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August 23, 2008 – BEIJING -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.”
The People’s Bank of China Friday said in a faxed reply that it didn’t hold talks in 2005 with Israeli counterterrorism officers about the matter and that such an account “doesn’t conform with the facts.”
Wang Zhaowen, a Beijing spokesman for Bank of China, said the bank isn’t aware of the suit. Mr. Wang added that as a listed company, 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.” There was no response to questions sent to spokespeople for China’s Ministry of Public Security or its banking regulator.
A spokesman at the Israeli Embassy in Washington said the embassy had no comment on the suit.
As China has grown more interconnected with the global financial system, Beijing’s regulation of international bank transfers and deposits has drawn increasing scrutiny from financial authorities in other countries, in particular the U.S. How China’s regulators deal with the risks of money laundering, terror financing and other illicit transfers through their nation’s banks, for instance, has helped lengthen the decision process of the Federal Reserve on applications by Chinese banks to open branches in New York, according to people familiar with the matter. Bank of China, China’s most international bank, has had a New York branch since the early 1980s.
Terror financing was mentioned in this month’s announcement by the Fed that it had approved an application for a New York branch by China’s largest financial institution,Industrial & Commercial Bank of China. The statement noted a number of steps taken by Chinese regulators to monitor cross-border currency flows handled by their banks. The application was studied for more than a year.
In some cases, China’s government has moved to ensure compliance by its financial institutions with international norms, particularly with regard to money laundering. “These efforts, the implementation of which is led by the People’s Bank of China, are increasingly stringent,” said Lester Ross, a Beijing-based partner at Wilmer Cutler Pickering Hale & Dorr LLP.
Almost two years ago, for instance, Chinese financial authorities moved to stop their country’s financial system from being a conduit for North Korean money transfers at a time when the U.S. and others were trying to pressure the state to abandon its nuclear ambitions.
— J.R. Wu in Beijing, Ethan Smith in Los Angeles and Andrew Morse in San Franciscocontributed to this article.
Write to James T. Areddy at [email protected]