and allowed funds to flow to terrorist groups through its branches in the Palestinian territories . The plaintiffs argued that the bank ’ s actions contributed to the funding and perpetuation of terrorist attacks that resulted in injuries and deaths .
After years of legal proceedings , the case went to trial in the U . S . District Court for the Eastern District of New York . In 2014 , a jury found Arab Bank liable for facilitating terrorism financing and awarded the plaintiffs hundreds of millions of dollars in damages . However , the case underwent numerous legal challenges and appeals , and in 2019 , the U . S . Supreme Court ruled that foreign corporations cannot be held liable under the Alien Tort Statute for violations of international law , effectively overturning the earlier verdict obtained by certain non-U . S . citizens plaintiffs against Arab Bank .
Similarly , HSBC and Standard Chartered Bank have faced civil lawsuits and legal scrutiny for their alleged involvement in facilitating transactions for entities with ties to terrorist organizations . These lawsuits underscore the potential liabilities faced by banks for failing to implement adequate anti-money laundering controls and compliance measures to prevent terrorist financing .
Addressing Challenges And Loopholes
Identifying challenges and loopholes in the existing regulatory framework that enable banks ’ involvement in funding terrorism is essential for enhancing the effectiveness of anti-money laundering ( AML ) and counter-terrorism financing ( CTF ) measures .
One significant challenge is the evolving nature of financial crimes , which often outpace regulatory responses and exploit gaps in oversight . Terrorist organizations , and those who do business with them , adapt their methods to circumvent detection , utilizing sophisticated techniques such as structuring transactions to avoid triggering AML alerts .
Additionally , the complexity of global financial systems presents challenges in monitoring and regulating crossborder transactions , allowing illicit funds to move seamlessly across jurisdictions . Fragmented regulatory frameworks and inconsistent enforcement practices further exacerbate the problem , creating opportunities for regulatory arbitrage and jurisdictional competition .
“ Banks are powerful institutions with quite literally all the money in the world , and they ’ ve designed the systems through which money flows and they can expertly manipulate what that system looks like and how it works ,” Paulos said . “ And that ’ s what they were doing for terrorists and terrorist organizations , and that ’ s what they ’ re doing for Iran , Syria , North Korea and Russia .
Paulos described a variety of mechanisms that facilitate this elaborate and covert irrigation of funds into terrorist organizations .
Tactic : Manipulating SWIFT Messaging
According to Paulos , banks set up departments specifically designed to manipulate SWIFT messaging . In order to flag suspicious activity , SWIFT messages have to contain certain information about the transaction : how much it is , where it came from , what it was for , who ’ s the customer , and who ’ s the beneficial owner .
This information can get manipulated “ ever so slightly ,” Paulos explained , with spaces between letters , for example , so the transaction would not get flagged by Office of Foreign Assets Control ( OFAC ) filters . OFAC is a department of the U . S . Treasury that enforces economic and trade sanctions the U . S . imposes against countries and groups of individuals .
“ As these things are passing through the correspondent banking system , a SWIFT message with something obvious like ‘ for Iranian terrorism ’ is going to get flagged as a suspicious transaction ,” Paulos said . “ So , they figure out ways to manipulate the data on the message or encoded meaning to seeming benign data , so the transaction passes through the safeguards in place , and the transaction is processed .”
Overcoming this challenge means courts must be willing to force banks to produce information about these systems and about their internal operations . The problem , according to Paulos , is that banks have very successfully enveloped themselves with the special treatment they claim is necessary for them because of their importance in global economy . Being “ too big to fail ” has helped banks lobby for special protections from disclosing transactional data or customer information , and they store this information in those countries where banks have most successfully convinced lawmakers of to provide these privileges and protections . e . g . Switzerland and the Carribean .“ A good example of this is how bank privacy laws in Switzerland allowed banks there to avoid disclosing the billions in gold that the Nazi ’ s looted in World War II ,” Paulos said . “ Banks in Switzerland used the special protections allowed them to hide their involvement in all the horrors of the holocaust for decades , and the massive amount money that those banks made during those disgusting chapters of world history , a fraction has been returned to the victims .”
In the end , banks have been able to avoid producing documents and discovery that a traditional defendant would normally be compelled to produce . A maddening result when Banks used their unique role in the financial system to profit , through omission or commission , from criminal activity , all the while enjoying the shelter of privacy laws and privileges the justification of which is that very same role .
Tactic : Muddying The Causal Chain
Money laundering happens to be a multi-layered , convoluted process — and that ’ s just how terrorism-funding banks like it . Because of this complexity , courts have dismissed actions against offending financial institutions . These courts rest their
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