The Supreme Court Removes Two Obstacles to the Criminal Prosecution of Foreign States in U.S. Courts
On April 19, the Supreme Court removed two key potential obstacles to the criminal prosecution of foreign states and their agencies and instrumentalities in U.S. courts. In Turkiye Halk Bankasi A.S. v. United States, 598 U.S. __ (2023), the Court first held that federal courts have jurisdiction over criminal cases against foreign sovereigns under 18 U.S.C. § 3231. It also held that the Foreign Sovereign Immunities Act (FSIA or Act) does not apply to criminal cases. But the Court’s decision still leaves foreign sovereigns and their companies with a number of other potential defenses against criminal prosecutions, and we expect to see those defenses litigated in the lower courts in the coming years. Regardless of how successful those defenses prove, the Court’s decision will have broad implications, particularly for foreign state-owned banks and other financial institutions.
Statutory Background and the Case’s History in the U.S. Courts
Foreign states and certain foreign state agencies and companies are presumptively immune from state and federal court jurisdiction under the FSIA, meaning that American courts generally cannot hear cases brought against them. But it has long been an open question whether the FSIA protects foreign states and their agencies and companies only from civil suit, or whether the statute also grants immunity from criminal prosecutions.
That question recently arose in the context of a U.S. government prosecution of Türkiye’s state-owned bank, Türkiye Halk Bankasi A.Ş., also known as Halkbank. As we previously explained, the U.S. government claims that Halkbank engaged in a multi-year conspiracy to evade U.S. sanctions against Iran by helping launder billions of dollars’ worth of Iranian oil and natural gas proceeds and then lying to U.S. Treasury officials about it. In 2019, the U.S. government indicted Halkbank, and Halkbank moved to dismiss the indictment on the grounds that it was immune from criminal prosecution because it is majority-owned by Türkiye and, thus, a “foreign state” within the meaning of the FSIA. Halkbank also argued that, regardless of the FSIA’s applicability, it was also immune from prosecution under the common law.
In 2020, the district court rejected Halkbank’s immunity arguments three times over, holding that: (1) the FSIA does not apply to criminal cases; (2) even if the FSIA applied, Halkbank was not immune under the exceptions to immunity within the FSIA; and (3) regardless, Halkbank was not entitled to immunity under the common law. In 2021, the Second Circuit affirmed. It held that it had jurisdiction over the case under the general criminal jurisdiction statute, 18 U.S.C. § 3231,1 which provides jurisdiction over all criminal offenses. The Second Circuit also held that it did not need to decide whether the FSIA applies to criminal cases because, to the extent the Act does, then its exceptions to immunity must apply as well, and the Second Circuit decided that Halkbank was not immune under one of those exceptions.
Following the Supreme Court’s decision to grant cert., Halkbank made three principal arguments. First, Halkbank argued that the general grant of criminal jurisdiction in section 3231 contains an implicit exception to the prosecution of foreign states in U.S. courts. Second, Halkbank contended that the FSIA provided it with absolute immunity from criminal prosecution in U.S. courts. And third, Halkbank asserted that it was, in any event, entitled to immunity under the common law.
The Supreme Court’s Decision and Analysis
In a majority opinion authored by Justice Kavanaugh, the Court rejected the first two of those arguments and remanded for further proceedings on the third. First, the Court held that the United States has jurisdiction to prosecute Halkbank under the general grant of criminal jurisdiction in section 3231. The Court noted that the statute’s “sweeping language” — which criminalizes “all offenses” in violation of U.S. laws, regardless of the identity or status of the defendant — “plainly encompasse[d]” Halkbank and its alleged evasion of U.S. economic sanctions against Iran. To read a foreign sovereign immunity exception into section 3231’s “broad jurisdictional grant,” the Court explained, would be “atextual” and would “shrink the textual scope” of the statute. Halkbank had argued otherwise by invoking section 3231’s predecessors and the way they had previously been interpreted, but the Court rejected Halkbank’s reading of those precedents as misunderstanding the distinction between jurisdiction and the substantive law of immunity.
Second, the Court held that the FSIA does not apply to criminal cases. The Court began its analysis by observing that the Act’s text and context underscore its “exclusively civil focus,” including the Act’s various provisions speaking of a “civil action,” its reference to “litigants” but not prosecutors, and its location alongside other civil provisions in Title 28. On the other side of the ledger, the FSIA “says not a word” about immunizing foreign states from criminal proceedings in U.S. courts. Such silence would be odd, the Court reasoned, if Congress had wanted to extend the Act to criminal cases, which it knew how to do. Congress does not “hide elephants in mouseholes,” after all, and a grant of categorical criminal immunity in the FSIA would be a decision of exactly the sort of pachydermatous proportions that one would expect Congress to have made expressly.
The Court did not find Halkbank’s primary counterarguments persuasive. Halkbank had argued that the provision of the FSIA that actually grants foreign states immunity, section 1604, does not itself include any language limiting it to civil actions.2 But when read in context, the Court explained, “the natural inference is that § 1604 operates exclusively in civil cases.” The Court also declined Halkbank’s invitation to import language into the criminal context from an earlier decision suggesting that the FSIA was the “sole basis for obtaining jurisdiction over a foreign state in federal court.”3 Finally, Halkbank had argued that, unless the FSIA immunized foreign sovereigns from criminal actions, rogue state prosecutors would be free to go after any foreign government in ways that might raise significant foreign policy concerns. Such consequentialist arguments, however, could not displace the Court’s analysis of the text, and, in any event, the Court observed that Halkbank had not provided any empirical evidence to support its fears. If such a state prosecution were brought, the Court identified several safeguards that could potentially be used to cure the resulting problem: the U.S. government could potentially file a suggestion of immunity, a state prosecution might be preempted under principles of foreign affairs preemption, and a decision by a state court to deny foreign sovereign immunity might be reviewable by the Supreme Court.
