Second Circuit Denies Common-Law Sovereign Immunity for Foreign State-Owned Entities
The court held that the Executive Branch's decision to criminally prosecute a foreign state-owned entity for commercial activity is entitled to deference and thus strips the entity's immunity under common law.
On October 22, 2024, the Second Circuit held in United States v. Turkiye Halk Bankasi that common-law foreign sovereign immunity does not protect Halkbank, a bank majority-owned by the Republic of Turkey, from criminal prosecution relating to an alleged conspiracy to evade U.S. economic sanctions against Iran. As we previously reported in our Alert, "U.S. Supreme Court Rules that FSIA Does Not Grant Foreign State-Owned Entities Immunity from Prosecution," on April 19, 2023, the U.S. Supreme Court narrowly held that the Foreign Sovereign Immunities Act ("FSIA") does not provide instrumentalities of foreign states with immunity from criminal proceedings, but remanded the case to the Second Circuit to consider whether such immunity is available under the common law.
The Second Circuit ruled that under the common law, a foreign state-owned corporation does not enjoy an absolute immunity from criminal prosecution for conduct related to its commercial, non-governmental activity. The court explained that it "defer[s] to the Executive Branch's determination—which may be expressed … by the initiation of a federal criminal prosecution—that a foreign state-owned corporation is not entitled to foreign sovereign immunity." The court clarified that such deference to the Executive Branch applies whether the Executive Branch seeks to grant or deny immunity, and applies equally to criminal and civil cases.
The court rejected Halkbank's policy argument that "the United States should not be able to wield the tool of federal criminal prosecution because foreign states may react negatively to its use." The court noted that "the decision to initiate a federal criminal prosecution against a foreign state-owned corporation rather than, for example, impose tariffs or deny military aid is not one for the judiciary to second guess." The court "le[ft] for another day" whether there will be judicial deference to "the Executive's denial of immunity to a foreign sovereign derogated from the common law—for instance, if the Executive indicted a state qua state."
The case may come back to the U.S. Supreme Court, given the bank spokesperson's statement that the bank "will use all its legal rights to appeal with regard to the October 22, 2024 decision of the Second Circuit, particularly with the U.S. Supreme Court."
