October 2006 Top Story:
**MLI ARCHIVE***
NatWest case stretches credulity
A lawsuit brought by victims of suicide bombings in Israel, alleging that British bank NatWest knowingly provided services to a charity linked to militant Islamic group Hamas, is ringing alarm bells with banking lawyers.
A US federal judge ruled earlier this week that the suit, which makes claims on behalf of 15 families of Americans wounded in attacks between March 2002 and August 2003, could proceed.
The case against NatWest suggests that foreign banks may now be open to lawsuits in the US by a victim of a terror attack, if it can be shown that an account holder was linked to an organisation that the US believes to be connected to the attack.
It could also create a whole new set of terrorism-related risks and burdens for non-US banks that operate in the United States and other foreign jurisdictions.
“This is scary for any foreign bank,” said Ellen Zimiles, a former US federal prosecutor who now advises banks on compliance issues. “It means any bank with activities outside the United States can be sued in the United States under US law.”
“It's a petrifying situation for foreign financial jurisdictions. This is about an account in the UK and I don’t know if the UK had anything on its link to terror activity.”
The families, who filed suit in January in a federal court in Brooklyn, allege that NatWest knowingly maintained accounts for a charity called Interpal and transferred money between those accounts and Hamas front organisations. Hamas said it was responsible for nearly all of the 10 attacks.
The US government designated Interpal as a terrorist organisation in August 2003, several days after the last of the bomb attacks cited in the suit. Israel had branded Interpal as a terrorist organisation in 1998.
Interpal, the Palestinian Relief and Development Fund, has been cleared by Britain’s Charities Commission.
“We are disappointed by the court’s ruling and are discussing the position with our legal advisers. This is only the first stage of proceedings and we will continue to vigorously defend our case,” a spokesperson for NatWest said earlier this month.
This ruling not only suggests how long the arm of the US law has become but the risk banks with international offices face. The duty now is with banks to know precisely what they are dealing with and what sorts of accounts and funds they are holding.
Nigel Morris-Cotterill, head of the Anti-Money Laundering Network,
told MLI the suit was trying to make a criminal law position valid within
civil law.
“This coupled with the madness that is US class action law means that the
justice of the situation is irrelevant.
“Such cases are rarely tried in court: they are ransom actions in which plaintiffs say, in effect, we are going to cost you millions of dollars in legal fees and bring tons of bad publicity down on you – or you can just cave in and give us money.
“Class action suits are basically zero risk for plaintiffs although their lawyers bear the costs of the action. That system puts the banks, even foreign banks, at risk.”
Morris-Cotterill said that if any bank in this position was to tell the plaintiff – and by implication, the court – that this has nothing to do with the US, the US would take action to freeze the bank’s assets in its own jurisdiction.
“Plaintiffs will always file in New York, in the district where the bank has a correspondent account, and will seek an order freezing the bank’s assets in the hands of its US correspondent,” he said.
He said actions such as this “were inevitable” and there was nothing that foreign banks could do except to “hold no assets or presence in the US and to do no business in US dollars”.
He said US courts tended to imagine that the whole world was subject to US law “and made laws to fit their opinions”.
DelMonte Publications Oct 2006
