US can prosecute Turkish bank in Iran sanctions case, appeals court rules

A US appeals court on Tuesday said the federal government can prosecute Turkey's Halkbank on charges it helped Iran evade American sanctions, rejecting the state-owned lender's argument that it deserved immunity.

In a 3-0 decision, the 2nd US circuit court of appeals found no basis under centuries-old common law principles for foreign state-owned companies to be immune from US prosecution related to commercial, non-governmental activities.

Circuit judge Joseph Bianco said the Manhattan-based appeals court should defer to the executive branch's determination that the US department of justice could prosecute Halkbank.

“Though certain prior cases extended immunity to state-owned corporations based on their governmental conduct, the common law places no independent bar on the prosecution of such corporations for their commercial activity,” he wrote.

He also wrote that a decision to prosecute foreign state-owned companies such as Halkbank, rather than impose tariffs or deny military aid to their state sponsors, “is not one for the judiciary to second guess”.

In response, Halkbank said in a statement to the Istanbul stock exchange: “Our bank will use all its legal rights to appeal with regard to the October 22 2024 decision of the second circuit, particularly with the US supreme court.”

A spokesperson for US attorney Damian Williams in Manhattan declined to comment on the court's decision.

The appeals court panel was considering the case for the second time after a related April 2023 decision by the US supreme court.

US prosecutors charged Halkbank in 2019 over its alleged use of money services and front companies in Iran, Turkey and the United Arab Emirates to evade sanctions.

Prosecutors said Halkbank helped Iran secretly transfer $20bn (R351.89bn) of restricted funds, converted oil revenue into gold and cash to benefit Iranian interests, and documented fake food shipments to justify transfers of oil proceeds.

Halkbank pleaded not guilty to bank fraud, money laundering and conspiracy. The case became a thorn in US-Turkey relations, with Turkish President Tayyip Erdogan calling the US charges an “unlawful, ugly” step.

'UNPRECEDENTED'

In 2021, the appeals court concluded Halkbank could be prosecuted under the federal Foreign Sovereign Immunities Act because its alleged misconduct involved commercial activity not covered by the law.

The supreme curt later agreed that Congress's desire to shield foreign countries and their instrumentalities from civil liability did not cover criminal cases.

However, in a 7-2 decision, the high court said the 2nd circuit should more fully review whether common law immunity shielded Halkbank.

The bank's arguments included the case concerned “diplomatic activity” because it included a charge based on Halkbank's alleged misrepresentations to US treasury officials about its sanctions compliance.

During oral arguments on February 28, justice department lawyer Michael Lockard said that was no reason to excuse Halkbank.

“For a foreign commercial bank, one that is majority owned by the state of Turkey, to launder billions and billions of dollars (to benefit Iran), to deceive banks, to lie to US treasury officials, that conduct is unprecedented,” he said.

The appeals court returned the case to US district judge Richard Berman in Manhattan. He ruled on different grounds in 2020 that Halkbank did not deserve immunity.

Reuters