US Supreme Court gives Turkey's Halkbank another chance to avoid charges (updated)

Turkiye Vakiflar Bankasi TAO

19/04/2023 15:36

(Adds share price, quotes from court's ruling and dissent)
    By Andrew Chung
       WASHINGTON, April 19 (Reuters) - The U.S. Supreme Court
on Wednesday bolstered a bid by Turkey's state-owned lender
Halkbank  HALKB.IS  to avoid criminal charges in the United
States for allegedly helping Iran evade American economic
sanctions.
    The justices in a 7-2 decision threw out a lower court's
ruling that had allowed the prosecution to proceed. They ordered
the Manhattan-based 2nd U.S. Circuit Court of Appeals to
reconsider Halkbank's effort to dismiss the case. 
    Halkbank, an entity owned by the Turkish government, was
charged in New York in 2019 and 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.
    Halkbank shares surged 10% on the Istanbul stock exchange
after the decision. Shares in Vakifbank  VAKBN.IS , another
Turkish state bank, jumped 9.9% and the bourse's banking index
climbed more than 4%.
    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.
    The case tested Halkbank's contention that it is shielded
from prosecution because, by virtue of being owned by the
Turkish government, it should have the same legal protections as
Turkey. Sovereign immunity generally protects countries from
facing legal action in another country's courts.
    The Supreme Court rejected the bank's view that it is
protected under a 1976 U.S. law called the Foreign Sovereign
Immunities Act (FSIA) that limits the jurisdiction of American
courts over lawsuits against foreign countries. 
    "We disagree because the Act does not provide foreign states
and their instrumentalities with immunity from criminal
proceedings," wrote conservative Justice Brett Kavanaugh, who
authored the ruling for the court's majority. 
    The majority found that the 2nd Circuit did not fully
consider whether the bank has immunity under "common law"
principles.
    Justice Neil Gorsuch, in a dissent joined by fellow
conservative Justice Samuel Alito, said the Foreign Sovereign
Immunities Act does apply but that the bank's prosecution would
still be allowed to proceed under the law's exceptions for
commercial activity in or affecting the United States. 
    Wednesday's decision, Gorsuch wrote, "overcomplicates the
law for no good reason."
    President Joe Biden's administration has said the FSIA does
not apply to criminal prosecutions and, even if it did,
Halkbank's actions fell under the law's exception to sovereign
immunity for misconduct involving commercial activities.
    The U.S. government has argued that the case does not
involve the prosecution of a sovereign government, and that it
has been pursuing criminal matters against foreign
government-owned companies - if not foreign states themselves -
for at least 70 years. 
    A Justice Department lawyer told the court in January that
ruling for Halkbank could allow any foreign state-owned
enterprise to "become a clearinghouse for any federal crime,
including interfering in our elections, stealing our nuclear
secrets, or something like here, evading our sanctions and
funneling billions of dollars to an embargoed nation."
    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
law shielded the bank, the conduct for which it was charged fell
under the commercial-activity exception.

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.S. Supreme Court mulls Turkish lender Halkbank's bid to avoid
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 (Reporting by Andrew Chung; Additional reporting by Oben
Mumcuoglu in Gdansk; Editing by Will Dunham)
 ((andrew.chung@thomsonreuters.com; 332.219.1428 ; 646.407.9441
mobile;))