NEW YORK, Oct 22 (Reuters) - A U.S. appeals court on

Tuesday said the federal government may prosecute Turkey's

Halkbank on charges it helped Iran evade American

sanctions, rejecting the state-owned lender's argument that it

deserved immunity.

In a 3-0 decision, the 2nd U.S. Circuit Court of Appeals

found no basis under centuries-old common law principles for

foreign state-owned companies to be absolutely immune from U.S.

prosecution related to commercial, nongovernmental activities.

Circuit Judge Joseph Bianco said the Manhattan-based appeals

court should defer to the executive branch's determination that

the U.S. Department of Justice could prosecute Halkbank.

"Although certain prior cases extended immunity to

state-owned corporations based on their governmental conduct,

the common law places no independent bar on the prosecution of

such corporations for their commercial activity," he wrote.

He also wrote that a decision to prosecute foreign

state-owned companies such as Halkbank, rather than impose

tariffs or deny military aid to their state sponsors, "is not

one for the judiciary to second guess."

In response, Halkbank said in a statement to the Istanbul

stock exchange: "Our Bank will use all its legal rights to

appeal with regard to the October 22, 2024 decision of the

Second Circuit, particularly with the U.S. Supreme Court."

A spokesman for U.S. Attorney Damian Williams in

Manhattan declined to comment on the court's decision.

The appeals court panel was considering the case for the

second time, following a related April 2023 decision by the U.S.

Supreme Court.

U.S. prosecutors charged Halkbank in 2019 over its alleged

use of money servicers and front companies in Iran, Turkey and

the United Arab Emirates to evade sanctions.

Prosecutors said Halkbank helped Iran secretly transfer $20

billion of restricted funds, converted oil revenue into gold and

cash to benefit Iranian interests, and documented fake food

shipments to justify transfers of oil proceeds.

Halkbank pleaded not guilty to bank fraud, money laundering

and conspiracy. The case became a thorn in

U.S.-Turkey relations, with Turkish President Tayyip Erdogan

calling the U.S. charges an "unlawful, ugly" step.

'UNPRECEDENTED'

In 2021, the appeals court had concluded Halkbank could be

prosecuted under the federal Foreign Sovereign Immunities Act of

1976 because its alleged misconduct involved commercial activity

not covered by that law.

The Supreme Court later agreed that Congress' desire to

shield foreign countries and their instrumentalities from civil

liability did not cover criminal cases.

But in a 7-2 decision, the high court said the 2nd Circuit

should more fully review whether common law immunity shielded

Halkbank.

The bank's arguments included that the case concerned

"diplomatic activity" because it included a charge based on

Halkbank's alleged misrepresentations to U.S. Treasury officials

about its sanctions compliance.

During oral arguments on Feb. 28, Justice Department lawyer

Michael Lockard said that was no reason to excuse Halkbank.

"For a foreign commercial bank, one that is majority owned

by the state of Turkey, to launder billions and billions of

dollars (to benefit Iran), to deceive banks, to lie to U.S.

Treasury officials, that conduct is unprecedented," he said.

The appeals court returned the case to U.S. District Judge

Richard Berman in Manhattan. He ruled on different grounds in

2020 that Halkbank did not deserve immunity.

The case is U.S. v. Halkbank, 2nd U.S. Circuit Court of

Appeals, No. 20-03499.