U.S. Brief in Halkbank Abandons Customary International Law in Immunity Cases


Blind Justice” by Tim Green aka atoach

is licensed under CC BY 2.0

In Turkiye Halk Bankasi A.S. v. United States (Halkbank), the Supreme Court held that the Foreign Sovereign Immunities Act (FSIA) does not apply to criminal proceedings. The Court remanded Halkbank’s separate claim of common law immunity to the Second Circuit for reconsideration. On November 20, 2023, after two extensions, the United States filed its brief on remand.

The U.S. brief makes two basic arguments. First, the brief argues that courts must follow the executive branch’s determination of whether common law immunity applies and that, by bringing this prosecution, the executive has indicated that Halkbank is not immune. Second, the brief argues that, in any event, the common law does not immunize foreign state-owned corporations engaged in commercial activities. (Disclosure: Ingrid (Wuerth) Brunk and I filed an amicus brief with the Second Circuit arguing against the government’s first position.)

The executive’s claim that courts must obey its immunity determinations is not new. The United States has consistently made the same argument in foreign official immunity cases. What is new is the U.S. brief’s marginalization of the customary international law governing immunity, which it does in two ways. First, the brief argues that when there is a “controlling executive act” determining immunity, customary international law simply does not apply. Second, when discussing the common law rules of immunity, the U.S. brief makes not a single reference to customary international law.

Marginalizing customary international law hurts the U.S. position both in this case and in the long run. In this case, customary international law supports the U.S. argument that a foreign state-owned corporation engaged in commercial activities is not immune from suit, and the executive’s interpretation of customary international law would be entitled to substantial weight. In the long run, marginalizing customary international law in U.S. cases may undermine the United States’ ability to rely on that law when the United States or its officials are prosecuted or sued abroad.

The Facts

According to the indictment, Halkbank engaged in a multiyear scheme to evade U.S. sanctions on Iran by using fraudulent transactions to transfer the proceeds of oil and gas sales to Iran. Halkbank claimed that, because it is owned by Turkey, it is immune from criminal prosecution under the FSIA and federal common law. The district court rejected Halkbank’s argument, and the Second Circuit affirmed.

The Second Circuit reasoned that, even if the FSIA did apply to criminal proceedings, Halkbank’s conduct fell within the act’s commercial activity exception. The court disposed of Halkbank’s common law claims in just a few sentences. The court reasoned that “any foreign sovereign immunity at common law also had an exception for a foreign state’s commercial activity, just like FSIA’s commercial activity exception.” Moreover, “at 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 held that the FSIA is limited to civil cases and therefore does not apply to Halkbank’s prosecution. But when the FSIA does not apply, a party may still be able to claim immunity under federal common law. In Samantar v. Yousuf (2010), the Court held that the FSIA did not apply to foreign officials, whose immunity from suit instead “is properly governed by the common law.” In Halkbank, the Supreme Court chose to remand the common law immunity claim because “[t]he Court of Appeals did not fully consider [it].”

Before turning to the U.S. government’s arguments on remand, it is worth noting that the questions at issue in this case apply not only to criminal prosecutions but also to civil suits against foreign officials, which have been far more numerous. The U.S. brief relies repeatedly on foreign official immunity cases. And the basic questions about deference to the executive and the role of customary international law are the same in both contexts.

Controlling Executive Act

As the U.S. brief correctly acknowledges (pp. 11-12) the foundation of foreign sovereign immunity is customary international law. But the brief goes on to argue that customary international law applies only “where there is no treaty, and no controlling executive or legislative act or judicial decision” (p. 12). Students of international law will recognize that this quotation comes from the Supreme Court’s decision in The Paquete Habana(1900), a prize case that arose during the Spanish-American War.

But The Paquete Habana did not hold that the executive has authority to displace rules of customary international law. As I have discussed in greater detail elsewhere, the executive branch made no such argument to the Supreme Court. Rather than asserting executive authority to depart from customary international law, President McKinley’s proclamation expressly stated that the United States would blockade Cuba “in pursuance of the laws of the United States and the law of nations applicable to such cases” (emphasis added). And, in the end, the Supreme Court enforced a rule of customary international law against naval officers who had violated it.

The original understanding was that the President was bound to follow the law of nations under the Take Care Clause of the U.S. Constitution. Writing in 1793, Alexander Hamilton wrote:

The Executive is charged with the execution of all laws, the laws of Nations as well as the Municipal law, which recognises and adopts those laws. It is consequently bound, by faithfully executing the laws of neutrality, when that is the state of the Nation, to avoid giving a cause of war to foreign Powers.

Writing in response, James Madison quoted this passage and called it “a truth.”

