The Big Bet to Hold Banks Liable for Terrorism
Steven Vincent had just left a money exchange in the southern Iraqi city of Basra when a group of men in police uniforms drove up in a white truck and grabbed him and his translator. It was Aug. 2, 2005. Vincent, a freelance American journalist, had reported on the war for two-and-a-half years. British troops occupied Basra, but he operated without an embed arrangement. British and Iraqi authorities later found Vincent on the outskirts of the city shot dead. The Iraqi translator survived.
Three days earlier the New York Times had published an op-ed article by Vincent, “Switched Off in Basra,” in which he described the infiltration of the local police by Iranian-backed Islamic extremists. “Steven was executed for what he wrote,” says his widow, Lisa Ramaci. She’s set up a foundation in his name that donates money to the families of Iraqis injured or killed because of their work with U.S. journalists. And Ramaci did something else. In November she joined a lawsuit on behalf of relatives of U.S. soldiers and civilians who’ve died in Iraq as a result of violence linked to Iranian-backed militias and terrorist groups.
The suit, filed in federal court in Brooklyn, N.Y., seeks hundreds of millions of dollars not from death squads, whose members aren’t likely to show up with lawyers in tow. Instead, it targets five of the largest banks in the world: HSBC, Credit Suisse, Barclays, Standard Chartered, and Royal Bank of Scotland. “Defendants,” the suit declares, “committed acts of international terrorism.” The suit, known as Freeman v. HSBC, takes its name from lead plaintiff Charlotte Freeman, whose husband, Brian, an Army captain, died in a Jan. 20, 2007, attack by Iranian-trained militants in Karbala, Iraq.
This far-fetched-seeming attempt to pin culpability for violent deaths on bankers relies on an intricate theory of causation: The European-based banks have handled hundreds of billions of dollars in international transfers for Iranian financial institutions. The Iranian financial institutions, in turn, have moved money for the Islamic Revolutionary Guard Corps (IRGC), an elite Iranian paramilitary organization, and for Hezbollah, the militant Shia movement based in Lebanon and backed by Iran. The Revolutionary Guard and Hezbollah have trained and armed Shia groups in Iraq that have kidnapped, shot, and blown up Americans, including Vincent and Freeman.
Can the global banking industry be held liable for the detonation of improvised explosive devices and destruction of lives? “It may sound wild-eyed or quixotic, but that’s what we’re trying to do,” says Gary Osen, the New Jersey lawyer who recruited the 230 plaintiffs for Freeman v. HSBC.
Osen, 46, seems an unlikely scourge of high finance. His six-lawyer firm in Hackensack lacks the kind of war chest associated with the heavyweights of the asbestos and tobacco bars. He’s obviously bright but has a wooden courtroom manner. He wears off-the-rack suits and a Timex watch. “I’m a modest man who has much to be modest about,” he says, paraphrasing a famous put-down attributed to Winston Churchill.
The humility is misleading. Only weeks before he filed the HSBC case, Osen won the first-ever jury verdict in a trial seeking to hold a major bank responsible for terrorist violence. Osen convinced a jury in the same Brooklyn federal courthouse that Jordan-based Arab Bank, one of the most prominent financial institutions in the Middle East, transferred money from donors in Saudi Arabia and elsewhere through its branch in New York and on to backers of Palestinian suicide bombers who killed Americans in two dozen attacks in Israel from 2000 to 2004. This summer a second jury will consider how much Arab Bank must pay—an amount Osen estimates could approach $1 billion. Meanwhile, in other pending terrorism-finance suits, he’s won preliminary rounds against the U.K.’s National Westminster Bank and Crédit Lyonnais of France.
Part of what makes Osen effective is his ability to tap other lawyers with deeper pockets. Another advantage is family tradition. Osen learned lawyering from his father, Max, a German immigrant who represented families of Holocaust victims seeking to recover assets stolen by the Nazis.
Skeptics say Osen plays on emotions and cleverly redirects victim anger toward banks he can squeeze for big payouts. He’s exploiting anxiety about terrorism, they complain, to dress up what amounts to global ambulance-chasing.
“The plaintiffs’ evidence in this case is a mile wide and an inch deep,” said defense lawyer Shand Stephens in September after losing the Arab Bank trial. Stephens is a partner at 4,200-attorney DLA Piper, the largest law firm in the world. He denies wrongdoing by his client, as do lawyers for HSBC and the other Europe-based banks named in Osen’s suits, and vows to appeal. (Bloomberg Businessweek sought comment from representatives of every bank mentioned in this article; most did not respond.)
Osen has gotten as far as he has, according to his detractors, only because courts want to show sympathy for terrorism victims. In a sense that’s another way of saying Osen is doing what good lawyers do: capitalize on how jurisprudence evolves to fit the times.
