The US Supreme Court has made it easier for the Department of Justice (DOJ) to charge corporations owned by foreign states. In a decision issued on Wednesday it said the Foreign Sovereign Immunities Act of 1976 (FSIA) doesn’t shield Turkey’s Halkbank from money-laundering and other criminal charges.

“The FSIA does not provide foreign states and their instrumentalities with immunity from criminal proceedings,” Justice Brett Kavanaugh wrote for the high court.

Halkbank was charged in 2019, with the DOJ saying the bank took part in a year-long scheme to launder billions of dollars’ worth of Iranian oil and natural gas proceeds, violating US sanctions on Iran.

Transactions disguised

The funds were used to buy gold and the transactions were disguised as food and medicine purchases so they would fall under a humanitarian exemption to the sanctions, according to court documents.

As part of the scheme, Halkbank allegedly used front companies to funnel $20bn to Iran, including $1bn through the US financial system, DOJ said.

The DOJ charged the bank with conspiracy to defraud the United States; conspiracy to violate the International Emergency Economic Powers Act; bank fraud; conspiracy to commit bank fraud; money laundering, and conspiracy to commit money laundering.

Halkbank claimed that the FSIA, which protects foreign leaders and governments from lawsuits in the United States, extends to state-owned businesses.

AML and sanctions violations

The 2019 DOJ announcement of charges describes how senior Halkbank management participated in a scheme to circumvent the Iran-related sanctions, moving billions of dollars’ worth of Iranian oil revenue through money service businesses and front companies in Iran, Turkey, the United Arab Emirates, and elsewhere.

The objective was to evade prohibitions against Iran’s access to the US financial system. Bank executives lied to US regulators about Halkbank’s involvement in this scheme, the DOJ said.

Several individuals have already been found guilty in the case, including Mehmet Hakan Atilla, a deputy director general of the bank, who was convicted in May 2018 in New York.

Atilla was released in 2019 after a little over year of time served; the judge in his case allowed the time he had served after being arrested a year earlier to be credited in the sentence. Arriving home, he was greeted as a hero by Turkish politicians who had called his arrest and jailing an interference in Turkish internal affairs.

“It is not our role to rewrite the FSIA based on purported policy concerns that Congress and the President have not seen fit to recognize.”

Justice Brett Kavanaugh

The Supreme Court said the FSIA focuses on civil actions and does not provide immunity from criminal acts for foreign states or their instrumentalities, such as their state-owned corporations.

Halkbank argued that allowing US criminal proceedings against companies owned by foreign states would have negative effects on American national security and foreign policy.

“But it is not our role to rewrite the FSIA based on purported policy concerns that Congress and the President have not seen fit to recognize,” Justice Kavanaugh’s decision stated.

Actionable conduct

More specifically, the Foreign Sovereign Immunities Act indicates what conditions must be met for a lawsuit against a foreign state to be instituted, not what conduct by a foreign sovereign is actionable. If a foreign defendant qualifies as a “foreign state” under the FSIA, the Act says it will be immune to suit in any US court – federal or state – unless a statutory exception to immunity applies.

The Act refers to civil actions, many of which are brought by private citizen plaintiffs.

One exception has been the Justice Against Sponsors of Terrorism Act in 2016, which allows US citizens to sue foreign nations over terrorist acts committed on US soil.

Second chance

The ruling certainly does not mean judicial defeat for Halkbank, though.

The Supreme Court left open the question of whether Halkbank could be shielded from prosecution under principles of common law, the law that is derived from customary practice and case precedent rather than from statutes.

Watch this space.