(Editor’s Note: This article also appears in Transnational Litigation Blog.)
On January 17, the Supreme Court heard oral argument in Türkiye Halk Bankasi A.S. (Halkbank) v. United States. The case asks whether Halkbank, which is majority-owned by the Turkish Wealth Fund (TWF), enjoys immunity from criminal prosecution in U.S. courts.
Last spring, I previewed the unresolved questions surrounding criminal prosecutions of foreign state-owned enterprises. Paul Stephan has explained the stakes involved in the Supreme Court’s decision to grant Halkbank’s petition for review. He opined that reversal of the Second Circuit’s opinion holding that Halbank did not enjoy immunity “would be an earthquake.”
In an opinion authored by Judge José Cabranes, the Second Circuit held that “the District Court plainly has subject matter jurisdiction over the federal criminal prosecution of Halkbank,” slip op. at 18, and that even if the FSIA confers immunity in criminal cases (a question it did not decide), “Halkbank’s charged offense conduct would fall within” the FSIA’s commercial activity exception to immunity. Slip op. at 19. In a terse two paragraphs, the opinion stated that the common law also contained an exception to immunity for a foreign state’s commercial activity, slip op. at. 26, and that the decision to bring criminal charges “necessarily manifest[s] the Executive Branch’s view that no sovereign immunity exist[s],” id., which courts should treat as binding absent a controlling statute.
As the oral argument unfolded at the Supreme Court, it became apparent that the case might well be remanded for further proceedings, as David Stewart has recommended. The Justices did not seem persuaded that the FSIA, taken as a whole, should be read to exclude the possibility of prosecuting a foreign state-owned corporation. (Disclosure: I submitted an amicus brief with Mark Feldman, who was closely involved in the FSIA’s drafting and passage, explaining why the FSIA should not be read to affect criminal prosecutions, and why international law in the form of federal common law does not exempt foreign state-owned enterprises from criminal jurisdiction.) William Dodge and Ingrid Brunk have separately analyzed the separation-of-powers issues, and Ingrid and I shared thoughts about the argument in an episode of the Lawfare podcast. This post offers an overview of the case and some interesting questions that emerged at oral argument.
The Halkbank case has a long and complicated history bound up with the extensive U.S. regime of sanctions against Iran, as well as the broader U.S.-Turkey relationship. It includes earlier charges and proceedings against nine individual defendants, including the former Turkish Minister of the Economy. In 2019, a grand jury in the Southern District of New York indicted Halkbank itself on counts including fraud, money laundering, and sanctions offenses. As described by John C. Demers, the then-Assistant Attorney General for National Security,
Halkbank, a Turkish state-owned bank, allegedly conspired to undermine the United States Iran sanctions regime by illegally giving Iran access to billions of dollars’ worth of funds, all while deceiving U.S. regulators about the scheme…. [N]o business should profit from evading our laws or risking our national security.
During the Obama Administration, Turkish President Recep Tayyip Erdoğan reportedly lobbied Vice President Biden (to no avail) to have the charges against the individual defendants dropped, and to fire U.S. Attorney Preet Bharara. Erdoğan continued these efforts during the Trump Administration. In 2019, before the grand jury returned the indictment, Attorney General William Barr reportedly recommended that Turkey accept a deferred prosecution agreement. In June 2020, he fired U.S. Attorney Geoffrey Berman, who had been judicially appointed to replace Bharara (who had been fired in 2017). The case has not been dropped, although the possibility of a deferred prosecution agreement is presumably still on the table. Halkbank is hoping that the Supreme Court will hold that the prosecution cannot go forward because foreign state-owned corporations are immune from criminal proceedings, regardless of the nature of the alleged conduct.
The Puzzle of Entity Immunity
Although there is a threshold issue of whether the denial of Halkbank’s immunity defense creates appellate jurisdiction under the collateral order doctrine, that was not the focus of the Justices’ questions. Rather, they sought to determine what role, if any, the FSIA plays in criminal proceedings and, in the absence of a governing statute, what law determines a defendant’s entitlement to immunity.
