NEW YORK, Feb 28 (Reuters) - Turkey's Halkbank drew skepticism from a U.S. appeals court panel on Wednesday, as the state-owned lender renewed its push to escape U.S. criminal charges that it helped Iran evade American sanctions.

Arguing before the 2nd U.S. Circuit Court of Appeals in Manhattan, a lawyer for Halkbank said the bank was entitled to immunity under common law principles that date back more than two centuries, warranting the dismissal of the U.S. indictment.

But a Department of Justice lawyer told the three-judge panel it was up to the White House to decide when bringing charges was consistent with U.S. foreign policy.

Circuit Judge Joseph Bianco appeared to agree, telling Halkbank's lawyer John Williams that courts normally defer to the executive branch on foreign relations.

"How embarrassing is it that when something overtly affects the United States and is damaging our national security, that courts step in and tell the executive, 'Sorry, you can't act there,'" Bianco said.

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 then cash to benefit Iranian interests, and documented fake food shipments to justify transfers of oil proceeds.

Halkbank has pleaded not guilty to bank fraud, money laundering and conspiracy. Its case also complicated U.S.-Turkey relations, with Turkish President Tayyip Erdogan calling the U.S. charges an "unlawful, ugly" step.

'NEW GROUND'

In 2021, the 2nd Circuit said Halkbank could be prosecuted under the federal Foreign Sovereign Immunities Act because its alleged misconduct involved commercial activity that the 1976 law did not cover.

Last April, the U.S. Supreme Court agreed, saying Congress' desire to shield foreign countries and their instrumentalities from civil liability did not cover criminal cases.

But in a 7-2 decision, the justices said the 2nd Circuit should more fully consider whether common law immunity separately shielded Halkbank.

Williams, the Halkbank lawyer, said "numerous holdings of cases around the world" supported immunity, but Bianco suggested that only a 2004 case from France might be clearly on point.

"Isn't that the only case, the French case, in the history of the world?" he said. "This is new ground."

Michael Lockard, the Justice Department lawyer, said Halkbank's involvement in an "integrated comprehensive scheme" to evade sanctions should not be excused.

"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 did not say when it will rule.

The case is U.S. v. Halkbank, 2nd U.S. Circuit Court of Appeals, No. 20-03499. (Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot)