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Financial Services Law Insights and Observations

2nd Circuit: Turkish bank not immune from sanctions

Courts Appellate Second Circuit Financial Crimes Of Interest to Non-US Persons Anti-Money Laundering Iran Foreign Sovereign Immunities Act OFAC Sanctions

Courts

On October 22, the U.S. Court of Appeals for the Second Circuit upheld a district court’s ruling against a Turkish state-owned commercial bank (defendant) denying its bid for immunity based on its characterization of an “instrumentality” of a foreign service, which is not entitled to immunity from criminal prosecution at common law. The U.S. government alleged that the bank converted Iranian oil money into gold and hid the transactions as purchases of goods to avoid conflicting sanctions against Iran. The district court denied the defendant’s motion to dismiss and partially concluded that the defendant was not immune from prosecution because the Foreign Sovereign Immunities Act (FSIA) confers immunity on foreign services only in civil proceedings. Furthermore, the district court concluded that, “even assuming arguendo that FSIA did confer immunity to foreign sovereigns in criminal proceedings, [the defendant’s] conduct would fall within FSIA’s commercial activity exception.” Additionally, the district court rejected the defendant’s “contention that it was entitled to immunity from prosecution under the common law, noting that [the defendant] failed to cite any support for its claim on this basis.” The district court found that the defendant’s characterization of its activities as sovereign in nature “conflates the act with its purpose,” finding that the lender's alleged money laundering was the type of activity regularly carried out by private businesses. The fact that the defendant is majority-owned by the Turkish Government is irrelevant under FSIA even if it is related to Turkey’s foreign policy because “literally any bank can violate sanctions.”

On appeal, the 2nd Circuit noted that it was unnecessary to resolve a question presented in the case—if foreign governments can assert immunity against criminal, as well as civil, charges—since money laundering would qualify as a commercial activity exception. The appellate court noted that, “[t]he gravamen of the Indictment is not that [the bank] is the Turkish Government’s repository for Iranian oil and natural gas proceeds in Turkey,” but that “it is [the bank’s] participation in money laundering and other fraudulent schemes designed to evade U.S. sanctions that is the ‘core action.’” And, “because those core acts constitute ‘an activity that could be, and in fact regularly is, performed by private-sector businesses,’ those acts are commercial, not sovereign, in nature.” The opinion also notes that “[e]ven assuming the FSIA applies in criminal cases—an issue that we need not, and do not, decide today—the commercial activity exception to FSIA would nevertheless apply to [the defendant’s] charged offense conduct.” The appellate court agreed with the district court, concluding that the bank must face criminal charges in the U.S. for allegedly assisting Iran evade economic sanctions by laundering approximately $20 billion in Iranian oil and gas revenues.

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