A Turkish bank defies US law and demands diplomatic immunity
Anyone who has seen “Lethal Weapon 2” will be aware of the tremendous power of diplomatic status when it comes to getting away with crime. Had Danny Glover not been prepared to unilaterally revoke Joss Ackland’s diplomatic immunity by shooting him in the head from 50 yards away while Mel Gibson lay on the ground and grimaced, the apartheid-era South African baddy would have got away scot-free.
And if one crooked diplomat at a U.S.-based consulate could single-handedly create a crime wave in Los Angeles back in 1989, imagine what a whole bank could do these days. Which was why the U.S. Department of Justice acted to stop it from happening.
- “Halkbank, a Turkish financial institution whose majority shareholder is the government of Turkey, willfully engaged in deceptive activities designed to evade U.S. sanctions against Iran,” said FBI Assistant Director-in-Charge William F. Sweeney Jr. back in 2019. “Halkbank illegally facilitated the illicit transfer of billions of dollars to benefit Iran, and for far too long the bank and its leaders willfully deceived the United States to shield their actions from scrutiny. That deception ends today. The FBI will aggressively pursue those who intentionally violate U.S. sanctions laws and attempt to undercut our national security.”
The allegations leveled by the Department of Justice were pretty extraordinary. For years, high-ranking officials in Ankara allegedly conspired with their counterparts in Iran to move billions of dollars’ worth of oil revenue via Halkbank, which retained its correspondent banking relationships in New York, despite stringent U.S. sanctions barring Iranians from accessing dollars.
Considering that a senior Halkbank manager was jailed in New York in 2018 for being involved in precisely these crimes (and another participant had pleaded guilty), it looked like a pretty open and shut case. And considering what’s happened to other financial institutions — yes, BNP Paribas faced a penalty of almost $9 billion — found to have helped Iranians and others access international markets when the American government didn’t want them to, it looked like it could prove expensive for Halkbank.
But not so fast. The Turkish government clearly contains people who are almost as enthusiastic about second-rate, late-eighties buddy cop comedies as I am. It responded to the allegations with all the hammy outrage of Joss Ackland (if not, one hopes, with his dreadful South African accent), pointing out that as a sovereign-owned institution, Halkbank was immune from prosecution.
Fortunately, the U.S. Supreme Court still retains the ability to make some sensible decisions because it was not swayed by this ludicrous defense. Last week, it rejected Halbank’s immunity claim and sent the case back to a lower court, though I’d like to pause to pick out a detail from the case.
- “Halkbank argues that U.S. criminal proceedings against instrumentalities of foreign states would negatively affect national security and foreign policy,” the court ruling notes.
I may not approve of what Halkbank allegedly did, but I am prepared to acknowledge the glorious chutzpah of the bank’s argument that its own immunity from being prosecuted for violating U.S. sanctions was an important contributor to U.S. national security.
The Supreme Court’s decision is a very important one. If state-owned institutions were able to merrily shift as many dollars as they wanted through the American banking system no matter what sanctions were imposed by the federal government simply by virtue of being state-owned, it would make a fairly substantial mockery of U.S. government policy, not to mention basic logic.
- “Adopting the sweeping logic of Petitioner’s arguments falsely equating Halkbank with Türkiye would eliminate the jurisdictional basis for prosecutions of foreign state ‘agents’ and ‘entities’ for fraud, corruption, money laundering, economic espionage, cybercrime, and other serious offenses,” noted this amicus brief submitted to the court.
This tale may not be over, however. Turkish President Recep Tayyip Erdogan has previously said the case is politically motivated and was only brought thanks to the influence of the Gulen network, and has consistently demanded that it be dropped. When Donald Trump was president, his administration appears to have agreed with the Turkish government and intervened at many levels to try to stop prosecutors from persisting with the case against Halkbank. Perhaps (and this is the most benign explanation), the Trump administration was conscious of the need to keep Erdogan onside to allow U.S. forces access to Syria.
With the Ukraine war, and Turkey’s pivotal role as the gatekeeper to the Black Sea, Erdogan now has — if anything — even more influence with Western decision-makers than he did before, and we can be sure he’ll be using it to protect Halkbank. Although Joe Biden doesn’t appear to share Trump’s man-crush on Erdogan, there are realpolitik interests at stake as well as financial ones, on top of the complicated influence of Turkish domestic politics and an upcoming election campaign, all of which give Erdogan even more reason than normal to be obstreperous.
- “In striking contrast to his approach to Russia, Saudi Arabia, and the UAE, Erdogan tends to be far more combative and belligerent with his Western allies. Standing up to them is popular at home. He therefore never misses an opportunity to rail against them,” noted Foreign Affairs earlier this year. “In contrast to his vulnerability on domestic economic issues, foreign policy offers Erdogan various ways to reinforce his leadership at home.”
