New Report on Bank Terrorism Liability

Jeffrey Breinholt

One of the benefits of being on a sabbatical from my government job is more time to interact with students interested in careers in national security. I often tell them they should not assume their ideas have ever been considered by American counterterrorism officials, and they should get them out there and not be surprised when they find they are onto something unique and cutting-edge. After all, the Pentagon found that the expertise of one of the Doobie Brothers warranted awarding him a consulting contract. Who would have predicted that?

Stephen Landman is a second year law student at the Catholic University of America, and he sent me a copy of a research paper on bank liability for transferring money to terrorists. The paper was so good that I encouraged him to let me publish it on the website of the International Assessment and Strategy Center (here).

Extending legal liability for terrorist attacks to banks is an important question, and one which is currently being considered by several federal courts. Steve puts the dilemma as follows:

Although it is easy to identify these groups on their face, realistically, a leader of Hamas does not walk into a bank in London and request to open an account in order to support the Intifada. What is more likely is that Hamas would use a front organization to set up their financial accounts. Although the U.S. and the international community must continue to unmask these front groups, financial institutions must deny services to the hundreds that have already been labeled.

I sometimes think that the prospect of terrorism liability will spawn new and rigorous techniques of due diligence and "know your customer" methods by regulated financial institutions that have never been contemplated. This prospect cuts in favor of holding banks responsible for the consequences of violent attacks financed through their systems' transactions, at least when it can be shown that the banks should have done more to put themselves on notice. It represents a counterargument to the "routine transaction" defense some federal judges have created as an affirmative defense to bank terrorism liability.

I am not fan of the "routine transaction" doctrine. After all, Hamas and Hezbollah routinely kill people, and the fact that this is – to their twisted minds – "routine" makes it no less evil. It would seem that a clear consensus that financial transactions by Hamas and Hizballah and their ilk - including their front organizations - are never “routine” would lead to banks digging deeper to identify the fronts, which can then be reported to the government pursuant to the Bank Secrecy Act. More expensive for bank compliance departments? Sure, but terrorism can be pretty expensive to surviving family members of victims.

Meanwhile, lest anyone think that I am an enemy of the banking industry, it’s about time for someone to take the plunge, and it might as well be me: the U.S. should start granting security clearances to trusted banking officials, and share real-time classified intelligence with them so they can develop better due diligence algorithms. Unprecedented? Not when you consider that Booz Allen, SAIC, Boeing, Lockheed and Raytheon are granted this access in the course of their government contracts. The likely benefits exceed the risks. I say let’s do it.

I hope that the report by Stephen Landman –- who can generally be found at every counterterrorism public event around Washington D.C., even while he maintains full course load working towards his law degree – will be considered by U.S. policymakers.

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FamilySecurityMatters.org Contributing Editor Jeff Breinholt is a Senior Fellow and Director of National Security Law at the International Assessment and Strategy Center (www.strategycenter.net.) Jeff blogs on the Counterterrorism Blog.

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