Sunday Read: Halkbank, Whistleblowers, & the Foreign Sovereign Immunities Act
In April, the Supreme Court of the United States (SCOTUS) ruled that a financial institution owned by the government of Turkey is not immune from prosecution under the Foreign Sovereign Immunities Act of 1976 in New York federal court for allegedly violating U.S. economic sanctions on Iran.
The ruling was damaging to the Turkish government, but not all-encompassing, as SCOTUS has directed appellate courts to question or reconsider related legal motions and precedent.
In this Sunday Read, National Whistleblower Center (NWC) puts a spotlight on sanctions laws in the U.S. the extent of its jurisdiction and an overview of transnational enforcement based on whistleblower tips.
The Case Against Halkbank
The U.S. government indicted Halkbank, a bank owned by the Republic of Turkey, for conspiring to evade U. S. economic sanctions against Iran. The charges, filed in New York in 2019, included bank fraud, money laundering and conspiracy for alleged use of money servicers and front companies in Iran, Turkey and the United Arab Emirates to evade U.S. sanctions.
Sanctions against Iran have been regularly imposed by the U.S. since the Iran hostage crisis in 1979, when radicalized students held 52 American diplomats and citizens captive until their release 444 days later in January 1981.
The indictment in Manhattan federal court alleged that high-ranking Turkish and Iranian government officials participated in the sanctions evasion scheme with Halkbank and its officers. Halkbank pled not guilty, and during a January hearing before SCOTUS, moved to dismiss the indictment on the ground that it is immune from criminal prosecution under the Foreign Sovereign Immunities Act (FSIA). Halkbank did not assert an immunity based on international law, but argued that the FSIA bars prosecution of criminal actions. SCOTUS ruled that FSIA did not bar such prosecution, and therefore the suit could proceed.
Justice Brett Kavanaugh wrote the 7–2 majority opinion:
“On Halkbank’s view, a purely commercial business that is directly and majority-owned by a foreign state could engage in criminal conduct affecting U. S. citizens and threatening U. S. national security while facing no criminal accountability at all in U. S. courts. Nothing in the FSIA supports that result.”
Though SCOTUS indicated that it wants federal appeals courts to field the legal issue of whether Halkbank still can claim sovereign immunity from U.S. prosecution under common law, its decision provides some solid guidance for the suit and has generated renewed interest in the FSIA.
What is the Foreign Sovereign Immunities Act?
The U.S. Department of State provides details of the FSIA, which prescribes the means of service for suits against a foreign state or agency and instrumentality. The FSIA also limits the role of the Executive branch in suits against foreign governments and governmental entities by precluding the Department of State from making decisions on state immunity.
A party to a lawsuit, including a foreign state or its agency or instrumentality, is required to present defenses such as sovereign immunity directly to the court in which the case is pending. The immunity of a state from the jurisdiction of the courts of another state is an undisputed principle of customary international law.
Guidance for Whistleblowers Outside the U.S. and Those with Foreign Sovereigns
SCOTUS has indicated that the U.S. can bring criminal prosecutions against foreign companies owned by foreign sovereigns. Whistleblowers in the U.S. or those in connection with the violator can file claims which will identify and prevent unlawful trade and commercial practices.
Whistleblower protection has been recognized as part of international law since 2003, when the United Nations adopted the Convention Against Corruption. This convention was subsequently signed by 140 nations and formally ratified, accepted, approved, or acceded by 137 nations, including the U.S. Article 32 and Article 33 of the UN Convention endorse protection for whistleblowers.
Given the broad strong transnational scope of these laws, they are now applicable to most of the worldwide public traded economy. FSIA cases are closely connected to these international laws as well. Critically, many of the strongest U.S. federal whistleblower laws allow for non-U.S. citizens to report fraud confidentially.
As such, non-U.S. citizens are also often eligible to receive rewards from the U.S. government if the original information provided leads to a successful prosecution. These rewards are a percentage of the amount the government recovers from the case. Reward programs have proven essential to the success of whistleblower programs. In certain cases, whistleblowers are even able to seek political asylum.
Thousands of whistleblowers from more than 120 countries have actively used U.S. laws to report instances of fraud, waste, and abuse. Thanks to these laws, whistleblowers now play an essential role in detecting economic crimes worldwide–including bank secrecy, illegal foreign accounts, money laundering, ocean pollution, bribery, securities violations, and more.
The strength of whistleblower laws varies substantially from country to country. Many countries have no laws at all, while others offer only weak protections. The current leader in strong whistleblower protection laws is the United States, which has enacted dozens of federal laws aimed at protecting whistleblowers and incentivizing them to come forward.
Now that SCOTUS has allowed criminal prosecutions against foreign entities owned by foreign sovereigns to proceed, potential whistleblowers should be more confident in their role and the protections they may receive.
Support NWC
At least 59 countries around the world have whistleblower laws. However, the strength of these laws vary widely between countries. NWC aims to inform on the importance of U.S. jurisdiction as they pertain to sanctions laws and the extent of whistleblower protections in such matters. As a 501(c)(3) non-profit our awareness building work is made possible with the support of our generous donors. Please consider donating $50 today to help us continue to educate the public about whistleblower experiences and the role whistleblowers play in putting an end to fraud worldwide.
This story was written by Justin Smulison, a professional writer, podcaster and event host based in New York.
