The United States Court of Appeals for the Second Circuit Rejects Aiding and Abetting Liability for Civil Damage Claims Under the Anti-Terrorism Act

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The United States Court of Appeals for the Second Circuit issued an opinion on February 14, 2013, holding that the civil liability provision of the Anti-Terrorism Act of 1990, 18 U.S.C.§ 2333(a) (the “ATA”) does not permit secondary liability against foreign banks or other defendants on an “aiding and abetting” theory.1 The decision is significant because it is binding precedent in New York, where most cases against foreign financial institutions are brought. Previously, lower courts in New York had been divided on the question of whether the ATA permitted aiding and abetting liability.

The Decision

The Rothstein case was brought against a Swiss-based bank by forty-five victims of terrorist bombings and rocket attacks committed in Israel by Hamas and Hezbollah between 1997 and 2006. The bank was not alleged to have had any direct dealings with Hamas or Hezbollah. Rather, Plaintiffs based their claims on cash exchanges that the bank had made in Switzerland in its capacity as an Extended Custodial Inventory (“ECI”) facility pursuant to an agreement with the Federal Reserve. Under the terms of its ECI agreement with the Federal Reserve, the bank had agreed to comply with all regulations issued by the Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury Department. Plaintiffs alleged that in serving as an ECI facility, the bank had permitted Iran to exchange other funds for U.S. cash dollars; because the U.S. Department of State designated Iran as a “state sponsor of terrorism,” those financial transactions violated OFAC regulations.2

Plaintiffs sought to connect their injuries to the bank’s conduct by alleging that Iran had sent hundreds of millions of U.S. dollars in cash to Hamas and Hezbollah to fund terrorist attacks. Their complaint alleged that the bank had aided and abetted acts of international terrorism and sought civil damages pursuant to § 2333(a) of the ATA, which provides treble damages to U.S. nationals who are injured “by reason of an act of international terrorism.” Judge Rakoff of the United States District Court for the Southern District of New York dismissed the complaint. The decision assumed, without deciding, that § 2333(a) of the ATA permitted liability on an aiding and abetting theory, but dismissed the complaint because plaintiffs lacked standing under Article III of the U.S. Constitution. Judge Rakoff observed that allowing a claim on the alleged facts would create a dangerous precedent that even “the most remote and tenuous connections to organizations with some undefined relationship to undefined terrorist groups could subject potential defendants to ATA liability.”

The Second Circuit held that plaintiffs’ allegations satisfied the Constitution’s standing requirement but did not establish proximate cause. The bank had argued that the dollars provided to Hamas and Hezbollah by Iran could not fairly be traced to the cash exchanges because Iran held billions of dollars in its reserves. The Court disagreed, holding that “[i]t is reasonable to infer that Iran’s ability to amass U.S. currency was increased by the bank’s transfers.” Nonetheless, while these allegations were sufficient to establish some connection between the transfers and plaintiffs’ injuries, they were insufficient to establish proximate cause because “the fact remains that Iran is a government, and as such it has many legitimate agencies, operations, and programs to fund.” The Court held that plaintiffs made no plausible allegation that the cash exchanged by the bank was in fact sent to Hezbollah or Hamas or that Iran would not have been able to fund those terrorist organizations without the cash from the bank.

The Court concluded by holding that § 2333(a) of the ATA does not permit recovery on an aiding and abetting theory. The statute itself is “silent as to the permissibility of aiding and abetting liability,” in contrast with certain criminal provisions of the ATA, which expressly provide for such liability. Previously, the United States Court of Appeals for the Seventh Circuit had held that § 2333(a) did not provide for aiding and abetting liability.3 Lower courts in other circuits, however, had reached the opposite conclusion or, like Judge Rakoff, had assumed without deciding that the statute did allow aiding and abetting liability.4

The Decision’s Impact on ATA Claims

The Rothstein decision’s ruling on proximate cause should provide a strong defense to financial institutions and other defendants who do not engage in transactions directly with terrorist organizations. In order to establish proximate cause, plaintiffs will have to show either that specific funds transferred to an intermediary were donated to a terrorist organization, or that the intermediary would not have been able to make the donation without the transfer.

The decision may also give courts an opportunity to reconsider the scope of primary liability under
§ 2333(a) of the ATA. Section 2333(a) of the ATA provides for civil liability to victims of “acts of international terrorism.” As defined by the statute, for an act to be considered an “act of international terrorism” it must meet four separate requirements: “(1) it must “involve violent acts or acts dangerous to human life”; (2) it must qualify as “a violation of the criminal laws of the United States or of any State” if it were committed within a United States jurisdiction; (3) it must “appear to be intended” to intimidate a civilian population, influence government policy, or affect the conduct of government by certain specified means; and (4) it must occur primarily outside the United States or transcend national boundaries.”5 While financial transactions would not ordinarily meet this statutory definition, district courts in New York have permitted plaintiffs to assert that alleged violations of the ATA’s separate provisions for providing “material support” to terrorists6 constitute “acts of international terrorism.”7 The Rothstein decision’s clear ruling rejecting theories of secondary liability under § 2333(a) provides a ground for revisiting the reasoning of those decisions, for “material support” should not be considered a proper basis for primary liability unless it meets the statutory definition of “acts of international terrorism.”

Footnotes

1 Rothstein v. UBS AG, ___ F.3d ___, 2013 WL 535770 (2d Cir. Feb. 14, 2013).

2 In 2004, the bank paid a $100 million civil money penalty to the Federal Reserve for entering into cash exchanges with counterparties in jurisdictions subject to OFAC sanctions.

3 Boim v. Holy Land Found. for Relief and Dev., 549 F.3d 685 (7th Cir. 2008).

4 See, e.g., Linde v. Arab Bank, 353 F. Supp. 2d 327 (E.D.N.Y. 2004); Weiss v. Nat’l Westminster Bank, 453 F. Supp. 2d 609 (E.D.N.Y. 2006); Goldberg v. UBS AG, 660 F. Supp. 2d 410 (E.D.N.Y. 2009); Wultz v. Islamic
Republic of Iran
, 755 F. Supp. 2d 1 (D.D.C. 2010).

5 Licci v. Lebanese Canadian Bank, 673 F.3d 50, 68 (2d Cir. 2012) (quoting 18 U.S.C. § 2331(1)(A)).

6 18 U.S.C. § 2339A (knowing or intentional provision of material support, including “financial services,” for terrorist activities), § 2339B (knowing provision of material support to foreign terrorist organizations), and § 2339C (unlawfully and willfully providing or collecting funds with the knowledge or intention that such funds be used for terrorist activities).

7 See, e.g., Weiss, 453 F. Supp. 2d at 615 ; Strauss v. Credit Lyonnais, 242 F.R.D. 199, 205 (E.D.N.Y. 2007); Almog v. Arab Bank, 471 F. Supp. 2d 257, 266-68 (E.D.N.Y. 2007); Goldberg, 660 F. Supp. at 414; see also Boim, 549 F.3d at 720 (7th Cir. 2008).

 

Topics:  Aiding and Abetting, Anti-Terrorism Act, Article III, Damages, Extended Custodial Inventory, Foreign Banks, Hamas, Hezbollah, OFAC, Standing, Terrorist Acts, Treble Damages

Published In: Civil Procedure Updates, Civil Remedies Updates, Constitutional Law Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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