A New York jury has found
Arab Bank liable for providing financial services to
terrorists. The ruling has raised questions about
banks’ compliance programmes and their ability to
operate under local law and US anti-terrorism laws.
The Jordanian bank was found liable in a US federal court of
doing business with Hamas leaders who funded over two dozen
suicide bombing attacks in the early 2000s.
The September 22
decision was the first time that a foreign bank was found
liable in a US civil court for terrorism financing. It opens
the door for more civil cases to be brought against banks an
additional tool for tackling terrorist financing.
The verdict could serve as powerful deterrent for banks
considering moving into
emerging markets that have a terrorism risk, according to
Glen Kopp, a former assistant US lawyer in the southern
district of New York, now a partner at Bracewell &
"For banks considering emerging markets that have high risk,
they may decide not go to these regions because there is too
much vulnerability," said Kopp. "We’ll have to see
whether banks start pulling out of these high-risk
"That isn’t necessarily a good thing because
most people in those regions are not connected with these acts
and having strong capital flow is important," he added.
- A jury in New York has found Arab Bank liable for
providing financial services to terrorists in a first of its
- The ruling will likely deter banks from entering
these emerging markets;
- Differences between US anti-terrorism laws and
laws in home or operating jurisdictions may have been one of
the reasons for the verdict and the lower level of internal
compliance standards at Arab Bank.
A major difficulty for both sides in the case was discrepancies
between local Jordanian law and US anti-terrorism laws. The
bank argued that it had complied with international standards
and that many of the terrorists it was accused of aiding were
not on US, EU or United Nations watch lists. The Central Bank
of Jordan issued a statement following the decision saying the
verdict was a consequence of Arab Bank complying with Jordanian
privacy laws. Arab Bank refused to provide a large amount of
requested data on the customers and transactions in question on
the objection that it violated Jordanian and Palestinian laws.
Banks have been beefing up
internal compliance standards to meet stricter sanctions
policies. Notably, BNP Paribas has a one-year ban on certain
abilities to clear US dollar transactions because of violations
of US sanctions against Iran, Sudan and Cuba.
objection eventually reached the US Supreme Court, which
ruled that Arab Bank should turn over the records. A federal
judge also ruled the jury could conclude the
bank’s failure to provide the information was
evidence that it had engaged in the acts it was accused of.
The verdict has opened another avenue for
pursuing terrorist financing. While civil cases,
particularly against foreign-based defendants, can be harder to
bring and pose difficulties for the discovery process, they
also allow the case to reach a large class of victims and put a
face to a tragedy.
"The case being brought by private plaintiffs helps enforce
the government’s role in prosecuting terrorism
through financing," said Kopp. "This has added a major downside
for banks that were operating in pockets their competitors
weren’t willing to."
Still, while the verdict may force banks to rethink their
internal compliance policies, it is unlikely to have a big
effect on most banks.
"The number of cases in which you have financial
institutions knowingly involved in supporting terrorist
organisations is relatively small," said Gary Osen, a lawyer
for the plaintiffs. "This isn’t like mortgages or
securities fraud where you may find instances every day of the
"For the small number of cases that are brought, I hope the
Arab Bank verdict and the Court Appeals decision help to
clarify the parameters of the law."
Mayer Brown and DLA Piper represented Arab Bank. Osen,
Motley Rice, Stone Bonner & Rocco and Stone & Magnanini
represented the plaintiffs.
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