Court Rejects Attempt by Halkbank to Enter “Special Appearance” Contesting Jurisdiction
Turkish state-owned bank Halkbank’s efforts to avoid appearing in U.S. federal court for arraignment were squashed recently in a twenty-seven-page opinion issued by the Honorable Richard M. Berman of the U.S. District Court in the Southern District of New York. The Court made clear that for a foreign entity to challenge personal jurisdiction in a criminal case, it must first accept service of the indictment against it, appear in court, and enter a plea. This outcome differs from civil cases, in which defendants challenging personal jurisdiction can and in fact must enter a “special appearance” challenging (only) personal jurisdiction, lest they be deemed as potentially having waived the issue and accepted the jurisdiction of the court.
As we previously blogged, on October 15, 2019, the U.S. Attorney for the Southern District of New York charged Halkbank with money laundering, bank fraud, and sanctions offenses under the International Emergency Economic Powers Act, or IEEPA, arising from the bank’s alleged involvement in a multibillion-dollar scheme to evade U.S. sanctions regarding Iran. This indictment follows the 2018 conviction of its former Deputy General Manager for International Banking after a lengthy jury trial that also implicated other senior-level officials at Halkbank. The Court then issued a summons directing Halkbank to appear for arraignment on October 22, 2019, and served the summons on the law firm that had represented Halkbank in connection with the DOJ investigation of the bank.
As we will discuss, the Court’s opinion is strongly worded, and sends a definite message to foreign defendants with limited nexus to the U.S. that they still will have to appear in U.S. court to litigate jurisdiction and their claimed lack of ties to the U.S. As we have blogged, the Department of Justice is charging foreign defendants with increasing frequency based on alleged misconduct occurring entirely outside of the U.S. — often predicating jurisdiction upon incidental financial transactions flowing through New York, often through correspondent bank accounts. Further, the consequences of the ruling against Halkbank might be felt more keenly by some individual defendants, who — unlike entities — are subject to pretrial detention once they physically appear in the U.S.
The day before the first scheduled arraignment, counsel for the bank wrote to the Court indicating that the firm “at no point” had been authorized to accept service on behalf of Halkbank. After Halkbank failed to appear at the arraignment, the Court issued a finding that, pursuant to Federal Rule of Criminal Procedure 4(c)(3)(D)(ii), the Government properly had served Halkbank by “any other means that gives notice” by providing the summons to Halkbank’s counsel. The Court also found that Halkbank had “willfully and knowingly disobeyed the Court’s order.” The Court issued a second summons directing Halkbank to appear for arraignment on November 5, 2019.
On November 4, 2019 (again, one day before the scheduled arraignment), counsel wrote the Court – this time indicating: “Halkbank has retained us to represent it in the above-referenced matter for a limited purpose, and we do not concede the acceptance of service nor enter a general appearance on behalf of Halkbank by submitting this request.” Specifically, Halkbank sought leave to enter a “limited and special appearance for the purpose of filing a motion to dismiss for lack of personal jurisdiction and a motion seeking this Court’s recusal from this case.” Halkbank also argued that the Court’s impartiality was in question because of statements made by the judge “both in and out of the courtroom.” It further argued that where a criminal defendant seeks to resolve threshold issues of jurisdiction and recusal, courts “routinely grant” requests of counsel to enter a special appearance. At oral argument, counsel emphasized that Halkbank did not retain him to challenge service of process, but did contend that appearing in court could be construed as waiver of its jurisdictional arguments. Following oral argument, counsel submitted supplemental briefing on the merits of Halkbank’s arguments.
Nothing “Special” Regarding the Bank’s Appearance
In its twenty-seven-page opinion, the court held (and emphasized): “the Court denies Halkbank’s request to enter a ‘special appearance.’ Following arraignment and consistent with this Decision & Order, Halkbank may file a motion for the Court’s recusal and/or relating to the Court’s jurisdiction.” (emphasis in original).
Half of the Court’s opinion outlined the factual background of Halkbank’s interactions with the court—notably, that the law firm had represented Halkbank throughout the previous criminal prosecutions of its employee, Halkbank funded its employee’s legal defense through conviction, and counsel on behalf of Halkbank recruited lawyers to serve as the employee’s counsel for trial. The Court spent four pages detailing evidence of Halkbank’s notice of the first and second summons directing it to appear for arraignment, and concluded: “There can be no doubt that Halkbank was notified of the charges against it.”
At the outset of its analysis, the Court noted that Halkbank’s decision not to challenge service of process was a “surprising” approach—remarking that “service of process (notice) is linked directly to the issue of personal jurisdiction.” After summarizing the defense’s “disparate” jurisdictional arguments, the Court held that Halkbank could assert these arguments “following arraignment.”
Next, the Court observed that special appearances of counsel “are not properly entertained in criminal cases.” Calling back to the mere two cases cited in counsel’s November 4 letter, the Court stated: “There is good reason for the paucity of cases supporting Halkbank’s application. Simply stated, it is improper to make a personal jurisdiction motion based upon the absence of minimum U.S. contacts in a criminal case.” The Court took it a step further, dedicating a four-page section of its opinion to fall under the heading titled “Halkbank’s Authorities Are Not At All Compelling.” The Court further found that Halkbank would not be prejudiced by the denial of its motions for leave because indeed, Halkbank was entitled to assert these challenges – after getting arraigned.
Lastly, the Court noted that, had it been compelled to reach the issue, “it would almost certainly render Halkbank a fugitive.” Quoting a Sixth Circuit decision from this year, United States v. Martirossian, the Court warned: “Federal courts do not play ‘catch me if you can.’ If a defendant refuses to show up to answer an indictment[,] the court may decline to resolve any objections to the indictment in its absence.” (alternations omitted). The Court further clarified that a corporate defendant can, indeed, be deemed a fugitive—as could the fugitive disentitlement doctrine.
The district court’s decision — as well as the tone of the decision — serves as a warning not only to Halkbank as it proceeds forward in the S.D.N.Y., but to all other foreign defendants — corporate or individual — hauled into U.S. federal court. Issues of jurisdiction in criminal cases — which are increasingly international in scope — must be litigated only after arraignment.
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.