MANHATTAN (CN) — A mixed decision from the U.S. Supreme Court left the Second Circuit with “an unenviable task” to rule on whether or not a Turkish bank is immune from criminal prosecution, Justice Neil Gorsuch warned in the 2023 ruling.
But the Second Circuit got the ball rolling on Wednesday when it heard arguments from Halkbank, the Turkish financial institution accused of laundering $20 billion in Iranian oil and gas money in violation of sanctions.
U.S. prosecutors claim Halkbank used illegal shipments of gold and fake food to send the funds to Iran, while lying to the Treasury Department to hide at least $1 billion in illicit payments that made their way through the U.S. financial system.
Lawyers for Halkbank claim the state-backed lender is immune from prosecution thanks to common law on sovereign immunity.
“Sovereign immunity from criminal prosecution is and always has been, in this country, absolute,” Halkbank lawyer John Williams told a Second Circuit panel on Wednesday.
But U.S. Circuit Judge Joseph Bianco, a Donald Trump appointee, countered that sovereign immunity typically only prevents governments from being indicted, not government-controlled commercial entities.
“What common law is there to suggest, in the criminal context, that you cannot indict an instrumentality of the state, a corporation, a bank that’s controlled by the state, but is engaged in commercial activity?’ Bianco asked.
It’s the precise question the Supreme Court failed to rule on last year, as acknowledged by Gorsuch in his partial dissent to its 2023 decision.
“Many thorny questions lie down the ‘common law’ path and the court fails to supply guidance on how to resolve any of them,” Gorsuch wrote at the time.
Bianco on Wednesday seemed skeptical to extend common law immunity to a commercial bank, even if it is state-run. He offered Williams a hypothetical.
“This is new grounds,” Bianco said. “Suppose you had a bank controlled by the government that is overtly funneling money into a terrorist organization that’s killing Americans. I think you would say to us that the United States government, the Department of Justice has no ability to indict that bank, even though they’re overtly funneling money to a terrorist organization that’s killing Americans. Isn’t that what your position is today?”
“Without intervention by Congress? Yes, that is our position today,” Williams responded.
In the past, the Second Circuit has deferred to the executive branch to determine whether sovereign defendants get immunity. Williams claimed that this is only the case in civil cases, not criminal ones against commercial entities.
Bianco questioned that argument, calling its potential consequences “embarrassing in the international world.”
“You're taking the position that the United States government, without Congress acting, that the executive cannot indict a commercial bank or other corporation without congressional action, and I don't know where that comes from,” Bianco said.
Williams claimed that “numerous” cases around the world supported this position. But Bianco said only one meets the mark: a 2004 French case involving the flagging of vessels, which ended with the court citing sovereign immunity in its dismissal of a criminal indictment against a Maltese Corporation.
“That’s the only case that anybody has cited that deals with this type of situation,” Bianco said. “Isn’t that the only case — the French case — in the history of the world?”
“The lack of cases in the history of the world, we think, actually strongly supports our side, Judge Bianco,” Williams replied.
Assistant U.S. Attorney Michael Lockhard disagreed.
“There are some potential distinctions between the application of the civil law in the civil context and criminal context,” Lockhard said Wednesday. “But that doesn’t mean that we’re dealing with apples and oranges here. In fact, it is quite common for similar standards to apply in civil cases and in criminal cases.”
Lockhard chided Halkbank for its “unprecedented” conduct, which he attributed to the lack of existing case law on similar issues.
“The reason that there have not been cases like this before is because Halkbank’s conduct, frankly, is unprecedented,” Lockhard said. “For a foreign commercial bank, one that is owned by the state of Turkey, to launder billions and billions of dollars for the National Iranian Oil Company, which is an agent or affiliate of the IRGC, to deceive banks, to lie to U.S. Treasury officials — that conduct is unprecedented.”
Bianco was joined on Wednesday’s panel by U.S. Circuit Judge José Cabranes, a Bill Clinton appointee, and U.S. Circuit Judge Amalya Kearse, a Jimmy Carter appointee. The three judges did not issue a ruling following oral arguments.
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