Bank Lawyer's Blog

A Wake-up Call

Think about world peace; while you're doing that I'll be over here stealing your stuff.
--Jack Handey

We noted this past March that a lawsuit filed by former employees of Dutch bank ABN Amro publicly disclosed a common practice among European banks: instituting procedures to evade US restrictions on funding terrorist organizations and the states that love them. We didn't much like to hear that. Neither, apparently, did the US government.

People close to several European banks say that US regulators and criminal investigators have broadened the scope of a probe that began with the Dutch bank.

They are now examining whether a handful of banks similarly violated laws by processing US dollar payments through US counterparts for clients in Iran, Cuba, Libya and Sudan, countries that – with the exception of Libya after 2004 – are still subject to US sanctions programmes.

Some legal experts say the case against ABN Amro, which promised in April to set aside hundreds of millions of euros to resolve a criminal investigation by the US justice department into its US dollar clearing practices, clarified for the first time the Bush administration’s position and interpretation of sanctions rules and their application to the financial services industry.

Namely, that US banks and individuals are not allowed to facilitate banking activity abroad in which they could not engage directly.

[...]

“As a result, it is a wake-up call for the financial community with respect to the handling of wire transfers by foreign banks that ultimately touch on US-embargoed states,” says Wynn Segall, a partner at law firm Akin Gump in Washington.

I wonder whether the wake-up call will be enough. Maybe a loud pounding on the bedroom door, followed by kicking it in, then spraying the sleepy foreign bankers with semi-frozen yak spit, will be required. If so, I hope that I get to watch.

There has been the expected whining and sniveling from various quarters, along the lines of "everybody does it" and "but you let it go on for so long, you can't  punish us now."

Some people familiar with the investigations, who asked not to be named, say that the looming possibility of financial penalties raises questions about the authority of US regulators to penalise banks for conduct that went unchecked for years.

“This is an issue where the legal lines are not clear. It is the kind of thing that banks around the world engaged in.

That line of pathetic excuse-making never worked for me with my parents, and it won't work on Uncle Sammy.

But if the ABN Amro case represents a model for the kinds of cases that US authorities may be bringing against other banks in the future, as some legal experts believe, then the US government would have a strong case to argue that the violations under scrutiny were not just routine technical blunders.

In the case of the Dutch bank, regulators found that one of ABN Amro’s foreign branches was able to develop and implement “special procedures” for certain fund transfers and other operations “designed and used” to circumvent compliance systems established to comply with US laws.

James Freis, director of the Financial Crimes Enforcement Network (FinCen), a division of the Treasury that investigates money laundering, said last month that “myths” about big penalties for minor lapses in banking requirements should be dispelled and that federal financial regulators were making “great efforts” to eliminate uncertainty about what they expect in a “solid, risk-based”, anti-money laundering programme.

As we understand it, as part of the stepped-up US enforcement effort, those foreign banks that violate US restrictions will henceforth find themselves facing "sanctions" imposed by one US "Treasury Agent" known as Jack Bauer. He hates foreigners, and he isn't real keen on bankers.

Will Thawing Frozen Funds Generate Any Heat on North Korea?

A story in last Friday's The Wall Street Journal (paid subscription required) reveals that the previously "frozen funds" of North Korea (which we discussed here and here) have been thawed and delivered, finally, to North Korea. Now comes the next act: whether, in return for the cash, the renegades that run the "thugocracy" in North Korea will "play ball" with the U.S. and dismantle their nuclear weapons program.

The coming weeks will be crucial to seeing whether Kim Jong Il's regime plans to honor its February pledge to shut down its nuclear reactor at Yongbyon and move forward with other disarmament commitments, U.S. officials said.

In March, the U.S. Treasury Department formally blacklisted Banco Delta Asia in Macau for its alleged involvement in aiding North Korean illicit activities, a charge the bank has denied. The ruling prevented all U.S. banks or companies from conducting any financial transactions with BDA. As part of the crackdown, Macau authorities froze $25 million deposited in North Korean accounts after depositors initiated a run on BDA in late 2005.

The U.S. subsequently agreed to help facilitate the return of the funds to North Korea as part of the denuclearization agreement. But the transfer stalled after many international banks in Asia and the U.S. declined to accept the money, for fear of running afoul of Treasury's antimoney-laundering regulations.

Yesterday, BDA successfully transferred $20 million of the funds via the Federal Reserve Bank of New York and Russia's central bank, people familiar with the transaction said. The money was expected to be deposited at a North Korean-controlled account at a small, private Russian bank, Far East Commercial Bank.

