U.S. Supreme Court to Decide the Scope of Federal Courts’ Criminal Jurisdiction over Foreign Sovereign Defendants
U.S. Supreme Court to Decide the Scope of Federal Courts’ Criminal Jurisdiction over Foreign Sovereign Defendants
On October 3, 2022, the United States Supreme Court granted certiorari in Turkiye Halk Bankasi A.S. v. United States, No. 21-1450 (“Halkbank”), to determine whether federal courts have subject-matter jurisdiction over criminal prosecutions against foreign sovereign defendants.[1] Specifically, Halkbank, a bank majority-owned by Turkey, asks the Court to decide whether 18 U.S.C. § 3231 (“Section 3231”) and the Foreign Sovereign Immunities Act (FSIA) grant federal courts jurisdiction over criminal actions brought against foreign states or their agencies or instrumentalities.[2]
Section 3231 provides that “[t]he district courts of the United States shall have original jurisdiction, exclusive of the courts of the States, of all offenses against the laws of the United States.”[3] Thus, Section 3231 grants federal courts broad jurisdiction over criminal matters.
The FSIA generally provides that “[t]he district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title.”[4] And the FSIA makes clear that a “foreign state” is not limited to countries, but includes “a political subdivision of a foreign state or an agency or instrumentality of a foreign state.”[5] Such agencies or instrumentalities include foreign corporations where a majority of their “shares or other ownership interest is owned by a foreign state or political subdivision thereof.”[6] Thus, the FSIA applies to many foreign majority-owned enterprises, including many banks like Halkbank.
From the FSIA’s general grant of jurisdiction follow two key provisions that are at issue in Halkbank. Section 1604 of the FSIA recognizes that, under existing international agreements, some foreign states will be immune “from the jurisdiction of the courts of the United States and of the States,” but Section 1604 carves out certain exceptions to this general recognition of sovereign immunity.[7] In turn, Section 1605 of the FSIA enumerates these exceptions.[8] In particular, Section 1605(a)(2), the commercial-activity exception, provides the exception at issue in Halkbank and states, in part, that “[a] foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case . . . in which the action is based upon a commercial activity carried on in the United States by the foreign state . . . .”[9]
The Court will decide whether Section 3231 of the United States Criminal Code or the FSIA confers to the district court subject-matter jurisdiction to hear the criminal action against Halkbank.
On October 15, 2019, the U.S. Attorney’s Office for the Southern District of New York charged Halkbank with a six-count indictment alleging fraud, money laundering, and sanctions offenses “related to the bank’s participation in a multibillion-dollar scheme to evade U.S. sanctions on Iran.”[10] The indictment followed the guilty plea of a Turkish-Iranian businessman who admitted to using the U.S. financial system to, among other things, “conduct transactions on behalf of the Government of Iran and other Iranian entities, which were barred by U.S. sanctions,”[11] and the trial and conviction of one of Halkbank’s executives, who was ultimately sentenced to 32 months in prison for “his participation in a scheme to violate U.S. sanctions on Iran.”[12]
The indictment alleged that Halkbank “participated in transactions designed to extract surreptitiously Iran’s oil and gas proceeds held at the bank, so that those funds could be used to make international payments through the U.S. financial system on behalf of Iran while hiding Iran’s control of those transactions, and lied to Treasury Department officials in the United States to conceal the scheme and evade applicable sanctions.”[13] On August 10, 2020, Halkbank moved to dismiss the indictment on sovereign immunity grounds under the FSIA.[14]
The district court denied Halkbank’s motion, finding that “Halkbank [was] not immune from prosecution.”[15] The district court reasoned that (1) the FSIA did not “appear to grant immunity in criminal proceedings,” (2) even if it did, Section 1605(a)’s commercial-activity exception would apply and thus bring Halkbank within the scope of the court’s jurisdiction; the district court further rejected Halkbank’s argument that it was entitled to immunity under common law.[16] On October 9, 2020, Halkbank filed a notice of appeal to the Second Circuit Court of Appeals.[17]
The Second Circuit held, among other things, that the district court had “subject-matter jurisdiction over the federal prosecution of Halkbank,” under Section 3231 (the general grant of criminal jurisdiction).[18] The Second Circuit found that it did not need to address whether Section 1604 conferred immunity on foreign sovereigns in the criminal context.[19] Like the district court, however, the Second Circuit—under the assumption that Section 1604 does confer sovereign immunity in criminal cases—found that Halkbank’s conduct fell within Section 1605’s commercial-activity exception, and thus, the district court would have exercised proper jurisdiction under the FSIA to hear the criminal action.[20] On May 13, 2022, Halkbank filed a petition for a writ of certiorari in the Supreme Court.
Halkbank has asked the Supreme Court to decide “[w]hether U.S. district courts may exercise subject-matter jurisdiction over criminal prosecutions against foreign sovereigns and their instrumentalities under” Section 3231 and the FSIA.[21] The Court granted the petition and now has the opportunity to determine the scope of federal courts’ jurisdiction over foreign states or their agencies or instrumentalities in criminal matters.
Halkbank, relying on the Sixth Circuit’s discussion of the FSIA in Keller v. Central Bank of Nigeria, argues that (1) the FSIA’s grant of jurisdiction is expressly limited to civil actions, thereby excluding criminal actions from its jurisdictional scope, and (2) “the FSIA is the only method of obtaining jurisdiction over foreign sovereigns.”[22] Thus, Halkbank argues, because the present action is not a civil action, and because there is no jurisdictional statute that specifically speaks to criminal actions against foreign sovereigns, there is no subject-matter jurisdiction here.[23]
On the other hand, the Government adopts the views of the Second and D.C. Circuits, which both recognize criminal subject-matter jurisdiction over foreign sovereigns under Section 3231.[24] Relying primarily on In re Grand Jury Subpoena from the D.C. Circuit, the Government reasons that Section 3231 provides a “clear[] textual grant of subject matter jurisdiction” because it applies to “all offenses against the laws of the United States” and “all means all.”[25] Because Halkbank is charged with “numerous offenses against laws of the United States,” Halkbank falls within the purview of Section 3231, or so the Government argues.[26] And although the Government argued in its brief opposing certiorari that the present case “does not present the question whether the FSIA applies in criminal cases,” it nevertheless took the position that the Section 1605(a)(2) commercial-activity exception applies to Halkbank’s conduct and would thus allow the criminal prosecution to proceed.[27]
By granting the petition for certiorari, the Supreme Court can answer whether (1) Section 3231 provides federal courts with subject-matter jurisdiction over criminal actions against foreign states or their agencies or instrumentalities and (2) whether the FSIA (a) grants foreign sovereigns immunity from criminal actions, and if it does, (b) whether the Section 1605 exceptions apply to both criminal and civil actions.
The Supreme Court’s decision will provide clarity on whether and how foreign states or their agencies or instrumentalities are “indictable” in federal court. The Court’s ultimate decision will be of great interest to foreign government-owned institutions, specifically those that conduct USD transactions or have a U.S. nexus. A decision in this case is expected before the Court breaks for its summer recess in July 2023.
[1] United States v. Turkiye Halk Bankasi A.S., 16 F.4th 336 (2d Cir. 2021), cert. granted, 2022 U.S. Lexis 4151 (U.S. Oct. 3, 2021) (No. 21-1450).
[2] Petition for a Writ of Certiorari, Turkiye Halk Bankasi A.S. v. United States (No. 21-1450) at I.
[3] 18 U.S.C. § 3231.
[4] 28 U.S.C. § 1330(a) (emphasis added).
[5] 28 U.S.C. § 1603(a).
[6] 28 U.S.C. § 1603(b).
[7] 28 U.S.C. § 1604.
[8] 28 U.S.C. § 1605.
[9] 28 U.S.C. § 1605(a)(2) (emphasis added).
[10] Press Release, U.S. Dep’t of Justice, Turkish Bank Charged in Manhattan Federal Court for Its Participation in a Multibillion-Dollar Iranian Sanctions Evasion Scheme (Oct. 15, 2019).
[11] Press Release, U.S. Dep’t of Justice, Turkish Banker Convicted of Conspiring to Evade U.S. Sanctions Against Iran and Other Offenses (Jan. 3, 2018).
[12] Press Release, U.S. Dep’t of Justice, Turkish Banker Mehmet Hakan Atilla Sentenced to 32 Months for Conspiring to Violate U.S. Sanctions Against Iran and Other Offenses (May 16, 2018).
[13] United States v. Halkbank, No. 15-cr-867, 2020 U.S. Dist. LEXIS 182312, at *1 (S.D.N.Y. Oct. 1, 2020).
[14] Id. at *10–12.
[15] Id. at *11.
[16] Id. at *11–16.
[17] United States v. Halkbank, No. 15-cr-867, October 9, 2020 (ECF No. 679) (Notice of Appeal).
[18] United States v. Turkiye Halk Bankasi A.S., 16 F.4th 336, 347 (2d Cir. 2021) (“We think that the District Court plainly has subject matter jurisdiction over the federal criminal prosecution of Halkbank pursuant to § 3231.”).
[19] Id.
[20] Id at 348–50.
[21] Supra n.2.
[22] Id. at 10–11 (emphasis added); see Keller v. Cent. Bank of Nigeria, 277 F.3d 811, 819 (6th Cir. 2002).
[23] Id. at 14–15.
[24] Halk Bankasi A.S., 16 F.4th at 347 (“We think that the District Court plainly has subject matter jurisdiction over the federal criminal prosecution of Halkbank pursuant to § 3231.”); In re Grand Jury Subpoena, 912 F.3d 623, 628 (D.C. Cir. 2019) (“Section 3231 of title 18 gives federal courts original jurisdiction over ‘all offenses against the laws of the United States.’ It is hard to imagine a clearer textual grant of subject-matter jurisdiction. ‘All’ means ‘all’; the provision contains no carve-out for criminal process served on foreign defendants. And nothing in the [FSIA’s] text expressly displaces section 3231’s jurisdictional grant.”).
[25] In re Grand Jury Subpoena, 912 F.3d at 628; Brief for the United States in Opposition, Turkiye Halk Bankasi A.S. v. United States, (No. 21-1450) at 6.
[26] Brief for the United States in Opposition, Turkiye Halk Bankasi A.S. v. United States, (No. 21-1450) at 6.
[27] Id. at 9.