A Manhattan federal judge on Thursday denied King & Spalding's request to enter a special appearance to challenge a criminal case against Halkbank, the Turkish state-run bank accused of helping Iran evade U.S. economic sanctions in a massive alleged money-laundering scheme.

U.S. District Judge Richard M. Berman of the the Southern District of New York said in a 27-page ruling that he "almost certainly" would have concluded that Halkbank was a fugitive after it failed to respond to an Oct. 15 indictment charging six counts of fraud, money laundering and sanctions offenses. However, such a finding was unnecessary given his ruling.

King & Spalding partner Andrew Hruska, who had previously represented Halkbank in a Department of Justice probe, confirmed in November that the bank refused to accept service of the indictment, but said that Halkbank had hired his firm only to challenge the court's jurisdiction and to request that Berman remove himself from the case.

During a hearing last month, Berman said he was "not convinced" by Halkbank's position, and repeatedly pressed Hruska on the basis for the request, at one point asking, "why would any court do that, and why does that make any sense?"

The U.S. Attorney's Office for the Southern District opposed the motion and countered that it was nothing more than a delay tactic, tainted by an "air of gamesmanship." Berman reserved a ruling at the time and asked the parties to file additional submissions.

On Thursday, Berman said there was no precedent to support Halkbank's contention that special appearances were appropriate in criminal cases. He added that the bank would still be able to raise its jurisdictional challenge and recusal motion after it enters an appearance in the case.

"If Halkbank wishes the district court to decide its jurisdictional motion, this international bank holds the key to unlock its dilemma: travel to New York and answer the charges or have its legal counsel do so," Berman wrote.

In a statement, King & Spalding said it disagreed with the ruling on the firm's motion, which "would have allowed the bank to challenge the court's jurisdiction without waiving its rights."

"We will carefully review the ruling with our client and consider our legal options," the firm said.

Southern District prosecutors have alleged that Halkbank, which is majority-owned by the Turkish government, used a series of money service businesses and front companies in Iran, Turkey and the United Arab Emirates to transfer billions of dollars worth of Iranian oil revenue in violation of prohibitions barring Iran from accessing the U.S. financial system.

High-ranking officials in Iran and Turkey allegedly participated in the scheme, and some officials took tens of millions of dollars in bribes to shield it from the scrutiny of U.S. regulators and banks, prosecutors said.

In total, nine defendants have been charged, including Reza Zarrab, the Turkish-Iranian gold deal who pleaded guilty and later testified against Mehmet Hakan Atilla, a top Halkbank executive who was sentenced to 32 months in prison after a federal jury convicted him on five counts of conspiracy, money laundering and related counts.

Berman said the arrests of Zarrab and Atilla kicked off an "extraordinary, sustained" campaign by Turkish officials to persuade U.S. leaders, lobbyists and attorneys to secure Zarrab's release ahead of trial.

In a footnote, Berman said that Rudy Giuliani, the former New York City mayor and Manhattan U.S. Attorney, and Michael B. Mukasey, a former chief judge of the Southern District, both acted on Zarrab's behalf, and that President Donald Trump, former Vice President Joe Biden and former U.S. Attorney General Loretta Lynch and others had been on the "receiving end" of the overtures.

"More recently," he said, "the objective of the campaign, following the conviction of Mr. Atilla on January 3, 2018, appears to have been to avoid Halkbank being indicted and, relatedly, to avoid Halkbank having to pay a potential fine."

"This effort appears to have failed prior to the Halkbank indictment on October 15, 2019," Berman said.

Halkbank, for its part, has refused to acknowledge the Southern District's jurisdiction, and the bank's legal team charted the unusual course of trying to seek Berman's recusal and to have the case dismissed on procedural grounds.

In a recent filing, Hruska argued that "as a corporation, Halkbank cannot be a fugitive since it has no physical body to present and can appear before the court only through representatives such as its legal counsel."

Berman, however, on Thursday called that position "unavailing and unsupported," noting that Congress had "explicitly authorized the applicability of the fugitive disentitlement doctrine to corporations."

Given his findings, with regard to the special appearance, Berman said it was not necessary to reach the question of whether Halkbank was in fact a fugitive, but left little doubt as to how he would have ruled.

"If the Court were to reach this issue, it would almost certainly conclude that the fugitive disentitlement doctrine applies and that the doctrine's principles would render Halkbank a fugitive," he said.

 

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