North Korea has broken past agreements with the U.S., so  we won't hold our breath in anticipation of full cooperation from this mob family masquerading as a legitimate nation-state. Once the money is in their hands, they're just as likely to start talking crazy again and test firing missiles into the Sea of Japan as they pursue their exalted ruler's quest for good cognac and a really fine hair gel.

An interesting facet of this story is the disagreement within the U.S. government over the use of "smart sanctions" by the U.S. Treasury Department against rogue regimes that are designed to freeze them out of the international banking system through the use of U.S. law that allows the regulators to "blacklist" foreign banks that deal with these regimes. Such sanctions prohibit U.S. businesses and banks from transacting business with or for such sanctioned banks, which can be painful. In addition, the pressure on foreign governments whose banks are blacklisted to act against the targeted regime, in order to get their banks off the list, works. At least, it worked in the case of BDA and North Korea.

"The effect on North Korea has been significant, because even the most reclusive regime depends on access to the international financial system," Treasury Secretary Henry Paulson said in New York yesterday. He argued that similar tools would be effective in combating Iran and its alleged attempts to acquire nuclear weapons.

Some of Paulson's cohorts in the U.S. government demur.

But some U.S. diplomats working on North Korea said the lack of coordination between the State and Treasury departments over the BDA issue undercut the disarmament talks for months. Critics of the White House also argue that the Bush administration relinquishes one of its most important leverages against Mr. Kim by returning the North Korean funds.

Second guessing the Bush White House on matters large and small is a national pastime, so we'll discount that criticism as pro forma for a member of the national press. No rational person can be certain that any action or inaction that should logically spur another rational person to act in a certain manner will have any effect on the nutroots in Pyongyang.

On the other hand, the fact that the Treasury Department and State Department couldn't coordinate their actions over the BDA matter is disturbing. I'm all for using federal banking regulators to deter our enemies and those who aid them. I'm not in favor of doing it incompetently. Undercutting disarmament talks for months because bankers and diplomats on the same side of the table can't talk to one another indicates to me that either we need people in charge who "get it" or the banking regulators ought to stay out of the mix. "Smart sanctions" aren't "smart" when applied by the inept.

Terrorism As Opportunity

Leaving aside the subprime mortgage "crisis" for a few days, let's look at a story that's been lurking under most people's radar. It's the story about ABN Amro, the big Dutch bank that currently is in play, with Barclays in "exclusive" hot pursuit at the moment, but with a large shareholder urging the breakup of the holding company and/or the entry of other suitors into the race for a merger with or acquisition of the bank.

According to an article in last Friday's The Wall Street Journal (paid subscription required), five former employees of the bank, all U.S. citizens, are suing the bank for wrongful termination. The ex-employees allege that they are being made scapegoats for a practice that is widespread among European banks: helping terrorists and their sponsors ignore and evade U.S. restrictions.

Lawyers for the plaintiffs in the New York case claim to have unearthed an internal ABN Amro memo describing how European banks evade U.S. sanctions on Iran. "The Central Bank of Iran is faced with difficulties for USD denominated clearing transactions due to sanctions imposed by the U.S.," the alleged memo states. "The Swiss and other European Banks have worked out a solution for this. The payment instructions are sent directly to the beneficiary's bank and cover payment is made to the beneficiary bank's U.S. Correspondent as inter-bank payments." In other words, the banks simply remove any reference to Iran from the documentation accompanying the wire transfers.

This practice was dictated by the Iranians, the ex-employees claim. "The Central Bank of Iran had communicated to the Central Bank Desk of ABN AMRO Bank, Amsterdam, the procedure to be followed for repayment of USD deposits to their accounts with European Banks in London. This procedure stipulated that payment messages sent to U.S. clearing Banks for payment of USD funds to the Central Bank of Iran should not contain any reference to the Central Bank of Iran or any other reference relating to Iran."

In one internal 2003 email cited in the suit, a senior ABN Amro executive allegedly discussed the merits of the technique for avoiding detection in New York. "There is no way the payment will get stopped as all NY ever sees is a bank to bank instruction," the executive is alleged to have written.

Another alleged 2003 email by an ABN executive appeared to justify evasion of the U.S. sanctions enforced by the U.S. Treasury's Office of Foreign Assets Control (OFAC).

