Halkbank On Remand: Immunity and Extraterritoriality – Judicial Deference or Customary International Law?

The Supreme Court surprised some by ruling unanimously in Turkiye Halk Bankasi A.S. v. United States that the Foreign Sovereign Immunities Act (FSIA) does not protect Halkbank from criminal prosecution in U.S. courts. Seven Justices concluded that the FSIA applies solely to civil actions but remanded the case – without guidance – for the Second Circuit to determine whether common law bars prosecution of a state-owned commercial enterprise. Two dissenting Justices would have held that the FSIA applies in criminal proceedings but does not confer immunity in cases involving commercial activity.

Having participated in drafting the FSIA, I want to salute the Court for rejecting Halkbank’s

implausible contention that Congress enacted a statute focused entirely on   civil actions and then in one provision that does not mention criminal proceedings somehow stripped the Executive Branch of all power to bring  domestic criminal prosecutions against instrumentalities of foreign states.

More broadly, the seven Justices confirmed a sensible formula for execution of textual theory: “the Court must read the words Congress enacted ‘in their context and with a view to their place in the overall statutory scheme.’” Justice Brett Kavanaugh’s opinion for the Court does not mention congressional intent or common sense, but the statutory reading respects both.

Back to the Second Circuit

On remand, the Second Circuit has a broad mandate to consider “whether and to what extent foreign states and their instrumentalities are differently situated for purposes of common law immunity in the criminal context.” Chimène Keitner and I argued in our amicus brief that Halkbank is not entitled to immunity under international or common law and that its banking activities in the oil trade are commercial in nature. William Dodge seems to agree on this point, but he has raised two other serious issues.

First, Dodge and Ingrid (Wuerth) Brunk filed an amicus brief arguing that immunity determinations in criminal cases should be made by the courts, not by the executive. The court of appeals noted that sovereign-immunity determinations at common law “were the prerogative of the Executive Branch,” so “the decision to bring criminal charges would have necessarily manifested the Executive Branch’s view that no sovereign immunity existed.” The Supreme Court left the issue of executive power open in Halkbank.  Keitner and I did not address it in our amicus brief.

Second, Dodge now tells us that, immunity aside, the Halkbank indictment must be dismissed because Congress has not authorized the President to bar offshore dollar transactions by foreign banks.

Judicial Deference to the Executive

The Supreme Court has repeatedly observed that courts traditionally “deferred to the decisions of the political branches … on whether to take jurisdiction over actions against foreign sovereigns.”

In fact, one of the main reasons Samantar v. Yousuf decided that Congress did not codify the law of foreign official immunity in the FSIA was to preserve the State Department’s role in those cases. “We have been given no reason to believe,” the Court wrote, “that Congress saw as a problem, or wanted to eliminate, the State Department’s role in determinations regarding individual official immunity.”

The impressive brief filed by Brunk and Dodge in Halkbank criticizes past judicial deference on immunity issues and argues for a different approach in criminal cases, but it cannot erase this history.

Moreover, the brief recognizes that the President has constitutional authority to make determinations binding on the courts in a number of areas of foreign relations law, including recognition of foreign states and governments, and resolution of international claims by executive agreement. In my view, common law immunity is another such area.

Recognising that there are contrary considerations, I am persuaded by the Solicitor General’s admonition,

Nothing could embarrass the Executive Branch more than a judge-made principle that would vitiate a federal criminal prosecution.

Most likely, the court of appeals will punt this issue by holding that no rule of international or common law precludes prosecution of Halkbank in this case.

Extraterritorial Application of IEEPA

Professor Dodge also argues that, immunity aside, the Halkbank indictment must be dismissed because Congress has not authorized the President to prohibit the bank’s offshore dollar transactions with Iran. This is a blockbuster assertion because it challenges an important element of American national security policy: sanctions directed at offshore dollar transactions by foreign banks.

Specifically, Dodge argues:

(1) the International Economic Emergency Powers Act (IEEPA) authorizes the President “to prohibit financial transactions … by any person, or with respect to any property, subject to the jurisdiction of the United States;”

(2) international law standards for prescriptive jurisdiction require a “genuine connection” as the basis for prescriptive jurisdiction;

(3) traditional banking practice that requires all foreign dollar transactions to be processed in the United States is not a sufficient connection; and

 (4) the Charming Betsy canon of interpretation requires that IEEPA be construed not to authorize conduct in violation of international law.

This argument merits careful consideration, but I doubt that U.S. courts will apply Charming Betsy to weaken U.S. sanctions on Iran. In the post-Henkin era, the Supreme Court has raised a high bar for judicial application of international law as part of U.S. domestic law. The current court is likely to be even more reluctant to apply customary international law constraints to national security legislation.

Justice Kavanaugh has previously expressed doubts about the constitutionality of the Charming Betsy doctrine. And he told us at oral argument what he thinks is at stake in Halkbank:

it’s pretty bizarre for this Court to tell the President of the United States as a matter of his national security exercise that even though the Constitution doesn’t prohibit what you’re doing, even though a statute doesn’t prohibit what you’re doing, this Court’s going to prohibit your exercise of national security authority.… talk about big steps.… That’s huge.

Conclusion

The Supreme Court convincingly determined that the FSIA does not apply in criminal cases. Hopefully, the Second Circuit will confirm that Halkbank is not protected from federal prosecution by the common law of immunity.