Turkiye Halk Bankasi A.S. v. United States

Issues 

Are foreign sovereigns and their instrumentalities immune from criminal prosecutions by the United States?

Oral argument: 
January 17, 2023

The Turkish government owns the majority of a bank called Turkiye Halk Bankasi (“Halkbank”), which a grand jury indicted for multiple counts of fraud in 2019. Halkbank, however, argues that it should be immune from any criminal prosecution by the United States because of the Foreign Sovereign Immunities Act (“FSIA”). The FSIA explicitly provides immunity from civil actions for foreign governments and their instrumentalities, but the Supreme Court has never stated whether it also applies to criminal prosecutions. If foreign governments are not granted immunity from criminal prosecution under the FSIA, then, as the United States argues, 18 U.S.C. § 3231 explicitly authorizes district courts to hear the case. The Supreme Court’s decision could affect international relations between countries if they fear criminal prosecution by the United States. It could also impact the United States’ ability to protect its national security from foreign government-owned entities that fund terrorists.

Questions as Framed for the Court by the Parties 

Whether U.S. district courts may exercise subject-matter jurisdiction over criminal prosecutions against foreign sovereigns and their instrumentalities under 18 U.S.C. § 3231 and in light of the Foreign Sovereign Immunities Act.

Facts 

Turkiye Halk Bankasi A.S. (“Halkbank”) is a Turkish commercial bank that is majority-owned by the Turkish government. United States v. Bankasi at 341. In 2019, a grand jury in the United States charged Halkbank with multiple counts of fraud, including laundering proceeds of Iranian oil and gas sales into the U.S. financial system in violation of U.S. sanctions against Iran. Id.

The bank used $20 billion of restricted Iranian funds to make international payments on behalf of the Iranian government and Iranian banks. Id. at 342. More than $1 billion passed through the U.S. financial system in violation of U.S. law. Id. To pass these funds through the United States, Halkbank executives lied to U.S. Treasury Department officials about the nature and source of the funds. Id. The scheme involved a conspiracy with various Turkish and Iranian officials. Id. at 342. The criminal prosecution proceeded in the United States District Court for the Southern District of New York. Id. at 340. Prior to this proceeding, the court accepted the guilty plea of co-conspirator Reza Zarrab and sentenced co-conspirator Mehmet Hakan Atilla to 32 months in prison. United States v. Halkbank at 1.

Before any ruling was made on the merits of the indictment, Halkbank sought dismissal of the case. Id. Halkbank argued that it was immune from criminal prosecution by the United States because of the Foreign Sovereign Immunities Act (“FSIA”). Bankasi at 343. Congress passed the FSIA in 1976 to codify the U.S. State Department’s approach to suing foreign sovereigns and their instrumentalities. Id. at 346. Beginning in the 1950s, the State Department’s recommendation of immunity for foreign sovereigns was inconsistent, often depending on political considerations. Id. at 345–46. When the State Department did not take a strong position regarding immunity, courts were left without clear standards in making the immunity determination. Id. The FSIA sought to resolve disputes between the executive branch and the judicial branch about when cases against foreign sovereigns or instrumentalities of foreign sovereign should proceed. Id.

In this case, since the Turkish government owns the majority of Halkbank, both sides agree that the bank qualifies as an instrumentality of a foreign sovereign. Id. at 342–43 n. 8. While the FSIA explicitly provides immunity for civil actions, Halkbank’s motion to dismiss argued that the Act also provides immunity from criminal prosecutions. Id. at 342–43.

The district court denied Halkbank’s motion, finding that the FSIA does not provide immunity from criminal prosecutions. Id. It held that even if the FSIA applied to criminal proceedings, Halkbank’s actions would qualify as an exception to immunity under the FSIA because they were commercial activities. Id. at 343. Without immunity under the FSIA, the court held that it had jurisdiction over Halkbank via 18 U.S.C. § 3231—a broad statute providing district courts with jurisdiction over any offense against the laws of the United States, regardless of the nature and locations of the parties. Id. at 347. Halkbank appealed the court’s ruling to the United States Court of Appeals for the Second Circuit. Id. at 340.

