A US appeals court on Friday rejected Halkbank's bid to dismiss an indictment accusing the state-owned Turkish lender of helping Iran evade American sanctions.

The 2nd US Circuit Court of Appeals said even if the Foreign Sovereign Immunities Act shielded the bank, the charge against Halkbank falls under the commercial activity exception.

Prosecutors accused Halkbank of converting oil revenue into gold and then cash to benefit Iranian interests and documenting fake food shipments to justify transfers of oil proceeds.

They also said Halkbank helped Iran secretly transfer $20 billion of restricted funds, with at least $1 billion laundered through the US financial system during international sanctions from 2011-2015.

Halkbank has pleaded not guilty to bank fraud, money laundering and conspiracy charges over its alleged use of money servicers and front companies in Iran, Turkey and the United Arab Emirates to evade sanctions.

The bank had argued that it is immune from prosecution under the federal Foreign Sovereign Immunities Act because it was "synonymous" with Turkey, which has immunity under that law.

Halkbank had been appealing an Oct. 1 ruling by US District Judge Richard Berman allowing it to be prosecuted.

Berman has overseen several related cases, including the conviction of a former Halkbank executive and a guilty plea by Turkish-Iranian gold trader Reza Zarrab.

Halkbank's case has complicated US-Turkish relations, with President Tayyip Erdogan backing Halkbank's innocence in a 2018 memo to then-US President Donald Trump.

Reporting by Reuters