Prosecuting Corporations Owned by Foreign Governments

If a corporation is mostly owned by a foreign government, can it be prosecuted in a criminal case in U.S. courts? The U.S. Supreme Court addressed that question today in Turkiye Halk Bankasi A.S. v. United States, No. 21-1450.

The short answer is yes.

The defendant, doing business as Halkbank, was indicted for conspiracy to evade sanctions against Iran. As a 75%-owned subsidiary of the Turkish government, it claimed sovereign immunity. More specifically, it claimed that (1) the criminal jurisdiction statute, 18 U. S. C. §3231, has an implicit exception for foreign sovereign entities, and (2) the Foreign Sovereign Immunities Act applies to criminal cases.

The U.S. Court of Appeals rejected the first contention and found that, even assuming the second to be valid, the FSIA exception for commercial activities applied. Halkbank sought review by the Supreme Court. The bank’s main theory is that the FSIA generally bars all actions against sovereign entities, civil and criminal, but the exceptions apply only to civil cases.

The Supreme Court’s not only affirmed the judgment, but narrowed sovereign immunity further than Court of Appeals did. The Court read the criminal jurisdiction statute broadly, with no implicit exemption for sovereigns. It then read the main sovereign immunity statute narrowly. The main immunity statute, 28 U.S.C. § 1604, provides: “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.” There is no distinction between civil and criminal jurisdiction in the text of this section, but the Court found that, reading the act as a whole, it was intended to apply only to civil cases.

Justices Gorsuch and Alito concur in part and dissent in part. Like the Second Circuit, they would apply the commercial activities exception to FSIA here. They would hold that both the main immunity rule and the commercial activities exception apply to both civil and criminal cases.

A federal prosecution does not raise a danger of interference with foreign policy. The federal government, unlike most states, has a unitary executive, and having a coherent foreign policy is a major reason why. The Attorney General, the United States Attorneys, and the Secretary of State all answer to the President. State prosecutions of arms of foreign governments would raise different concerns, and Halkbank raised this point in its argument. The Court responded:

Third, Halkbank briefly raises a consequentialist argument. According to Halkbank, if the FSIA does not apply to criminal proceedings, then state prosecutors would also be free to commence criminal proceedings against foreign states and their instrumentalities. Halkbank argues that those state prosecutions would raise foreign policy concerns. But we must interpret the FSIA as written. And the statute simply does not grant immunity to foreign states and their instrumentalities in criminal matters.

In addition, it is not evident that the premise of Halkbank’s consequentialist argument is correct. To begin with, Halkbank offers no history of state prosecutors subjecting foreign states or their instrumentalities to criminal jurisdiction. And if such a state prosecution were brought, the United States could file a suggestion of immunity. A decision by a state court to deny foreign sovereign immunity might be reviewable by this Court (a question we do not here address). Moreover, state criminal proceedings involving foreign states or their instrumentalities might be preempted under principles of foreign affairs preemption (another question we do not here address). Cf. American Ins. Assn. v. Garamendi, 539 U. S. 396 (2003). And if those principles do not apply or do not suffice to protect U. S. national security and foreign policy interests, Congress and the President may always respond by enacting additional legislation.

Yes, Congress should address that.