Even compared with other law students at George Washington University in the early 1990s, Osen stood out for his bookishness—“a meticulous researcher,” professor Peter Raven-Hansen recalls. Osen intended to seek a staff job on Capitol Hill until the day his mother, Esther, called near graduation time in the spring of 1992. His father, Max, needed Gary’s help. The fall of the Berlin Wall in November 1989 opened communist archives containing previously concealed information on Nazi thievery. Max was overwhelmed.
Born in Frankfurt, the elder Osen escaped Hitler in 1937 at the age of 11. He returned to Germany in 1945 as a U.S. soldier and later attended law school on the GI Bill. In second grade, when young Gary’s classmates responded to a make-your-own-book assignment with tales of dinosaurs and astronauts, Max’s son depicted the Nuremberg trials, complete with death sentences for Hitler’s top henchmen.
As his father’s apprentice in the 1990s, Gary became a world-class authority on the Nazis’ “Aryanization” program. Beginning in the late ’90s, he won a series of German rulings that have produced hundreds of millions of dollars in restitution from the sale of choice properties in East Berlin confiscated during the war from the Jewish owners of a luxury department-store chain. “You can’t give people their relatives’ lives back or erase the suffering,” Osen says, “but you can make a statement about evil that occurred.”
Contingency fees from the reparations cases have helped Osen sustain the small firm he inherited from his father. He lives in New Jersey, where he and his wife raise three children. His utilitarian office in Hackensack could be mistaken for an insurance brokerage, except perhaps for the framed prints of artwork stolen by the Nazis. Osen has no summer place in the Hamptons or private jet. On the positive side, he says, “I’m never bored.”
In his neighborhood, everyone knew someone affected by the Sept. 11 attacks. Osen volunteered to do legal chores for a neighbor who lost her husband at the World Trade Center, but he “wanted to do something more broadly impactful.”
Osen called his law school mentor, Raven-Hansen. The professor reminded him that the law doesn’t provide a remedy for all bad acts, but there was a 1992 statute called the Anti-Terrorism Act that hadn’t been thoroughly tested in court. Inspired by the 1985 Palestinian hijacking of the cruise ship Achille Lauro, civil provisions of the ATA allow individual terrorism victims to seek triple their damages for “violent acts or acts dangerous to human life.” With perpetrators typically difficult to find, some observers had written off the ATA as impractical and largely symbolic. After Sept. 11, that began to change.
In 2002 the U.S. Court of Appeals for the Seventh Circuit in Chicago cleared the way for a suit under the ATA by parents of an American teenager killed in Israel in 1996 by a member of Hamas, the Palestinian movement labeled as terrorist by the U.S. The grieving parents accused two U.S.-based Islamic charities of channeling money to Hamas. The ATA, the appeals court said, “would have little effect if liability were limited to persons who pull the trigger or plant the bomb.”
Osen and Raven-Hansen decided to see if the ATA could be stretched even further—to cover not only a charity that funds a terrorist group, but also a bank that allegedly serves as middleman between donors and suicide bombers. But which bank to go after?
Osen’s plan took shape after he read about an April 2002 telethon held by the Saudi Committee for the Support of the Intifada Al-Quds. The event raised money for Palestinians affected by—and involved in—the violent uprising then unfolding against Israel. The same month, after a Passover bombing killed 30 Israelis and wounded 140 at a hotel in Netanya, the Israeli military recovered a trove of documents in the West Bank that allegedly linked Amman-based Arab Bank to Hamas payments to families of suicide bombers. Israel made the documents publicly available, and Osen hypothesized that Arab Bank provided the critical link between Saudi donors and the encouragement of suicide bombers.
Next, he needed clients. Mutual friends introduced him to Sarri Singer, a fellow New Jersey native. On June 11, 2003, Singer, living in Israel at the time, sat down in a window seat on Jerusalem bus No. 14. Moments later the bus blew up. The explosion broke her clavicle, punctured both eardrums, and lodged shrapnel in her mouth. The girl sitting next to her was killed, one of 16 fatalities that day. Osen, she says, “made a good argument that the only way to strike back was by seeking money damages from someone.”
To augment his client pool and bulk up on legal muscle, Osen allied himself with larger plaintiffs’ law firms assembling their own stables of potential terrorism-victim clients. Soon he led a consortium that included Motley Rice, a well-known asbestos and tobacco firm based in Mount Pleasant, S.C., and, as a frontman in court, Tab Turner of North Little Rock, Ark., dean of the vehicle-rollover lawsuit. “Gary’s a blue-collar lawyer after my own heart, not one of these boys in the gleaming corporate offices,” says Turner. Among them the plaintiffs’ lawyers amassed a client list of Americans killed or wounded in Israel and their relatives—120 people in all.
