U.S. Court Denies Sovereign Immunity for Halkbank

The U.S. Court of Appeals for the Second Circuit ruled on Tuesday that the federal government could proceed with the prosecution of Turkish public lender Halkbank on charges that it helped to evade U.S. sanctions on Iran. The ruling opens the door to a jury trial, which could result in fines and penalties levied against the public bank and members of the Turkish government.

Halkbank’s Indictment

Ankara’s sovereign wealth fund holds 91.49 percent of Halkbank’s shares. In 2019, U.S. prosecutors charged the bank 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.

The previous year, 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 the broader scheme, including conspiracy to launder money and commit bank fraud.

In January 2022, Ankara’s lawyers petitioned the U.S. Supreme Court to overturn a lower court’s decision upholding the 2019 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.

Supreme Court Rejects Turkish Position

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 and remanded the case to a lower-level court to consider whether Halkbank could claim immunity under common-law principles unrelated to FSIA.

On October 22, 2024, the U.S. Court of Appeals for the Second Circuit agreed with the Supreme Court’s November 2022 ruling and “found no basis under centuries-old common law principles for foreign state-owned companies to be absolutely immune from U.S. prosecution related to commercial, nongovernmental activities.” Halkbank issued a statement after the ruling in which it asserted, “our bank will use all its legal rights to appeal with regard to the Oct. 22 decision of the Second Circuit, particularly with the U.S. Supreme Court.”

If the charges against Halkbank were to result in a conviction, the bank and senior Turkish officials could expect significant fines, potentially in the billions of dollars. The fines could target high-profile individuals such as bank executives as well as President Recep Tayyip Erdogan. The fines could potentially 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.

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.