Sovereign, but Not Immune?: The Extent to Which Foreign Government Actors no Longer Enjoy Near-Total Immunity in Federal Courts

 Turkish state-owned Halkbank’s former deputy general manager Hakan Atilla was convicted of helping Iran evade U.S. sanctions in his personal capacity in 2018, but his former employer – and the government that owns it – might not be off the hook yet.[1]

Whether it be boycotts because of tariffs, using VPNs for social media because of sanctions, or even refusals to honor ICC warrants, the question of what countries can do to get back at or punish others remains pertinent amid fears against regional hegemony from large powers. Put more simply, how far does a country’s jurisdiction over others extend?

The United States has traditionally had a strong legal tradition of sovereign immunity rooted in customary international law. This means a governmental entity, whether domestic or foreign cannot be sued unless limited exceptions apply.[2] While the infamous yet humorous case of United States ex rel. Mayo v. Satan and His Staff[3] was ultimately dismissed for failure to serve process, a federal district court jokingly remarked that the Devil would be considered a “foreign prince” for purposes of sovereign immunity, and therefore immune from suit regardless.[4] Pertinently, the Foreign Sovereign Immunities Act of 1976 (FSIA) codified the long-standing default rule that foreign states are immune from civil lawsuits in U.S. Federal Courts, but it laid out explicit exceptions to this immunity.[5] Given the civil focus of the statute, one such exception is criminal proceedings.[6]

The United States has long imposed sanctions on Iran, the latter looking to its allies for ways around the sanctions in order to make use of its expansive oil reserves.[7] Despite sharing a border, Iran and Turkey have recently been considered rivals, competing for influence in the region and often supporting opponents in nearby proxy conflicts.[8] The two states do, however, maintain a significant trade partnership, with Turkey purchasing significant quantities of Iranian gas in recent years.[9]

Officially, Turkey has continued to avoid purchasing Iranian oil in order to comply with U.S. sanctions.[10] However, a government has many reaches and instrumentalities, meaning it can act indirectly through another government-controlled entity, which leads us to the primary player in the case: Halkbank.

Türkiye Halk Bankası, also known as Halkbank, was originally entirely state-owned but is now publicly traded.[11] A majority stake is held by the Turkish Wealth Fund, a state-owned sovereign wealth fund.[12] Amid sanctions that prevented Iran from being paid in dollars or euros for petroleum, Halkbank, seeing a loophole, purchased billions of dollars of gold, then channeled it to Iran to pay for oil.[13] Halkbank set up shell companies, instituted fraudulent transactions, and lied to U.S. regulators.[14] The proceeds from the schemes were held at Halkbank, because it is difficult for Iranian actors to access foreign currency due to sanctions.[15]

While scandals have plagued Halkbank in the past, particularly the 2018 conviction of a senior executive in U.S. federal court, this controversy becomes a pertinent sovereign immunity issue because Halkbank itself was indicted in 2019 for offenses of fraud, money laundering, and violating sanctions.[16] While it can be disputed whether Halkbank is distinguishable from the Turkish government, it would function as an instrumentality of it regardless. Therefore, the main legal arguments in moving to get the indictment dismissed centered around Halkbank’s potential sovereign immunity, which the bank asserted all the way up through the appeals process.

In the context of the FSIA, the Supreme Court ruled that the FSIA did not protect Halkbank from criminal prosecutions in U.S. Courts, and on remand, the Second Circuit held that common-law sovereign immunity principles did not protect Halkbank either.[17] Notably, much of the Second Circuit’s reasoning came down to the court considering this scheme, and therefore, committing the crimes in question, to be commercial rather than official activity from a governmental actor.[18]

While still ongoing, this case has raised the question of just how far sovereign immunity extends in our increasingly integrated world. The main U.S. view—the “restrictive” theory—is exemplified in the case above: a foreign state or one of its instrumentalities is liable for a commercial, rather than official act.[19] However, this distinction between public and private, or state and commercial, acts is not as clear as one might expect.

