Article: December 2014 Securities and Structured Finance Litigation Update

Recent Cases Signal That Victims of Terrorist Attacks May Be Able to Collect Damages from Financial Institutions. A pair of decisions from the United States Court of Appeals for the Second Circuit and United States District Court for the Eastern District of New York recently signaled that victims of international terrorism may be able to seek compensation for their losses from financial institutions that knowingly or willfully funded terrorist organizations. These decisions are the first of their kind and, given the potential implications they hold for institutions that provide financing in regions known for terrorist activities, have generated a substantial amount of interest from (among others) the U.S. government and international financial industry. 

In the first case, Linde, et al. v. Arab Bank, PLC, 04-cv-2799 (E.D.N.Y.), a jury returned a verdict on September 22, 2014, finding that Arab Bank violated the 1990 Anti-Terrorism Act (“ATA”) for funding Hamas and specific Hamas operatives who later injured and killed numerous plaintiffs in suicide bomb attacks. According to the Linde plaintiffs, Arab Bank violated the ATA because it failed to abide by the Patriot Act’s Know Your Customer provision, which requires a financial institution to run individuals’ names by the U.S. Treasury’s Office of Foreign Assets Control and other U.S. government blacklists before providing them with financial services. In Linde, the individuals to whom Arab Bank provided services were known terrorists on those blacklists, but the English transliterations of their names were misspelled. Arab Bank claimed that this fact and others absolved it of liability; the plaintiffs claimed that Arab Bank either knew of the misspellings or willfully blinded itself to the differences and the individuals’ true identities. After receiving jury instructions (among others) that the ATA renders banks liable if their services are a “substantial contributor” to plaintiffs’ “reasonably foreseeable injuries,” the jury agreed with the plaintiffs and found Arab Bank liable on all counts.

In a similar case, Weiss, et al. v. National Westminster Bank PLC, 13-cv-1618 (2d Cir.), the Second Circuit recently reinstated a series of ATA causes of action on behalf of 200 United States nationals who were victims of Hamas terrorist attacks in Israel. The plaintiffs alleged that National Westminster Bank (“NatWest”) provided material support and resources to the Palestinian Relief & Development Fund (aka “Interpal”), which allegedly engaged in terrorist activity by soliciting funds and providing support for Hamas. The district court dismissed the plaintiffs’ complaint on summary judgment because they did not identify any evidence that NatWest knew or exhibited deliberate indifference to whether Interpal funded “terrorist activities.” In reversing the grant of summary judgment, the Second Circuit noted that the ATA only requires a plaintiff to show that NatWest knew or exhibited deliberate indifference to whether Interpal provided material support to a “terrorist organization,” irrespective of whether Interpal’s support aided terrorist activities of the terrorist organization. Accordingly, based on the plaintiffs’ submitted evidence, the Second Circuit held there was a triable issue regarding whether NatWest possessed the necessary scienter with respect to Interpal and Hamas.

Although both of these cases provide never-before-seen precedent regarding financial institutions’ liability under the ATA, much remains to be seen about what effect they will have going forward. With respect to NatWest, the case is only at the summary judgment phase and has yet to go to trial. Given that the summary judgment standard favors the non-movant—here, the plaintiffs—it may well be that NatWest is able to demonstrate at trial that it did not know, and was not deliberately indifferent to, the fact that Interpal provided material support to Hamas. There may also be other issues NatWest is able to demonstrate at trial that negate the ATA claims.

For its part, Arab Bank is likely to raise several issues on appeal of the Linde decision. In a post-trial statement, Arab Bank noted that it believes the Linde Court committed several errors, all of which it apparently intends to appeal. The first such alleged error stemmed from Arab Bank’s claimed inability to produce documents from certain foreign jurisdictions during discovery. As a sanction for failing to produce the documents, the Court prohibited Arab Bank from introducing evidence at trial regarding its alleged efforts to combat terrorism and/or its efforts to comply with foreign anti-terrorism and money laundering laws. The second error Arab Bank claims is the Court’s decision to exclude its expert from testifying on the nature of the “Saudi Committee,” from which Arab Bank processed payments to the families of Hamas suicide bombers. (Arab Bank intended to provide testimony that the Saudi Committee is a humanitarian aid program that has never been designated by the U.S. as a terrorist organization.) Third, Arab Bank claims the Linde Court applied an improper causation standard under the ATA when it instructed the jury that the plaintiffs needed only to prove that Arab Bank’s services were a substantial contributor to plaintiffs’ reasonably foreseeable injuries.

As of now, the Linde and NatWest decisions provide important new precedent for victims of terrorist attacks who seek compensation for their and their loved ones’ injuries. Depending on how the cases progress, they may herald a powerful new tool for such victims for years to come.