This page is also available in: עברית (Hebrew)

March 25, 2013 – American courtrooms are now one of the hottest battlefields in the ongoing Global War on Terrorism (or “Overseas Contingency Operation,” as we call it these days). The legal front in this conflict has always been marked by controversy; merely deciding on the appropriate venue to prosecute alleged terrorists, for instance, has spurred acrimonious debate between those who believe that civilian courts are unfit to try terror suspects and others who believe that civilian courts should be the only option. While such disputes rage on, the U.S. legal system has developed a robust and evolving body of terrorism-related jurisprudence. In the decade since the September 11th attacks, close to five hundred individuals were prosecuted and convicted in federal courts for criminal offenses involving terrorism. On the civil side, terror victims have sought relief via a number of civil remedies, including those established under the Anti-Terrorism Act and Torture Victim Protection Act (though the latter only permits suit against individual terrorists). Complexities surrounding the various legal dimensions of terrorism have inspired scholarship on the subject and even given rise to law firms that focus on bringing suits against terrorist organizations and regimes that support terrorism, such as Shurat HaDin – Israel Law Center.

In recent months, U.S. federal courts have issued several opinions that offer insights into one particularly significant area of terrorism-related jurisprudence: civil suits against financial institutions and other corporations that allegedly support terrorist organizations. Two such opinions issued by the Second Circuit, Linde v. Arab Bank, PLC and Rothstein v. UBS AG, merit special attention because of their far-reaching implications.

Linde v. Arab Bank, PLC involved the review of a lower court order in a case in which the plaintiffs alleged that defendant Arab Bank had knowingly and purposefully supported terrorist organizations by providing them with financial services. Judge Nina Gershon of the Eastern District of New York ordered the defendant to produce a large number of documents; Arab Bank argued that these were protected by foreign bank secrecy laws and refused to produce the documents. In response, Judge Gershon imposed sanctions against Arab Bank—including a jury instruction that permitted the inference that Arab Bank had knowingly and purposefully provided financial services to terrorist organizations.

In Linde, Arab Bank petitioned the Second Circuit to overturn the lower court’s sanction order, or in the alternative, to issue a writ of mandamus declaring that Judge Gershon had abused her discretion by ordering it in the first place. The Second Circuit rejected these arguments and dismissed Arab Bank’s motion. First, it held that the motion to overturn the sanction order was interlocutory and too enmeshed with the merits of the case to be a reviewable collateral order. Accordingly, the Second Circuit found that it lacked jurisdiction over the order until the conclusion of trial. The Second Circuit also held that Arab Bank could not show that it had a clear and indisputable right to a writ of mandamus because Judge Gershon’s order found adequate support in the record, notwithstanding the Bank’s assertion that her order offended, inter alia, the principle of international comity.

Rothstein v. UBS AG involved an appeal from a lower court judgment dismissing an action against defendant bank UBS AG for allegedly facilitating terrorist attacks by transferring U.S. currency to Iran. The plaintiffs were direct or indirect victims of those attacks. Judge Jed Rakoff of the Southern District of New York concluded that the plaintiffs’ complaint failed to plausibly allege that their injuries were proximately caused by UBS’s conduct; he therefore rejected their action for lack of standing and failure to state an Anti-Terrorism Act (ATA) claim.

In Rothstein, the Second Circuit upheld the trial court’s dismissal of an ATA claim against UBS; the court found that the plaintiffs had failed to demonstrate a proximate link between the defendant’s financial transfers to Iran and terrorist attacks committed by Iran-sponsored terrorist groups such as Hamas and Hezbollah—namely, that financial transfers from UBS to Iran had specifically been used to fund those groups. Critically, the Second Circuit refused to shift onto UBS the burden of showing that its financial transfers to Iran were not utilized to finance terror, reasoning instead that the ATA’s language reflects legislative intent to have terror victims demonstrate a direct nexus between a defendant’s actions and their injuries.

Although these two holdings appear straightforward, their implications for terrorism-related jurisprudence are arguably in tension. Linde suggests that banks will not succeed in invoking foreign bank secrecy laws when faced with discovery orders—widening the scope of potential liability financial institutions could face. Rothstein, meanwhile, underscores that when banks are sued for allegedly facilitating terrorism under the ATA, a showing of proximate cause between their actions and a plaintiff’s injuries is sine qua non; this holding raises the bar to bring such claims against financial institutions. Since civil terrorism-related suits often involve—and sometimes hinge on—issues of bank privacy and causation, these two precedents will likely influence litigation strategies that both terror victims and financial institutions pursue in the future.