The question of entity immunity has been present since the founding. Perhaps expecting a receptive audience for an originalist approach, Halkbank’s counsel Lisa Blatt urged the Court to construe Congress’s grant of criminal subject matter jurisdiction in a provision of the First Judiciary Act, which became 18 U.S.C. § 3231, as excluding sovereigns. Justice Gorsuch asked the United States’ lawyer Eric Feigin whether he agreed that “the principle was pretty clear … at the time of the founding that one state couldn’t set up its criminal courts to adjudicate the sovereign acts of another country” and that “a suit against a sovereign qua sovereign” is not something that U.S. courts “would have accepted” in criminal cases (Tr. at 67). Feigin did not contest “that principle,” but he reminded the court “that there is a separateness between corporations and sovereigns” (Tr. at 67), and that the Bancec case “makes clear that corporations are presumptively separate juridical entities” (Tr. at 69). He warned in his opening statement that Halkbank “is asking for an extraordinary and unprecedented rule under which any foreign government-owned corporation could become a clearinghouse for any federal crime, including interference in our elections, stealing our nuclear secrets, or something like here, evading our sanctions ….“ (Tr. at 48). Ms. Blatt, by contrast, noted that “[t]he U.S. does not dispute that criminal trials against sovereigns were unthinkable in 1789, would violate international law today, are unprecedented anywhere, and would risk retaliation” (Tr. at 3). In her view, “all the same is true for sovereign instrumentalities, which by definition are sovereign” under the reasoning of The Schooner Exchange and the FSIA (Tr. at 3-4).
The entity immunity question here is complicated. Justice Gorsuch made the point that Halkbank’s status is “contested factually here, and it’s also not something the Second Circuit much addressed” (Tr. at 68). The indictment describes Halkbank as “a Turkish bank majority-owned by the Government of Turkey,” and the Solicitor General’s merits brief describes it as “a commercial bank whose shares are majority-owned by the Turkish Wealth Fund, which in turn is part of and owned by the Turkish government.” As Paul Stephan noted in his earlier post, “Dole Food Co. v. Patrickson held that the FSIA does not apply to second-tier subsidiaries, that is corporations owned in part by state-owned corporations.” Feigin suggested at oral argument that “it’s not entirely clear that the Turkish Wealth Fund is actually itself an instrumentality … of the state” (Tr. at 55), although the government is “not contesting [that] for FSIA purposes” and felt that “Second Circuit precedent kind of precluded us from making this argument [about second-tier subsidies] below” (Tr. at 54). (The government was likely referring to Garb v. Republic of Poland, which held that the Ministry of the Treasury of Poland is not an “agency or instrumentality” of Poland under the FSIA because its “core function” is governmental rather than commercial, but it is unclear how that analysis would apply to the intermediary Turkish Wealth Fund.) Ms. Blatt used some of her rebuttal time to draw the Court’s attention to a declaration cited in Halkbank’s brief and an amicus brief submitted by Türkiye that “says the wealth fund is not a juridical entity…. It’s an actual fund of the Treasury Department” (Tr. at 101). In any event, in her view, “the government waived any argument that Halkbank is not an arm of the state of Turkey,” and the “indictment indicts the government of Turkey acting through its bank, although only the bank is named in the indictment” (Tr. at 101).
Subject-Matter Jurisdiction or Affirmative Defense?
Subject-matter jurisdiction for this prosecution is created by 18 U.S.C. §3231, which provides the district courts with “original jurisdiction, exclusive of the courts of the States, of all offenses against the laws of the United States.” Blatt did not appear to get much traction for her suggestion that this jurisdictional grant should be read to exclude foreign states and foreign state-owned corporations. The Chief Justice wondered how to distinguish “a 51 percent commercial enterprise that may or—may or may not even be identified as associated with the sovereign” (Tr. at 25), a question that presumably refers to the FSIA’s definition of an instrumentality of a foreign state, which turns solely on majority ownership.