One finds the same view that the executive is bound by customary international law reflected in Brown v. United States (1812), where the question was whether the executive could condemn enemy property during wartime without express authorization from Congress. In a frequently misunderstood passage, Chief Justice Marshall wrote that the law of nations “is a guide which the sovereign follows or abandons at his will.” But for Marshall, the “sovereign” was Congress and the President together, not the President alone. (Marshall wrote “his” because most sovereigns at the time were kings.) This is obvious from the Court’s decision, which held that the executive could not even exercise the United States’ rights under the law of nations without authorization from Congress. Justice Story, in dissent, would have held that the executive could exercise U.S. rights but was even more explicit that the President could not violate the law of nations: “he cannot lawfully transcend the rules of warfare established among civilized nations.”

The U.S. brief relies on a statement from The Schooner Exchange v. McFaddon (1812)—a sovereign immunity case decided two years before Brown—that “the sovereign of the place is capable of destroying this implication” of immunity, reading “sovereign” to mean “executive” (p. 10). But, in context, this is clearly a misreading. In Schooner Exchange, as in Brown “sovereign” meant the legislature and the executive together, not the executive alone.

There are other reasons why the executive branch’s position that U.S. courts must follow executive determinations of immunity is wrong (reasons that Ingrid and I discuss in our amicus brief). But the assertion that the executive, without authorization from Congress, can deny sovereign immunity that customary international law requires is simply wrong. In this case, it is also unnecessary because customary international law fully supports the executive’s position that Halkbank is not immune from prosecution. This makes it all the stranger that the U.S. brief does not even mention customary international law when it turns to the substantive rules of federal common law.

Federal Common Law

Part II of the U.S. brief argues that federal common law does not immunize Halkbank from prosecution for two basic reasons: (1) because the charges are based on Halkbank’s commercial activities; and (2) because the common law does not immunize state-owned corporations from prosecution.

Customary international law supports the U.S. position on both points. Widespread state practice supports the proposition that foreign states are not immune from the jurisdiction of courts of other states with respect to their commercial activities. China recently became the latest country to adopt this so-called “restrictive theory” of foreign state immunity.

The restrictive theory is also codified in the U.N. Convention on the Jurisdictional Immunities of States and Their Properties. Although the U.N. Convention does not reflect customary international law in every respect, it appears to do so with respect to commercial activities. First, the Convention does not distinguish between civil and criminal cases. Article 1 provides: “The present Convention applies to the immunity of a State and its property from the jurisdiction of the courts of another State.” Second, under Article 2, “State” is defined to include other entities that exercise the “sovereign authority” of the State, which could potentially include state-owned corporations. But third, under Article 10, “the State cannot invoke immunity” from the jurisdiction of another “in a proceeding arising out of [a] commercial transaction.”

Customary international law also supports the U.S. position that state-owned corporations are not immune from prosecution. As I have previously noted, the United States appears to be the only country in the world that extends immunity to corporations based on state ownership alone. The practice of a single state cannot establish the general and consistent practice of states necessary to create a rule of customary international law. The U.N. Convention also does not recognize immunity based simply on state ownership. As mentioned above, Article 2 requires entities claiming state immunity to be exercising the “sovereign authority” of the State.

Not only does customary international law support the U.S. position in this case, but the executive branch’s interpretation of the customary international law would also clearly be owed deference. The executive’s interpretation of a treaty is entitled to “great weight,” and the same should go for customary international law considering the State Department’s expertise.

Although the executive branch has long claimed that it should make the federal common law rules of immunity, its reluctance to mention customary international law is new. Arguing against applying the FSIA to foreign officials in Samantar, the Solicitor General told the Supreme Court that foreign official immunity should be governed by “principles adopted by the Executive Branch, informed by customary international law” and went on to discuss various aspects of customary international law. In the wake of Samantar, State Department determinations of immunity have routinely stated that they are “informed by principles of customary international law.” Why, then, the change in approach in Halkbank?

Deference Versus Obedience

As noted above, the State Department’s interpretations of customary international law would be entitled to substantial deference. But the U.S. government seems to want more than deference. As Ingrid has written, “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.”

This is a risky strategy. First, insisting on obedience raises “separation-of-powers concerns,” as Justice Gorsuch noted in his Halkbank concurrence. In his words, it “risks relegating courts to the status of potted plants, inconsistent with their duty to say what the law is in the cases that come before them.” Even if the Second Circuit is willing to become a potted plant, I doubt the Supreme Court will be.

Second, by marginalizing customary international law in domestic cases, the executive undermines the United States’ ability to invoke customary international law in foreign cases. If foreign sovereign immunity is no more than “grace and comity,” as the U.S. brief repeatedly insists (pp. 7, 17, 22), then other countries need not feel obligated to accord such immunity to the United States and its officials.