United States v. Türkiye Halk Bankasi A.S.

• Decision Date: 05 December 2019
• Docket Number: S6 15 CR 867 (RMB)
• Parties: UNITED STATES of America, Government, v. TÜRKIYE HALK BANKASI A.S., a/k/a "Halkbank," Defendant.
• Court: U.S. District Court — Southern District of New York

426 F.Supp.3d 23

UNITED STATES of America, Government,

v.TÜRKIYE HALK BANKASI A.S., a/k/a "Halkbank," Defendant.

S6 15 CR 867 (RMB)

United States District Court, S.D. New York.

Signed December 5, 2019

Emil Joseph Bove, III, Michael Dennis Lockard, Sidhardha Kamaraju, David William Denton, Jr., Dean Constantine Sovolos, Jonathan Rebold, United States Attorney's Office, New York, NY, for Government.

DECISION & ORDER

RICHARD M. BERMAN, U.S.D.J.

I. Background

On October 15, 2019, Türkiye Halk Bankasi A.S. ("Halkbank") was charged in a six count Indictment ("Indictment").¹ This Decision & Order resolves the request of Halkbank by its counsel, Andrew Hruska of King & Spalding LLP ("King & Spalding"), to enter a "special appearance" to seek the Court's recusal and to challenge the Court's personal jurisdiction. Halkbank has, so far, refused to appear in court to enter a plea of "guilty" or "not guilty".

Halkbank is a prominent Turkish state-owned bank. The Turkish government owns 51% of Halkbank's stock through the Turkish Wealth Fund. See Portfolio, Turkey Wealth Fund, https://www.nytimes.com/2019/10/15/us/politics/halkbank-turkey-iran-indictment.html. According to the Indictment, "Halkbank and its officers, agents, and co-conspirators directly and indirectly used money service businesses and front companies in Iran, Turkey, the United Arab Emirates, and elsewhere to violate and to evade and avoid prohibitions against Iran's access to the U.S. financial system, restrictions on the use of proceeds of Iranian oil and gas sales, and restrictions on the supply of gold to the Government of Iran and to Iranian entities and persons." Indictment, ¶ 1. This alleged conspiracy has been described as "the largest Iran sanctions violation in United States history." See Eric Lipton, U.S. Indicts Turkish Bank on Charges of Evading Iran Sanctions, N.Y. Times (Oct. 15, 2019), https://www.nytimes.com/2019/10/15/us/politics/halkbank-turkey-iran-indictment.html. According to the U.S. Government, "Halkbank conspired with Turkish government officials; Iranian government officials at [the National Iranian Oil Company], the Ministry of Oil, and the Central Bank of Iran; Iranian banks; and Turkish businessmen, to evade and avoid U.S. sanctions imposed on the Government of Iran for its support for terrorism, its illicit nuclear program, its ballistic missiles development, and its human rights abuses." Gov. Letter, dated Nov. 26, 2019, at 3, ECF No. 578.²

Related Proceedings

Halkbank's involvement in related proceedings predates the Indictment. On January 3, 2018, for example, Halkbank's Deputy General Manager for International Banking and alleged co-conspirator, Mehmet Hakan Atilla ("Atilla"), following a four plus week jury trial, was convicted of five out of six counts which were substantially similar to those alleged in the Indictment. See Judgment, dated May 16, 2018, at 1–2. Atilla was found guilty of conspiracy to defraud the United States; conspiracy to violate the International Emergency Economic Powers Act ("IEEPA") and the Iranian Transactions and Sanctions Regulations; bank fraud; conspiracy to commit bank fraud; and conspiracy to commit money laundering. Id. Evidence adduced at Atilla's trial indicated that other "senior level" officials of Halkbank (and the Turkish government), including Suleyman Aslan, Halkbank's General Manager, were involved in the alleged multi-billion dollar Iran sanctions avoidance scheme. See, e.g., Transcript, dated Nov. 29, 2017, at 364, ECF No. 404.

Halkbank funded Atilla's defense. See Transcript, dated June 12, 2017, at 5–6, ECF No. 269 (Court: "You are aware that your employer, Turkey Halk Bankasi, otherwise known as Halkbank, is paying for your legal fees and expenses in this matter? Do you understand that?" Atilla: "Yes, I know that."). Halkbank initially retained Messrs. Victor J. Rocco, Esq. and Thomas E. Thornhill, Esq. of the law firm Herrick, Feinstein LLP, along with Cathy Fleming, Esq. of Fleming Ruvoldt PLLC, to represent Atilla. See Transcript, dated May 18, 2017, at 3, ECF No. 256 (Court: "You have a retainer agreement between yourself and Mr. Atilla?" Mr. Rocco: "Yes, your Honor." Court: "And does [Atilla] pay your fees?" Mr. Rocco: "My fees are being paid by Halkbank."); Transcript, dated June 12, 2017, at 8–9, ECF No. 269 (Court: "The fact that Halkbank is paying your Fleming Ruvoldt legal fees and expenses as set forth in your retainer agreement with Fleming Ruvoldt, and both you, Mr. Atilla, and Halkbank also signed this retainer agreement; ... [Y]ou realize that?" Atilla: "Your Honor, I first signed with Ms. Fleming, and then after I decided to work with her, we signed the agreement, and after that, it was sent to Halkbank, and Halkbank signed it."). Mr. Rocco and Herrick, Feinstein LLP have also represented the Republic of Turkey in various business transactional deals in the United States. See Transcript, dated April 13, 2017, at 7, ECF No. 220.