Third, the Court declined to resolve Halkbank’s arguments about its common-law immunity, instead remanding that question for the lower courts to resolve in the first instance.
Justice Gorsuch, joined by Justice Alito, concurred in the outcome but dissented from the majority’s reasoning. In his separate opinion, Justice Gorsuch agreed with the Court that the general criminal jurisdiction statute provides courts with jurisdiction over criminal prosecutions of foreign state actors, but he argued that section 1604, the FSIA’s “general immunity rule,” granted immunity to foreign states regardless of the kind of suit brought. Justice Gorsuch nevertheless would have held that Halkbank was not itself entitled to immunity because its alleged crime fell well within the scope of one of the FSIA’s statutory exceptions to immunity. Finally, Justice Gorsuch criticized the majority for failing to provide any guidance on how to resolve the “thorny questions” raised by its remand for consideration of Halkbank’s arguments about its common-law immunity.
This decision will have far-reaching implications for foreign sovereigns and the companies they own, particularly foreign state-owned banks and other financial institutions. Halkbank is unlikely to be the last state-owned company to run afoul of the vast U.S. sanctions and exports control regime, and the Biden administration has made clear that it will continue to prioritize the prosecution of “corporate crime[s] [that] intersect with national security.”4 As Deputy Attorney General Lisa Monaco noted late last year, “when companies and their executives engage in conduct that threatens our national security … the Department will respond with resolve."5 Foreign state-owned companies should therefore be careful to assess their potential criminal liability under U.S. law.
The Halkbank decision also underscores just how broad the scope of that liability may be. Foreign states and their agencies and instrumentalities may face heightened risks of federal prosecution in areas of U.S. prosecutorial interest where there is extraterritorial jurisdiction, such as money laundering and its specified unlawful activities, trade sanctions, export control, economic espionage, theft of trade secrets, and material support. Furthermore, in the wake of Halkbank, the U.S. government may be able to use investigative tools that were previously unavailable or untenable due to the traditional understanding of the scope of foreign sovereign immunity. For example, U.S. prosecutors may now be able to issue Bank of Nova Scotia or USA PATRIOT Act subpoenas to obtain foreign business records or bank records without the same level of internal or judicial scrutiny where the target is a foreign state-owned entity because the mutual legal assistance route to obtain such records is less attractive due to the receiving state’s inherent conflict of interest.6 If federal officials begin using these and other tools more readily, it may lead to additional burdens on foreign state-owned companies, particularly banks similarly situated to Halkbank. Finally, the U.S. government may begin seizing a foreign state-owned company’s allegedly tainted assets and seeking criminal and civil forfeiture of said assets, which could tie up the company in litigation in U.S. courts for years. As a result, foreign state-owned companies should consider updating their compliance measures to ensure detection of potential violations by employees, both for self-reporting purposes and to reduce exposure to criminal allegations and the attendant consequences.
Since foreign sovereigns can also no longer rely on the FSIA to claim immunity in state criminal actions, there is a risk that the Court’s decision will open the door to a new wave of state investigations and prosecutions.7 If that occurs, it remains to be seen whether the safeguards outlined in the majority’s opinion — e.g., intervention by the U.S. government, principles of foreign relations preemption, or the availability of review by the Supreme Court — will be effective in tempering state investigations and prosecutions of foreign states and their companies.
For the immediate future, however, the battle in both federal and state courts will be over the scope of immunity afforded to foreign states and their companies under the common law. As Justice Gorsuch noted, determining whether litigants can draw immunity from the common law is “an unenviable task.” For one, the common law of immunity is largely underdeveloped because, for decades, courts have analyzed these issues as a matter of statutory interpretation under the FSIA. Now that courts will be exercising their power to say what the law is, there will arise many questions about the scope of that immunity. On one end of the spectrum, courts could decide to defer to the Executive Branch’s judgment on whether to grant immunity to a foreign sovereign. But such an approach “risks relegating courts to the status of potted plants, inconsistent with their duty to say what the law is in the cases that come before them.” And in many instances the Executive Branch will choose not to weigh in — whether for political or practical reasons — in which case there will be nothing for the courts to defer to. (In cases involving foreign officials, the Executive Branch has taken the view that, in the absence of a suggestion of immunity in a particular case, courts should apply the immunity principles articulated in prior suggestions of immunity in other cases.) On the other end of the spectrum, courts might apply an independent body of common-law immunity drawn in part from the content of customary international law or analogous sources of domestic law. But that approach is riddled with doctrinal difficulties, ranging from the positive source of that body of law to determining its scope in any consistent manner.
It remains to be seen which approach the Second Circuit and other courts decide to take. Either way, we will keep you posted.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
“Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.” (emphasis added).
DOJ, “Lafarge Pleads Guilty to Conspiring to Provide Material Support to Foreign Terrorist Organizations,” (Oct. 18, 2022), available here.
For more information about USA PATRIOT Act subpoenas, check out our Advisory on the administrative subpoena, “NDAA Significantly Expands DOJ and Treasury Authority to Reach Account Records Maintained by Foreign Banks with US Correspondent Accounts,” (Jan. 4, 2021), available here.
One has seen a flavor of these kinds of suits in the recent spate of state-led suits against the People’s Republic of China for its role in the COVID-19 pandemic. See, e.g., John B. Bellinger, III, “Suing China over the Coronavirus Won’t Help. Here’s What Can Work.” Wash. Post (Apr. 23, 2020), available here.