In July 2004, Osen filed suit accusing Arab Bank of “knowingly and purposefully” providing Hamas with financial services. Among dozens of alleged terrorist customers, the complaint identified 18 Hamas leaders. Over a period of five years, the Saudi Committee used Arab Bank to funnel millions of dollars to the Palestinian cause, according to the suit. Some of that money funded what Osen called a “death and dismemberment benefit plan” under which the bank made payments equivalent to about $5,300 apiece to the families of suicide bombers.
Founded in Jerusalem in 1930, Arab Bank operates a network of 600 branches on five continents. Its legal team at DLA Piper denied that the bank knowingly did business with terrorists. Instead, according to DLA Piper, Arab Bank provided strictly “routine banking services in accordance with applicable laws and regulations in all of the jurisdictions where it operates.” Moreover, the defense team pointed out that the bank had at times cooperated with U.S. counterterrorism investigations.
Osen leveraged the evidence he’d gathered by sharing some of it with investigators at the U.S. Department of the Treasury, which launched its own probe. In 2005, a year after Osen filed suit, Arab Bank agreed to a settlement with the department’s Financial Crimes Enforcement Network, which had been looking into whether the bank had adequate protections against money laundering and terrorism finance. Without admitting wrongdoing, Arab Bank agreed to pay a $24 million fine and limit activities of its New York branch. But the settlement focusing on the bank’s procedural shortcomings, Osen says, “was a far cry from the guilt we wanted to establish.”
Judicial attitudes continued to shift in Osen’s favor. In 2008 the full Seventh Circuit issued an opinion in the protracted Muslim-charities litigation in Chicago. Written by Judge Richard Posner, it expressed an expansive interpretation of the ATA. Posner, a highly regarded former professor at the University of Chicago, compared donations to Hamas to “giv[ing] a loaded gun to a child”—a vivid metaphor that rippled through the court system. “Upon that single sentence much recent case law has been premised,” observes Lanier Saperstein, a lawyer defending Bank of China against terrorism-finance allegations in a separate case. “However, while an admirable rhetorical flourish, the analogy is strained,” he adds. “Money, unlike a gun, is not by its nature a dangerous object.”
In New York, U.S. District Judge Nina Gershon grew impatient with Arab Bank’s insistence that Jordanian and Palestinian bank secrecy rules forbade it from turning over account records Osen demanded via the pretrial discovery process. In July 2010, Gershon issued a draconian ruling: Jurors would be allowed, although not required, to infer from the bank’s intransigence that the missing documents corroborated evidence presented in court that it had knowingly financed Hamas.
Seeking the intervention of the U.S. Supreme Court, Arab Bank objected that the Gershon ruling would kill its chances at trial and “threaten the ruin of the single most important financial institution in the Palestinian territories and Jordan if not the entire Middle East.” Officials at the U.S. Department of State shared at least some of the bank’s alarm, although the Justice and Treasury departments argued that the Obama administration shouldn’t take the side of the accused bank. In the end, the administration split the difference. Justice filed a brief that May, warning that the Gershon order “could undermine the United States’ vital interest in maintaining close cooperative relationships with Jordan and other key regional partners in the fight against terrorism.” But Justice also urged the Supreme Court to reject Arab Bank’s plea for pretrial intervention, advice the high court followed.
Hindered by the evidentiary ruling, Arab Bank had a bad time during the trial, which began in Brooklyn in mid-August. Governments, not banks, should decide who’s a terrorist, Stephens, the defense lawyer, told jurors. “You wouldn’t want to have Google or Facebook or Wal-Mart” deciding “who belongs on a terrorist list,” he said in his closing argument on Sept. 18. Turner delivered a characteristically folksy performance, comparing the celebrity of the late Hamas leader and Arab Bank client Sheik Ahmed Yassin to that of pop superstar Jennifer Lopez. Arab Bank’s executives, Turner said, “knew what they were supporting.” Osen added a stiff coda in which he said, “All of my colleagues here worked for the last 10 years to hold these people accountable.” The jury took only two days to return its verdict.
Disdaining the proceedings as “nothing more than a show trial,” Arab Bank’s lawyers immediately vowed an appeal. “The court,” they added, “gagged the bank by excluding many of its witnesses, severely restricting the ability of other witnesses to testify, and precluding all evidence of its innocent state of mind.” The bank gagged itself, Osen counters, when it refused to disgorge the records.
Osen never saw the battle with Arab Bank as the culmination of his campaign. While that clash unfolded, he opened files on U.S. government investigations of far larger Europe-based financial institutions with operations in New York. The banks he chose to focus on had run afoul of American regulations restricting business with customers in Iran, a U.S.-designated state sponsor of terrorism. To resolve the probes, the banks agreed to Department of Justice deals known as deferred prosecution agreements. Under the agreements, corporate defendants pay fines, don’t dispute they’ve done wrong, and promise to reform—all with the threat looming of a potential future criminal indictment.