"Twenty four years of U.S. sanctions and OFAC listing and Iran continues to sell oil and gas in USD. And it imports and pays in USD as well. All of this is clearly done through accounts in Europe and elsewhere," the executive allegedly wrote. "There is a very good case to be made for getting an overall acceptance that when issues are purely US we should not be a part of it. In fact, we should see it as an opportunity."

The WSJ notes that in 2005 ABN Amro agreed to pay U.S. bank regulators $80 million "to settle charges that it improperly disguised billions of dollars in transfers through New York for both Iran and Libya in order to avoid U.S. regulations restricting such transactions."

As the lawsuits by victims of terrorism against European banks have demonstrated, and as these memos confirm, large European banks view the war on Islamist terrorist organizations and the states that fund and otherwise support them as a U.S. problem. Bombs that rip apart Spanish and British passenger trains, the illegal seizure of British soldiers and holding them hostage, riots in the streets over cartoons, death threats and actual murders of artists and politicians who criticize militant Islam, none of it seems to impede taking your enemy's cash for services rendered, even if that enemy has clearly and unabashedly announced that it intends to breed you out of existence, if you won't simply capitulate of your own deracinated decrepitude in advance of the inevitability of dhimmitude.

It's not their problem. "In fact, we should see it as an opportunity."

With "friends" like these....

Double Jointed Smackdown

In addition to attracting the largest ego in casino development this side of Donald Trump (which appears to be a "Wynn-Win" for all concerned), Macau (at least a large bank based there) has attracted the attention of the U.S. Treasury Department. In a "more than meets the eye" action against Banco Delta Asia, the Treasury Department today formally barred U.S. banks from dealing with BDA. Apparently, the action has the result of potentially freeing up North Korean funds that have been frozen since 2005, which appears to be an unspoken motivation for taking it.

Though Treasury made no mention of it, its long-awaited action against Banco Delta Asia, or BDA, is linked to negotiated efforts to persuade North Korea to back away from building up its nuclear program. North Korea had demanded the release of funds frozen at BDA as a condition of negotiations on its nuclear program that had taken place between it and the United States, China, South Korea, Japan and Russia.

[...]

...the U.S. move will make it possible for Macau authorities to decide whether to release an estimated $8 million to $12 million in frozen accounts, which North Korea has been demanding as a condition of negotiations on its nuclear program, U.S. officials who had anticipated Treasury's action said previously.

As we've noted from time to time, the U.S. Treasury Department has been pressuring banks around the world to stop dealing with renegade nations like North Korea and that Persian country run by the guy in the Members-Only jacket and the Don Johnson-like three-day growth of beard. Apparently, it's been working. North Korea, at least, has started to make the right noises lately. This latest Treasury Department action appears to (A) once again send a message to foreign banks that the price of dealing with nuclear bandit nations can be high, yet (B) tells the bandits that if you play ball, we'll play ball.

I guess that it's hard being a lonely guy. 

"When it takes effect in 30 days, this action will prohibit all U.S. financial institutions from maintaining correspondent accounts for BDA (Banco Delta Asia) and prevents BDA from accessing the U.S. financial system, either directly or indirectly," Treasury said.

Treasury said BDA had been under investigation because of charges it accepted proceeds from North Korea's counterfeiting, drug-smuggling and money-laundering operations. It said it would report its findings to Macau and said Macanese authorities has tightened their anti-money laundering regime.

I wonder if in Macau, the term "tightening our anti-money laundering regime" is synonymous with the term "increase the amount of bribes necessary to keep that dirty money scrubbed spotless."

At least the U.S. made it clear that while they hate the player, they don't hate the game.

"Today's regulatory action is targeted at BDA as an institution, not Macau as a jurisdiction," [Treasury's under secretary for terrorism and financial intelligence Stuart] Levey emphasized.

And to prove it, Levey left the press conference, took a pedi-cab to Wynn's casino, walked to the nearest roulette wheel, and laid 10 G's down on red 27, won, bought five hookers , three grams of blow and a limited partnership interest in a member of Macau's Legislative Assembly.

Hitting Them Where It Hurts

Last month, the U.S. government banned U.S. businesses from doing business with Iranian Bank Sepah after concluding that the bank transfered money to North Korea in return for missle technology. With some success, the U.S. tried to persuade Eurpopean governments to do the same. As noted by The New York Times, it was the first move by the U.S. against an Iranian bank following the adoption of typically tepid UN sanctions against Iran in December. However, prior to those sanctions being imposed, the U.S. had taken similar action against another Iranian bank, Bank Saderat, Iran's largest commercial bank. Both banks are government owned and controlled.

Though the two banks have few direct links to American banks, Treasury officials say the American directive can bar Americans working at European banks from involvement in any transaction with Bank Sepah.

In addition, the action by the Treasury Department means that no American bank can help facilitate – by transferring dollars, for example – any transaction between a European bank and Bank Sepah. These steps thus extend the reach of American laws to other countries, though only to a limited degree.

It appears that only a few months after first applying the regulatory squeeze, the sanctions are beginning to work.

Iran's weekend offer to resume nuclear negotiations, coupled with new flexibility over how and where future uranium enrichment trials may be conducted, represents the first clear evidence that domestic and international pressure on Tehran's hardliners is beginning to bear fruit.

But the US military build-up in the Gulf, UN sanctions, or even Washington's latest Iraq "dossier", are not primarily responsible for this apparent shift: American meddling with the mullahs' money has been much more effective.

Since imposing penalties last autumn on Iran's largest commercial bank, Bank Saderat, for allegedly transferring funds to Hizbullah and other "terrorist organisations", the US treasury and associated agencies have been spinning an expanding, entangling web of unilateral sanctions and other punitive measures around Iran's financial institutions and commercial enterprises.

[...]

Despite legal worries and concerns about "extra-territoriality" - attempts to apply US laws beyond US shores - European governments are being urged to curtail all types of business with Iran, including commodities and manufacturing. This goes far beyond the measures agreed in December by the UN security council and approved by EU foreign ministers yesterday [February 12, 2006].

[...]

Latest figures suggest the strategy is working. Exports from Germany, which with Italy is Iran's leading European trade partner, dropped by an estimated 20% last year. "Business dealings are going backwards, de facto," a Berlin official said. "A lot of German companies do business with the US. We don't have to say anything. They've got the message."

Private western banks are also under pressure to comply with what is rapidly becoming a "Cuba-plus" US-led international embargo, by withholding letters of credit, loans, loan insurance and transfer facilities. Barclays plc and HSBC holdings are among those that have curbed their Iranian dealings.

Iran's oil industry, providing 70% of state revenues and crucial funding for an extensive welfare state, is a particular US target. The industry has suffered years of underinvestment and has never entirely recovered from the Iran-Iraq war. US pressure on western oil companies and energy-hungry governments such as Japan not to put money and technology into a country with the world's third largest oil reserves is intense.

As a result, some estimates suggest Iran's oil exports are falling by 10% annually. All this hardly helps plans by President Mahmoud Ahmadinejad for a 20% increase in budget spending to quell growing public anger over rising prices and unemployment while maintaining domestic energy subsidies amounting to a massive 15% of GDP.

Some experts claim that all this financial pressure is unnecessary. Apparently, theocracy really IS a bad form of government, at least as far as rendering unto Caesar what is Caesar's is concerned.

"The mullahs are doing a good job of destroying Iran's economy. They should be left alone to complete their work," [Johns Hopkins Professor Roger Stern] wrote recently. "Attacking Iran would allow the regime to escape responsibility for the economic disaster it created. Worse, an attack could unite Iran behind the clerical terror sponsors whose grasp on power may be slipping. For these reasons, the best policy towards Iran may be to do nothing at all."

I guess Iran's economy is functioning as well as ours would with Pat Robertson in charge. Then again, at least Pat can leg press 2000 pounds after drinking one of his personally concocted "age-defying protein shakes," so I'd best not sell him short or he'll kick me straight to hell and back. Or, perhaps not back.

But back to the Islamist wing-nuts: I doubt that a military attack against Iran is in the offing, at least not by the U.S. We seem to have our hands full at the moment, notwithstanding much saber rattling. However, with a bush-jacketed jackal like "Boy" Ahmadinejad at the controls of a renegade government that is trying to develop nuclear weapons in order to wipe certain infidel countries off the mapdefend itself from hostile neighbors, you can't be too careful. As long as the financial pressure appears to be working as well as it has, not only against Iran but against the loons from North Korea, it's hard to argue that the U.S. should back off using that strategy. Waiting for the mullahs to implode from their own incompetence could be a long and ultimately risky process. Then again, the sudden fall of an enemy in that region of the world hasn't exactly had rosy results for the West recently, so it's hard to have confidence in any strategy.

Stare Decisis: The Brief As Binding Precedent

Professor Ann Graham of Banking Law Prof Blog is a wee bit put out by the Department of Homeland Security "borrowing" preemption arguments used by the OCC and Wachovia Bank in Watters v. Wachovia and then citing to the briefs. Says Professor Graham:

Anybody could see it coming:  The OCC's federal preemption arguments in Watters v. Wachovia are not limited to the banking arena.  All federal agencies can use these same arguments for judicial deference to an agency's analysis enlarging its jurisdiction through its own preemption ruling -- and here's a good example:

In this excerpt from the Federal Register Advance Notice of Rulemaking and Request for Comments regarding the Department of Homeland Security's preemption of certain state laws, this federal agency relies on and cites to Briefs in the Watters case -- not even waiting until the Supreme Court has its say about the position taken in the brief: 

"Note that the Department [of Homeland Security] has the authority to make preemption determinations as it administers the chemical security program under Section 550. See Brief of the United States as Amicus Curiae at 26, Watters v. Wachovia Bank, N.A., 2006 WL
3203255, 126 S.Ct. 2900 (2006) (No. 05-1342) (filed Nov. 3, 2006) ("When an agency concludes, in an exercise of delegated policymaking authority, that displacement of state law is warranted in furtherance of a federal statute that it is entrusted to administer, the agency is
acting within the core of its expertise.'')"

So, no role for the states, no role for the courts, not even any need for a Supreme Court opinion -- filing a brief makes it so.

Link to Federal Register: http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/06-9903.htm

Thanks to Ed Mierzwinski for bringing this to my attention!

As Professor Graham's disgust reveals, there lurks in the nooks and crannies of academia (and even in some corners of Washington, D.C.) the curious notion that the 10th Amendment to the U.S. Constitution still has meaning. How odd!

I'd have to agree, however, that it might appear to be at least "premature" to cite, as authority, the arguments contained in a brief of one party in a pending case that might go the "wrong way" when the court gets around to rendering its decision. Imagine the embarrassment of the Department of Homeland Security if the SCOTUS decision favors Watters! Oh, I forgot: it's the Department of Homeland Security. It's shameless. I suppose the feds would have to fall back on the foolproof backup argument of "rooting out the evil-doers," which is a broad brush argument that the OCC would find less appealing, inasmuch as on the issue of federal preemption as applied by the OCC, there's a healthy debate as to who, exactly, might be an evil-doer who needs to be rooted out.

Personally, we don't believe that the OCC needs all these silly legal arguments to support its claims of unbridled power to expand in whatever directions its whims might direct it.  As we've previously intimated, those who stand before the onward rush of the OCC to satisfy its innate need for lebensraum constitute nothing more than canon fodder awaiting their sorry fate. 

"All political power comes from the barrel of a gun."
--Mao Zedong

"Resistance is futile."
--The Borg

Putting On The Squeeze

The campaign waged by the U.S. Government to put the "financial squeeze" on the bad boys with the bad hair lying north of the 38th Parallel, and on the scruffy Iranian dude in the bush jacket named Amajackinthebox, or something similar, most recently discussed here, is paying off.

Frustrated over languishing diplomatic campaigns against Iran and North Korea, U.S. officials are finding their backup strategy of financial sanctions has been surprisingly effective against those remaining members of President George W. Bush's "axis of evil."

Over the past year, the Bush administration has persuaded bankers across Europe and Asia to choke off some Iranian and North Korean access to the world financial system, using the taint of terrorism and corruption as leverage.

Treasury Secretary Henry Paulson and others have made the case directly to bankers and government officials around the world in low-profile but remarkable presentations.

I suppose that Bush administration officials are simply appealing to the better instincts of international bankers. When referring to U.S. government officials and international bankers, the term "better instincts" may be a relative one, as compared to, say, the better instincts possessed by a Carmelite nun.

"What we're trying to do is think of how to use the private sector's natural inclinations to want to ... avoid bad conduct and make sure their reputations are clean," said Treasury Undersecretary Stuart Levey. "We want to figure out how to work with the private sector so they amplify what we want to have happen."

Yes, there's nothing a banker located in Europe "naturally" wants to do more than to keep his skirt unsoiled by avoiding contact with a nefarious foreign government offering incense, myrrh, gold, precious jewels, and other valuable commodities.

There is a powerful unspoken message in the U.S. presentations, too. In effect, foreign banks have been warned that their access to the vast U.S. banking system may be at risk if the administration eventually bars all U.S. transactions with overseas institutions that do business with groups tied to terrorism.

Ah, now we're talking! The "unspoken message" being that some day, some way, your financial kneecaps could go missing. We also know where you're wife does her grocery shopping and your kids attend school. No matter the local patois, that "unspoken" message of a kick in the nether region always comes through loud and clear.

The solo U.S. financial strategy is more flexible than international diplomacy, requiring no approval from Congress or other countries. And though there are risks, particularly in the case of Iran, the strategy has worked better than its designers had hoped.

Bush loves that "requiring no approval from Congress or other countries" approach, doesn't he?

According to the Associated Press article linked above, the strategy has proved especially effective against North Korea, which didn't have much in the way of financial resources even before the start of the campaign, and has substantially fewer resources now. The North Koreans appear to be pretty much a "COD" buyer these days, without a lot of "C" in their pockets. According to other sources, Kim DungBongKong Jong-Il (known simply as "Junior" or "J-Il" to his homies) has been reduced to selling gold to generate cash to buy plutonium to build a bomb to sell to Ahmadiddydaddy to fund his "The Myth of the Holocaust Museum." What's next? Is Kim going to sell his collection of K-Fed Cds?

In the case of Iran, the United States banned U.S. banks from performing an indirect electronic maneuver that allowed a large state-owned bank to broker the sale of oil or other exports overseas in dollars. Oil is traditionally traded in dollars, although U.S. firms are generally barred from doing any business in Iran because of long-standing U.S. sanctions.

Following the North Korean example, the United States targeted only Tehran-based Bank Saderat. Making the announcement in September, Levey listed four Mideast terror groups the bank is accused of serving.

ran denied the allegations but it hardly mattered. For months, U.S. officials had been showing bankers across Europe what they claim is evidence that Iran's central bank used the international financial system to funnel money to terrorists elsewhere.

Even before the Saderat move, the Swiss bank UBS cut off all dealings with Iran, and European banks HSBC and Credit Suisse scaled back their business there.

So, does that make up for all the dealings that Swiss bankers had 65 to 70 years ago with that Austrian short guy with the funny mustache and the comb-over, the Nazi uniform, and the SS henchmen? You know, Adolph what's-his-name?

I guess it makes a difference when the freak with whom you're dealing has publicly threatened to bury you, along with the rest of Western Civilization, because, for only one reason, you're not Shi'ite Muslim. That can take the edge off the fervent desire to acquire wealth at any cost, even for the most evangelical agnostic.

Hack This, e-Jihaddi

Let's hope that U.S. financial insitutions weren't too busy pondering the same rubik's cube-like puzzles that baffle the FBI and our Congressional brain trust ("Is Osama Sunni or Shi'ite? Only his hair dresser knows for sure.") that they missed the latest "cyber" alert (yellow, orange, red?) from the Department of Homeland Security (paid subscription required).

Homeland Security officials warned the nation's financial institutions of a possible terrorist cyber threat from al Qaeda, but played down the danger, saying the scheme was "more aspirational than operational."

"There is no intelligence corroboration," said Homeland Security spokesman Russ Knocke, adding that the warning was issued out of "an abundance of caution."

Apparently, some al-Qaeda "sympathizer" posted on a jihaddist Internet message board (whose motto is: "Net Neutrality For All Until Allah Rules The Internet, Then You Must Convert Or Die, Infidel Dogs") a message that urged his fellow Islamist wing nuts "to join in cyber attacks against U.S. financial targets" during the month of December. Well, we're almost half way through the month and so far, so good. Not that U.S. banks were actually losing any sleep over this latest alert.

Financial institutions took the warning in stride, with many of them indicating that they get such warnings from time to time and that this particular warning hadn't changed their level of vigilance.

I assume that the "level of vigilance" that all banks maintain concerning terrorist threats is being somewhat more alert than the late Hunter Thompson on mescaline and somewhat less alert than the late Hunter Thompson on amphetamines. You have to admit that where terrorist vigilance is concerned, it's always tough to hit the sweet spot unless your drug regimen is calibrated with precision.

The threat allegedly came from a previously unknown group called the e-Jihaddi hackers, who called on Islamic computer experts and non-Muslims to participate in attacks on U.S. banks and financial institutions. The group called for a "Guantanamo" revenge raid on "infidel banks" and said non-Muslims willing to help "will be welcomed."

"Islamic computer experts." That might be an oxymoron.

I understand that the first order of business for any red-blooded American non-Muslim helper would be to show the "e-Jihaddi hackers" how to perform a little operation Toby Keith likes to call the "re-boot up your a** (it's the American way)." When we  render such assistance to e-Jihaddi hackers in Texas, we  like to leave our spurs on. Unfortunately, that help renders the "helpee" unable to hack. Or even sit.

If the e-Jihaddi hackers are serious, they'll need to take a lesson from U.S. juvenile e-delinquents. At the outbreak of the Iraq war, American "script kiddies" wreaked havoc on The al-Qaeda News Network Al-Jazeera web sites. From Reuters, March 23, 2003:

Hackers have replaced the news website of Arab satellite TV network al-Jazeera with a stars-and-stripes logo saying "Let Freedom Ring".

Both the Arabic site, at (http://www.aljazeera.net), and the English- language version at (http://english.aljazeera.net) could not be accessed on Thursday. Users who tried to log onto the site found a message that read, "Hacked by Patriot, Freedom Cyber Force Militia" beneath a logo containing the U.S. flag. "This broadcast was brought to you by: Freedom Cyber Force Militia," the site said. "God bless our troops!!!"

Al-Jazeera information technology manager Salah Al Seddiqui said someone had hijacked the domain name and redirected it to another server computer. "Our website is working but nobody can see it," Al Seddiqui said.

The al-Jazeera website has faced near-constant cyber attacks since an English-language version devoted exclusively to the war in Iraq was launched on Monday. Hackers have blitzed the site with meaningless data in an effort to squeeze out legitimate traffic and render the site inaccessible, a technique known as a "denial of service" attack. That attack eased at around 3 a.m. London time on Thursday, Al Seddiqui said, but the domain name was hijacked shortly after.

The Qatar-based network had tried to switch the address back but was denied access by domain-name seller Network Solutions, he said. "We can't say it's their fault or our fault," he said. A Network Solutions spokesman was not immediately available for comment. The company also has had to search for a new home for the site after U.S.-based DataPipe said it could no longer host the site from the end of the month. Al Seddiqui said the company had moved its servers to a data centre in France.

They moved the operation to France. Perfect.

So, you see, e-Jihaddi hackers, you're behind the curve before you're even out of the starting gate. When it comes to mindless destruction in cyberspace, our geeks will beat your geeks hands-down, every time.

And just wait until our kids reach puberty!

Don't Shoot! We Surrender!

In a ruling last week in a case against French bank Credit Lyonnais by American victims of terrorist attacks by Hamas (h/t to Brain Falkenstein of the Terror Victims Litigation Project), which ruling is substantially similar to a ruling by the same judge in another case against NatWest that we discussed last week, the U.S. District Court for the Eastern District of New York dismissed an "aiding and abetting murder" count, but denied a motion to dismiss two other counts that allege violations of the Anti-Terrorism Act of 1992.

What I (and others, including the judge) found particularly troublesome was this interesting admission by the bank.

In court papers, the bank said it suspected that the charity, CBSP, might be involved in money laundering, but not terrorism. It cited investigations in France that cleared the group of wrongdoing.

The judge said in his ruling that "it is reasonable to believe that when the bank noticed 'unusual activity' on CBSP's accounts in 2000, in the form of large transfers of money to the West Bank and Gaza Strip during a highly publicized intifada, the bank would have investigated the organizations receiving the large transfers, including designations of terrorist organizations made by the government whose country was experiencing the terrorism."

Ya think?

I suppose plain old illegal laundering of money is one thing that doesn't unduly alarm the French, so that they wouldn't necessarily make a "French Connection" between vast sums being funneled to Palestine during an intifada and the fact that that money might be going to terrorists. Moreover, given the fact that there's not a thread of anti-Semitism running through the French social fabric, it would be utterly unfair to insinuate that the French might not be as concerned about the killing of  jews  as they would be about a McDonalds destroying all that is elevated about French culture. Therefore, we won't insinuate such a thing.

Not that we don't have strong opinions on such matters here at Bank Lawyer's Blog or that ... uh-oh ... Dennis Miller's spirit is trying to channel itself through me again ... must control Tongue of Acid...too late...

The French, you might as well gas up the dinghy and go fishing with Fredo because you are dead to me, okay.  

