Open Questions after Halkbank
April 21, 2023
The Supreme Court held this week in Türkiye Halk Bankasi, A.S. v. United States that the Foreign Sovereign Immunities Act (FSIA) does not apply to criminal prosecutions. That holding was a blow to Halkbank—a foreign state-owned enterprise under indictment—which had argued that the FSIA provided it with immunity. But the case is not over. The Court remanded for consideration of Halkbank’s entitlement to common law immunity. Determining whether foreign state-owned enterprises are immune from criminal prosecutions under the common law will involve complex and potentially far-reaching issues of judicial and executive power. It may also raise interesting issues of international law.
Background and Procedural History
Halkbank is a Turkish state-owned bank indicted by the United States for conspiracy to evade economic sanctions on Iran. Halkbank allegedly laundered proceeds from Iranian sales of gas and oil with the help of senior Turkish government officials. Two individual defendants have already been convicted for their roles in the conspiracy—one of whom was a Halkbank official.
The lower courts rejected Halkbank’s efforts to have the indictment dismissed on the grounds that it was immune from suit. Judge Richard Berman of the U.S. District Court for the Southern District of New York held that the FSIA did not apply in criminal prosecutions, that Halkbank was not entitled to immunity under the common law because immunity was the prerogative of the executive branch (which opposes immunity in this case), and that, even if the FSIA did apply, Halkbank was not immune under the commercial activity exception. So, no immunity, three times over.
The U.S. Court of Appeals for the Second Circuit reached the same conclusions. It reasoned that if the FSIA did apply, the indictment came within the commercial activity exception, and that if the statute did not apply, the executive branch controlled the immunity determination. So, no immunity two times over.
The Supreme Court’s Decision
On April 19, the Supreme Court announced its ruling that the FSIA did not apply at all. It therefore did not reach the question of whether Halkbank’s conduct fell within the commercial activity exception to the FSIA. Halkbank argued that the FSIA applied based in part on the language of the statute that provides 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.” That language is not, as a textual matter, limited to civil cases. It appears to apply broadly to the “jurisdiction” of courts in the United States, whether that jurisdiction is exercised in criminal or civil matters, just as Halkbank argued and as Justice Neil Gorsuch wrote in a partial dissent joined by Justice Samuel Alito.
But the seven-justice majority relied on other language in the statute to reject this reading. In many respects, the statute is limited to civil matters, and it makes no mention anywhere of criminal actions. The majority thus concluded that it does not apply to criminal prosecutions.
The lower court opinions also held—with very little discussion—that Halkbank was not entitled to common law immunity. The Second Circuit reasoned: “[A]t common law, sovereign immunity determinations were the prerogative of the Executive Branch; thus, the decision to bring criminal charges would have necessarily manifested the Executive Branch’s view that no sovereign immunity existed.” The Supreme Court could have adopted this reasoning in a few short sentences, held for the executive branch as other scholars have argued, and allowed the prosecution to go forward in a case that may have significant foreign relations implications. Fortunately, it did not, for the reasons discussed below. Instead, questions of common law immunity and deference to the executive branch will be addressed by the lower courts on remand.
The First Issue on Remand: Executive Control or Judge-Made Common Law?
The Court directed the Second Circuit to consider common law immunity on remand. As Gorsuch noted, “right out of the gate” the lower court will have to decide “whether to defer to the Executive Branch’s judgment on whether to grant immunity to a foreign sovereign.” With the benefit of further briefing, the Second Circuit should conclude that the executive lacks the constitutional power to make and apply common law rulings on immunity. I have defended that position at length in my scholarship, arguing that executive control violates separation of powers by taking away from courts the power to decide what the law is, that it is a bad idea for policy reasons, and that it is not compelled by precedent. William Dodge and I submitted an amicus brief in Halkbank making those same arguments (on behalf of neither party), which we summarized for TLB and which Gorsuch cited.
Rather than revisiting those arguments here, I want to make just two observations about the issue of executive control. First, the Court, Gorsuch, and many commentators refer to the issue as one of “deference” to the executive branch. But as Dodge and I explained, the power that the government seeks is not “deference” but instead obedience from the courts—the government seeks the power to make immunity rules through the common law and to apply those rules to specific defendants to determine the outcome of pending cases. All agree that in some situations courts should defer to the government’s factual determinations and representations about foreign policy, among other issues. But the power that the government seeks here is the power to make and apply law, pure and simple.
Second, a primary defense of executive branch lawmaking is that, like democracy, it is better than the alternatives. Here, the alternative is the fashioning of federal common law by the courts. And federal common law, too, can be in tension with formalist views of lawmaking, as Gorsuch points out. So why federal common law and not executive control? Federal common law is a better choice as a policy matter, but it also rests on a stronger constitutional footing. As I have argued, the various doctrines that make up the federal common law of foreign relations are best justified as having the implicit support of Congress.
Dodge and I have explained that when the FSIA was enacted in 1976, federal common law (not executive control) was the default background rule for both procedural and substantive issues related to suits against foreign sovereigns:
One category of federal common law-making in federal courts covers procedural issues not governed by rules or statutes, including forum non conveniens and preclusion. Another well-accepted set of common law rules governs the legal effect in U.S. courts of official actions by foreign sovereigns (the act of state doctrine). Under the Supreme Court’s 1983 Bancec decision, even substantive rules of liability for foreign agencies and instrumentalities and foreign states are governed by federal common law that preempts state law.
Immunity issues not governed by the FSIA fit into both categories. They are procedural, and they govern the treatment of foreign sovereigns (and their agencies and instrumentalities). Indeed, Halkbank itself involves the relationship between foreign governments and their instrumentalities, just like Bancec. No one argues that the executive should control Bancec determinations (whether to pierce the corporate veil between a foreign state and its instrumentality). Rather, federal common law controls. The government did argue that its decision should control under the act of state doctrine in Kirkpatrick and the Supreme Court unanimously rejected that position.
The Court held in Sabbatino that the act of state doctrine was governed by federal common law, a decade or so before the FSIA was enacted, and Bancec was decided shortly after the FSIA was enacted. Moreover, the Court is and was comfortable applying federal common law to procedural issues not governed by a statute or the Federal Rules—even in cases involving foreign sovereign interests—as the Supreme Court also held before and immediately after the FSIA was enacted.
The FSIA was enacted against a strong backdrop of judge-made common law that filled procedural and substantive gaps in cases involving foreign sovereign interests. Congress knew that issues closely related to immunity, such as the act of state doctrine, were governed by common law, and Congress would have expected federal common law to fill other gaps left by the FSIA—as, indeed, Bancec has held. Nothing about the FSIA suggests that it was designed to give the executive branch control over common law issues. Instead, as the Court itself explained in the Halkbank opinion (and in multiple other cases), the FSIA was enacted to do just the opposite: to end the unsatisfactory practice of executive participation in immunity decisions that are better left to the courts.
The Supreme Court’s Halkbank decision settled some questions, but the remand will raise many others.
Editor’s Note: This article also appears on Lawfare.