2nd Circuit Finds Turkish State-Owned Bank Not Immune From Sanctions Evasion Charges

The U.S. Court of Appeals for the 2nd Circuit has the jurisdiction to hear a case involving Turkey's state-owned bank Halkbank's sanctions-evasion charges, the appellate court said in an Oct. 22 opinion. Rejecting a motion to dismiss the case from Halkbank, a three-judge panel at the court said that the district court properly found that it had jurisdiction over federal criminal prosecution of Halkbank, skirting immunity conferred under the Foreign Sovereign Immunities Act. However, the 2nd Circuit stopped short of answering whether the FSIA universally confers immunity on foreign sovereigns in a criminal context. Even if the act gave Halkbank immunity, the panel said that Halkbank qualified for commercial activity exceptions to immunity because its sanctions evasion scheme happened in the U.S.

In October 2019, Halkbank was charged with fraud, money laundering and conspiracy to violate the International Emergency Economic Powers Act after allegedly working with Iran to evade U.S. sanctions (see 1910160015). The case was brought by the Department of Justice to the U.S. District Court for the Southern District of New York, where a federal judge allowed the prosecution to proceed, finding that the FSIA did not in fact extend to criminal cases and that if it did, there were commercial activity exemptions in the act allowing for prosecution of this case. An interlocutory appeal of this decision followed.

The panel largely held the district court judge's line, finding that Halkbank was not immune from these criminal charges. For starters, the panel rejected Halkbank's argument that the FSIA was the sole basis for jurisdiction in this instance. Instead, federal district courts have "original jurisdiction" of all offenses committed against the laws of the U.S., established under Section 3231 of Title 18 of the U.S. Code.

The panel also countered Halkbank's argument that the FSIA's "broad grant of sovereign immunity" cuts into the criminal jurisdiction grant under Section 3231. "Granting a particular class of defendants ‘immunity’ from jurisdiction has no effect on the scope of the underlying jurisdiction, any more than a vaccine conferring immunity from a virus affects the biological properties of the virus itself," the panel said, citing an unrelated decision.

The panel continued: "We think that the District Court plainly has subject matter jurisdiction over the federal criminal prosecution of Halkbank pursuant to § 3231. However, we need not -- and do not -- decide whether [Section] 1604 of FSIA confers immunity on foreign sovereigns in the criminal context."

Regardless of this underlying question, the panel said that the district court clearly had jurisdiction to hear the sanctions violation charge on the FSIA's commercial activity exception to sovereign immunity. In particular, these exceptions hold that a foreign state is not immune for the jurisdiction of U.S. courts when the act in question is based upon "(1) 'a commercial activity carried on in the United States by the foreign state'; (2) 'upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere'; or (3) 'upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.'"

The panel said that Halkbank hits all three, even though it need only meet one to be excluded from sovereign immunity. On the first two, the state-owned bank's activities in the U.S., which include lying to U.S. Treasury Department officials, qualify under both. The communications with the Treasury officials constitute commercial activity conducted in the U.S. and therefore grant the immunity exclusion. Also, Halkbank's money laundering to evade U.S. sanctions had a "direct effect" in the U.S. "by causing victim-U.S. financial institutions to take part in laundering over $1 billion through the U.S. financial system in violation of U.S. law," the opinion said.