(Reuters) - Flouting U.S. sanctions to provide Iran with banking services is “deplorable,” wrote U.S. District Judge Pamela Chen of Brooklyn in a ruling Monday in a case by about 200 U.S. service members who allege that six international banks facilitated Iran’s sponsorship of terrorism during the Iraq war. But it’s not actionable under the Antiterrorism Act, she found. Conspiring to help Iran secretly participate in global financial transactions, according to the judge, is not tantamount to providing material support to a terrorist organization.
Despite a 2018 recommendation from U.S. Magistrate Judge Cheryl Pollak that the military veterans (or their survivors) be permitted to move forward with their claims, Judge Chen granted the banks’ motions to dismiss the case. “Even assuming defendants knew of Iran’s myriad ties to, and history of, supporting terrorist organizations, including Hezbollah, the court cannot infer from this fact that defendants agreed to provide illegal financial services to Iranian financial and commercial entities, which have many legitimate interests and functions, with the intent that those services would ultimately benefit a terrorist organization,” the judge concluded.
Her ruling means that HSBC, Barclays, Standard Chartered, Royal Bank of Scotland, Credit Suisse and Commerzbank are off the hook in the suit, which was filed by the veteran ATA plaintiffs’ lawyer Gary Osen. The banks, all of which have previously entered agreements with the U.S. government to resolve allegations of improper transactions with Iran or proxies, were represented in the ATA case by Sullivan & Cromwell (for Barclays and Standard Chartered); Mayer Brown (for HSBC and Credit Suisse); Clifford Chance (for RBS); and Cleary Gottlieb Steen & Hamilton (for Commerzbank).
Osen said in an email that the ruling “is obviously very disappointing for the hundreds of U.S. veterans and Gold Star families who were injured or lost loved ones in terror attacks in Iraq that were orchestrated by Iran.” This outcome, Osen suggested, is not what Congress intended when it passed the 2016 Justice Against Sponsors of Terrorism Act, which was meant “to expand the scope of civil remedies under the ATA, (not) to narrow the law or create a safe harbor for those who conspired illegally with Iran to evade U.S. sanctions.” Osen said his firm plans to appeal the dismissal.
Judge Chen’s ruling does not bode well for ATA claims against banks that do business with foreign governments identified as state sponsors of terrorism. As she recounted in a footnote at the beginning of her 46-page ruling, banks’ exposure to such claims was murky when Judge Pollak issued her report in August 2018. The magistrate judge provided one of the first major decisions to interpret the 2nd U.S. Circuit Court of Appeals’ ruling in Linde v. Arab Bank (882 F.3d 314), which held that banks cannot be liable to ATA plaintiffs unless they are generally aware that they’re supporting violent, life-endangering actions. Judge Pollak held that the appeals court left it up to juries to decide what banks knew about the operations they were funding. To survive a motion to dismiss, Judge Pollak recommended, it was enough for plaintiffs to allege that the banks knew of or were deliberately indifferent to Iran’s sponsorship of terror, even if their own intention was just to help the country evade sanctions.
Judge Chen, who took over the case from U.S. District Judge Dora Irizarry last May, said that rulings since Judge Pollak’s 2018 recommendation have clarified banks’ exposure under the ATA – in ways that favor the banks. She cited a 7th Circuit opinion in December 2018 in Kemper v. Deutsche Bank (911 F.3d 383); a March 2019 decision by U.S. District Judge Laura Taylor Swain of Manhattan in O’Sullivan v. Deutsche Bank (2019 WL 1409446); and a ruling last month from the 2nd Circuit in Siegel v. HSBC (933 F.3d 217), all of which “signal a decided trend toward disallowing ATA claims against defendants who did not deal directly with a terrorist organization or its proxy.”
Under that emerging consensus – and even after the 2016 law expanding ATA liability – it’s not enough, Judge Chen said, to allege that defendants provided material support to foreign governments accused of sponsoring terrorism. Plaintiffs must show that defendants knew their actions would support terrorism.
The former soldiers failed to make that showing, the judge said. Their amended complaint asserted “in significant and compelling detail,” a limited conspiracy in which the banks helped Iran evade U.S. sanctions and obtain access to hundreds of millions of dollars, she said. But she said she could not infer from the complaint’s allegations that the defendants were part of a broader conspiracy that allowed Iran to provide funding to terror groups that allegedly carried out attacks on U.S. troops.
Osen’s firm has a parallel ATA case, in which a different group of U.S. soldiers and survivors have brought claims against the same bank defendants, pending before Judge Chen. That case, which was stayed pending a ruling on defendants’ motion to dismiss the earlier case, also seems unlikely to survive unless Osen’s team can persuade the 2nd Circuit that Judge Pollak was right and Judge Chen is wrong.