Although this case does not imply compensation for war losses, the issue of sovereign immunities is one of the key obstacles on the way to seizure of Russian assets all over the world. Since the United States are one of the key custodians of those assets, decisions in this regard may give an understanding of the prospects for retreating from these immunities, as well as legal and political strategies of work in this regard.
Background
First of all, it should be noted that the problem of sovereign immunities has become the subject matter of proceedings in the US courts not for the first time, inter alia, in the context of compensations for violations committed during an armed conflict. In particular, in 1994, the DC Court of Appeals dismissed a claim of Hugo Princh, a US citizen of Jewish origin, who, together with his relatives, suffered from the Holocaust, particularly on the basis of the FSIA.
The Halkbank V. United States case rests on the charges pressed in 2019 that the bank, with the participation of high-ranked Iranian and Turkish officials, helped circumvent US sanctions against Iran. As a result of that scheme, Iran managed to receive and utilize billions of US dollar revenues from sales of their oil, in particular, by means of gold purchase transactions and fictitious transactions in purchasing medicines or food under "humanitarian exemptions" from sanctions
The case was brought before the US Supreme Court after the judgment of the Court of Appeals for the 2nd Circuit in 2021. The court recognized the non-applicability of the FSIA to the Halkbank case indicating that even if that Act had applied to the bank as a legal entity, its actions would have been classified as an exemption for commercial activities, to which sovereign immunities do not apply. It deals with an exemption provided for by Paragraph 1605(a) (2) of the FSIA: "an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States."
Content of the decision of the US Supreme Court
In their decision, the US Supreme Court, with seven votes for vs. two votes against, resolved that the FSIA grants an immunity only in the case of suits and not prosecution. They supported their position both with the provisions of the FSIA itself, the content of which apparently applies to civil disputes, and with the previous cases, in particular, Verlinden B.V. v. Central Bank of Nigeria.
That is why the Court rejected Halkbank's arguments regarding criminal immunity under the FSIA. However, judges pointed out that nothing in the FSIA allows a commercial business that is directly owned by a foreign state to engage in criminal conduct that affects US citizens and threatens US national security and not be held criminally liable in the US courts at all.
Accordingly, in the opinion of the US Supreme Court, Halkbank cannot claim immunity from prosecution on the basis of the law.
At the same time, it was emphasized that the doctrine of sovereign immunities was initially developed in the US courts "as a matter of common law", that is, it developed in the framework of case law. And to resolve the issue of whether Halkbank can refer to sovereign immunities in criminal cases, the US Supreme Court returned the case to the Court of Appeals for the 2nd Circuit.
Reaction and consequences of the decision
This decision received an ambiguous reaction in the media and the expert environment. On the one hand, it was perceived as a defeat for Halkbank and a significant retreat in the US judicial practice regarding sovereign immunities. Proving the non-applicability of the FSIA in criminal cases opens up great opportunities for seizing assets directly or indirectly owned by foreign countries in the United States.
On the other hand, the US Supreme Court did not confirm that sovereign immunities did not apply to Halkbank at all, referring to the court of appeals the question of whether common law allows their application in criminal cases. From this point of view, the decision of April 19 can be also construed as a success for the Turkish party. At least, according to Reuters, the price of Halkbank shares on the Istanbul Stock Exchange rose by 10% after the decision.
From this point of view, the scope of the decision is criticized in the separate opinion of the two judges of the US Supreme Court who did not support the decision, Neil Gorsuch and Samuel Alito, who state that the Turkish bank is in any case subject to prosecution under the aforementioned exception of Paragraph 1605(a)(2) ) of the FSIA, and the approach taken by their colleagues "overcomplicates the application of the law without good reason." The Administration of the US President Joe Biden is advocating the same opinion.
In any case, the Court of Appeals for the 2nd Circuit will likely rule on the applicability of sovereign immunities in criminal cases under common law within the next year, and the case will return to the US Supreme Court.
Conclusions for Ukraine
Although this decision of the US Supreme Court does not directly concern Ukraine and the compensation for war losses as a result of the Russian aggression, it is an important step in the formation of the US practice regarding the possibility of retreating from the sovereign immunity doctrine. The United States are one of the biggest custodians of frozen Russian government assets, in particular, of the Russian Central Bank. And the applicability of sovereign immunities is considered as one of the key obstacles to using frozen assets as a compensation to the Ukrainians.
However, in this case, both political and diplomatic components are important. The Turkish government actively criticizes this case, in particular, the President of Turkey Recep Erdoğan called it "awful and illegal." In the case of Russian assets, the political and diplomatic resistance is likely to be even stronger, and Ukraine should take an active position on its part.
We should understand that this or possible future decisions of the US courts in the case of Halkbank are unlikely to fully solve the problem of sovereign immunities and allow the seizure of all Russian assets. But they can give a broader space for maneuvering and create possibilities at least for a partial seizure of frozen Russian assets.
The publication was prepared with the support of the International Renaissance Foundation as the part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase II: ensuring the effectiveness of mechanisms at the national and international level" project.
