The curious course of events surrounding Halkbank’s prosecution reveals a tangled path of diplomacy, defiance, and alleged money laundering that has kept both Washington and Ankara locked in a years-long legal standoff. The Halkbank affair immediately raised the question of sovereign immunity when U.S. prosecutors sought to indict a bank majority owned by the Turkish state for alleged sanctions-evasion and money laundering. The bank contended that it was immune under both the Foreign Sovereign Immunities Act (FSIA) of 1976 and under common law principles of foreign sovereign immunity. Ultimately, the Supreme Court held that FSIA’s immunity protections do not extend to criminal prosecutions, remanding the case for further inquiry as to whether common law immunity might apply. In the subsequent appellate process, the Second Circuit rejected Halkbank’s claims to common law immunity in respect of its commercial activities. This decision affirms that state-owned entities engaging in commercial or non-sovereign acts may face criminal liability, and that executive branch determinations to deny immunity merit judicial deference. Through this ruling, a novel criminal sovereign immunity doctrine is evolving, narrowing safe harbors for foreign government entities in U.S. criminal law.
Table of Contents
Chronology of the Money Laundering Scheme
In 2019, the U.S. Department of Justice indicted Halkbank along with named individuals for involvement in a multi-year conspiracy to evade U.S. sanctions on Iran, including money laundering and bank fraud. Prosecutors alleged that from roughly 2012 through 2016 the bank conspired with front companies in Turkey, Iran, and the UAE to funnel restricted Iranian oil revenues—estimated at about US$20 billion—into the global financial system, converting oil proceeds to gold, cash, or other forms to obscure the origin of funds (also via false documentation, including fictitious food shipments).
Parallel to the corporate case, individual prosecutions had already occurred: Reza Zarrab, a Turkish-Iranian gold trader, was arrested in 2016 and later cooperated, testifying against others in the scheme. A senior Halkbank executive, Mehmet Hakan Atilla, was convicted and served prison time for involvement in similar sanctions-evasion conspiracies. These prior cases built the evidentiary foundation for the institutional indictment.
After the 2019 filing, Halkbank challenged the indictment on immunity grounds. The district court rejected its motion to dismiss, finding that its conduct fell within the commercial activity exception under FSIA. The Second Circuit, in 2021, affirmed that FSIA did not immunize the bank. The U.S. Supreme Court later held in 2023 that FSIA’s immunity scheme applies only to civil matters, not criminal ones, and remanded to assess common law immunity.
On remand, in October 2024, the Second Circuit denied Halkbank’s common law immunity claims, reasoning that the bank’s alleged conduct was commercial and thus not entitled to immunity, and that deference is owed to the Executive Branch which had initiated the prosecution. Halkbank sought further review via the U.S. Supreme Court, but the Court declined to consider its latest appeal in 2025, letting the lower court rulings stand, and thus enabling the case to proceed in ordinary judicial course.
Meanwhile, diplomatic overtures have been made, including a reported Turkish proposal during White House talks to settle the matter for US$100 million in exchange for Halkbank avoiding an admission of guilt. Negotiations remain ongoing.
AML and Money Laundering Mechanics
At the heart of the scheme are classic money laundering techniques layered into a sanctions-evasion structure. The purported methodology involved these elements:
- Shielded Transfers: Halkbank allegedly used correspondent relationships and proxy accounts to funnel Iranian oil revenue into front companies in Turkey, the UAE, and elsewhere.
- Gold Conversion & Smuggling: Some proceeds were converted into gold, transported, and then resold to disguise the value and break traceability.
- False Trade Documentation: To legitimize the transfers, the parties fictitiously documented shipments of food or commodities, creating a façade of lawful trade.
- Integration via U.S. Financial System: A portion of the laundered funds—at least US$1 billion according to DOJ filings—passed through U.S. banks, invoking federal jurisdiction and triggering scrutiny under U.S. AML and sanctions frameworks.
On the regulatory side, these operations would violate the Bank Secrecy Act, anti-money laundering statutes (such as 18 U.S.C. § 1956), and various sanctions laws (for example under the International Emergency Economic Powers Act) intended to block Iran’s ability to use the U.S. financial system.
From a compliance standpoint, the case underscores how state-owned institutions can weaponize their sovereign backing in illicit financial flows. It also illustrates how layering with trade misinvoicing, front companies, gold transfer, and false paperwork can be combined to evade detection if enforcement is weak or oversight is compromised.
Geopolitical Pressure and Settlement Strategy
Beyond pure criminal litigation, the Halkbank case has become a diplomatic and strategic flashpoint between Ankara and Washington. As the legal process advances, Turkish authorities have floated settlement proposals, aiming to limit reputational damage and financial exposure while avoiding an acknowledgement of guilt.
During a White House meeting, Turkish officials reportedly proposed a deal around US$100 million, contingent on Halkbank not admitting liability. Whether the U.S. would accept is unclear; previous settlement demands in analogous cases have been far higher. For instance, European banks with sanctions violations have paid multibillion-dollar penalties.
The legal posture also signals a test of state immunity doctrine. By denying Halkbank immunity, the U.S. asserts jurisdiction over a foreign state-owned entity in criminal matters, especially when it leverages the American financial system. As ties between Turkey and the U.S. oscillate, the case has become entangled in diplomacy: coercive leverage, regime signaling, and deterrence messages may all influence final outcomes.
Should Halkbank eventually plead or be found liable, the ramifications transcend mere fines. Such a precedent could open the door to more aggressive cross-border enforcement of AML and sanctions regimes against state-affiliated financial institutions, shifting the risk calculus in global compliance frameworks.
Closing Thoughts on Risk and Precedent
The Halkbank saga represents a landmark turning point in cross-border AML enforcement. It demonstrates that state control does not necessarily shield a financial institution from criminal exposure when it participates in commercial money laundering and sanctions violations. The court rulings have chipped away at immunity doctrines that formerly insulated government entities from accountability in U.S. courts.
From a compliance risk perspective, this underscores the critical need for banks—even state-owned or sovereign-affiliated ones—to maintain robust AML and sanctions controls. The blending of trade mechanisms, gold flows, and inter-jurisdictional transfers in this scheme reflects sophisticated financial crime layering techniques.
On the legal frontier, the evolving doctrine around common law immunity will likely reverberate across future cases involving foreign states, sovereign wealth funds, and similar entities. The Halkbank case may serve as a bellwether: governments must reassess risk, firms must bolster compliance architecture, and enforcement agencies may grow more ambitious in targeting cross-border systemic laundering.
Related Links
- US Supreme Court rejects challenge by Turkey’s Halkbank (Reuters)
- U.S. Supreme Court opinion in Turkiye Halk Bankasi v. United States
- Judicial opinion of the U.S. Court of Appeals for the Second Circuit on Halkbank’s immunity
- Congressional Research Service report on foreign sovereign immunity in criminal proceedings
Other FinCrime Central News About Turkey
- Turkey Empowers Watchdog to Freeze Crypto Accounts in AML Push
- Turkish prosecutors dismantle Can Holding’s laundering web
- Northern Cyprus Casino Boom Drives Criminal Finance Concerns
Source:
Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.
Want to promote your brand, or need some help selecting the right solution or the right advisory firm? Email us at info@fincrimecentral.com; we probably have the right contact for you.
