New ruling puts Bank Hapoalim in hot seat in terror finance case

February 14, 2014

Israel’s Bank Hapoalim is going to have to do some explaining about 16 wire transfers that originated at Hapoalim branches in Israel and ended with $266,000 in the Bank of China accounts of the alleged leader of a group called the Palestinian Islamic Jihad. On Thursday, U.S. District Judge Shira Scheindlin of Manhattan ruled that Bank of China, as the defendant in a politically charged suit brought by the family of the victim of a 2006 bombing in Tel Aviv, is entitled to depose a witness from Bank Hapoalim, despite the Israeli bank’s arguments that the testimony would violate Israel’s bank secrecy laws.

Scheindlin’s ruling effectively reverses a previous decision by U.S. Magistrate Judge Gabriel Gorenstein, who held last October that, as a matter of procedure, he could not require Hapoalim, as a third party in the case, to produce a witness from beyond the 100-mile reach of his jurisdiction. In Thursday’s opinion, Scheindlin noted that after Gorenstein’s decision, the procedural rules changed and Bank of China’s lawyers at Patton Boggs narrowed their demand for information from the Israeli bank. So rather than focus on the 100-mile subpoena limit, she weighed the merits of Bank of China’s subpoena request against Bank Hapoalim’s opposition. She concluded that the Chinese bank deserves to hear crucial information Hapoalim can supply about the Israeli government’s efforts to block financing to the alleged Palestinian Islamic Jihad leader, Said al-Shurafa.

That testimony, Scheindlin said, would help solve a central mystery of this case. The family of Daniel Wultz, who died in the bombing in Tel Aviv, contends that Israeli counterterrorism officials warned the Chinese government at a meeting in Beijing in 2005 that Shurafa was using his accounts at Bank of China to facilitate the militant group’s activities. According to the Wultzes’ lawyers at Boies, Schiller & Flexner, that warning should have put the Chinese Bank on notice about Shurafa. But the Wultzes have struggled to produce evidence of what Israeli officials said at the 2005 session in Beijing. The family has asserted that the government of Prime Minister Benjamin Netanyahu originally encouraged the suit against Bank of China, but as Israel’s ties to China have deepened, Israel has actively blocked testimony from former official Uzi Shaya, who supposedly attended the 2005 meeting with the Chinese government.

Bank of China, meanwhile, claims that it was never alerted to Israeli suspicious about Shurafa. It argued in briefing to Magistrate Judge Gorenstein and Judge Scheindlin that it needs to know whether Hapoalim received any such warnings about Shurafa from the Israeli government, and, if so, why the Israeli bank nevertheless originated 16 wire transfers, totaling $266,100, to him between 2004 and 2007. As Scheindlin explained in Thursday’s ruling, “If BOC can establish through Hapoalim’s testimony that the Israeli government did not warn its own bank about Shurafa, a jury could reasonably infer that Israel did not provide such a warning to Chinese regulators.” Information about what Hapoalim was told clearly isn’t coming from the Israeli government, Scheindlin said, so Hapoalim is Bank of China’s only possible source.

Hapoalim’s lawyers at Herrick Feinstein had argued not only that the subpoena was unenforceable because all knowledgeable witnesses from the bank are in Israel, not in the bank’s New York offices, but also that at least three different Israeli laws prohibit the testimony sought by Bank of China. Herrick cited a 2009 decision by U.S. Magistrate Judge Victor Pohorelsky of Brooklyn, who restricted a third-party subpoena for Hapoalim documents in a terror financing case against Arab Bank, holding that international comity required him to defer to Israeli confidentiality laws.

Scheindlin rejected both Hapoalim defenses. She concluded first that Hapoalim’s designated witness in Israel could either take some time to educate someone in the New York office or could testify by videoconference, a solution Bank of China has already agreed to accept. On the more substantive defense of international comity, the judge agreed that there is a conflict between U.S. law and some of Israel’s anti-terror financing and bank secrecy statutes. But when she applied the multiprong international comity test, she found that more factors weighed in Bank of China’s favor. The Arab Bank precedent, she said, wasn’t conclusive because in that case, Arab Bank was asking for generalized information. Here, according to Scheindlin, Bank of China wants specific information about the circumstances of 16 particular wire transfers.

“While Hapoalim is certainly not accused of any wrongdoing, its role in the chronology of events is much more relevant to the various fact issues in this case than in (Arab Bank),” she wrote. “Hapoalim’s documents and testimony are directly relevant to the claims and defenses. Hapoalim originated 16 wire transfers to Shurafa’s accounts during the time period in question. The existence of these specific transactions alone is sufficient to distinguish (Arab Bank).”

In two letters entered in the docket of this case, Scheindlin herself has gently attempted to pin down the Israeli government on a timetable for answers about what the government told China about Shurafa and the Palestinian Islamic Jihad. I have a feeling that Bank of China isn’t the only one looking forward to Hapoalim’s testimony.

I left messages with Wultz family counsel Lee Wolosky of Boies Schiller, Hapoalim lawyer Carol Goodman of Herrick, and Bank of China counsel Mitchell Berger of Patton Boggs. None got back to me.

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