After posting recently about the jury verdict in New York against Arab Bank on claims under the Anti-Terrorism Act (ATA) by victims of terrorist violence, I ran across an excellent client alert from Sullivan and Cromwell that discusses a decision by the US Second Circuit Court of Appeals, rendered on the same day as the jury verdict, that involves a lawsuit against National Westminster Bank (previously discussed here), and that sheds some light on the standard of knowledge required by the ATA to hold a bank liable.
On the same day, the U.S. Court of Appeals for the Second Circuit reinstated ATA claims against National Westminster Bank (“NatWest”), holding that to violate the ATA, a defendant need only have knowledge that, or be deliberately indifferent to whether, it provided material support to a terrorist organization, and need not have knowledge of whether that support actually aided terrorist activities. See Weiss v. National Westminster Bank PLC, No. 13-1618- cv.
The client alert discusses both decisions, and gives a good primer on the causes of action that plaintiffs are pursuing against financial institutions that provide "material support" (financial services) to terrorist organizations. The discussion of the appellate court's decision is particularly interesting because the Second Circuit overturned a district court's finding that "there was insufficient evidence of NatWest’s knowledge or suspicion of terror financing, despite its provision of banking services to a nonprofit ('Interpal') that was designated by the U.S. government as a Specially Designated Global Terrorist ('SDGT') for transferring money to Hamas."
The Second Circuit held that Section 2333(a) [of Title 18 of USC] incorporates the knowledge requirement of Section 2339B(a)(1), which, following Holder v. Humanitarian Law Project, 561 U.S. 1, 16-17 (2010), “prohibits the knowing provision of any material support to terrorist organizations without r egard to the types of activities supported.” In other words, “Section 2339B(a)(1) does not require a showing that [the defendant] knew it was providing material support for terrorist activity.”
The Court held that because Hamas is designated as an FTO, to establish liability, plaintiffs were required to show only that NatWest provided material support to Interpal with “actual knowledge that Interpal provided material support to Hamas, or . . . deliberate indifference to whether Interpal provided material support to Hamas.” The Second Circuit concluded that the district court erroneously “focused on NatWest’s employees’ knowledge of Interpal’s terror financing as opposed to their knowledge of Interpal’s financing of a terrorist organization.”
The Second Circuit further found that the district court “gave inappropriate weight” to the determination of certain British authorities—namely, the Charity Commission for England & Wales, the Metropolitan Police Special Branch, and the Bank of England—to condone NatWest’s relationship with Interpal. The Second Circuit noted that the findings of those British authorities relied only on the conclusion that Interpal did not support Hamas’ terrorist activities, not “whether Interpal provided any material support to Hamas, regardless of purpose.” In addition, “[e]ven if the British authorities had investigated whether Interpal provided material support to Hamas for any purpose and had concluded that Interpal had no links to Hamas at all, . . . in the face of contrary findings—in this case by the United States Treasury Department—such views of foreign governments could not support summary judgment.”
The Second Circuit concluded that plaintiffs had presented sufficient evidence to create a triable issue of fact on the question of scienter based on (i) evidence of NatWest’s knowledge of Interpal’s SDGT designation, including that Interpal provided payments to Hamas; (ii) evidence of NatWest’s knowledge of payments from Interpal’s accounts at NatWest to Hamas and other suspected terrorist organizations; (iii) evidence that NatWest “had accounts for people connected to Hamas”; and (iv) testimony from the head of NatWest’s Group Security and Fraud Office that NatWest would terminate a customer relationship for suspected terror financing only if the customer was convicted or if there was clear evidence that the funds were used to directly support terrorist activities."
Although the Second Circuit ordered the district court to consider other grounds for dismissal asserted by NatWest, it's determination that NatWest could not rely on the determination of British authorities to avoid liability under the ATA is, as the authors of the client alert "instructive," Among the "instructions" that all banks, domestic and foreign, who do business in this country is that turning a blind eye to the nature of a customer with potential connections to bad actors is a ticket to substantial jury verdict. While playing the role of the three monkeys is not going to win you any acting awards, it may very well result in some adverse jury awards.
In the cases brought thus far, many of the plaintiffs are Israeli citizens. As I said last week, standing between Israel and its enemies is not likely to be a successful long-term business plan. These lawsuits are just one more front in a multi-front war, a war that one side considers "existential." Banks that are smart will stay out of the line of fire.