February 5, 2023

Volume XIII, Number 36

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February 03, 2023

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February 02, 2023

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Second Circuit Holds that Expanding FSIA to Criminal Cases Would Not Save a Turkish Bank from U.S. Prosecution

The Second Circuit recently held that a denial of a motion to dismiss a criminal indictment based on the Foreign Sovereign Immunities Act (“FSIA”) is immediately appealable under the collateral-order doctrine but concluded that even if FSIA did provide immunity from criminal prosecutions, that immunity would not extend to a foreign sovereign’s or its instrumentality’s commercial activities.

The United States accused Halkbank—a bank majority-owned by the Turkish government—of helping Iran evade U.S. economic sanctions by laundering billions of dollars’ worth of Iranian oil and natural gas proceeds held in Halkbank, and permitting Iran to use those proceeds to purchase gold and convert it to cash for Iran’s benefit. The bank also allegedly attempted to cover up those transactions by lying to U.S. Treasury Department officials that the transactions related to the purchase of food and medicine by the bank’s Iranian customers and thus fell within the so-called “humanitarian exception” to U.S. sanctions.

Halkbank moved to dismiss the indictment arguing that FSIA—which facially applies only to civil cases—renders Halkbank immune from criminal prosecution because it is majority-owned by the Turkish government. The district court disagreed and denied the motion.  Halkbank immediately appealed arguing that the district court’s denial of immunity qualified for interlocutory review under the collateral-order doctrine. A panel of the Second Circuit agreed, holding that it had jurisdiction over the appeal because, just as in the civil context, a threshold foreign sovereign-immunity determination in criminal cases is immediately reviewable under the collateral-order doctrine.

The panel, however, sidestepped the key issue:  whether FSIA, which plainly confers immunity on foreign sovereigns from civil actions, also confers immunity in the criminal context. Rather, the panel concluded that even if foreign sovereigns and their instrumentalities were immune from criminal prosecution under FSIA, FSIA’s many exceptions would still apply and, in this case, preclude Halkbank from qualifying for immunity. The panel explained that Halkbank’s charged offense conduct would fall within FSIA’s exception to sovereign immunity for commercial activity. According to the panel, Halkbank’s participation in money laundering and other fraudulent schemes designed to evade U.S. sanctions constitute “an activity that could be, and in fact regularly is, performed by private-sector businesses,” and thus those acts are commercial, not sovereign, in nature.

The panel also rejected Halkbank’s argument that even if FSIA did not confer foreign-sovereign immunity in criminal cases, Halkbank was nevertheless immune from criminal prosecution under the common law. The panel explained that if FSIA did in fact confer sovereign immunity in criminal cases, then it displaced any pre-existing common-law immunity. And if FSIA did not apply in the criminal context or did not supersede the common law, foreign-sovereign immunity at common law also had an exception for a foreign state’s commercial activity, similar to FSIA’s commercial activity exception. The panel thus affirmed the district court’s order denying Halkbank’s motion to dismiss the indictment.

© 2023 Proskauer Rose LLP. National Law Review, Volume XI, Number 306

About this Author

Lucas Kowalczyk Litigation Attorney Proskauer Rose New York, NY

Lucas Kowalczyk is an associate in the Litigation Department and a member of the firm’s Appellate Practice Group and the White Collar Defense and Investigations Group. His practice involves complex litigation in federal and state courts, government and internal investigations, and criminal, regulatory, and sanctions compliance matters. In addition, Lucas maintains a diverse pro bono practice and has represented indigent clients in immigration and family court.

Prior to joining Proskauer, Lucas served as a law clerk to the Honorable A. Richard Caputo on the United States District...

 Seetha Ramachandran Proskauer New York, Trial Strategies White Collar Defense & Investigations Appellate,Financial Institutions, anti-money laundering AML, Bank Secrecy Act,

Seetha Ramachandran is a partner in the Litigation Department.

She is a leading expert in anti-money laundering (AML), Bank Secrecy Act, economic sanctions and asset forfeiture matters. She represents banks, broker dealers, hedge funds, private equity funds, online payment companies, and individual executives and officers, in high stakes and sensitive matters. Her practice focuses on white collar and regulatory enforcement defense, internal investigations, and compliance counseling. In addition to her subject matter expertise, Seetha is an experienced trial and appellate lawyer,...