Key Takeaways:
- On remand from the U.S. Supreme Court, the Second Circuit ruled that Halkbank, a commercial bank majority owned by Turkey, is not immune from criminal prosecution under common-law foreign sovereign immunity.
- The Second Circuit, based on the facts in this case, deferred to the Executive Branch's determination that Halkbank was not immune from prosecution.
On October 22, 2024, the U.S. Court of Appeals for the Second Circuit determined that common-law foreign sovereign immunity does not protect Halkbank, a commercial bank, majority-owned by Turkey, from criminal prosecution for violating U.S. sanctions against Iran. United States v. Turkiye Halk Bankasi A.S., No. 20-3499, slip. op. at 4 (2d Cir. Oct. 22, 2024). The decision is described below. In a prior publication, we discussed the potential implications of court decisions clearing the way for U.S. authorities to prosecute foreign state-owned entities for violating U.S. criminal laws.
The Second Circuit considered Halkbank's claim of common law sovereign immunity on remand from the U.S. Supreme Court. As we discussed in our prior publication, the Supreme Court concluded that Halkbank could not take advantage of sovereign immunity under the Foreign Sovereign Immunities Act because that statute applies only to civil, not criminal, cases. The Supreme Court remanded the case to the Second Circuit to consider whether common-law foreign sovereign immunity could spare Halkbank from criminal prosecution.
In deciding Halkbank was not immune under common law, the Second Circuit explained it would "defer to the Executive Branch's determination . . . that a foreign state-owned corporation is not entitled to foreign sovereign immunity for charges arising from its commercial, non-governmental activity." Id. at 12. The court, rejecting Halkbank's argument to the contrary, confirmed such deference was appropriate in both civil and criminal cases involving issues of common-law sovereign immunity. Id. 23. It noted a different result may be called for where the foreign state-owned corporation is engaged in governmental, as opposed to commercial, conduct (unlike Halkbank's activity here, as the court saw it). Id. at 33.
The court also made clear that the Executive Branch may express its view that immunity does not apply by initiating a criminal prosecution, as it did in this case. Id. at 12. But the court did not define all the ways the Executive Branch could make such a determination. It also explicitly did not decide whether it would defer to the Executive Branch's determination about immunity if the determination were made "in derogation of the common law." Id.
The Second Circuit also deferred to the Executive Branch as to international comity. Id. at 18. The Executive Branch handles U.S. foreign relations and evidently did not believe that prosecuting Halkbank would negatively affect foreign policy. Id. The Second Circuit did not address what might occur if such prosecutions were initiated at the state or local level.
Ultimately, the Second Circuit held that "the Executive made the decision to bring federal criminal charges against Halkbank for its commercial activity, and, because common-law foreign sovereign immunity imposes no bar on that prosecution, we defer to the Executive's decision not to afford such immunity in this criminal case." Id. at 44. The Second Circuit remanded to the district court to continue the criminal prosecution of Halkbank. Id.
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