Financial institutions now have a duty to know exactly who their customers are. This week a United States federal jury found Arab Bank PLC, the major bank in Jordan, liable for supporting terrorism efforts in the Middle East. This is the first time a financial institution has been held liable in a civil suit under an anti-terrorism statute.
Family members of victims affected by the suicide bombings and attacks in Israel, the West Bank, and Gaza in 2000 sued Arab Bank for violating the Anti-Terrorism Act and the Alien Tort Claims Act. Arab Bank, which has branches in the United States, processed transactions for charities that were fronts for the terrorist organizations who committed those attacks.
The bank argued that it followed the proper compliance procedures and checked transactions against the appropriate terrorist list. Specifically, it claimed that the charity in question, Saudi Committee, was never listed as a terrorist organization by the United States. It admitted that one customer, Hamas leader Sheikh Ahmed Yassin, was on a designated terrorist list but was missed due to a spelling error.
This case certainly highlights the role that banks can play in funding terrorist groups and the extent to which they can be held responsible for monitoring their customers. As a result, banks are now expected to identify terrorists on their own. This case poses two questions that need to be answered. First, does this verdict undermine the compliance systems that are used by financial institutions around the world? Second, does it create uncertainty and risk in conducting business with the United States?
This verdict may be unfair to banks that follow the proper banking compliance procedures, and will certainly make them more cautious when dealing with groups or individuals in unstable parts of the world. Banks should be required to conduct proper due diligence when dealing with customers in these areas. This verdict is in the United States’ best interest in preventing the funding of terrorists groups. Although international banks may think twice about doing business with the United States, our financial sector is still in high demand.
Do you think it is fair to hold banks responsible for funding customers who they may not know are terrorists? What do you think are other implications of this verdict? Do you think that it is the government’s job to make sure banks are not funding terrorists or should banks create their own terrorist lists?
Picture: PJ Tatler