On the eve of Atilla's trial, Mr. Hruska, counsel to Halkbank, recruited two additional lawyers to serve as co-counsel to Atilla, namely, Todd Harrison, Esq. and Joseph Evans, Esq., of McDermott, Will & Emery, LLP. See Transcript, dated Nov. 21, 2017, at 13–14, 23–24, 28, ECF No. 500 (Mr. Harrison: "So, as I understand it, Halkbank is currently represented by King & Spalding and, in particular, a partner at King & Spalding named Andrew Hruska.... Mr. Hruska asked me if I would be available to assist on a trial that was coming up very soon that was very complicated.... [Hruska] indicated he had been in communication with the defense team ... So, he asked me if I would join the defense team and I told him I was willing to try and look into it.... Court: "[A]re you [Mr. Atilla] aware that your employer, Halkbank, is paying for your legal fees and expenses in this matter of Mr. Harrison and his firm?" Atilla: "Yes, I am aware of that.... I would like to say that the suggestion about adding the firm of McDermott to my defense case was suggested by Halkbank.... I agree with the strategy, but I would like to include that the suggestions came from Halkbank.").

On May 16, 2018, Atilla was sentenced to 32 months' imprisonment. Judgment, dated May 16, 2018, at 3. Upon Atilla's release from incarceration in the U.S. and his return to Turkey, Turkish Finance Minister Berat Albayrak announced that Atilla had been appointed as the head of Turkey's stock exchange, Borsa Istanbul. See Ayla Jean Yackley, Turkey Picks Former Jailed Banker to Head Istanbul Stock Exchange, Financial Times (Oct. 21, 2019), https://www.ft.com/content/31e25da8-f442-11e9-a79c-bc9acae3b654.

Halkbank's Notice of the Indictment

Immediately following the Indictment, the Court issued a summons ("First Summons") directing Halkbank to appear on October 22, 2019 at 9:15 a.m. for arraignment. See First Summons, dated Oct. 15, 2019, at 1. On October 16, 2019, the Government electronically delivered the First Summons to King & Spalding, who had been representing Halkbank in connection with the U.S. Government's investigation of Halkbank, including in negotiations with the United States Government over a potential fine. See Gov. Letter, dated Nov. 4, 2019, at 1–2, ECF No. 571. According to a letter from Mr. Hruska, dated October 21, 2019, King & Spalding refused to accept service of the Indictment on behalf of Halkbank, stating that "[a]lthough King & Spalding has represented Halkbank in connection with the Department of Justice's prior investigation regarding Halkbank, at no point has King & Spalding been authorized to accept service of a summons or other legal process on behalf of Halkbank, and we have so informed the U.S. Attorney's office." Def. Letter, dated Oct. 21, 2019, at 1, ECF No. 564.

On the same day that the Government delivered the First Summons to King & Spalding, Halkbank published an "Investor Relations Disclosure" on its website, among other things, acknowledging the Indictment and its cooperation with U.S. officials. "This Bank has been informed that the U.S. Attorney's Office for the Southern District of New York, under the U.S. Department of Justice, has taken the decision to engage in due process to prosecute the Bank based on an indictment related to the allegations made during the Atilla trial.... Per our past disclosures on numerous occasions, certain U.S. authorities have been asking Halkbank for records and information pertaining to allegations made during the Atilla trial, which led the Bank to closely cooperate with these authorities and also initiate an independent investigation of its own on a voluntary basis." Gov. Letter, dated Oct. 22, 2019, at 8, ECF No. 565.

Notwithstanding Halkbank's extensive commercial dealings with the U.S. and its recent high level negotiations with the U.S., and coupled with Halkbank's involvement in the Atilla case and its notice of and acknowledgment of the Indictment, Halkbank failed to appear for the scheduled arraignment on October 22, 2019. See Transcript, dated Oct. 22, 2019, at 1, ECF No. 568. On October 23, 2019, the Court issued a finding that "pursuant to Federal Rule of Criminal Procedure 4(c)(3)(D)(ii), which permits service of a summons on an entity not within a judicial district of the United States ‘by any other means that gives notice,’ the Government has properly served the First Summons and the Indictment on Halkbank." Order, dated Oct. 23, 2019, at 3, ECF No. 566 (citing Fed. R. Crim. P. 4(c)(3)(D)(ii) ). The Court also found that Halkbank had "willfully and knowingly disobeyed the Court's order in the First Summons," by failing to appear. Id.

It should be noted that Federal Rule of Criminal Procedure 4 was amended in 2016 to enable the Government more easily to make service upon foreign corporations. See Memorandum from Hon. Reena Raggi, Chair, Advisory Committee on Criminal Rules to Hon. Jeffrey S. Sutton, Chair, Standing Committee on Rules of Practice and Procedure, Judicial Conference of the United States (May 6,...