When does a bank aid terrorism?

September 23, 2014 at 9:49 am 1 comment

That is the question at center stage this morning in the Banking legal world thanks to two decisions in New York Federal Court yesterday. First a Brooklyn jury found the Arab Bank liable for aiding the terrorist group Hamas.  Second the Court of Appeals for the Second Circuit reinstated a lawsuit against National Westminster Bank of England claiming that the Bank violated American anti-terrorism laws by providing banking services to a not-for-profit organization that allegedly funneled money to Hamas. (Weiss v. Nat’l Westminster Bank PLC, 13-1618-CV, 2014 WL 4667348 (2d Cir. Sept. 22, 2014).

The Second Circuit ruling   won’t directly impact most credit unions but anytime a federal appellate court clarifies the obligations of financial institutions to monitor account activities the decision is one to which all institutions should pay attention.

National Westminster Bank is a British chartered Bank that maintained a bank account and performed banking services for the Palestine Relief & Development Fund, Interpal, from 1994 to 2007. In 2003  OFAC designated interpal as a terrorist organization. In response to this decision the British government froze the account but reversed its decision after it concluded that the US Government was unable to support its allegations.

Nevertheless the bank was sued under US antiterrorism laws by survivors of Hamas terrorist attacks and their relatives claiming tha, by maintaining the accounts it was providing material support and resources to a foreign terrorist organization. The plaintiffs alleged that Interpal engaged in “terrorist activity” by soliciting funds, and otherwise providing support for Hamas a recognized terrorist organization .

The bank successfully moved to dismiss the case. The trial level court concluded that NatWest could not be held liable for opening the charity’s account unless the plaintiffs could show that the bank knew that “the funds were to be used” to carry out terrorist attacks. This is an extremely high standard since it is undisputed that Interpal provides funds for humanitarian activities. In addition, the bank actively filed SARS and sought guidance from the British Government in response to concerns about the charity’s activities.

In yesterday’s decision the Court of Appeals ruled that the district Court set the bar too high for the plaintiffs, Whereas the trial court would require proof that the bank knew specific funds were being used to finance terrorism the Court of Appeals held that for plaintiffs to establish NatWest’s liability they must present evidence showing that” NatWest provided material support to Interpal while having knowledge that, or exhibiting deliberate indifference to whether, Interpal “solicit[ed] funds or other things of value” for Hamas, regardless of whether those funds were used for terrorist or non-terrorist activities”

In the Pre 9-11 days the Swiss Banker with his closed mouthed discretion was the banking gold standard. Financial institutions held money and it was widely believed that what people did with that money was their own business. That ethos has fundamentally changed. Do I think your average credit union is going to be sued for aiding terrorists? Of course not. Do I believe your average credit union is operating in a legal and regulatory environment in which institutions are expected to scrutinize their member’s activities more closely than ever before? Absolutely.

Here are links to the decision and the jury verdict.

  http://www.nytimes.com/2014/09/23/nyregion/arab-bank-found-guilty-of-supporting-terrorist.html?_r=0

http://www.ca2.uscourts.gov/decisions/isysquery/265d99e1-a2ed-48aa-9f53-36836ab8d15a/1/doc/13-1618_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/265d99e1-a2ed-48aa-9f53-36836ab8d15a/1/hilite/

Entry filed under: Legal Watch, New York State. Tags: .

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1 Comment Add your own

  • 1. Kenya Deleon  |  September 24, 2014 at 4:01 pm

    This Is a very valid article that all credit unions should evaluate. It is a constant job to maintain proper due diligence to fight terrorism. Unfortunetly in the credit union arena it can be overlooked by the relaxed enviornment.

    Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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