Credit Suisse resolved its sanctions violations with an agreement to pay $536 million in fines in December 2009. Royal Bank of Scotland agreed to $500 million in May 2010; Barclays, $298 million in August 2010; Standard Chartered, $667 million in December 2012; and HSBC, $1.9 billion, also in December 2012. Stuart Gulliver, HSBC Group’s chief executive officer, said of the settlement that the bank, Europe’s largest, was “profoundly sorry” and accepted “responsibility for our past mistakes.”
That wasn’t enough for Osen. He’d already begun recruiting a new batch of plaintiffs, including Vincent’s parents and widow. The case against the Europe-based multinationals piggybacks on the U.S. sanctions actions and other allegations. The complaint notes that for more than a decade, Washington has blamed Iran for fomenting violence in Iraq. For example, in 2006, Lieutenant General Michael Barbero, then a senior U.S. military official in Iraq, said publicly: “It’s irrefutable that Iran is responsible for training, funding, and equipping some of these Shia extremist groups and also providing advanced IED technology to them.” The Revolutionary Guard and Hezbollah are the main Iranian-backed forces responsible for supporting anti-American violence in Iraq, according to the State Department’s 2006 Country Reports on Terrorism and subsequent U.S. determinations.
Who finances the IRGC and Hezbollah? In October 2007 the Treasury Department answered that question, in part, by officially designating Iranian state-controlled Bank Saderat and Bank Melli, the largest bank in Iran, as financiers of terrorism. In particular, Treasury said that from 2002 to 2006, Saderat and Melli had transferred a total of $150 million for the benefit of the IRGC and Hezbollah. And, in a crucial final link, according to Osen’s suit, the European banks have all provided financial services to Saderat and/or Melli.
Drawing on the publicly available results of government investigations, the suit provides numerous examples of the defendant European banks allegedly seeking to obscure dealings with the Iranian institutions. In one series of internal memos dating from 2002 through 2006, Barclays employees acknowledged using a method called “cover payments” to “circumvent U.S. legislation” barring business with Iran, Cuba, and certain other countries. “Moral risk exists if we carry on using cover payments, but that is what the industry does,” an April 2005 Barclays memo stated. “IMHO”—in my humble opinion—the memo continued, “we should carry on using cover payments and accept that there is a risk of these being used on occasion to hide true beneficiaries (who may or may not be sanctioned individuals or entities).”
At Credit Suisse, an e-mail circulated in May 2005 explained: “No reference to Iran may be made in the field reserved for information on the ordering party (no Iranian telephone numbers either).” In an October 2006 e-mail, the head of Standard Chartered Bank’s New York operation warned an executive at the home office in London that continuing to do business covertly with counterparties in Tehran potentially exposed “management in U.S. and London (e.g. you and I) and elsewhere to personal reputational damages and/or serious criminal liability.” The Standard Chartered executive in London allegedly responded: “You f---ing Americans, who are you to tell us, the rest of the world, that we’re not going to deal with the Iranians?”
Osen intends to be that American. “The government [sanctions-violation] settlements don’t connect the dots between the evidence of widespread concealment of the defendants’ dealings with Iranian banks and the activities of IRGC and Hezbollah financed by those Iranian banks,” he says. “We’re connecting the dots.”
Reminded that the dots enumerated in his legal papers don’t actually link Barclays or HSBC or Credit Suisse to any terrorist groups, Osen responds: “We don’t have to show that particular defendants were the physical conduits for payments to Hezbollah.” It’s sufficient, he says, that the defendants “took part in an industrywide conspiracy that made the terror financing possible. Moreover, they were deliberately indifferent to the lethal consequences.”
The banks all deny Osen’s allegations, and more powerful law firms have stepped up to defend them: Cravath, Swaine & Moore for Credit Suisse, Sullivan & Cromwell for Barclays and Standard Chartered, Clifford Chance for Royal Bank of Scotland. “The allegations in the plaintiffs’ current complaint fail to state a claim against any” of the five defendants, HSBC’s law firm, Mayer Brown, said in a Jan. 13 filing. In an e-mail, Stuart Alderoty, general counsel of HSBC North America, said the bank is “committed to combatting financial crime and has taken strict steps to keep bad actors out of the global financial system. We intend to defend ourselves vigorously against these legal claims.” (In a separate case, Swiss authorities on Feb. 18 searched HSBC’s private bank offices in Geneva as part of a money-laundering probe.)
Osen notes that he has a structural advantage. In their government settlements, the banks have already acknowledged misconduct. The banks, Osen says, “have to defend themselves in the context of Americans losing their lives.” Raven-Hansen, his former law professor and now co-counsel, frames the bigger picture: Through the ATA, he says, Congress “intended to impose liability ‘at any point along the causal chain of terrorism,’ including the flow of money. Banks need to think twice about their role in that causal chain. Civil liability would make them think twice.”