The Second Circuit affirmed the district court’s denial. Id. at 340. The court did not conclusively decide the issue of whether the FSIA applies to criminal proceedings. Id. at 351. Instead, it based its holding on the commercial activity exception to the FSIA. Id. Halkbank appealed the ruling to the United States Supreme Court, which granted certiorari on October 3, 2022. The sole issue before the Supreme Court is whether the FSIA applies to criminal proceedings, not the narrower issue of the commercial activity exception.

Analysis 

JURISDICTION UNDER 18 U.S.C. § 3231

Halkbank argues that 18 U.S.C. § 3231, the statute that grants federal courts jurisdiction to rule on criminal violations of federal law, does not grant the courts jurisdiction over violations by foreign governments. Brief for Petitioner, Turkiye Halk Bankasi A.S. at 14. Halkbank points out that, at the time when the predecessor of § 3231, the Judiciary Act of 1789, was passed, international law had universally codified sovereign immunity, restricting one country’s courts from exercising jurisdiction over another country’s government. Id. at 15-19, 24. Halkbank also points out that the Supreme Court has consistently interpreted federal law to respect sovereign immunity. Id. at 21. Halkbank therefore argues that, where Congress does not explicitly grant federal courts jurisdiction over foreign governments, sovereign immunity is presumed to apply. Id. at 20-22. Halkbank maintains that §3231, which grants general jurisdiction for criminal violations to district courts, but does not explicitly grant jurisdiction over foreign governments, fails to overcome this presumption of sovereign immunity. Id. Halkbank further highlights that Congress explicitly granted jurisdiction over foreign governments in other statutes while leaving the Judiciary Act largely unchanged since 1789. Id. at 27. Halkbank argues that Congress therefore did not intend for the Judiciary Act to apply to foreign governments and explains that criminal law at the time of the Act’s passage only applied to human persons, not to foreign governments. Id. at 23, 27. Halkbank highlights that the federal government has historically shown itself to be unwilling to prosecute American state governments or foreign governments, or to be prosecuted abroad itself. Id. at 28-29. Halkbank therefore argues that both of these historical nuances of criminal law suggest that, consistent with the federal government’s historical practices, Congress did not intend for § 3231 to apply to foreign governments. Id. at 23, 28-29. Finally, Halkbank notes that Congress gave the Supreme Court exclusive jurisdiction to prosecute the ambassadors and diplomats of foreign governments. Id. at 25. Pointing to this fact, Halkbank suggests that a ruling that authorizes district courts to prosecute foreign governments would be inconsistent with Congress’s evident intent to limit jurisdiction over international matters to the Supreme Court. Id.

The United States counters that Congress expressly provided federal courts with jurisdiction over any criminal defendant under § 3231, which includes entities of a foreign government. Brief for Respondent, United States at 10-11. The United States asserts that the text of both § 3231 and the Judiciary Act of 1789 broadly encompass all violations of federal law, regardless of the actor’s identity. Id. at 14. The United States disputes Halkbank’s distinction between persons and corporations, noting that corporate entities were persons under constitutional and statutory criminal law from the Founding Era, and subject to some of the same punishments as human persons. Id. Moreover, the United States distinguishes majority-government-owned companies like Halkbank from foreign governments like that of Turkey, noting that the Supreme Court has long held that majority-government-owned companies lack immunity from suit notwithstanding their government’s ownership stake. Id. at 16-17, 24-25. The United States argues that the executive branch’s authority to oversee foreign affairs includes its discretion to prosecute foreign government-owned entities that violate U.S. laws. Id. at 10. Accordingly, the United States points out that the federal government has often brought civil and criminal cases against majority-government-owned companies like Halkbank. Id. at 25-26. The United States also notes that this practice is consistent with the practices of many other nations. Id. at 29. The United States therefore concludes that sovereign immunity does not apply where the executive branch determines, within its discretion, that criminal prosecution, rather than diplomacy, is preferable for resolving a dispute with a foreign government. Id. at 21-22.

