution whose majority shareholder is the Turkish Wealth Fund, an entity which in turn is wholly owned by the Turkish government. All three entities have personal ties to Erdogan, his associates and the ruling Justice and Development Party (AKP). In October 2019, then-United States Southern District Attorney Geoffrey Berman charged Halkbank with six criminal charges, including conspiracy to defraud the United States, conspiracy to violate sanctions, bank fraud, money laundering, and conspiracy to to commit both banking fraud and money laundering. The crimes involved what the Department of Justice described as a “multi-year plan” to “violate and avoid Iran’s bans on access to the US financial system, restrictions on the use of proceeds from the sale of Iranian oil and gas, and restrictions on gold supplies to the Iranian government, and for Iranian entities and individuals.” In particular, the indictment alleged that Halkbank had knowingly facilitated illegal transactions that enabled the proceeds from the sale of Iranian oil and natural gas to be laundered into gold and passed back to Iranian entities. He also claimed that Halkbank facilitated transactions “fraudulently designed to give the appearance of food and medicine purchases by Iranian customers to give the appearance of being covered by [the sanctions] so-called ‘humanitarian exception’.” The Southern District of New York previously accused two executives linked to the Halkbank program, Reza Zarrab and Mehmet Hakan Atilla, of their involvement in the program.
For the next two and a half years, the case went through the federal courts, settling questions of the application of the FSIA to criminal prosecution and sovereignty. But as the case went on, a much more nasty story was going on in parallel: a White House pressure campaign against Berman’s Halkbank investigation. The New York Times reported in October 2020 that then-Attorney General Barr met with Berman in June 2019 and urged him to accept a settlement offer in which Halkbank paid a fine but avoided prosecution, in exchange for ending investigations into on people associated with Halkbank. This conversation was reportedly the result of Erdogan’s pressure on then-President Trump, which extended even before Trump took office. Trump’s relationship with the Turkish strongman was further complicated by the former president’s extensive financial ties to the country. The New York Times linked Trump’s desire to appease Erdogan and reduce concessions to Halkbank to Berman’s eventual dismissal as U.S. prosecutor in June 2020, which the former president “intervened [in the investigation and prosecutor’s decision] in what appeared to be a selfish, seemed[ed] to oppose declared U.S. policy for the benefit of the authoritarian leader and his interests, and seems[ed] influenced by [his] own business affairs.”
In the legal arena, Halkbank filed a motion to dismiss in August 2020. It alleged primarily that Türkiye’s majority stake in the bank grants Halkbank sovereign immunity from prosecution under both the FSIA and general customary law under international law. Halkbank has also filed presumptions against extraterritoriality, personal jurisdiction, and lack of a proper conspiracy plea—none of which are under appeal.
In October 2020, Judge Richard Berman of the District Court for the Southern District of New York dismissed Halkbank’s request. On the FSIA’s allegations, Judge Berman stated that the statute “does not appear to provide criminal immunity.” Judge Berman argued that “nothing in the text of the FSIA suggests that it applies to criminal proceedings; and “legislative history … gives no indication that Congress was concerned [about] a foreign defendant in criminal proceedings.” Second, Judge Berman wrote that even if the Act were applicable, the FSIA’s “commercial activity exception” would apply to Halkbank’s actions, allowing jurisdiction. Judge Berman listed “Halkbank business meetings, teleconferences, and other U.S. Treasury Department interactions and communications” and the alleged laundering of over $1 billion through the U.S. financial system as activities that meet all three aspects of the Commercial Activity Exception. The district court also found no common law justification for immunity, noting that the courts would abide by the political decisions of the executive, which had clearly given the green light to the Halkbank prosecution in this case.
Halkbank appealed the district court’s decision to the United States Court of Appeals for the Second Circuit. He argued that the FSIA, properly read, confers sovereign immunity in both civil and criminal cases, but that the FSIA’s exception clauses, including the commercial activity exception, only apply to civil cases. (While the FSIA does not explicitly state its application in criminal cases, it has only been used in civil cases.) To arrive at this conclusion, Halkbank relied on two FSIA provisions read together: § 1604, which is the FSIA’s general grant of immunity to sovereign states, and § 1330(a), which grants “federal district courts jurisdiction only for “non-jury civil actions against a foreign state” that meet the FSIA exceptions.” Halkbank argued that §1604 confers sovereign immunity in all cases (criminal and civil), while §1330(a) allows jurisdiction over sovereigns under a small subset of exceptions that apply only to civil cases. Additionally, Halkbank argued that the FSIA was intended to “replace []” any other statute that conferred jurisdiction over the sovereign, and that the FSIA remains the “sole and exclusive standard” for extending jurisdiction over the sovereign.
