U.S. Supreme Court mulls Turkish lender Halkbank's bid to avoid charges

[January 18, 2023]  By Andrew Chung and John Kruzel

WASHINGTON (Reuters) -U.S. Supreme Court justices on Tuesday grappled with thorny questions of sovereign immunity as they weighed a bid by Turkey's state-owned lender Halkbank to avoid criminal charges in the United States for allegedly helping Iran evade American economic sanctions. The nine justices heard arguments in Halkbank's appeal of a lower court's ruling in favor of the U.S. government that allowed the prosecution of the bank to proceed.

The case tests Halkbank's contention that it is shielded from prosecution because, as an entity majority owned by the Turkish government, it should enjoy the same legal protections as Turkey. Sovereign immunity generally protects countries from facing legal action in another country's courts. The justices raised numerous concerns about curbing the U.S. government executive branch's authority to make decisions involving national security, as well as the potential consequences of criminally prosecuting one of a foreign government's entities. Conservative Justice Brett Kavanaugh said it would be "pretty bizarre" and "huge" for the court to tell a U.S. president that "this court is going to prohibit your exercise of national security authority." Halkbank, charged in New York in 2019, has pleaded not guilty to bank fraud, money laundering and conspiracy charges over its alleged use of money servicers and front companies in Iran, Turkey and the United Arab Emirates to evade U.S. sanctions.

Conservative Justice Neil Gorsuch raised concerns that allowing the federal prosecution to proceed might open the door to U.S. states targeting foreign nations as well. States, Gorsuch said, could be "free to try to bring lawsuits against Mexico for this or that, or perhaps China because of COVID, or who knows what a creative state prosecutor might come up with?" Liberal Justice Sonia Sotomayor cautioned against giving federal or state prosecutors "the right to insult another nation by giving them this unbridled power to initiate suits."

Some justices appeared open to sending the case back to the lower courts to further explore the extent to which U.S. law reflects international law in broadly disfavoring criminal prosecutions against foreign countries, and if Halkbank should enjoy the same legal status as Turkey for purposes of immunity.

"Who should be deciding under these circumstances in this case whether we have a foreign corporation versus their argument that this really is the state?" liberal Justice Ketanji Brown Jackson asked Eric Feigin, a lawyer for the U.S. Justice Department.

A view of the U.S. Supreme Court building in Washington, U.S. October 3, 2022. REUTERS/Jonathan Ernst/File Photo

The bank said its view is backed up by a 1976 U.S. law called the Foreign Sovereign Immunities Act (FSIA) that limits the jurisdiction of American courts over lawsuits against foreign countries. President Joe Biden's administration contends that the law does not apply to criminal prosecutions and, even if it did, the bank's actions fall under the law's exception to sovereign immunity for misconduct involving commercial activities.

Halkbank's case has complicated U.S.-Turkish relations, with Turkish President Tayyip Erdogan calling the American charges against the bank an "unlawful, ugly" step.

U.S. prosecutors accused Halkbank of converting oil revenue into gold and then cash to benefit Iranian interests, and documenting fake food shipments to justify transfers of oil proceeds. They also said Halkbank helped Iran secretly transfer $20 billion of restricted funds, with at least $1 billion laundered through the U.S. financial system.

The Manhattan-based 2nd U.S. Circuit Court of Appeals in 2021 ruled against Halkbank, concluding that even if the FSIA shielded the bank, the conduct for which it was charged falls under the commercial-activity exception.

Halkbank's attorney Lisa Blatt, emphasizing the dispute's unusual nature, urged the justices to dismiss the case.

"The world has been around for, like, 7,000 years and no country has ever tried another country, it's just never happened," Blatt said, though she did not explain that date.

"I'm not going to claim that we've been doing this for 7,000 years," Feigin said, adding that such prosecutions have occurred since the 1980s. "That's because of the rise of government-owned corporations concealing some very serious crimes."

(Reporting by Andrew Chung in New York and John Kruzel in Washington; Editing by Will Dunham)

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