Comity Or Condemnation: Supreme Court To Decide Whether State-Owned Bank Is Immune From Criminal Prosecution Under The Foreign Sovereign Immunities Act

• Published date: 13 January 2023
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Sovereign Immunity: Public Sector Government, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Foley Hoag LLP
• Author: Mr Anthony Mirenda and Mark Finsterwald

Key Takeaways:

• The indictment of Halkbank, majority-owned by Turkey, for allegedly participating in a multi-year scheme to help Iran evade U.S. sanctions, tests the limits of U.S. criminal jurisdiction to prosecute foreign sovereigns and their instrumentalities.
• The Second Circuit held that the prosecution of Halkbank could go forward because, even if the Foreign Sovereign Immunities Act grants immunity in the criminal context, Halkbank's alleged conduct fell under the "commercial activity" exception to sovereign immunity.
• Different Circuits have taken different approaches to the issue of sovereign immunity in the criminal context, prompting the United States Supreme Court to grant review and consider resolving that split.
• The Supreme Court's decision, expected later this year, is likely to have significant ramifications regarding U.S. authority to prosecute foreign sovereigns and their instrumentalities.

Introduction

The Supreme Court of the United States is set to determine whether the United States can prosecute a commercial bank, which is majority-owned by the Republic of Turkey, for allegedly violating U.S. law. In 2019, U.S. federal prosecutors indicted Turkiye Halk Bankasi A.S. ("Halkbank") for allegedly participating in a multi-billion dollar money-laundering scheme with Iranian and Turkish affiliates to evade U.S. sanctions against Iran.

The parties present several key issues for the Court to consider: (1) whether federal courts have subject matter jurisdiction over criminal prosecutions of foreign sovereigns and their instrumentalities (or state-owned entities) under the general grant of federal criminal jurisdiction at 18 U.S.C. ' 3231; (2) if so, whether (or how) the Foreign Sovereign Immunities Act ("FSIA") limits that general grant of criminal jurisdiction as applied to instrumentalities of foreign states; (3) if the FSIA limits a federal court's jurisdiction over a state-owned entity (i.e., makes them immune from criminal prosecution), whether the FSIA's statutory exceptions to sovereign immunity apply in the criminal context; and (4) if the FSIA's exceptions to sovereign immunity apply in criminal cases, whether the "commercial activity" exception applies in these specific circumstances.

This case concerns the immunity potentially applicable to entities only; it does not concern questions of immunity relating to individual persons.

This case has garnered international attention, particularly in light of the increasing significance of sanctions as a U.S. foreign policy and national security tool. As explained below, the Court's ruling could have a monumental impact on how foreign sovereigns and their state-owned entities approach compliance with U.S. sanctions programs'especially those related to Iran and Russia.

Oral argument is scheduled for January 17, 2023. The Court will likely consider a wide range of potential outcomes. At one extreme, the Court might conclude that ' 3231 provides broad criminal jurisdiction over...