On October 1, 2020, the U.S. District Court for the Southern District of New York ("SDNY") issued an important ruling in U.S. v. Halkbank, holding that foreign state-owned entities ("SOEs") can be subject to criminal jurisdiction in the United States.1 The Court denied the defendant Turkish state-owned bank's motion to dismiss an indictment charging it with conspiracy, bank fraud, and money laundering in connection with allegedly processing $20 billion in Iranian oil and gas proceeds through the U.S. and international financial systems in violation of U.S. sanctions against Iran.
With this decision, the SDNY joins three Circuit courts that have addressed the unsettled issue by ruling that the Foreign Sovereign Immunities Act ("FSIA") does not preclude a U.S. court from exercising criminal jurisdiction over a foreign sovereign instrumentality. The Halkbank Court went a step further, rejecting Halkbank's defenses related to common-law sovereign immunity, constitutional due process, and extraterritoriality. In addition to expanding the scope of liability that foreign SOEs may face in U.S. court, the decision is also notable for its strengthening of prosecutorial discretion on questions of foreign sovereign immunity.
In October 2019, the U.S. Attorney's Office for the Southern District of New York (the "USAO") indicted Halkbank, one of Turkey's largest state-owned banks, on six counts of conspiracy, bank fraud, and money laundering, alleging that Halkbank laundered over $1 billion of Iranian oil and gas proceeds through the U.S. financial system, and approximately $20 billion through the international financial system, in violation of U.S. and other sanctions.
Two of Halkbank's alleged coconspirators, Turkish and Iranian citizen Reza Zarrab and Halkbank employee Mehmet Hakan Atilla, were indicted on similar charges. After unsuccessfully moving to dismiss their respective indictments, Zarrab pled guilty to designing the sanctions evasion scheme and Atilla was convicted by a jury and sentenced to a 32- month term of incarceration, which was affirmed by the Second Circuit in July 2020. 2
Halkbank moved to dismiss the charges against it, claiming that (i) as a majority state-owned Turkish bank, it is immune from criminal prosecution under the FSIA and common law; (ii) the Court lacked personal jurisdiction over it; and (iii) the presumption against extraterritoriality barred the charges since the criminal statutes at issue do not apply extraterritorially. 3
The FSIA provides that a "foreign state shall be immune from the jurisdiction of the courts of the United States" unless a specified exception to immunity applies and that U.S. district courts shall have jurisdiction in "any nonjury civil action against a foreign state . . . with respect to which the foreign state is not entitled to immunity."4 One commonly invoked exception allows suits against a foreign sovereign entity based on commercial activity carried out within the United States.5 In addition to foreign states themselves, foreign sovereign agencies, instrumentalities, and organs—including SOEs such as Halkbank—can qualify for immunity under the FSIA.
In civil cases, the U.S. Supreme Court has affirmed that the FSIA is "the sole basis for obtaining jurisdiction over a foreign state."6 But the Supreme Court has never ruled on whether or how the FSIA applies to criminal proceedings, and lower courts have reached varying conclusions.
In Halkbank, U.S. District Judge Richard M. Berman of the SDNY rejected all of Halkbank's arguments:
First, with respect to sovereign immunity, the Court held that, although Halkbank would qualify for the FSIA's protections since it is majority-owned by the Turkish government, the FSIA does not apply in criminal cases. According to the Court, the FSIA's purpose is to create jurisdiction over certain civil claims, and nothing in its text or legislative history suggests that it applies to criminal proceedings. Even if the FSIA did apply to criminal proceedings—and in the Court's view it clearly did not—the Court held that the FSIA's exception to immunity for commercial activity in the United States would deprive Halkbank of immunity here, based on Halkbank's interactions and communications with the U.S. Department of Treasury in and outside the United States in connection with its use of the U.S. financial system to carry out its scheme.
1 United States v. Halkbank, No. 15 CR 867 (RMB), 2020 WL 5849512 (S.D.N.Y. Oct. 1, 2020) ("Halkbank").
2 United States v. Zarrab, 2016 WL 6820737 (S.D.N.Y. Oct. 17, 2016); United States v. Atilla, 966 F.3d 118 (2d Cir. 2020).
3 Halkbank also unsuccessfully argued that the charges failed on the merits and/or were duplicative.
4 28 U.S.C. § 1604; 28 U.S.C. § 1330(a).
5 28 U.S.C. § 1605(a)(2).
6 See, e.g., Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989).
To see the full article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.