Arab Bank terror finance trial: How much screening must banks do?

By Alison Frankel
August 8, 2014

Osama Hamdan, the Hamas spokesman who recently refused to retract his claims that Jews kill Christians to bake their blood into matzoh, was an account holder at Arab Bank from 1998 to 2005. His account number was listed on a website associated with Hamas, which the U.S. Treasury Department first designated as a foreign terrorist organization in 1997, and several transfers processed through Hamdan’s account listed Hamas as a beneficiary. During his last two years as an Arab Bank account holder, Hamdan himself was a “specially designated global terrorist,” according to the Treasury Department, which added him and several other Hamas leaders to the rolls in 2003.

Hamas’s founder, Sheikh Ahmed Yassin, was also a customer of Arab Bank. Yassin, whom the U.S. government named a terrorist in 1995, received a $60,000 payment, routed through Arab Bank’s New York operations, in 2001, the same year that the leader of Hamas’s military wing received $110,000 in payments to his Arab Bank account. The bank processed more than $400,000 for yet another prominent Hamas leader, Ismail Haniyeh, who was an Arab Bank account holder from 2000 until 2004, when his account was raided by the Israel Defense Forces. Over the same time period, Hamas claimed credit for sending bombers to blow up restaurants, nightclubs, bus stations and other public sites in Israel.

Is Arab Bank responsible? Should we blame the bank for Hamas’s attacks because it provided banking services to 11 high-ranking members of Hamas and processed so-called “martyr payments” to the families of dozens of suicide bombers?

A first-of-its-kind trial set to begin Monday in federal court in Brooklyn will answer those questions – and every global financial institution that does business in the world’s trouble spots ought to be paying attention. If the Brooklyn jury holds Arab Bank liable, other banks that process dollar transactions through the United States are going to have to reassess their screening procedures lest they too face treble damages to terror victims under the Anti-Terrorism Act.

That’s exactly what the victims suing Arab Bank – more than 250 Americans who were injured or lost relatives in those Hamas bombings in Israel between 2000 and 2004 – are hoping for. Lawyers for the families, including Gary Osen, Tab Turner of Turner & Associates and Michael Elsner of Motley Rice, assert that banks like Arab Bank enable terrorists to pay for supplies and reward killers. Specifically, they argue in this case that by processing payments to and from Hamas leaders and to the families of suicide bombers, Arab Bank made possible Hamas’s campaign of terror between 2000 and 2004. The families’ lawyers acknowledge that they can’t link specific payments from Arab Bank accounts to specific acts of terror, but according to them, Arab Bank officials knew they were dishing out money to terrorists who intended to kill and injure civilians.

The bank, of course, vehemently denies that. In Arab Bank’s formulation of the case, it’s facing liability because it functioned as a global bank processing millions of transactions – and not like an intelligence agency. It contends that its systems for screening payments, which included checking account holders against the terrorist list maintained by the U.S. Treasury’s Office of Foreign Assets Control, were at least as robust as those of other international banks. That $60,000 payment to Sheikh Yassin, for instance, only slipped through because Yassin’s name was spelled differently in his account paperwork than on terrorist lists, according to Arab Bank lawyer Kevin Walsh of DLA Piper at a 2013 summary judgment hearing in the case.

The other Hamas leaders who opened Arab Bank accounts and received payments weren’t designated as terrorists until afterward, Walsh said at the hearing. Hamdan, for example, opened his account years several years before he was personally added to the terrorist roll. According to Arab Bank, once it found out that Hamdan’s account number had appeared on the Palestine Information Center website, it closed the account and reported the incident to regulators. The bank insists that the Hamas leaders who opened accounts before they were designated as terrorists wouldn’t have been flagged under typical bank antiterror compliance programs at that time. “Ismail Haniyeh could have gone to a Citibank in midtown Manhattan and opened an account and not been in violation of U.S. Treasury regulations and law,” he said.

Arab Bank argues that if jurors tag it with liability despite its industry-standard filtering systems, the entire global financial system is vulnerable to claims by American terror victims. “They are suing an international bank that processed automated, electronic fund transfers in accordance with the laws and regulations of the jurisdictions in which it offered commercial services,” the bank insisted in a brief last May.

Nonetheless, the bank is braced to lose. In 2010, after it refused to produce discovery that it said violated bank secrecy laws in Jordan, Lebanon and other countries where it does business, U.S. District Judge Nina Gershon imposed severe sanctions curtailing Arab Bank’s defense. Arab Bank has said the sanctions are tantamount to a judgment against it, but the 2nd U.S. Circuit Court of Appeals denied its petition for a writ of mandamus and, in June, the U.S. Supreme Court refused to hear its appeal. A big chunk of Arab Bank’s evidence on its terror screening processes and how they compare with those of other global banks won’t be presented to jurors, according to a statement from the bank. If that evidence were permitted, the bank said, it would show that Arab Bank merely provided routine banking services and didn’t intend to provide support to terrorists.

“Plaintiffs argue banks should be liable for the millions of routine, automated transactions that they process even when proper compliance requirements are followed and the parties were in good standing at the time,” the bank statement said. “Plaintiffs’ theory, if adopted by the court, would undermine the automated compliance systems that regulators around the world require banks to employ, and create vast uncertainty and risk in the international finance system.”

The victims’ lawyer Osen told me that if this case upends the expectations of global banks, then he’s done well. “In the financial community, there’s a tendency to equate the absence of being on a black list with being on a white list,” he said. Official terrorist designations ought to be considered not a shield for banks but a minimum standard, Osen said, especially because such designations can take years. “This should be about risk and common sense,” Osen told me. “You don’t get to check your common sense just because there’s a list.”

(This post has been updated to add information about Osama Hamdan’s Arab Bank account and to clarify that the website on which his account information appeared was not identified as a Hamas site.)

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