In the United States, prior to the FSIA’s enactment, the Department of State, rather than the courts, would determine if sovereign immunity applied to a foreign state.[20] Contrary to what one might expect, the state department historically seemed less influenced by political events than the courts when determining the applicability of sovereign immunity.[21] Private actors have taken note, and filing civil suits in U.S. Federal Courts against sovereign actors has become a more common strategy, particularly when debt is owed.[22]

This trend is not just a homegrown phenomenon—other countries, mainly using the common law system, have codified their approaches to sovereign immunity as well. Canada, like the U.S., has notably carved out “terrorism” as an explicit non-sovereign act, which Iran has sued for in the ICJ, arguing this action violates customary international law.[23] While yet to rule officially, the ICJ’s previous decisions on similar claims indicate that terrorism is not a traditionally sovereign activity, and Canada will likely prevail in that pending suit.[24]

A less drastic example is the recent case in which a Chinese investment company sued Nigeria in both U.S. and U.K. courts for enforcement of an arbitral award regarding a management contract of a free trade zone, with both states’ judiciaries rejecting Nigeria’s argument and holding the award enforceable.[25] While seemingly “commercial” on its face, both this arbitral award and the debt examples present issues for a government when it enters into a contract it may deem official. Courts seem to be selective with how they enforce sovereign immunity in these instances.[26] Presenting potential litigation risks may discourage governments from entering into such contracts—which can in turn harm economic growth.

While Halkbank is a criminal case, the events and arguments surrounding it have brought issues of foreign sovereign immunity to light, including both the question of how far it extends and what activities it in fact extends to. While the ICJ contemplates Iran and Canada’s rulings, we shouldn’t forget the intentions Congress had when it codified the FSIA in 1976: no one should have an unfair advantage and leave others without redress simply because they are nominally a public actor. And in Halkbank’s case, both the individuals and state organ involved will, despite their best efforts, have their day in (U.S. Federal) court after all.[27]

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[1] Elizabeth Williams, Illustration of defendant Mehmet Hakan Atilla testifying at trial in New York court, AP (2017), in Tracy Connor, Turkish Banker Hakan Atilla Strikes Blow in U.S. Sanctions Trial, NBC News (Dec. 15, 2017, 5:24 PM), https://www.nbcnews.com/news/us-news/turkish-banker-hakan-atilla-strikes-blow-u-s-sanctions-trial-n830161.

[2] See Foreign Sovereign Immunities Act, U.S. Dep’t of State, https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/internl-judicial-asst/Service-of-Process/Foreign-Sovereign-Immunities-Act.html (last visited Mar 8, 2025).

[3] 54 F.R.D. 282 (W.D.Pa. 1971).

[4] See id. at 282.

[5] See 28 U.S.C. §§ 1330, 1332, 1391, 1441, 1602–11; Foreign Sovereign Immunities Act, supra note 2.

[6] See Türkiye Halk Bankası A.S. v. United States, 598 U.S. 264, 275–76 (2023) (“Halkbank II”) (“Halkbank contends that § 1604 renders it immune not only from civil suits but also from criminal prosecutions. . . . We thus decline to read § 1604’s grant of immunity to apply in criminal proceedings . . . . [W]e would expect to find some express textual indication regarding § 1604’s purportedly broader-than-civil scope. But none exists.”).

[7] See Iran Sanctions, U.S. Dep’t of State, https://www.state.gov/iran-sanctions/ (last visited Mar 9, 2025); Press Statement, Tammy Bruce, Department Spokesperson, U.S. Dep’t of State, Sanctions on Iran’s Oil Trade to Reimpose Maximum Pressure (Feb. 24, 2025), https://www.state.gov/sanctions-on-irans-oil-trade-to-reimpose-maximum-pressure/.

[8] See Kamran Bokhari, The Coming Turkish-Iranian Confrontation, New Lines Magazine (Feb. 24, 2021), https://newlinesmag.com/argument/the-coming-turkish-iranian-confrontation/. “Proxy conflict” here refers to when two states do not engage in a direct conflict or warfare with each other, but rather support opposing sides in another conflict by providing military aid, financial support, training, and other assistance.

[9] See Iran Investment Monthly - March 2011, Turquoise Partners 7 (2011), https://www.turquoisepartners.com/iraninvestment/.

[10] See Humeyra Pamuk, Turkey Stopped Purchasing Iranian Oil as of May: Turkish Official, Reuters (May 22, 2019, 6:30 PM), https://www.reuters.com/article/us-turkey-oil-iran-idUSKCN1SS2Z9/.

[11] See United States v. Türkiye Halk Bankası A.S., 16 F.4th 336, 341 (2d Cir. 2021) (identifying Halkbank as “a commercial bank that is majority-owned by the Government of Turkey”).

