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Justices rule Turkish bank must face US prosecution for sanctions violations

A Turkish-run bank attempted to dodge prosecution for the largest-known conspiracy to evade U.S. sanctions against Iran by claiming sovereign immunity, but the high court was unconvinced.

WASHINGTON (CN) — The Supreme Court took a step back from an international legal battle between the U.S. government and a Turkish bank over sanctions violations on Wednesday, sending the case back down to the Second Circuit.

The justices did, however, agree with the appeals court and the district court that the state-run Halkbank is not shielded from criminal prosecution under the Foreign Sovereign Immunities Act.

"On Halkbank’s view, a purely commercial business that is directly and majority-owned by a foreign state could engage in criminal conduct affecting U. S. citizens and threatening U. S. national security while facing no criminal accountability at all in U.S. courts," Justice Brett Kavanaugh wrote for the court. "Nothing in the FSIA supports that result."

Halkbank, also known as Turkieye Halk Bankasi, claims that principles of common-law immunity prevent criminal prosecution against it by the U.S. government, even if the FSIA does not.

U.S. authorities indicted Halkbank in 2019 for allegedly laundering $20 billion in Iranian oil and gas money. With the help of Iranian-Turkish businessman Reza Zarrab, the bank allegedly allowed Iran to breach U.S. sanctions by accessing the proceeds of the country’s oil and gas sales.

Halkbank used illicit shipments of gold and fake food to send these funds to Iran, U.S. prosecutors claim. The bank is accused of lying to the Treasury Department to conceal at least $1 billion in illegal payments that made their way through the U.S. financial system.  

The government argues that when the executive branch commences a federal criminal prosecution of a commercial entity like Halkbank for criminal activities, common law does not provide foreign sovereign immunity.

"The Court of Appeals did not fully consider the various arguments regarding common-law immunity that the parties press in this Court. Nor did the Court of Appeals address whether and to what extent foreign states and their instrumentalities are differently situated for purposes of common-law immunity in the criminal context. We express no view on those issues and leave them for the Court of Appeals to consider on remand," Kavanaugh wrote in Wednesday's opinion.

The justices heard oral arguments in January to decide if the FSIA applied only in civil cases or could be extended to criminal probes too. 

Lisa Blat, an attorney with Williams & Connolly representing Halkbank, argued the criminal prosecution of a foreign sovereign was unheard of. Some of the justices leaned into these arguments, suggesting a ruling against the bank would allow any state to prosecute a sovereign nation without intervention by the federal governemnt. 

However, Eric Feign, deputy solicitor general at the Justice Department, reminded the justices that no had had ever attempted to sue a foreign sovereign and the government had other options to thwart these efforts if they did arise. 

"In short, Halkbank’s various FSIA arguments are infused with the notion that U. S. criminal proceedings against
instrumentalities of foreign states would negatively affect U.S. national security and foreign policy," Kavanaugh wrote.

"But it is not our role to rewrite the FSIA based on purported policy concerns that Congress and the President have not seen fit to recognize. The FSIA does not provide foreign states and their instrumentalities with immunity from criminal proceedings."

Congress passed the FSIA in 1976 to govern claims of immunity in civil actions against foreign states and their instrumentalities. Kavanaugh explained in the ruling that the law only defines the circumstances in which foreign states are immune from suit, not from criminal investigation. 

“In stark contrast to those many provisions concerning civil actions, the FSIA is silent as to criminal matters. The Act says not a word about criminal proceedings against foreign states or their instrumentalities,” Kavanaugh wrote. 

He added, “If Halkbank were correct that the FSIA immunizes foreign states and their instrumentalities from criminal prosecution, the subject undoubtedly would have surfaced somewhere in the Act’s text. Congress typically does not ‘hide elephants in mouseholes.’”

Justices Neil Gorsuch and Samuel Alito disagreed in a partially dissenting opinion, finding that the statute applies equally in criminal cases. But even under their finding that the FSIA should be applied, Halkbank would still not qualify for immunity because the alleged crimes involve commercial activity. 

Gorsuch wrote that the decision to send the case back to the Second Circuit leaves the litigants and lower courts with “an unenviable task, both in this case and others sure to emerge.”

“Many thorny questions lie down the ‘common law’ path and the Court fails to supply guidance on how to resolve any of them,” he wrote.  

He warned that the lower courts will have to decide whether to make the immunity decision based on customary international law and other sources, or defer to the executive branch’s judgment on whether to grant immunity to a foreign sovereign.

The solicitor general’s office and Halkbank’s attorney did not immediately respond to a request for comment Wednesday.

The high-profile case represents the largest-known conspiracy to evade U.S. sanctions against Iran. Turkish President Recep Tayyip Erdogan’s ties to former U.S. President Donald Trump — who the prosecution originated under — complicated the case. Ambassador John Bolton reportedly warned then-Attorney General William Barr of Trump’s compromised position in regards to the case. Barr also was later asked to recuse from the case but did not before the end of the Trump administration.

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Categories / Appeals, Business, Criminal, Financial, International

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