JURISDICTION UNDER THE FOREIGN SOVEREIGN IMMUNITIES ACT

Halkbank maintains that the FSIA broadly denies federal courts jurisdiction over foreign governments in both criminal and civil suits, unless one of the exceptions under § 1605-1607 applies. Brief for Petitioner at 33-34. Halkbank explains that under § 1604 of the FSIA, foreign sovereigns are afforded general immunity from all proceedings; § 1330(a) grants jurisdiction for civil proceedings that fall under the exceptions listed in § 1605-1607. Id. at 34. Halkbank argues that the commercial activity exception under § 1605 should be read in tandem with § 1330(a). Id. Halkbank maintains that since § 1330(a) exclusively addresses civil proceedings, its exceptions should not be interpreted to affect general immunity from criminal prosecutions under § 1604. Id. Noting that the FSIA defines foreign sovereigns to include their majority-government-owned commercial entities, Halkbank concludes that the FSIA’s prohibition on federal courts hearing any proceeding against foreign sovereigns bars them from hearing the United States’ criminal case against Halkbank. Id. at 32-33.

Halkbank asserts that the limited exceptions under § 1330(a) and § 1605-1607 allow district courts to hear civil suits against foreign governments involving terrorism and commercial activity, neither of which applies to Halkbank’s criminal prosecution here. Id. at 33-34. Halkbank notes that the FSIA’s commercial-activity exception was enacted to reflect prevailing international law on sovereign immunity, which provided the commercial-activity exception exclusively for civil cases. Id. at 35. Halkbank highlights that Congress included the word “civil” in § 1330(a) but failed to include it in § 1604 of the FSIA, arguing that this omission confirms that Congress intended to limit the commercial-activity exception to civil cases. Id. at 40.

Finally, Halkbank concludes that even if the commercial-activity exception applies to criminal cases, the commercial-activity exception cannot apply to Halkbank because none of Halkbank’s conduct was commercial and did not involve the United States. Id. at 44. Halkbank points out that the money transfer scheme at the heart of its alleged criminal conduct occurred entirely outside the United States. Id. at 46. Halkbank also emphasizes that the alleged scheme did not have any direct effect in the United States, as the money transfers involving the U.S. financial system resulted from transactions that occurred after Halkbank’s transactions were completed. Id. at 47. Finally, Halkbank argues that its alleged conduct was governmental, not commercial in nature, because it was performed at the direction of Turkish government officials. Id. Therefore, Halkbank maintains, the conduct cannot fall under the commercial-activity exception. Id.

The United States, on the other hand, argues that the FSIA only applies to civil suits and not to criminal prosecutions whatsoever; therefore, immunity is not granted for criminal prosecutions under § 1604. Brief for Respondent at 33. In support of its argument, the United States points to the FSIA’s repeated textual references to civil suits and their procedural elements, as well as its use of language that often describes civil litigation. Id. at 34-35. The United States maintains that where the FSIA mentions criminal prosecutions, it does so only to refer to ancillary matters related to civil litigation, and not to include criminal prosecutions more generally within its scope. Id. The United States also highlights the FSIA’s legislative history, pointing out that Congress focused solely on issues involved in civil suits against foreign governments in drafting and passing the FSIA, suggesting that Congress only intended for the FSIA to apply to civil litigation. Id. at 38.

The United States points out that it would be illogical for Congress to deny the government the ability to prosecute commercial conduct in the criminal context but simultaneously allow private parties to litigate the same conduct in the civil context. Id. at 42. The United States therefore argues that even if sovereign immunity under the FSIA applied to criminal cases, Halkbank’s alleged conduct should fall under the commercial-activity exception in § 1330(a). Id. at 41-42. The United States asserts that the commercial activity exception under § 1605 should not be read as limited to the civil context by § 1330(a) but rather should be read as a separate provision, applicable to any proceeding based on illegal commercial activity. Id. at 42-43.

Lastly, the United States maintains that Halkbank’s conduct falls squarely within the commercial-activity exception. Id. at 44. The United States argues that Halkbank’s conduct involved financial transactions conducted through financial institutions in the United States, and therefore that the core of the alleged conduct involved the United States. Id. at 44-45. The United States also notes that some of the criminal charges exclusively allege that Halkbank employees concealed fraudulent conduct by misrepresenting transactions to U.S. Treasury Department officials. Id. Accordingly, the United States argues, those charges involve conduct that qualifies under the commercial-activity exception because it affected the United States by impacting the Treasury Department. Id. Finally, the United States asserts that Halkbank engaged in commercial conduct because the alleged conduct occurred in relation to its traditional banking and financial services businesses. Id. at 47. The United States explains that although the Turkish government granted the bank a license to conduct its activity, this government license does not thereby transform the bank’s conduct from commercial activity into governmental activity. Id.

