Opinion

Alison Frankel

Israel’s conflicted role in Bank of China terror finance case

By Alison Frankel
August 11, 2014

Last Thursday, U.S. District Judge Shira Scheindlin of Manhattan refused to reconsider her previous decision to block American terror victims suing the Bank of China from deposing a former Israeli counterterrorism agent. The former operative, Uzi Shaya, was expected to testify that Israel counterterrorism experts met with Chinese government officials in April 2005 to warn them that Hamas and Palestine Islamic Jihad were using Bank of China accounts to launder money and finance attacks on civilians in Israel. Bank of China has denied any knowledge of those supposed warnings, and without a live witness to confirm what happened at the 2005 meetings, victims of the attacks will have a much tougher time proving their case against the Chinese bank.

It wasn’t Bank of China that stopped Shaya’s testimony, however. It was Israel.

The Israeli government fought for eight months to squelch the deposition of its former official, even though, according to U.S. and Israeli lawyers for the victims, Israel was prepared to permit Shaya’s testimony as recently as March 2013. The victims’ lawyers claim that the suits against Bank of China would never have been filed had Israel not promised to support the litigation – that, in fact, Israel considered U.S. litigation under the U.S. Anti-Terrorism Act an indispensable element of its national security campaign to choke off terror financing. According to the victims, the Israeli government supplied the specific information about Bank of China transactions that is the backbone of their case.

So why did Israel change its mind about supporting the Bank of China litigation? Israel’s motion to quash a subpoena for Shaya’s deposition said that the government had determined its national security interests are best served by keeping secret the details of its counterterrorism efforts. But as Reuters noted in November, Israeli media has been reporting since last fall that the Chinese government, which has significant economic ties to Israel, pressured prime minister Benjamin Netanyahu to squelch Shaya’s deposition.

Filings in the litigation over the Shaya deposition add significantly to those previous reports, amplifying the record on Israel’s initial support for the Bank of China litigation and its more recent decision to handicap the cases. The filings detail Israel’s novel tactic of using U.S. litigation to advance its national security objectives: After Israeli diplomacy couldn’t convince the Chinese to shut down suspicious accounts, Israeli operatives, according to the plaintiffs’ briefs, fed hard-won intelligence about alleged Bank of China terrorist accounts to private lawyers, with the express intention of prompting American victims to sue the bank. High-ranking Israeli officials personally assured some of the victims’ families that private U.S. litigation was in Israel’s national security interest. Yet when the country’s strategy changed, Israel walked away from the litigation.

The genesis of the Bank of China cases was meetings in 2005 between Israeli officials and a private Israeli lawyer named Nitsana Darshan-Leitner, whose firm, the Israel Law Center, represents both Israeli and American victims of militant attacks. According to a brief by the Berkman Law Office and Cadwalader, Wickersham & Taft, which represent most of the U.S. plaintiffs suing Bank of China, government officials associated with Israel’s “Harpoon” operation to curtail terror financing provided Darshan-Leitner with Bank of China transaction records involving funds moved in to and out of accounts held by suspected members of militant cells. That information, according to the brief, wouldn’t have been available to private lawyers unless Israeli operatives had supplied it. Even after the Israeli government turned over Bank of China records, though, Darshan-Leitner supposedly insisted that she wouldn’t file a suit for victims in the United States unless Israel continued to cooperate, according to the brief.

In 2006, a 16-year-old Floridian named Daniel Wultz was killed in a Palestine Islamic Jihad bombing at a bus stop in Tel Aviv. In 2007, according to a declaration by Wultz’s father, Yekutiel – a former Israeli soldier who was injured in the attack that killed his son – Israeli officials urged him, his wife and their lawyers to sue Bank of China over the bombing. Like the Israeli lawyer Darshan-Leitner, Wultz said he wouldn’t have gone forward with a case if it hadn’t been for the Israeli government’s encouragement.

For a long time, Israel stayed true to its promise to support U.S. litigation against Bank of China, the Wultz family’s lawyers at Boies, Schiller & Flexner said in a brief filed last December. It was Israel, for instance, that proposed Uzi Shaya as a witness who could testify about counterintelligence meetings with the Chinese government in 2005. And when Bank of China moved to dismiss claims against it in 2009, Israel approved a declaration from another counterterrorism official who offered a secondhand account of the meetings.