One benefit (for Erdogan’s government) of Erdogan’s transactional foreign policy has been a large influx of wealthy Russians keen to buy themselves a second passport, thus gaining access to a world otherwise largely closed to them. Demand for Turkish travel documents is healthy, even though Erdogan’s government increased the minimum investment necessary to obtain citizenship to $400,000 from $250,000 last year. Applicants are also coming from places even more worrying than Russia, says one rather alarming story in the London Times.
- “If you want to buy property in Turkey, no one asks the source of money,” said one Istanbul lawyer. “It’s a bit scary: you could have got this money through a terrorist organization, you could be a drug dealer. The information the documents ask for is very limited.”
- “I’ve had North Koreans come to me with their Vanuatu passports saying they want to become Turkish,” said another lawyer. “It’s crazy.”
I know the Department of Justice’s hard-pressed investigators have a lot on their plates right now, and may not fancy picking another fight with Ankara, but could they take a look at this too please?
The passport price is denominated in dollars, after all. Or perhaps the Europeans could look into who exactly is paying for the right to live next to the EU?
Of course, the real high rollers buy themselves a diplomatic passport. But that is a story for another time, though I did describe what I still consider to be the most entertaining example of this practice in “Moneyland” should you crave more of this kind of stuff (although, it’s only fair to warn you in advance that I couldn’t resist the Lethal Weapon 2 references when writing about it then, either).
It’s more bad news for Cypriot professionals, who just can’t seem to stop accidentally doing business with sanctioned oligarchs. I would say it’s a mistake anyone could have made, but actually I’m not sure that it is.
- “Russian investor-turned-propagandist Konstantin Malofeyev was able to shuffle tens of millions of dollars worth of debt between his shell companies with the help of a Cypriot corporate services provider despite being sanctioned by the European Union and the U.S, leaked documents show,” according to this story from the OCCRP.
Malofeyev is a Russian nationalist tycoon often called the “Orthodox oligarch.” He is currently facing an attempt by U.S. prosecutors to confiscate $5 million he once invested in a Texas bank, because nothing says you love your country more than investing in its major geopolitical rival via a Seychelles shell company. According to U.S. prosecutors, he tried to extract the money from the country after he was sanctioned for his alleged role in supporting the annexation of Crimea in 2014. Malofeyev says he did nothing wrong and claims he can’t get any justice in the United States. So instead, he’s going to challenge the U.S. government’s actions in a court in Moscow, which is certainly innovative from a legal point of view.
- “I, as a citizen of Russia, a state with a thousand-year history of justice, will not file a lawsuit in an American court,” Malofeyev said, according to Reuters. “Our laws are designed to protect our rights and I will apply to the competent authorities where I live.”
I used to work for Reuters, and we were always scrupulously neutral in how we wrote stories. We used to get a lot of stick for it, particularly for the policy of never calling anyone a terrorist. But that didn’t mean we didn’t have our own opinions about what we were reporting. I can’t help feeling therefore that there was a little bit of a wink from the Reuters journalist when he wrote the words: “It was not clear whether a ruling in Malofeyev’s favor in a Russian court would have any impact on the U.S. case.” It would take more chutzpah than even Halkbank’s lawyers possess to argue that it would, and I fear Mr. Malofeyev may struggle to get what he considers to be justice.
Perhaps he should have thought about this before he decided to invest his money in the United States and thus take advantage of its rule of law, openness to foreign investment and dynamic economy. Still, it’s always easy to be wise with hindsight.
Another man who may be questioning his past decisions is the former Fox News producer who helped Malofeyev set up his TV channel and who now faces federal charges of his own. In a Turkish connection, Malofeyev’s channel is called Tsargrad, which is what the Russians once called Istanbul.
WHAT I’M READING
It’s a bit of a short newsletter this week, I’m afraid, since I’m on the road and don’t have as much time as I’d like. But your loss is my gain, since all the travel has given me the chance to read my advance copy of Tom Parfitt’s “High Caucasus: A Mountain Quest in Russia’s Haunted Hinterland.” Parfitt is one of the most insightful Moscow-based journalists of my generation, with a determination to get behind the headlines, to get mud on his feet and fresh air in his lungs. Like me, he became obsessed with the delights and difficulties of the Caucasus mountains. This book is the story of a walk from the Black Sea to the Caspian Sea, which he undertook in 2008, like a modern-day Patrick Leigh Fermor (but mercifully without the purple prose). It’s very good.