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Court Rules U.S. Banks Liable for Acting as Terror 'Middlemen'

Tue, November 27, 2012

American banks may no long act as the middle man for terror-funding, according to a ruling by the highest court in the State of New York. The landmark ruling means that terror groups may no longer  make transactions in U.S. dollars, which could be a game-changer in the fight against global terror funding.

The court case was filed by victims of Hezbollah’s missile attack on Israel from the Second Lebanon War in 2006 who are citizens of the U.S., Canada and Israel. Filing on behalf of the victims was an organization called Shurat Hadin (Israel Law Center).

Shurat Hadin civil right organization and world leader in combating the terrorist organizations and the regimes that support them through lawsuits litigated in courtrooms around the world. The organization’s goal is to bankrupt terror groups, grind them to a halt economically through law suits.

Before the ruling, terrorist groups could finance their operations anonymously by transferring funds through an American “middelman” banks, called correspondence banks. The correspondent bank essentially provided the front for banks that avoided having a U.S. branch to dodge U.S. terror-funding laws.

Before the ruling, a correspondence bank could plead “ignorance” about the transactions that funneled funds to finance terrorist groups.  

Now, with the new ruling (which was based on a new interpretation of an existing law), correspondent banks will now be held liable for civil damages under anti-terror financing laws if transactions they made can be traced back to terrorist groups.

Furthermore, ignorance will not be accepted as a defense, meaning that the correspondent bank is responsible for researching their clients’ activities. Oftentimes, terror groups hide their financing through layers of straw companies, making it difficult for the banks to find out with whom they are really doing business.

In light of the difficulty of ferreting out the real organization behind the money transfers, the law suit ultimately has the effect of discouraging U.S. banks from being involved in any suspicious transaction that could garner large financial penalties (as well as bad press) for the bank.

Although the new law may encourage terrorist organizations to look outside the U.S. for bank to funnel their money through, most banks worldwide prefer to use U.S. dollars for global business. In addition, using U.S. dollars is often easier for worldwide banks making global transactions.

For example, the largest wire transfer organization, SWIFT, uses U.S. dollars. These dollars may be able to be traced to an American institution, which, in turn, would be held liable if the money transfer was used to support terrorism.

 “This is a ruling with double leverage,” said attorney Nitzana Darshan Leitner, head of Shurat Hadin, as quoted by the JPost.com

“First, it will open a huge Pandora’s box of past transactions, [from institutions who] we know from our sources are making fund transfers for terror organizations and state supporters of terrorism,” said Leitner

Once those institutions are sued, they will “not be able to do business with anyone in the United States,” she explained.

Leitner added that “from now on the lives of terrorist organizations will be much more difficult” since terrorist organizations “can do without French or German currency, but they will have great difficulty to get by in our world without dollars.”

Shurat Hadin has been successful in the past, winning rulings against terror financing, which has put a damper on major terrorist activity.