Discussion 

CONCERNS ABOUT INTERNATIONAL RELATIONS

The Republic of Azerbaijan and Islamic Republic of Pakistan (“Republics”), in support of Halkbank, contend that allowing the United States to criminally prosecute foreign sovereigns would result in international discord. Brief of Amici Curiae Republic of Azerbaijan and Islamic Republic of Pakistan, in Support of Petitioner at 10–11. The Republics assert that there is currently an expectation that nations will not prosecute each other, and argue that a reversal of the Second Circuit’s ruling could lead other nations to criminally prosecute the United States. Id.

Professor Roger O’Keefe, in support of Halkbank, argues that the United States’ pervasive global presence would make the United States uniquely vulnerable to suit from foreign governments all around the world. Brief of Amicus Curiae Professor Roger O’Keefe, in Support of Petitioner at 16. According to Professor O’Keefe, the United States would face a heightened risk of retaliation if it began to prosecute foreign governments’ instrumentalities and would likely incite foreign governments to prosecute U.S. government officials as a result. Id.

The Turkish Red Crescent and other Turkish organizations (“Turkish organizations”), in support of Halkbank, fear that allowing nations to prosecute each other will diminish levels of international cooperation. Brief of Amici Curiae The Turkish Red Crescent et. al, in Support of Petitioner at 13. The Turkish organizations state that this loss of trust could escalate and that it will be difficult to eliminate. Id.

United Against Nuclear Iran (“UANI”), in support of the United States, counters that immunizing sovereign nations and their instrumentalities from criminal prosecution will injure international relations because the United States’ allies will be weakened in their fight against terrorism. Brief of Amicus Curiae United Against Nuclear Iran, in Support of Petitioner at 10. UANI emphasizes that the fight against terrorism relies on international cooperation, which will be damaged if the Supreme Court grants immunity to entities like Halkbank. Id. UANI further posits that U.S. allies rely on American assistance in fighting terrorism, particularly modern forms of terrorism that use government-controlled entities like Halkbank to finance themselves. Id. at 10–11. According to UANI, if the United States pursues prosecution of such foreign entities, this could serve to reinforce international law against institutions that harm U.S. allies. Id. at 12. For example, the United States could sue countries that support terrorism via government-owned entities, as in this case. See id.

The United States argues that depriving Halkbank of sovereign immunity would not weaken international relations because the United States has been bringing similar actions for decades. Brief of Respondent at 13–14. The United States cites past examples of cases it has brought against instrumentalities of foreign sovereigns where the instrumentality waived any potential immunity. Id. As such, the United States suggests that any deterioration in international relations would have already materialized. Id.

PROTECTING THE U.S. ECONOMY AND NATIONAL SECURITY

Professor O’Keefe, in support of Halkbank, worries that prosecuting Halkbank could lead to retaliation against U.S. government officials. Brief of Roger O’Keefe at 16–17. If foreign sovereigns begin to prosecute United States government officials, Professor O’Keefe warns, not only would there be foreign relations concerns, but those sovereigns may threaten the national security of the United States. Id.

The Republics envision that a ruling in favor of the United States will indirectly harm U.S. national security, where the politicization of courts leads to a breakdown in the rule of law. Brief of Republic of Azerbaijan and Islamic Republic of Pakistan at 13–14. In particular, the Republics warn, prosecuting foreign sovereign is a political maneuver that requires leaders to choose which countries should be prosecuted and which should be immune. Id. The Republics emphasize that such a politicization of the legal system is directly contrary to the values of the United States. Id.

The United States responds that allowing foreign nations to use instrumentalities to fund terrorism would threaten both the United States economy and its national security. Brief of Respondent at 9–10. The United States foresees that foreign sovereigns could purchase 50.1% of a corporation to protect it from United States prosecution while using it to threaten the United States. Id.

UANI asserts that those countries posing the greatest security threat to the United States, such as Iran, also rely on a large number of state-owned commercial enterprises. Brief of UANI at 27–28. As such, UANI maintains that forbidding the United States from prosecuting these enterprises could severely hamper the United States’ ability to protect itself against its enemies. Id.

Conclusion 

Acknowledgments 

Additional Resources