Moreover, as Justice Thomas noted immediately following Blatt’s opening statement, it is “difficult” to “understand how the immunity claim is woven into subject-matter jurisdiction” (Tr. at 6). Blatt did not seem fully to grasp Justice Thomas’s line of questioning, which challenged of the propriety of treating foreign sovereign immunity as a question of subject-matter jurisdiction. He did not get a direct response to his observation that “in an immunity case, you could waive immunity, and so … it could be an affirmative defense, but I don’t normally think of it as a part of subject matter jurisdiction” (Tr. at 7). Justice Barrett tried again later: “So it seems like, if we disagree with your reading of Schooner Exchange as a subject matter jurisdiction case, … maybe one reason we don’t see these prosecutions [of foreign states] is because the executive understands foreign countries to have absolute immunity and so would rarely [bring] them, because I agree with Justice Thomas, we typically think of something—immunity as something that can be waived … ” (Tr. at 18-19). Blatt responded that “it seems inconceivable that the first Congress thought that a district court had jurisdiction to convict a foreign country,” and “all [Halkbank is] saying is that Congress should speak clearly before opening up federal courts to that [criminal] jurisdiction” (Tr. at 27). Moreover, the Court should be mindful that “our U.S. instrumentalities do stuff abroad and could be seen to aid and abet terrorism,” since “one person’s freedom fighter is another person’s terrorist” (Tr. at 20).
Blatt also argued that general jurisdictional grants should be understood to exclude sovereigns, because “you have a bunch of cases saying sovereigns, including foreign sovereigns, aren’t persons” (Tr. at 27). Feigin suggested that, in that case, the Court could read the original Crimes Act, which applied to persons, as excluding sovereigns but including entities such as Halkbank because “then, as now, ‘persons’ obviously covers corporations” (Tr. at 51).
The Role of the FSIA
The Justices who spoke explicitly on the topic, including Justices Jackson and Kagan, seemed persuaded that Congress was primarily concerned with civil cases when it enacted the FSIA (Tr. at 23-24, 33). However, some were troubled by the possibility that holding (as the Court did in Samantar v. Yousuf) that the FSIA does not cover every possible claim to some type of foreign sovereign immunity would tell state and municipal prosecutors that they could, in Justice Gorsuch’s words, “be free to try to bring lawsuits [sic] against Mexico for this or that, or perhaps China because of COVID, or who knows what a creative state prosecutor might come up with” (Tr. at 53). Feigin’s answers to this dilemma, absent a statutory removal provision, included reliance on preemption doctrines (Tr. at 77) or “entering into an executive agreement [with the other country] of the sort in Garamendi that would contemplate dismissal of the prosecution” (Tr. at 78, 85). Justice Kagan posited that “maybe Congress … thought that there was common law immunity [from criminal prosecution], so that a statute didn’t have to get involved” (Tr. at 34). Federal common law immunity defenses would apply in both state and federal courts, although there appeared to be some concern about how quickly the Supreme Court could review and correct an improper denial of immunity by a state court (Tr. at 53).
The Relevance of International Law
It is, of course, impossible to talk about foreign sovereign immunity without talking about international law. Blatt emphasized: “I think the backdrop of all of this is that the FSIA was trying to codify international practice in law. And international law—I don’t think the government can dispute this—is there’s been absolute criminal immunity” (Tr. at 33). Justice Alito wondered whether there could be a relevant “principle of customary international law that would bind the states under the supremacy clause” of the Constitution (Tr. at 79) and wanted to know whether the Court would need to address the “very important question [of] whether customary international law is binding on the states under the supremacy clause” (Tr. at 80). Feigin appeared to agree that “the states don’t have any authority to legislate or take action that would be contrary to customary international law” or “that get the U.S. into foreign hot policy water” (Tr. at 81).
