Turkish banks are taking a beating in American courts. First, a federal judge in the Southern District of New York (SDNY) refused to dismiss an indictment accusing Halkbank, majority-owned by the Turkish government, of helping Iran bust sanctions. Less than three weeks later, another SDNY judge ruled to move forward with a landmark case against Turkey's Kuveyt Turk Bank for aiding and abetting the Palestinian terrorist group Hamas.
These milestone rulings make it crystal clear that Turkey has a terrorism and illicit finance problem, and it could soon pay a steep price. They should also serve as a wakeup call for international financial institutions: banks may no longer be able to hide behind sovereign immunity.
Kuveyt Turk, which counts the Turkish government as a shareholder, has been in hot water since September 2019. The bank could be on the hook for compensatory damages stemming from the bank's role in financing Hamas's terrorist attacks. The plaintiffs are surviving family members of Eitam Henkin and his Israeli wife Naama Henkin, who were brutally killed by Hamas in 2015. The family's attorneys argue that the bank is subject to jurisdiction in New York for allegedly using its correspondent bank accounts to facilitate US dollar denominated funds that benefited Hamas. The Henkin children also filed a lawsuit against Iran and Syria in April 2019. Unlike Turkey, which is a NATO member, Iran and Syria are both labeled States Sponsors of Terror by the State Department, with a long record of supporting Hamas.
The Henkins are not the first to target Kuveyt Turk Bank for terrorism finance. In 2016, the California nonprofit St. Francis of Assisi filed a complaint in the Northern District of California against Kuwait Finance House and its subsidiary Kuveyt Turk Bank for allowing donations destined for ISIS to transit their accounts. A federal judge ultimately dismissed the case after the plaintiff failed to identify anyone with ties to the United States who suffered harm.
In the latest Kuveyt Turk Bank case, however, the judge ruled that Naama Henkin's estate and the four children, none of whom are US nationals, could proceed as plaintiffs pursuant to the Justice for United States Victims of State Sponsored Terrorism Act. The case is a legal game-changer. It will now proceed to discovery, mandating the production of documents by the bank and depositions of bank witnesses. This will produce additional evidence to determine whether the bank directly or indirectly provided material support to Hamas.
Turkey's second-largest public lender Halkbank is facing a similar situation. In their October 2019 indictment of Halkbank, Southern District attorneys charged the bank with "fraud, money laundering and sanctions offenses," claiming that Halkbank and its executives aided Turkish-Iranian gold trader Reza Zarrab in a "multi-billion dollar scheme to circumvent U.S. sanctions on Iran." According to the prosecutors, Halkbank and its executives "illicitly transferred approximately $20 billion worth of otherwise restricted Iranian funds."
The lender's role in Iran's sanctions-evasion schemes grabbed headlines in September after the Organized Crime and Corruption Reporting Network published a series of exposés proving that Iran's illicit financial machinations involving Turkey "started earlier, lasted longer, extended further, and involved more people and countries" than previously believed. In 2018, a federal jury found Halkbank's then-deputy general manager Mehmet Hakan Atilla guilty of sanctions evasion, bank fraud, and obstructing the actions of the Treasury Department, earning him a 32-month sentence.
For almost five years, the Turkish government and Halkbank have waged a campaign to scuttle the case. Turkish President Recep Tayyip Erdogan, who was personally implicated in the sanctions-busting efforts, reportedly tried to pressure President Donald Trump and his administration not only to drop the case against Halkbank, but also to grant immunity to suspected criminals. This approach succeeded in stalling the prosecution for almost two years, but ultimately failed when US authorities leveled charges last October.
In both cases, the Foreign Sovereign Immunities Act failed to grant immunity to the banks. This is a significant development in the world of illicit finance that could pave the way for new complaints by victims of terrorism the world over. It should serve as a wakeup call for financial institutions around the world – especially those that do business with banks in Turkey.
Aykan Erdemir, a former Turkish parliamentarian, is senior director of the Turkey program at Foundation for Defense of Democracies, where Jonathan Schanzer, a former t