In prior posts (most recently here), I have noted the growing problems involved with the increasing willingness of U.S. regulators to exert their regulatory and enforcement authority outside of the U.S. In the following guest post, Francis Kean of Willis examines a recent decision by the United States Court of Appeals for the Second Circuit in which the appellate court upheld the exercise of U.S. court jurisdiction under the U.S. Financial Anti-Terrorism Act against a financial institution domiciled outside the U.S. and involving alleged conduct taking place entirely outside of the U.S.
Francis Kean is executive director of Willis FINEX in London and the D&O expert for the WillisWire blog. This post was originally published November 7, 2014 on WillisWire (here).
I would like to thank Francis for his willingness to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contact me directly if you think you might be interested in submitting a guest post. Here is Francis’s guest post.
I am indebted to John Blancett, partner of law firm SDMA for drawing my attention to a startling decision of the US Court of Appeal for the Second Circuit: Tzvi Weiss et al. v. National Westminster Bank Plc (judgment delivered 22nd September 2014). The case is striking and disturbing not just as fresh evidence that US long-arm jurisdiction is alive and well but also because it shows just how low the threshold test is for establishing liability against a financial institution which in the eyes of the US Courts might be said to have “… provided material support to a terrorist organization.”
The US Anti-Terrorism Act
The claim was originally brought against Natwest in the US District Court, for the Eastern District of New York under the US Financial Anti-Terrorism Act (ATA) on behalf of some two hundred US nationals (or their estates, survivors or heirs) who were victims of terrorist attacks launched in Israel by Hamas.
The ATA was introduced in the US expressly to provide a new civil cause of action in federal law for international terrorism. Not only does it provide extra-territorial jurisdiction over terrorist acts abroad against US nationals but it also confers jurisdiction on US courts for the conduct of financial institutions (or other organizations or individuals) anywhere in the world.
The facts are simply stated. Between 1987 and 2007 Natwest provided banking services, first to the Palestine and Lebanon relief fund and then to its successor, the Palestine Relief and Development Fund (“Interpal”). In 2003 the United States Treasury Department Office of Foreign Assets Control (OFAC) designated Interpal a Specially Designated Global Terrorist (SDGT) on the basis that it “… has been a principal charity utilised to hide the flow of money to Hamas…”.
Following OFAC’s designation of Interpal as an SDGT, Natwest sought guidance from the Financial Sanctions Unit of the Bank of England and was told “… there are presently no plans to list [Interpal] under the Terrorism order in the UK” and “there is no need to take any further action…”. This stance was confirmed by both the UK Charity Commission and Special Branch. The Financial Sanctions Unit also told Natwest not to make any payments to or for the benefit of Hamas and that any suspicion of any such payments should be reported to the Charities Commission, the Bank of England and Special Branch.
Natwest subjected Interpal’s accounts to regular review and concluded in 2005 that some of the organisations receiving funds from Interpal were indeed suspected of having connections with Hamas. Natwest closed the last of Interpal’s accounts in March 2007. At no time was there any evidence that Natwest was aware of any Interpal payments either to Hamas or to any other organisations that were designated as terrorist organisations by the Bank of England or OFAC at the time of the payment.
The Court’s Decision
Natwest applied for summary judgment dismissing the victims’ claim on the basis that they could not show that it acted with the requisite knowledge to impose liability under ATA . The District Court dismissed the claim on this basis.
Perhaps unsurprisingly, based on the summary of Natwest’s actions above, the District Court concluded that there was insufficient evidence of any “..deliberate indifference as to whether Interpal funded terrorist activities….” After all, Natwest had expressly sought the views of the Bank of England and had also taken due account of the views of both the UK Special Branch and UK Charity Commission.
The surprise comes with the Court of Appeal’s decision overruling the District Court and finding in favour of the plaintiffs. This is how they summed up:
…we conclude that [the Anti-Terrorism Act’s] requirement is less exacting and requires only a showing that Natwest had knowledge that, or exhibited deliberate indifference to whether Interpal provided material support to a terrorist organisation, irrespective of whether Interpal’s support aided terrorist activities of the terrorist organisation. (Emphasis added)
What the Case Means
It seems (to me at least) that the difference between the two approaches could not be more significant. The focus of Natwest (and it may be said of the relevant UK authorities) was on the question as to whether Interpal could be suspected of “terror financing”.
By contrast, the US Court of Appeals has in effect said that Natwest’s focus should, for the purposes of the US Act at least, have been on the much broader question as to whether Interpal was “in any way financing a terrorist organisation”. In other words, if, for example, there was evidence that Interpal financed Hamas’ non-political and/or non-violent activities, that would be sufficient for the civil action for damages against Natwest to proceed. The fact that the UK authorities (and therefore perhaps understandably Natwest itself) may not have looked at this question in the same way was not an adequate defence to such civil liability under ATA.
The implications of this decision for companies anywhere in the world which do not follow precisely the same line as the US when it comes to the US ATA are sobering indeed.
Without wishing to finish on too apocalyptic a note, it is worth pointing out that the ATA does not just apply to financial institutions but to any and all organisations and individuals anywhere!
11 November, 2014
Perhaps inevitably in the “Land of Litigation”, it wasn’t going to take long for others to catch on to the idea of trying to hold banks accountable for terrorist acts.
I spotted this piece in The New York Times of 10th November announcing new claims against HSBC, Barclays, Standard Chartered, the Royal Bank of Scotland and Credit Suisse following on from the NatWest case about which I blogged and another case involving Arab Bank. Although I haven’t seen the complaints themselves (and although they seem to focus on Hezbollah, the Shiite militant group, as well as Iran’s Islamic Revolutionary Guard Corps-Qods Force rather than Hamas), they will undoubtedly rely on the same US Anti-Terrorism Act.
It seems from the article that the claimants in this case will have an additional hurdle (or opportunity to extend the reach of the Act, depending on your point of view). This is because the Wall Street banks did not in these cases themselves make the transfers as opposed to allegedly facilitating them. Definitely one to watch!
– See more at: http://blog.willis.com/2014/11/us-long-arm-jurisdiction-creates-new-terrorism-headaches-for-banks-among-others/#sthash.FwXZGxLX.dpuf