Justice Gorsuch agreed that the Supreme Court “certainly [has] the right to tell state courts that they are violating the—the constitutional or federal laws,” but he wondered “on what authority could we tell them that they’re violating customary international law” (Tr. at 85). Blatt countered that, if the Court was “going to develop a common law that’s never existed … because this will be the first criminal trial of any sovereign instrumentality over its objection or sovereign, you’re going to make it up” (Tr. at 102). Having at first encouraged the Court to look to the founding era, Blatt rebutted Feigin’s references to the eighteenth-century British rule, referenced in the U.S. brief and at oral argument, that the East India Company, which “functioned largely as an instrumentality of the British government,” “received immunity for its sovereign acts like treaty-making,” but none “for its commercial acts” (Br. at 18; Tr. at 63-64). She cautioned that the Court risked giving lower courts “no guidance except for, I guess, go back to the British India something or other” (Tr. at 102).
The amicus brief I wrote with Mark Feldman addresses historical practice and international law. Two amicus briefs submitted in support of Halkbank present a different view on these questions. If the Court does choose the path of remanding the case, it will be interesting to see if it offers guidance on the content or role of international law.
Putting the Case in Context
We are often reminded that judges read the newspapers, and some of the questions at oral argument made this clear. Justice Kavanaugh stated that “the news reports suggest this was discussed with President Erdoğan, that Turkey’s foreign minister is coming to the United States this week” (Tr. at 42). Justice Sotomayor had an extended colloquy with Feigin about whether she “would want to leave to the [vagaries] of individual prosecutors whether it’s federal or state the right to insult another nation by giving them this unbridled power to initiate suit” (Tr. at 57-62). During that exchange, she referenced “the hearsay news reports that came out that the prior administration was trying to apply pressure to drop this lawsuit on the Southern District of New York” (Tr. at 60).
The Justices appeared keenly aware that their decision could have serious consequences, and it seemed at times as if preoccupation with those potential consequences motivated their thinking about this case. Justice Gorsuch wondered whether the Solicitor General had “given careful thought to [the] consequences” of finding that the FSIA does not apply, since state-level prosecutions would not be removable to federal court absent a removal statute (Tr. at 53). (Feigin reassured him that “we’ve given it careful thought” (Tr. at 53).) Justice Kavanaugh opined that it would be “pretty bizarre for this Court to tell the President of the United States as a matter of his national security exercise that even though the Constitution doesn’t prohibit what you’re doing, even though a statute doesn’t prohibit what you’re doing, this Court’s going to prohibit your exercise of national security authority” (Tr. at 17).
Despite the wide-ranging issues that arose during the argument—including questions about other countries’ foreign state immunity regimes, the potential reciprocal indictment of U.S. instrumentalities abroad, and what other tools the United States could use to enforce sanctions—the Court’s central task is relatively clear. It needs to answer the question whether 28 U.S.C. §1604 precludes the exercise of criminal jurisdiction over a foreign state or its instrumentalities and what role the exceptions in §1605 might play. If it decides that the FSIA immunizes Halkbank, then Halkbank wins, and the case is over. If it does not, then the Court needs to decide what other law governs and whether to remand for further development of the record.
As several of the Justices pointed out, if Congress does not like the consequences of the Court’s decision, it can step in (Tr. at 40). If the executive branch doesn’t like the consequences, it can go back to Congress (Tr. at 88). There is nothing precluding the Court from deciding at this juncture whether a foreign state-owned company must be treated as equivalent to the foreign state itself for purposes of criminal jurisdiction based on either the FSIA or the common law, and whether to uphold the Second Circuit’s conclusion that the activity in question here qualifies as a commercial activity for immunity purposes. It might well be true, as Blatt emphasized, that “the world has been around for, like, 7,000 years, and no country has ever tried another country” (Tr. at 28). It is not necessarily true, however, that this observation provides the answer to this case.