Symposium: Combating terrorist financing through corporate liability under the Alien Tort Statute

Michael Barr is the Roy F. and Jean Humphrey Proffitt Professor of Law at the University of Michigan Law School. He filed an amicus brief for financial regulation scholars and former government officials in support of the plaintiffs in Jesner v. Arab Bank, PLC.

The Supreme Court has again decided to consider whether corporations can be liable for violations under the Alien Tort Statute. Jesner v. Arab Bank, PLC involves claims against Arab Bank under the ATS for allegedly knowingly and willfully financing terrorism by clearing transactions in support of terrorism through its New York branch.

Our amicus brief – filed on behalf of financial-regulation scholars and former government officials responsible for anti-terrorist-financing policy and enforcement – argues that a finding of corporate liability for banks is appropriate and consistent with U.S. policy and law. Preventing terrorist financing is a major policy goal of the United States. The U.S. Department of the Treasury has stated that disrupting the flow of funds to terrorists is an integral component of combating terrorism. Because the United States plays such a central role in the global financial market, denying terrorists access to the U.S. financial system is vital. Ensuring that terrorists do not have access to U.S. dollar clearing, the conversion of funds by a bank on behalf of a client from foreign currency into dollars, will help establish an environment less prone to terrorist financing.

The United States has developed extensive policies to further its goal of preventing terrorist financing. There are a wide range of statutes that enforce anti-terrorism policy, one of the most important of which is the Bank Secrecy Act. The BSA requires banks to create and maintain programs that monitor their financial transactions and to submit reports and records to the government, including reporting any suspicious activity to the Financial Crimes Enforcement Network (FinCEN), a bureau within Treasury.

Federal and state enforcers, including the Department of Justice, FinCEN, the Office of the Comptroller of the Currency, and state attorneys general and state regulators, frequently bring enforcement actions against banks to ensure compliance with the BSA’s requirements. Notably, banks such as BNP Paribas Bank, Barclays, ABN Amro and Standard Chartered Bank have all been subject to enforcement actions by regulators. Arab Bank itself has been subject to an enforcement action in the past. Arab Bank entered into a consent order with FinCEN and the Office of the Comptroller of the Currency in 2005, and paid a fine for violations of the BSA. The agencies found that Arab Bank’s New York branch violated the BSA because of its inadequate money-laundering-prevention program and its failure to file suspicious activity reports with FinCEN. All of these statutory requirements and enforcement actions help to ensure the integrity of the U.S. financial system and protect against terrorist-financing activity.

The United States has also made international efforts at preventing terrorist financing a priority. The United States was one of the key drafters of, and is party to, the International Convention for the Suppression of the Financing of Terrorism, which specifically directs nations to take measures “requiring financial institutions … to pay special attention to unusual or suspicious transactions and report transactions suspected of stemming from criminal activity.” In addition, the United Nations Security Council, of which the United States is a permanent member, adopted Resolution 1373 in 2001. This decisive and strongly worded resolution requires that all nations take various measures to prevent terrorist financing. The United States has also worked closely with other nations to create programs for combating terrorist financing.

U.S. laws allow for private suits against corporations in terrorism-related contexts. For example, the Anti-Terrorism Act creates a private right of action, allowing U.S. nationals to sue both persons and corporations for terrorist-related activity, including terrorist financing activity. These policies signal the importance of preventing terrorist financing, and the willingness of the U.S. government to permit multiple channels for enforcement.

In this case, the dollar-clearing activity performed by Arab Bank allegedly provided terrorist organizations with access to the U.S. financial system. This makes the ability to hold Arab Bank liable under the ATS even more crucial. Dollar clearing is a core financial function that involves processing, transferring and delivering funds between institutions. Dollar-clearing activities flow through the United States, providing parties with direct access to the U.S. financial system. This makes the U.S. financial system particularly vulnerable, highlighting the importance of finding banks liable when they clear transactions illegally.

Regulators closely monitor clearing activity in the U.S., reflecting a strong U.S. policy designed to ensure that dollar clearing is not corrupted by terrorist financing or money laundering. The U.S. government has brought enforcement actions against banks for clearing in violation of U.S. anti-money laundering, terrorist financing, and sanctions laws, in addition to violations of the BSA. Banks have entered deferred prosecution agreements for using the U.S. financial system to clear illicit transactions. Further, regulators use bans on clearing as a penalty for serious violations of anti-money laundering and terrorist-financing laws, suggesting that clearing leaves the U.S. financial system uniquely exposed. Because clearing is a core function of banks that leaves the U.S. financial system vulnerable to terrorist activity, it is important that both the government and the courts penalize illicit clearing.

The wide array of tactics that the U.S. uses to fight against terrorist financing suggests that federal regulatory and criminal enforcement should not be the only avenue for enforcement. The regulatory scheme created by the BSA and other anti-money laundering laws creates a floor, rather than a ceiling, on enforcement against money laundering and terrorist financing. Thus, other forms of enforcement, such as private suits like the one currently before the Supreme Court, should be permitted. Allowing private suits against corporations, and providing for corporate liability, would reinforce U.S. antiterrorism policy and strengthen enforcement.

Banks hold a special place in the global financial system. Allowing liability for banks would be consistent with the broader policy goal of ensuring a safe and terrorist-financing-free financial system. Considering the importance of anti-terrorist financing and anti-money laundering to the stability and integrity of the U.S. financial system, banks should be held liable under the ATS for knowing and willful activity allowing terrorist groups access to U.S. dollar clearing. Indeed, creating a loophole for dollar clearing of terrorist financing would be exactly contrary to U.S. anti-terrorism policy. Establishing a hostile environment for terrorist financing is a longstanding and fundamental policy goal of the United States, and using private suits to find banks liable for knowing and willful illicit clearing will directly promote that goal.

Two law students, Anna Greve and Julie Siegel, contributed to this piece.

Posted in: Summer symposium on Jesner v. Arab Bank, PLC, Featured, Special Features

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