[12] See Halkbank II, 598 U.S. at 267.

[13] See Jonathan Schanzer & Mark Dubowitz, Iran’s Turkish Gold Rush, Today’s Zaman (Dec. 27, 2013), https://web.archive.org/web/20131230232001/http://www.todayszaman.com/newsDetail_getNewsById.action?newsId=335096.

[14] See Halkbank II, 598 U.S. at 267–68.

[15] See Press Release, United States Attorney’s Office: Southern District of New York, Turkish Bank Charged in Manhattan Federal Court for Its participation in a Multibillion-Dollar Iranian Sanctions Evasion Scheme (Oct. 15, 2019), https://www.justice.gov/usao-sdny/pr/turkish-bank-charged-manhattan-federal-court-its-participation-multibillion-dollar.

[16] See United States v. Bankasi, 120 F.4th 41, 44 (2d. Cir. 2024); Benjamin Weiser & Carlotta Gall, Banker From Turkey Is Convicted in U.S. Over Plot to Evade Iran Sanctions, N.Y. Times (Jan. 3, 2018), https://www.nytimes.com/2018/01/03/world/europe/turkey-iran-sanctions-trial.html; United States v. Atilla, 966 F.3d 118, 122 (2d. Cir 2020) (affirming the convictions of Halkbank’s former deputy general manager on several counts for helping Iran evade U.S. Sanctions).

[17] See Halkbank II, 598 U.S. at 281; Bankasi, 120 F.4th at 48.

[18] See Bankasi, 120 F.4th at 57 (“These transactions were conducted via private, commercial banking channels and thus are ‘far more of the character of a private commercial act than a public or political act.’” (quoting Victory Transport Inc. v. Comisaria General de Abastecimientos y Transportes, 336 F.2d 354, 360 (2d. Cir. 1964))).

[19] See Foreign Sovereign Immunities Act, supra note 2 (explaining the “restrictive theory of sovereign immunity”).

[20] See Adam S. Chilton & Christopher A. Whytock, FOREIGN SOVEREIGN IMMUNITY AND COMPARATIVE INSTITUTIONAL COMPETENCE, 163 Univ. Pa. L. Rev. 411, 422 (2015), https://www.jstor.org/stable/24247849.

[21] See id. at 420, 471.

[22] See Kate Yoon, Note, When the Sovereign Contracts: Troubling the Public/Private Distinction in International Law, 133 Yale L.J. 2101, 2024 (2024), https://www.yalelawjournal.org/note/when-the-sovereign-contracts-troubling-the-publicprivate-distinction-in-international-law#_ftnref5; Jesse Barron, The Curious Case of Aurelius Capital v. Puerto Rico, N.Y. Times (Nov. 26, 2019), https://www.nytimes.com/2019/11/26/magazine/aurelius-capital-v-puerto-rico.html.

[23] See William S. Dodge, Why Terrorism Exceptions to State Immunity Do Not Violate International Law, Just Sec. (Aug. 10, 2023), https://www.justsecurity.org/87525/why-terrorism-exceptions-to-state-immunity-do-not-violate-international-law/.

[24] See id. (presenting past awards to Italy against Germany for WWII-era acts as evidence that exceptions for terrorism do not violate customary international law); Jacqueline Hutchins, Islamic Republic of Iran v. Canada: An Evaluation of the Terrorism Exception to State Immunity, Colum. Undergraduate L. Rev. (Jan. 6, 2024), https://www.culawreview.org/current-events-2/islamic-republic-of-iran-v-canada-an-evaluation-of-the-terrorism-exception-to-state-immunity; Alleged Violations of State Immunity (Islamic Republic of Iran v. Canada), Judgment, 2023 I.C.J. 572, 573 (Oct. 16), https://www.icj-cij.org/sites/default/files/case-related/189/189-20231016-ord-01-00-en.pdf (setting deadlines for Iran and Canada to file memorandums with the ICJ).

[25] See Rob Harkavy, US Court Rejects Nigeria’s Sovereign-Immunity Defence, ICLG (Aug. 16, 2024), https://iclg.com/news/21280-us-court-rejects-nigeria-s-sovereign-immunity-defence.

[26] See Chilton & Whytock, supra note 20, at 471.

[27] See Bankasi, 120 F.4th at 59 (remanding the case to the trial court).