How Western banks hope to shake ex-U.S. soldiers’ Iran terror suit

April 6, 2015

(Reuters) – On Friday, plaintiffs lawyer Gary Osen filed an amended complaint in federal district court in Brooklyn for more than 200 former U.S. soldiers (or their survivors) who claim to have been victims of Iran-sponsored attacks during the Iraq war. The original complaint in Freeman v. HSBC, filed in November, accused five Western banks – HSBC, Credit Suisse, Standard Chartered, Royal Bank of Scotland and Barclays – of conspiring with Iranian banks that the U.S. has designated as agents of state-sponsored attacks. The supposed goal of the conspiracy was to mask wire transactions to evade U.S. sanctions against Iran, facilitating Iran’s alleged funding of militant groups operating in Iraq at Iran’s direction, including Kataib Hezbollah and Quds Force, the overseas arm of Iran’s Islamic Revolutionary Guard Corps.

The new complaint adds a sixth Western bank defendant, Commerzbank, which reached a $1.45 billion deferred prosecution agreement last month with U.S. authorities to resolve an investigation of its transactions with Iran and other sanctioned countries. The amended filing adds details about the Western banks’ alleged $60 million in transactions with the Islamic Republic of Iran Shipping Lines, another U.S. designated terrorist organization. It also adds specific allegations about the explosive devices supposedly used in most of the attacks at issue in the case, claiming they were designed and produced in Iran with materials shipped by Iranian vessels.

Those claims are intended to counter defense arguments that the plaintiffs’ lawyers, Osen and Tab Turner, haven’t even connected their clients’ injuries to Iran, let alone to the banks that supposedly helped Iran funnel money to militant groups. But according to the Western banks’ recent motions to dismiss the suit – a joint filing by all of the original European bank defendants, plus additional briefs from Credit Suisse and HSBC and RBS – the soldiers and their survivors have a much more fundamental problem: The 2nd U.S. Circuit Court of Appeals has unequivocally said there is no cause of action under the Anti-Terrorism Act of 1992 for aiding and abetting militant attacks.

The banks’ joint motion relies on 2013 precedent from Rothstein v. UBS, in which the 2nd Circuit upheld the dismissal of a case based on UBS’s supposedly illicit transfer of hundreds of millions of dollars in cash to Iran, in violation of U.S. sanctions. Victims of bombings in Israel that were allegedly funded by Iranian cash sued UBS, but the 2nd Circuit said they couldn’t show the bank’s actions were at least proximately responsible for their injuries. “Rothstein thus held that engaging in financial transactions directly with the Government of Iran-even transactions that are unlawful under U.S. law, and even with knowledge that Iran is a state sponsor of terrorism-does not render a financial institution liable for acts committed by terrorists that Iran allegedly sponsors,” the banks in the ex-soldiers’ case said in their joint motion.

The link between their alleged wire transfer stripping and injuries to the ex-soldiers in the Freeman suit is far more attenuated than the UBS connection Rothstein claimed, according to the Western banks. They also argue that plaintiffs lawyers can’t get around the proximate cause standard by alleging a conspiracy because the ATA only permits claims based on primary liability. According to the banks, the complaint fails to make a showing of primary liability because it does not allege they had any direct contact with terrorist operatives or that those operatives would have received less support from Iran were it not for the banks’ conduct.

Credit Suisse’s separate dismissal brief claimed that it had ended dealings with the Iranian banks in the alleged conspiracy before they fell under U.S. sanctions; the individual brief from HSBC and RBS asserted the complaint doesn’t establish the banks’ terroristic intent. (The Western banks left it to one of their Iranian counterparts, Bank Saderat, to argue that U.S. soldiers are barred from using the ATA to sue for “acts of war.”)

Plaintiffs lawyer Osen, who won a jury verdict of liability against Arab Bank last summer, knows ATA precedent as well as anyone bringing these cases. I asked him Monday about the banks’ dismissal motions. He said that the 2nd Circuit’s Rothstein decision is more limited than the banks suggest because the plaintiffs in that case – unlike his clients in the Freeman suit – tried to bring secondary claims for aiding and abetting. In contrast, he said, his case asserts that civil liability derives from the criminal provisions of the ATA. He also said that the alleged conspiracy in the Freeman case is connected more directly to Iran’s alleged support of U.S. designated militant groups because Iran needed major global institutions to systemize U.S. dollar transactions, not only to facilitate attacks on U.S. troops in Iraq but also to develop nuclear weapons. “These were massive endeavors on all accounts,” he said. “Iran could not have done it without the European banks.”

HSBC is represented by Mayer Brown. Credit Suisse has Cravath, Swaine & Moore. Sullivan & Cromwell represents Standard Chartered and Barclays. Clifford Chance is counsel to RBS. Pepper Hamilton represents Bank Saderat.

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