January 26, 2024 | Policy Brief

Civil Case Against Halkbank Dismissed by Supreme Court

January 26, 2024 | Policy Brief

Civil Case Against Halkbank Dismissed by Supreme Court

The U.S. Supreme Court on January 8 denied a civil petition brought against Halkbank, a Turkish state-owned public lender accused of facilitating Iranian sanctions busting. Despite the petition’s dismissal, Halkbank still faces proceedings in both civil and criminal court.

In 2019, U.S. prosecutors charged Halkbank with fraud, money laundering, and sanctions-evasion offenses. The bank allegedly helped Tehran transfer $20 billion worth of restricted funds, with at least $1 billion laundered through the U.S. financial system.

In 2018, Halkbank’s deputy general manager, Mehmet Hakan Atilla, received a 32-month prison sentence when a federal jury found him guilty on five counts related to that scheme, including sanctions evasion, bank fraud, and obstructing the actions of the U.S. Treasury Department.

In the run-up to Atilla’s conviction, Reza Zarrab, the ringleader of Tehran’s Turkey-based sanctions-evasion schemes, pleaded guilty and turned state’s witness, confessing to having bribed senior Turkish ministers and top Halkbank executives. Zarrab even implicated Turkish strongman Recep Tayyip Erdogan, saying the then prime minister had approved the sanctions-busting efforts.

In March 2021, 876 plaintiffs filed a civil lawsuit against Halkbank (James Owens et al v. Turkiye Halk Bankasi A.S). The plaintiffs, who are all U.S. government employees or their surviving family members, were victims of various Iranian-orchestrated terrorist attacks and had successfully sued Tehran in U.S. federal court. After Iran unsurprisingly failed to pay, the plaintiffs filed suit against Halkbank.

In the lawsuit, known as the Owens case, the plaintiffs accused the bank of “fraudulent[ly] funneling of over $1 billion for Iran … through correspondent bank accounts at U.S. financial institutions located in the Southern District of New York.” The suit argues that by helping Tehran evade U.S. sanctions against Iran, Halkbank deprived the “plaintiffs of their ability to collect their judgments.”

A U.S. district court dismissed the Owens case in February 2021 on jurisdictional grounds, concluding that a Turkish court could more conveniently hear the case. A U.S. appellate court upheld that decision in May 2023. The plaintiffs then filed a final petition with the Supreme Court, which denied it earlier this month.

Upon the dismissal of the case, Halkbank issued a statement to investors, boasting that “the Owens case brought against our Bank … has been conclusively dismissed.” The outcome resulted in a temporary rise in the bank’s market value.

However, two further cases await a ruling by the U.S. Supreme Court: a second civil suit, dubbed the Hughes case (Hughes et al v. Reza Zarrab and Turkiye Halk Bankası A.Ş.), filed in July 2023, and the criminal case from 2019. The latter is the most consequential. The Turkish government has relentlessly tried to get it dismissed.

In January 2022, Ankara’s lawyers petitioned the U.S. Supreme Court to overturn a lower court’s decision upholding the indictment. Turkey, which denied the allegations of misconduct, argued that it should be protected from prosecution under the Foreign Sovereign Immunities Act (FSIA) of 1976. The U.S. Justice Department countered that FSIA does not protect Turkey from criminal prosecution, and even if it applied, the case falls within the law’s exceptions for cases involving commercial activities.

In November 2022, the Supreme Court agreed to hear the Halkbank case. The following April, the court rejected the bank’s argument that it has criminal immunity under FSIA. But the Supreme Court also remanded the case to a lower-level court to consider whether Halkbank could claim immunity under common-law principles unrelated to FSIA.

If the courts rule against Ankara, Halkbank and senior Turkish officials could expect significant fines, potentially in the billions of dollars. The fines could target high-profile individuals, to include bank executives, in addition to President Erdogan. The fines could bankrupt Halkbank, sending shockwaves throughout Turkey’s financial system and undermining Ankara’s efforts to attract foreign investment and stabilize the country’s ailing economy.

A previous version of this policy brief misstated the court that is currently hearing Halkbank’s criminal case.

Sinan Ciddi is a non-resident senior fellow at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Turkey Program and Center on Economic and Financial Power (CEFP). For more analysis from Sinan, the Turkey Program, and CEFP, please subscribe HERE. Follow Sinan on X @SinanCiddi. Follow FDD on X @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focused on national security and foreign policy.


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