Supreme Court rules on Foreign Sovereign Immunity in the criminal law context
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The U.S. Supreme Court has issued a decision in Türkiye Halk Bankasi A.Ş. v. United States. In a previous publication, we described the underlying issues in Halkbank (as the petitioner is otherwise known) and analyzed the foreign sovereign immunity aspects at play.
In a 7-2 decision, the Court held that the Foreign Sovereign Immunities Act (FSIA) does not apply to criminal cases. The two dissenters would have applied the FSIA and its statutory exceptions in a criminal proceeding, but all nine Justices agreed that the prosecution against Halkbank could proceed. The decision has important implications for the business activities of foreign-state-owned enterprises doing business both within and outside the United States.
Background – revisited
As set forth in our previous article, the Government indicted Halkbank in 2019 for violating the U.S. sanctions regime against Iran. According to the indictment, Halkbank allegedly laundered Iranian oil and gas proceeds at the behest of the Turkish Government. Halkbank moved to dismiss the indictment on the basis of sovereign immunity.
Title 18, Section 3231 of the U.S. Code establishes the jurisdiction of U.S. federal district courts for “all offenses against the laws of the United States.”
The FSIA, on the other hand, provides that a foreign state and its agencies or instrumentalities “shall be immune from the jurisdiction of the courts of the United States” except as provided by narrow exceptions, including the “commercial activity” exception.
Halkbank argued that the FSIA provides foreign states and their instrumentalities with absolute immunity from criminal prosecution notwithstanding Section 3231; however, lower courts disagreed. The Southern District of New York and the Second Circuit Court of Appeals found that Halkbank’s conduct was commercial activity and thus actionable in either a civil or criminal context. The Supreme Court granted certiorari to determine whether Halkbank had a valid claim to immunity from prosecution.
The Court’s decision
Justice Kavanaugh’s majority opinion comprises two main parts.
First, the Court held that Section 3231 covers foreign sovereigns. That broad jurisdictional grant operates “without regard to the identity or status of the defendant.” Halkbank argued that Section 3231 implicitly excludes foreign sovereigns, but the Court “declined to graft an atextual limitation” upon the statute. Section 3231 covers “all offenses” irrespective of who committed them.
Second, the Court held that the FSIA does not grant immunity to foreign states or their instrumentalities in criminal proceedings. The FSIA and its presumptive immunity is limited to civil actions only. In the Court’s view, the FSIA represents a “carefully calibrated scheme that relates only to civil cases.” Textual clues, including references to venue, service, counterclaims, and limitations on punitive damages, “underscore the FSIA’s exclusively civil focus.” On the other hand, the FSIA is entirely silent about criminal matters. Further, the FSIA is codified in Title 28 of the U.S. Code (mostly concerning civil matters) rather than Title 18 (concerning crimes and criminal procedure).
Justice Gorsuch and Justice Alito reached the same result by a different route. They agreed with the majority’s interpretation of Section 3231. However, they would have found the FSIA equally applicable in criminal contexts. Although Halkbank would receive presumptive immunity from prosecution under this approach, its indisputably commercial conduct would have abrogated that immunity, allowing the prosecution to proceed.
The majority opinion did not entirely foreclose any prospect of immunity for the defendant. The Court remanded the case to the Second Circuit with instructions to consider whether Halkbank was entitled to any immunity based in common law.
The Court’s two-part holding clears the path for similar investigations and prosecutions in the future. Foreign-state-owned corporates and their commercial partners must always comply with U.S. laws and regulations. The Government has and will continue to prosecute individuals for their criminal conduct in the absence of foreign official immunity. In fact, two individuals, including a former Halkbank executive, had already been convicted in this particular scheme. However, Halkbank is noteworthy for going after the corporate entity too, despite its assertion of immunity. Given the sensitivities involved with interacting with foreign instrumentalities, federal regulators may continue to prefer to resolve issues informally or at the ministerial level. Should that fall short, they now have another tool in their kit to ensure compliance.
The Second Circuit has been tasked with determining on remand “whether and to what extent foreign states and their instrumentalities are differently situated for purposes of common-law immunity in the criminal context.” That language from the opinion suggests an invitation to differentiate between the two. The Second Circuit might find that, even if foreign states are entitled to common law immunity, their differently situated instrumentalities engaged in indisputably commercial conduct are not.
Finally, the opinion contains important implications for foreign-state-owned enterprises, even when acting outside of the United States. Civil claims invoking the FSIA generally require a territorial nexus with the United States in order to establish jurisdiction. Section 3231, in contrast, applies to “all offenses” against U.S. laws. Despite a judicial presumption against extraterritoriality, many U.S. criminal statutes apply overseas. A natural extension of the Halkbank ruling could see criminal indictments against foreign-state-owned enterprises for conduct undertaken entirely outside of, and without causing a “direct effect” in, the United States. The Halkbank decision thus provides an important reminder for foreign-state-owned enterprises and their commercial partners to review their compliance thoroughly with all applicable U.S. laws and regulations wherever they may operate.