Second Circuit Green Lights Sanctions Charges for Halkbank
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Second Circuit Green Lights Sanctions Prosecution of Turkish State-Run Bank in Case Tied to Trump-Era Scandal

The Second Circuit on Friday upheld sanctions-busting charges against Turkey’s state-run Halkbank, paving a way from a trial tied to a Trump-era scandal revolving around a former client of Rudy Giuliani.

The case against Halkbank—majority owned by the Turkish government—traces its origins to the prosecution of Reza Zarrab, a gold trader known as the “Turkish Gatsby.” In 2017, Zarrab turned state’s witness after pleading guilty three years ago to spearheading a multibillion-dollar money laundering scheme that he characterized as “economic jihad” in a message to Iran’s former hardline leader Mahmoud Ahmadinejad.

A three-judge panel of the Second Circuit rejected Halkbank’s claim of immunity in connection with the alleged gas-for-gold scheme. Zarrab pleaded guilty to sanctions evasion, money laundering and other charges. His scheme operated by exploiting a then-existing loophole in the U.S. code to convert Iranian oil money for gold, which he had couriered over international borders to be sold.

“The gravamen of the indictment is not that Halkbank is the Turkish government’s repository for Iranian oil and natural gas proceeds in Turkey, i.e., the purpose for which it held these funds,” the Second Circuit noted in a 27-page ruling. “Rather, it is Halkbank’s participation in money laundering and other fraudulent schemes designed to evade U.S. sanctions that is the ‘core action taken by [Halkbank] outside the United States.’ And because those core acts constitute ‘an activity that could be, and in fact regularly is, performed by private-sector businesses,’ those acts are commercial, not sovereign, in nature.”

On the road to trial, Zarrab retained a coterie of high-profile lawyers connected to GOP heavyweights, including Giuliani—a self-described anti-Iran hawk—and ex-George W. Bush-era attorney general Michael Mukasey.

Giuliani and Mukasey engaged in a well-publicized battle to free their money launderer client by shuttling between the U.S. and Turkish capitals to broker a prisoner swap, which would have scuttled Zarrab’s trial. When that effort failed, Zarrab agreed to testify for the government against Halkbank’s ex-manager Hakan Atilla, in a trial that implicated Turkey’s authoritarian ruler Recep Tayyip Erdoğan in sanctions-busting trades. Zarrab’s arrest renewed international focus on a 2013 corruption scandal in Turkey, which dogged Erdoğan and other members of his ruling Justice and Development Party.

From the witness stand, Zarrab implicated Erdoğan in the money laundering scheme and delivered evidence that led to Atilla’s conviction. Several news outlets reported that then-President Donald Trump tried to prevent the subsequent prosecution of Halkbank, which threatened to revive the old scandal for Erdogan. In his book “The Room Where It Happened,” former National Security Advisor John Bolton characterized Trump’s alleged meddling in the case as an attempted favor Erdoğan, one of the “dictators [Trump] liked.”

That plan fell apart, as Southern District of New York prosecutors indicted Halkbank in October 2019, days after Trump’s controversial withdrawal from Syria following a phone call with Erdoğan. Trump’s alleged attempt to torpedo Halkbank’s prosecution is currently the subject of a Senate Finance Committee investigation led by Sen. Ron Wyden (D-Ore.).

In the two-year lead-up to a trial, Halkbank tried to delay and dismiss the indictment inside the courts. U.S. District Judge Richard Berman rejected multiple attempts, and the bank appealed to the Second Circuit, claiming the cloak of sovereign immunity.

U.S. Circuit Judges Amalya Kearse, Jose Cabranes and Joseph Bianco rejected that assertion.

“Halkbank, an instrumentality of a foreign sovereign, is not entitled to immunity from criminal prosecution at common law,” they wrote.

The panel was unanimous. Kearse is a Jimmy Carter appointee. Cabranes is a Bill Clinton appointee and Bianco is a Trump appointee.

Read the ruling below:

(Photo by OZAN KOSE/AFP via Getty Images)

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Law&Crime's managing editor Adam Klasfeld has spent more than a decade on the legal beat. Previously a reporter for Courthouse News, he has appeared as a guest on MSNBC, BBC, NPR, PBS, Sky News, and other networks.