On April 19, 2023, the United States Supreme Court in Turkiye Halk Bankasi v. United States held that the Foreign Sovereign Immunities Act (“FSIA”), which extends immunity to foreign states and their agencies and instrumentalities, applies in civil, but not criminal, cases. The Supreme Court largely rejected arguments by Turkiye Halk Bankasi (“Halkbank”), a Turkish-state owned bank, that Halkbank was insulated from prosecution under the FSIA. The Court also rejected Halkbank’s argument that the general federal statute governing criminal subject-matter jurisdiction, 18 U.S.C. § 3231, does not apply to prosecutions of foreign sovereigns and their instrumentalities. The Court, however, left open one type of immunity defense: common-law immunity. The Second Circuit will now have the chance on remand to address Halkbank’s argument that foreign sovereigns and their instrumentalities enjoy common-law immunity from prosecution.
Key Takeaways
- The Supreme Court clarified the scope of the FSIA by limiting the law to only civil suits. Foreign states and their instrumentalities—including companies of which sovereign states are the majority owners—are now on notice that the FSIA does not shield them from criminal prosecution in the United States.
- The Supreme Court also affirmed the broad subject-matter jurisdiction that district courts have over federal criminal prosecutions, even against foreign states and their instrumentalities, under 18 U.S.C. § 3231.
- The Supreme Court remanded the case to the U.S. Court of Appeal for the Second Circuit to further consider whether common-law principles of foreign sovereign immunity, developed by U.S. federal courts before Congress passed the FSIA, might protect Halkbank from criminal prosecution. Halkbank had argued that, even without the FSIA, it is still immune under common-law-immunity principles because, according to Halkbank, common law tracked international law, which provided absolute immunity to sovereigns from criminal jurisdiction. The Supreme Court explicitly refrained from taking a position on this particular issue.
Background
In 2019, the United States indicted Halkbank for laundering billions of dollars in violation of U.S. sanctions on Iran. Halkbank is majority-owned by the Turkish Wealth Fund, which is part of and owned by the Turkish government. The bank’s indictment came on the heels of convictions in U.S. federal court of former Halkbank executives, which highlighted the conspiracy between the bank’s management and senior Turkish officials to circumvent the United States’ Iran sanctions regime.
Halkbank moved to dismiss the indictment, contending that it benefited from foreign sovereign immunity under the FSIA. The district court held that the “FSIA does not appear to grant immunity in criminal proceedings.” Further, the district court noted that even if it did, the court reasoned, the FSIA’s commercial activity exception (which looks at whether the nature, rather than the purpose, of prohibited acts are commercial) would apply because Halkbank allegedly used U.S. banks to fraudulently transfer over $1 billion in violation of U.S. sanctions on Iran—the type of action by which a private party engages in trade and commerce. The district court also rejected Halkbank’s common-law-immunity arguments because (1) the bank cited inapplicable Supreme Court case law dealing with suits against individual officials in their personal capacities and (2) previously under common law, courts deferred to the Executive Branch on sovereign immunity determinations, so in this case immunity would be implausible, given the Executive Branch’s criminal indictment against the bank.
On an interlocutory appeal to the Second Circuit, Halkbank challenged the district court’s subject-matter jurisdiction under 18 U.S.C. § 3231, which grants district courts jurisdiction over “all offenses against the laws of the United States,” and argued against the district court’s sovereign-immunity findings, under both the FSIA and the common law. The Second Circuit rejected all of Halkbank’s arguments, holding that the district court had jurisdiction over the criminal matter, and that neither the FSIA nor common-law doctrines immunized Halkbank from criminal prosecution. The Supreme Court granted discretionary review of the Second Circuit’s ruling, and then affirmed the Second Circuit in most respects, as discussed below.
The Supreme Court’s Decision
The Supreme Court held (1) that the FSIA did not apply to criminal proceedings, and thus did not protect foreign sovereigns and their instrumentalities from criminal prosecution under federal criminal law, (2) that the general subject-matter jurisdiction statute for criminal cases broadly applied to prosecutions of foreign sovereigns and their instrumentalities, and (3) remanded to the Second Circuit to consider whether Halkbank had a common-law sovereign-immunity defense.
In holding that the FSIA does not apply to criminal proceedings, the Court relied heavily on the FSIA’s statutory text. The Court relied on the plain language of various FSIA provisions—including those describing “nonjury civil action against a foreign state” and “any claim for relief in personam with respect to which the foreign state is not entitled to immunity”—as some examples of language and other procedures and remedies outlined by the FSIA that apply only in the civil context. The Court stressed that the FSIA is silent on criminal proceedings and that the FSIA is housed in the section of the U.S. Code (Title 28) that deals mostly with civil procedure, rather than the criminal section of the U.S. Code (Title 18). The Court also pointed out that its construction of the FSIA was consistent with a prior decision of the Court that held that Congress intended a narrow scope for the FSIA.
The Court also rejected Halkbank’s argument that the FSIA’s enumerated exceptions were the only means to strip sovereigns of their immunity, whether in civil or criminal proceedings. Instead, the Court clarified that the statute’s initial provisions granting jurisdiction over “any nonjury civil action against a foreign state” anchor the law in the civil context, and so the statute’s enumerated exceptions operate exclusively within that civil context.
The Supreme Court’s decision also provided a clear statement that the general federal criminal jurisdiction statute—18 U.S.C. § 3231—applies to foreign states and their instrumentalities. As the Court explained, Section 3231 uses “sweeping language” to grant district courts jurisdiction over “all offenses against the laws of the United States.” The Court refused to “graft an atextual limitation onto” that language based on Halkbank’s argument that Congress needed to expressly refer to foreign sovereigns and their instrumentalities if Congress wanted to confer jurisdiction to bring criminal prosecutions against them.
Despite rejecting most of Halkbank’s arguments, the Supreme Court left Halkbank with one possible immunity defense. Halkbank argued that, even without the FSIA, it is still immune under common-law-immunity principles, which operate differently in criminal and civil contexts. The Supreme Court did not address that argument, but instead acknowledged that sovereign immunity beyond the FSIA’s civil-only focus may exist under common law. While explicitly noting that the Court took no position on the matter, the Court determined that the Second Circuit’s common-law analysis did not fully consider the parties’ related arguments, and vacated the Second Circuit’s judgment and remanded for the Second Circuit to address common-law immunity.
Implications
Foreign states and companies owned by foreign states can no longer invoke FSIA immunity in U.S. criminal proceedings. Still, foreign states and their entities should carefully watch the Halkbank case on remand to the Second Circuit, which will now consider Halkbank’s common-law immunity arguments.
And whatever the Second Circuit decides on remand, the common-law-immunity issue could well end up back before the Supreme Court.
Beyond the immediate immunity concerns, the Halkbank prosecution is also notable from a sanctions perspective. Top Justice Department officials recently announced that the United States is surging resources to enforce U.S. sanctions and export controls, with more dedicated prosecutors and a focus on investigating companies for sanctions compliance. This is all the more so with the expansion of U.S. sanctions following Russia’s further invasion of Ukraine last year. The Halkbank prosecution may be the start of an increase in criminal proceedings against companies, some owned by foreign states, that evade U.S. sanctions regimes. Accordingly, it may be an opportune time for companies to evaluate the effectiveness of their anti-money laundering and sanctions controls and to invest in appropriate enhancements.