Halkbank also addressed the district court’s request for the commercial business exception. It argued that even if found to be applicable in criminal cases, the FSIA’s commercial activity exception does not apply to Halkbank’s actions because the “gravamen” of the allegations occurred overseas as a result of Halkbank’s alleged involvement in illegal dealings with Iran, not in the U.S. United States.
The Second Circuit upheld the district court’s decision on appeal. Writing for the panel, Judge Jose Cabranes argued that there was an independent substantive jurisdictional basis for prosecuting sovereign entities under 18 U.S.C. §3231, which “explicitly” granted jurisdiction even over foreign sovereigns. “All” [crimes] means “everything,” he wrote, referring to the text of §3231. The court declined to determine whether the FSIA applied in a criminal context — Judge Calabres argued that in each case there was jurisdiction over Halkbank under §3231 and that even if Halkbank were applicable in criminal matters, the commercial business exception would apply. The court found Halkbank’s activities to qualify for all three categories of trading activities listed in the exception, due to Halkbank’s significant interactions with US regulators and Treasury Department officials, as well as the large impact of its activities on the US.
Panties in front of the United States Supreme Court
Halkbank filed for certiorari on May 13, 2022. Despite opposition from the Department of Justice, the Supreme Court granted Halkbank’s application on October 3, 2022. The court certified whether U.S. district courts may exercise jurisdiction in criminal matters against foreign sovereigns and their instruments under 18 U.S.C. § 3231 and under the FSIA.
The Halkbank case identified the case as one of its monumental implications: the first time a sovereign was prosecuted in the national courts of any state, and “a demeaning move against the Türkiye’s dignity.” Halkbank first referred to the Second District finding an independent basis of jurisdiction under 18 U.S.C. §3231. He argued that § 3231, which was derived from the Judiciary Act of 1789, did not apply to foreign sovereigns because the first Congress had shown no intention to extend criminal jurisdiction to foreign sovereigns. Citing Schooner Exchange v. McFaddon, Halkbank argued that the presumption of sovereign immunity would require an “explicit statement” of Congress’s intention to extend criminal jurisdiction to sovereign entities.
Regarding the FSIA, Halkbank reiterated his argument that the 1976 Congressional passage of the FSIA “clearly immunizes[d] foreign sovereigns and instruments against any federal jurisdiction unless expressly stated in the FSIA[,][which] grants exclusively civil jurisdiction against sovereigns” through its exceptions. The “ground rule” of immunity codified in the FSIA, Halkbank argued, applies to both criminal and civil cases, and the statute provides jurisdiction over sovereigns in only “one category of cases,” which relates to civil circumstances defined in FSIA §1330 exceptions. Even if the FSIA exceptions were to apply, Halkbank argued that the indictment is not “based on” Halkbank’s U.S. activities, and therefore does not have sufficient relevance for the commercial activity exception.
The government’s statement—repeating largely the reasoning of the Second Circuit—argued that §3231 extends to criminal cases against foreign sovereigns, that the FSIA’s immunities apply only to civil cases, and that the FSIA’s commercial activity exception would apply to the conduct of Halkbank regardless of from . In § 3231, the government reiterated the Second Circuit’s claim that in the § 3231 grant of jurisdiction, “all [crimes] mean everything” and includes those committed by sovereign entities. The government also made a distinction under § 3231 and common law between a sovereign nation as a defendant and a commercial entity owned by the sovereign. Under common law, state commercial entities such as Halkbank “generally have no immunity” and the executive remains free to prosecute them.
Regarding the FSIA, the US argued that the broader context of the FSIA – through its text, structure and history – made it clear that it was only applicable to civil cases. Furthermore, the US argued that even if the FSIA were applicable to Halkbank, the statute’s exceptions would also apply, and the “gravamen” of the allegations against Halkbank had sufficient US ties through Halkbank’s interactions with the U.S. Treasury Department. officials and the US financial system.