In 2012, Daniel Wultz’s parents wrote to Netanyahu about Shaya’s proposed deposition. After a U.S. congresswoman hand-delivered the letter to the prime minister, the Wultzes received a reassuring telephone call from a Netanyahu representative, who said preparations for Shaya’s testimony were under way, according to Yekutiel Wultz’s declaration. Shaya himself said in two letters to lawyers for the Wultzes and other U.S. plaintiffs in 2013 that he wanted to testify, although he cautioned that Israeli law required the assent of the government. Darshan-Leitner, on behalf of most of the U.S. plaintiffs suing Bank of China, allegedly negotiated an agreement with Israel’s National Security Council, setting the terms for Shaya’s testimony.

But in mid-2013, Shaya began to doubt that he would obtain the necessary government permission. He met with both Yekutiel Wultz and his wife, Sheryl, in Israel in May. “He said there was tremendous and mounting pressure from the Chinese government on the government of Israel to prevent him from testifying against Bank of China,” Yekutiel said in his declaration in the litigation over Shaya’s testimony. Sheryl said in her sworn statement that Shaya told her Netanyahu didn’t want to jeopardize a much-ballyhooed state visit to Beijing. “The trip was conditioned on Mr. Shaya not testifying,” Sheryl Wultz said. She also said Shaya told her that Israel had cut off his access to files he would have needed to testify in the Bank of China case.

Yekutiel Wultz said that in June 2013, he called Israel’s then National Security Advisor Yaakov Amidror, on an open cellphone line. Amidror told him that Bank of China had promised to crack down on suspicious accounts, according to Wultz’s declaration. Wultz said it would still be “a catastrophe” if Israel blocked Shaya from testifying and let an alleged terror financier avoid accountability. Amidror supposedly told Wultz that he was “preaching to the choir,” and said that he’d like to bring Wultz to Israel “so Prime Minister Netanyahu could look me in the eye and explain to me why Mr. Shaya may not be allowed to testify.” The former head of Israeli intelligence, Meir Dagan, also supposedly told Wultz that he wanted Shaya to be permitted to testify when Dagan met with Wultz in Israel in November 2013.

By then the Wultzes’ lawyers had formally subpoenaed Shaya during the former agent’s trip to Washington in September 2013. Israel moved to quash the subpoena in November, touching off the litigation that illuminated what the Wultzes’ lawyers have called Israel’s “sudden about-face.” Their initial response to Israel’s quash motion, as well as the response by the other plaintiffs suing Bank of China, who intervened in the litigation over the subpoena, attributed Israel’s change of heart to Netanyahu’s insistence on placating the Chinese government. In reply, Israel’s lawyers at Arnold & Porter said that the government disputed the plaintiffs’ account, but that it wasn’t going to engage in a point-by-point rebuttal.

“Israel can neither confirm nor rebut plaintiffs’ narrative without risking disclosure of the very information this motion seeks to protect,” the Israeli brief said. “Even the attempt to navigate through classified information, to draw lines between what can and cannot be discussed, would itself convey information potentially harmful to Israel’s national security.” (Foreign governments, of course, have a sovereign right in U.S. courts to protect their national security.)

The divide between Israel and the Bank of China plaintiffs deepened when Boies Schiller tried to get around a court-ordered stay on Shaya’s deposition, requesting in April that the former intelligence official appear voluntarily to testify about events after he left government service in 2007. Boies Schiller subsequently accused Israel in June of summoning Shaya for questioning and threatening to jail him if he attempted to meet with the Wultzes’ lawyers. According to Boies Schiller, it was no coincidence that at the same time Shaya was threatened, Israel was engaged in high-profile economic talks with the Chinese government.

Israel responded angrily that Shaya was never threatened, merely reminded of his obligations under Israeli law to protect the country’s security interests. Nor had China anything to do with the meeting, Israel said. “Plaintiffs offer no evidentiary basis for the inflammatory and offensive assertion that Israel took this action ‘at the urging of the Bank of China and the People’s Republic of China,’” Israel’s brief said. “Plaintiffs’ allegation is not only unsubstantiated, it is false. Israel did not meet with (Shaya) at the behest of the Bank of China or the Chinese government; rather Israeli law enforcement officers ascertained a credible risk that Israeli law would be infringed and that sensitive national security information of the State of Israel would be unlawfully compromised.”

It’s a shame for everyone involved that Israel’s interests have so drastically diverged from those of the private American plaintiffs whom it once considered a tool to cut off terror financing.

The Wultzes’ lead lawyer, Lee Wolosky of Boies Schiller, said in an email statement, “”With or without Mr. Shaya’s testimony, we look forward to proving at trial that Bank of China’s failure to close these clearly suspicious accounts warrants liability under the Anti-Terrorism Act.” Israel counsel John Bellinger of Arnold & Porter said in an email that he could not comment.

For more of my posts, please go to WestlawNext Practitioner Insights

Follow me on Twitter

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •