Bank Lawyer's Blog

Hear No Evil, See No Evil Is Not A Smart Game Plan

2014-09-28T21:46:00-05:00

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.

A New York Jury Says: Arab Bank Liable For Funding Terrorists

2014-09-24T21:51:00-05:00

The last time we took a look at the civil proceedings in a US District Court in ew York against Jordan's Arab Bank by victims of Hamas terrorist violence, the plaintiffs had survived a motion to dismiss in a "strongly worded" decision by judge Nina Gershon that was a bad omen for the defendant. A mere seven and one-half years later, a jury found against the defendant on liability. A separate trial will be held to determine damages. As The New York Times noted, the decision marks "the first time a bank has ever been held liable in a civil suit under a broad anti-terrorism statute."

The burden of proof in the trial, held at Federal District Court in Brooklyn, was high: The plaintiffs had to prove that the terrorist attacks were indeed conducted by Hamas, and that the bank’s support of Hamas was the “proximate cause” of the events. In addition, the plaintiffs had to demonstrate that their injuries were “reasonably foreseeable” as a consequence of the bank’s acts.

[...]

Several similar lawsuits are pending; one case, filed by victims of terrorist attacks against the National Westminster Bank, was reinstated on Monday by a federal appeals court.

“What this has done is it’s made the effects of American law felt in far-off places, and that is significant,” said Jonathan Schanzer, vice president for research at the Foundation for Defense of Democracies and a former terrorism finance analyst for the Treasury Department. “I don’t think any country, any bank, would want to be cut off from the U.S. financial sector, and they’re going to start thinking very carefully about whether they accept financial transactions” even from people or groups who are not on designated terrorist lists.

That last point is an important one, because some of the organizations that were the bank's "problematic" customers were not on the official terrorist blacklists, and one of the bank's attorneys argued that this is an ominous decision for banks everywhere.

“The proposition that’s being floated here,” he told the jury, is “that private businesses, including banks, are supposed to make up their own lists of terrorists. Imagine, actually, what that would do, if a bank did that.”

The plaintiffs' attorneys countered that the organizations with which the banks did business were so obviously linked to terrorist organizations that denying the connection didn't pass the "straight face" test. Not that anything about the suffering of the plaintiffs is amusing.

The same defendant's lawyer confidently stated that the decision would be overturned on appeal. At the rate this matter has been winding its way through our judicial system, I assume that we'll know whether this prediction is prescient or fallacious sometime right before the turn of the next century.

The comments I made when discussing these types of lawsuits in January 2006 are still pertinent, I think, perhaps even more pertinent because of the recent jury verdict.

They present huge reputational risk for the defendants.
"Is the Israeli government financing all or any portion of the litigation, or is this merely another example of a tough, hardcore group of civilians seeking justice and simultaneously taking the fight to the enemy wherever they find them? I don't know; however, 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. That's just another fact of life, told from the perspective of an Irish-American Catholic kid with no axe to grind."
"Litigation of this type is long, emotional, and expensive, win or lose. Inasmuch as it's personal, not business, to your foes, the banks involved can pin their ears back and, as they say in Las Vegas, 'get ready to rumble.' If you love protracted litigation, you'll enjoy yourself immensely."

Lesson Not Learned

2013-10-06T21:44:00-05:00

Once upon a time, we thought that having the Mossad, in league with litigious victims of terrorism, beating you about the head and shoulders in courts foreign and domestic would be enough to deter giant foreign banks from thumbing their noses at UN and US anti-money laundering laws. In the case of HSBC, a sane person might also conclude that paying a fine big enough to choke a Saudi shiek might do the trick. If he or she thought that, he or she would, according to at least one whistle-blower, be dead wrong.

[A] former employee is alleging that the bank continued to break anti-money-laundering rules even as it claimed to be reforming its controls, and he has asked federal authorities to open a new investigation.

Everett Stern, who worked in HSBC Bank USA's anti-money-laundering division in 2010 and 2011, unveiled the allegations Thursday at a protest against the bank in New York. In March, Stern and the law firm Berger & Montague submitted his evidence — which includes internal emails and other documents he collected while working at the bank — to the Securities and Exchange Commission, the Justice Department and banking regulators, claiming that the bank continued to flout money laundering rules while he was employed there.

What's especially surprising is that, as part of its deal with US authorities, HSBC agreed to a five-year deferral of criminal sanctions against the bank and its executives. The deferral is contingent on the bank's good behavior. According to Mr. Stern, the bad boys continued their wrongful ways, evidencing a cavalier attitude toward the prospect of being incarcerated in a minimum security federal country club, where, for an extended period of time, you have to carry your own bag around the golf course. Well, that, and you might be forced to adopt the name "Sweetcakes" by a guy with a bad case of roid rage.

Stern was one of the people hired by the bank to "cure their problem," the "problem" being the laundering of money for terrorist organizations through the bank. Instead of "solving the problem," Stern alleges that the bank adopted a "wink-wink, nudge-nudge" system that, if his allegations are true, was a smoke-and-mirrors attempt to make the regulators think that the bank was trying to comply with AML regulations while allowing hundreds of millions of dollars to be washed, rinsed, and nicely dried by known "financiers of terrorists."

Here's one possible sanction, should Stern's accusations prove to be true: kick the bank out of the United States. If you're going to launder money for people who want to wipe us from face of the Earth (along with all those nasty Israelites), why are we allowing you continue to operate within our borders? Then again, if we start down that path, I suppose we'll have to kick our own big banks out of this country, as well, since other deterrents don't seem to work, and that would never...

Wait a minute! I think that this might be worth further consideration. I'll have a couple more Shiner Bocks and ponder this while watching the latest episode of "Boardwalk Empire" for tips on dealing with this particular brand of bad-boy bankers.

An Act of War: Against Banks

2012-09-27T21:37:00-05:00

Supporting terrorist groups worldwide is a very bad thing. Killing your own people when they publicly oppose the existing government is a very bad thing. Building a nuclear weapon and threatening to annihilate your neighbors is a very bad thing. Having a president who wears a bomber jacket, sports a three-day growth of beard, and goes by a moniker that sounds like "I'm-A-Major-Whack-Job" is a very bad thing. However, launching denial-of-service attacks on bank webistes is beyond the pale.

The website glitches and outages that affected Bank of America and Chase last week are rumored to be just that sort of attack. In fact, financial fraud sources say both banks were hit with denial-of-service attacks likely backed by Iran.

Experts say banks better brace themselves, and they're right. With the U.S. election approaching, institutions can count on more DDoS attacks sponsored by nation-states.

Nation "states"? It sounds one nation "state" to me. I suppose this is to be expected from a government with whom this country and its ally, Israel, have been waging an undeclared war that, according to some sources, includes the introduction of destructive computer viruses into Iranian computer systems and the delivery of bullets to the heads of Iranian scientists.

The experts were correct about banks bracing themselves for further attacks, because following the date the above-linked blog post was posted, Wells Fargo was also hit. What are banks supposed to do?

A fraud alert issued Sept. 17 by FS-ISAC, the Federal Bureau of Investigation and the Internet Crime Complaint Center, suggests 17 steps institutions should take to mitigate risks posed by cyberthreats...

Among those steps:

Educate employees about phishing e-mails and suspicious attachments;

Monitor site traffic spikes, which could indicate a DDoS attack;

Limit employees' ability to remotely access internal networks and work-related e-mails from personal devices.

[...]

"Traditional preventive measures, such as bandwidth over-provisioning, firewalls and intrusion prevention systems, continue to provide some protection. However, traditional measures are ineffective against today's DDoS attacks," the FS-ISAC says, calling for the use of layered defenses.

[...]

Banks and credit unions should ensure that their tellers and other branch personnel are well-educated about all the security steps the organization is taking and can communicate that information clearly to customers.

As if banks didn't have enough to do merely trying to survive the terror imposed by the CFPB. Now they have to deal with cyber-terror launched by a nation whose leaders make even Liz Warren seem rational in comparison.

Cordray's Appointment: Let The Lawsuits Begin

2012-01-04T21:42:00-06:00

The partisan bile from both sides of the political spectrum was spewing today over Obama's "recess appointment" of Richard Cordray to head the CFPB. As I said last month, the recess appointment was not unexpected, notwithstanding warnings I received via e-mail from faithful readers who proclaimed that Mitch McConnell would never let the recess last more than three days, which, I was assured, both sides figured was the minimum time needed to give a recess appointment a chance of passing constitutional muster. My correspondents were correct as to McConnell's intent, but The One obviously wants to test the outer limits of the recess appointment envelope.

I still would have preferred that The Change had appointed Lizzie Warren. She's got more entertainment value than the more mundane, seemingly less ideological, Cordray.

As Wilmer Hale points out in an alert issued today (and kudos to the firm for being so fast out of the gate), "the President's recess appointment raises significant legal issues, and could be subject to legal challenges brought in federal court by, among others, institutions (or associations containing such institutions) injured by any Bureau action that could not have been performed prior to the appointment of a Director." Yes, we expect this issue to make its way (quickly, we hope) to The Supremes, where, given the current composition of the Court, a decision could go either way. In the interim, every decision of Cordray's and the CFPB under his leadership is going to be subject to a big, black cloud of legal uncertainty, subject to being upended because the "recess appointment" of Codray is later determined not to have been constitutional. If I weren't a citizen of this country with a stake in the outcome of this political and constitutional battle, this all might be entertaining. Instead, it's disconcerting.

Based upon some of the comments I read in the post on The Hill blog linked above, passions on this issue are running extremely high on both sides. Partisans at both ends are suffering a hardening of their positions (and perhaps cranial arteries) into semi- (or not so semi-) fanaticism that is causing them to forget the fact that this country is based upon the rule of law, not on "by whatever means necessary" on one side of the ledger and "armed revolution" on the other. Students of recent history can take a lesson from Dick Nixon as to what happens to an unpopular president who tries to use whatever means necessary to ensure power. As to the right-wing revolutionists, take a lesson from the Symbionese Liberation Army, the Weather Underground, and all the rioters of the 1960s. If you'd like to stack up your weekend-warrior brigades against the 101st Airborne, be my guest. Paintball and hardball are two different games.

The vast majority of the American public is middle class, and no matter how pissed off they may be at Congress, the White House, Wall Street, the cratering of their residential real estate nest eggs, the lousy economy, and life in general at the moment, most of them still have too much skin in the game to brook an armed insurrection for longer than it takes to stamp it out with extreme prejudice. I mean, as one South Central LA resident exclaimed after six Symbionese Liberation Army members died in a shootout with the LA SWAT, although the SLA assumed that South Central residents would rise up and join the revolution once the shooting started, "Hey, this isn't Berkeley." Not even Berkley's Berkley anymore, sport.

If it makes you feel like a tough guy to talk about revolution in the comments section of some blog, or even advocate assassinating the president (as I saw in a combox this evening), you'd better make sure you don't use an IP address the Secret Service or the FBI can easily track. Those organizations tend to take a dim view of such talk and I doubt many of them are intimidated by the existence of either the First or Second Amendments into not enforcing federal criminal laws (using only "reasonable force," of course).

No, although it's almost as much fun to poke a stick in a lawyer's eye as it is a politician's, over the ensuing months leading up to next fall's elections, a large portion of this battle will be fought out in the federal courts by lawyers. Of course, next November, the political process will get one more chance to make the change we've been waiting for. If it's a dramatic change, then all this current wrangling may shortly become ancient history.

And You Don't Even Own Clubs

2010-02-01T21:19:00-06:00

Great news: "[T]op investment banks are now intending to hire one-third more graduates this year than last. Their remarkable resilience to the downturn, and this year's strong recovery in the financial markets, mean that opportunities still exist in banking for those with the skill and tenacity to get them."

That sure warms the cockles of my heart. How about you?

What they don't tell recruits, however, is that the world of investment banking is full of hidden perils, not the least of which is the risk of a broken heart. From Columbia Business School's Follies of 2006 comes a trailer for a movie about the dangers of office romance in a business that broke the back of the American economy.

Note to politically correct hypersensitive readers: if you're offended, take it up with CBS. Don't hate the playa, hate the game.

Another Great Leap Forward

2008-08-25T22:15:00-05:00

Hard on the heels of its recent successful stint as the host of the Summer Olympic Games (at least, we understand that they were successful; we never watched anything other than women's beach volleyball), China offers further proof of its rise in the world, this time the world of international banking: it's being sued by Israeli victims of radical Muslim terrorists.

A lawsuit filed in Los Angeles Superior Court claims that one of China's biggest banks transferred millions of dollars for terrorist groups bent on attacking Israel, ignoring demands by Israeli counterterrorism officials to halt the practice.

The lawsuit, against Bank of China Ltd., was brought on behalf of more than 100 victims of terrorism in Israel and alleges that the money was transferred for the militant groups Hamas and Palestinian Islamic Jihad in Iran and Syria, and processed through Bank of China's branches in the U.S. and China. Bank of China, which is one of China's Big Four banks and is listed in both Hong Kong and Shanghai, has the widest overseas network of the nation's banks.

The suit alleges that the money helped fund attacks between 2004 and 2007, and calls on the bank to stop transferring money for terrorist groups. It claims that in April 2005, Israeli counterterrorism officials informed officials of China's public security ministry and its central bank, the People's Bank of China, of their concerns over the wire transfers.

"Most of the banks of the world are not doing business with terrorist organizations," said Federico Castelan Sayre, an attorney representing the plaintiffs. "They chose to do so willingly."

Naturally, the Chinese deny holding talks with any Israeli counterterrorism officials. They also make the implausible assertion that the Bank of China "always complies with the United Nations' anti-money-laundering regulations. Also, our New York branch and related representative offices always follow U.S. banking regulations." Unlike U.S. and European banks, when it comes to compliance with bank regulations, Chinese banks are, like the Pope when acting in concert with the bishops on matters of the Roman Catholic faith, infallible. They "always comply" with the law, never failing, even inadvertently, to hit it on the sweet spot.

On one level, you have to admire the utter cynicism of "The Big Lie." If you're going to tell a lie, at least make it laugh-worthy. US and European compliance officers are bent over double at that one.

However, don't expect the Israelis to find that assertion to be amusing. They tend to treat these matters with the utmost gravity. The Bank of China has now earned a place in the dock alongside such Western counterparts as Credit Lyonnais and NatWest, who have been in the crosshairs of the Israelis for the past few years, and not enjoying it one bit.

Congratulations, and welcome to the First World of Banking, B of C!

A Wake-up Call

2007-08-29T22:16:00-05:00

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?

2007-06-17T22:20:00-05:00

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

2007-03-29T21:22:00-05:00

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....