NatWest Loses Motion To Dismiss On Terror Funding Case

While I was goofing off last week, Brain Falklenstein of the Terror Victims Litigation Project alerted me to the latest ruling in a case I first discussed in January. American citizens who were victims of suicide bombings in Israel are suing National Westminster Bank, plc, alleging that the bank maintains accounts for organizations that fund terrorist organizations and is therefore liable under the Anti-Terrorism Act of 1992 (18 USC Sec. 2333(a)) "because it (1) aided and abetted the murder, attempted murder, and serious bodily injury of American Nationals located outside the United States in violation of 18 U.S.C. §2332; (2) knowingly provided material support or resources to a foreign terrorist organization ... in violation of 18 U.S.C. 2339B; and (3) unlawfully and willfully provided or collected funds with the intention that such funds be used, or with the knowledge that such funds would be used for terrorist purposes in violation of 18 U.S.C. 2339C." More information about the case, and related cases, can be found at the web site of the attorneys for the plaintiffs.

In a ruling rendered on September 27, 2006 on NatWest's motion to dismiss the plaintiffs' complaint, federal district court judge Charles Sifton of the Eastern District of New York granted the motion with respect to the first claim, but denied the motion and permitted the lawsuit to proceed on the second and third claims. From the perspective of NatWest (and other commercial banks), among the unsettling findings of Judge Sifton is that a "requirement that the defendant have specifically intended to further terrorist activities finds no basis in the statute’s language which requires only that the defendant knowingly provide material support or resources to a foreign terrorist organization but makes no mention of any specific intent." The opinion also contains an interesting discussion about the issue of "proximate causation" between the plaintiffs' injuries and the maintenance by the bank of accounts of ostensibly "charitable organizations" that, in reality, fund terrorist organizations like Hamas. The ruling ought to spur commercial banks, especially banks with international offices (in fact, any bank that accepts deposits from foreign organizations or individuals), to give this decision a careful reading. According to the court, Congress intended these provisions to impose "liability at any point along the causal chain of terrorism...In enacting the material support statute Congress made an express finding of fact that 'foreign organizations that engage in terrorist activity are so tainted by their criminal conduct that any contribution to such an organization facilitates that conduct.' " It's true that surviving a motion to dismiss on the issue of proximate causation is a long way from being able to prove proximate causation at trial; however, the court's discussion of the relevant law should make the defendant bank very concerned about the outcome.

According to a Reuters article published last Friday, the ruling "suggests that foreign banks may now be open to lawsuits in the U.S. by a victim of a terror attack, if it can be shown that an account holder was linked to an organisation that the U.S. believes to be linked to the attack, lawyers said."

It could also create a whole new set of terrorism-related risks and burdens for European banks that operate in the United States and other foreign jurisdictions.

"This is scary for any foreign bank," said Ellen Zimiles, a former U.S. federal prosecutor who heads Daylight Forensic and Advisory, a U.S. company advising banks on compliance issues.

"It means any bank with activities outside the United States can be sued in the United States under U.S. law," she said in a telephone interview while on a visit to London.

"It's a petrifying situation for foreign financial jurisdictions. This is about an account in the United Kingdom and I don't know if the UK had anything on whether this organisation had a link to terror activity."

Another unnamed "expert" quoted in the article makes an observation about the administrative burden this ruling places upon banks.

What this demonstrates is the risk banks with international offices face and how onerous the duty now is with banks to know precisely what they are dealing with and what sorts of accounts and funds they are holding."

I guess the Sergeant Schultz Defense isn't going to work in this area, is it?

There's no mention in the article of the "reputational risk" that we discussed in January. How many times do you use "NatWest" and "Hamas" in the same sentence before the bank's reputation begins to take a hit? I mean, a "hit" where people care about a link between terrorists and Western banks. In other words, outside of a Western Europe that, thanks to the low birth rates of its traditional European populace versus the high birth rate of its Muslim "guest workers," is, according to many demographers, well on its way to becoming "Eurabia" by the end of this century.

There's also no acknowledgment by anyone quoted in press reports that the beneficiaries of the money that flows through these accounts are dedicated, over the long haul, to destroying the banks that maintain the accounts. Pardon me for not beginning to weep over the "onerous" administrative burden and legal risk of ensuring that the funds a bank accepts for deposit are not being funneled to terrorists who believe that the charging of interest is the devil's work and who would prefer to blow up the bank and slaughter the godless bankers who run it when it becomes possible to do so and the banks are of no other use to them.

As a (temporarily) final note to banks, I'll also repeat something I said in my last post:

If I were a bank, the last thing I'd want to do is get between Israelis and their enemies anymore than I'd want to stand between a speeding eighteen-wheeler and a brick wall.