The case, which raises new issues of foreign relations law and sovereign immunity, has attracted significant international and academic attention. Sovereign states, NGOs, and academics presented as amici curiae papers on issues of the international doctrine of sovereign immunities, US interpretation of statutes, and international precedent for the prosecution of Halkbank.
Türkiye and a coalition of his allies wrote in support of Halkbank, arguing that Halkbank had sovereign immunity and that prosecuting sovereigns would have serious negative consequences. Republic of Türkiye argued that legally there was no difference between Halkbank and Türkiye, writing, “Türkiye treats the Bank as an arm of the state, indistinguishable from the government itself.” The Türkiye report presents a factual and cultural context dating back to the founding of Halkbank, attempting to show that “the distinction between the State and the Bank would be inappropriate.” The Republic of Azerbaijan and the Islamic Republic of Pakistan jointly argued that Halkbank should be given the same jurisdictional immunities as the sovereign, and that granting criminal jurisdiction against Halkbank “would be unprecedented in world history [and] would make the United States an extreme exception in the international community” and “disturb [ ] the delicate diplomatic balance on which the immunity of a foreign sovereign has always rested.” While amites agree that the “restrictive doctrine” of sovereign immunity may allow for civil prosecutions against sovereigns for commercial activities in some cases, they point to international practice that suggests that criminal immunity should remain unlimited and absolute for sovereigns and sovereign entities. Azerbaijan and Pakistan extensively explain the negative consequences of allowing the prosecution of sovereign entities for diplomacy, the rule of law and the international community. Referring to the specific context of U.S. law and the FSIA, amici argued that Schooner required a “clear statement” to extend criminal jurisdiction to a foreign sovereign, and that the “text, structure, and history” of the FSIA make it clear that the purpose was to prevent subsidy for prosecution penalty. (Azerbaijan and Pakistan also submitted Dr joint report, joined by the State of Qatar, which makes broadly similar arguments).
Academics also sent briefs. Mark Feldman, former Assistant General Counsel to the State Department, and Professor Chimène Keitner filed an amicus brief in support of the government. They argued that Halkbank, as a commercial enterprise owned by the Sovereign, should be treated differently from the Sovereign, and that its criminal prosecution did not imply Türkiye sovereign rights. Feldman and Keitner also argue that “the FSIA was drafted solely with civil litigation in mind.” Professors Roger O’Keefe and Lord Daniel Brennan K.C. he wrote separately, both in support of Halkbank. O’Keefe argued that international law granted foreign sovereigns – and their commercial entities – absolute immunity from criminal jurisdiction in domestic courts. Brennan also argued that the prosecution of Halkbank is contrary to the principles of international law regarding sovereign immunity and also violates the US-Turkey Mutual Assistance Treaty. Writing on a tangent to the FSIA’s immunity provisions, Professors Ingrid Wuerth (Lawfare associate editor) and William Dodge offered no brief support for either side. They wrote to address – and correct – lower court findings that “common law courts defer [executive immunity] determinations” for sovereign actors. Wuerth and Dodge argued that the courts are not, as lower courts have suggested, bound by the political findings of the executive branch, but are free to make their own decisions regarding immunity.
A coalition of NGOs led by the Turkish Red Crescent supported Halkbank, arguing that allowing sovereign entities to be prosecuted would have serious consequences for international business, global trade and international cooperation in humanitarian aid and law enforcement. Writing in support of the United States, NGO United Against Nuclear Iran argued that the court should respect the discretion of the executive to prosecute sanctions offences, and that Halkbank’s status as a foreign commercial entity opens it up to prosecution.
Can you watch Court cases live UK?
The results of the Halkbank case could have profound implications for international sovereign immunity law, as well as the ability of federal prosecutors to launch criminal cases against sovereign nations in violation of sanctions. As professors Curtis Bradley and Jack Goldsmith wrote in Lawfare earlier this month, the court has several paths ahead of it, including decisions that would require it to delve into “difficult non-statutory issues” about the scope of common law sovereign immunities – issues that amici are deservedly marked as being of significant importance in international law. As for Halkbank, if the court grants jurisdiction via the FSIA or § 3231, the case will return to the district court to hear arguments regarding the merits of the government’s criminal charges.
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