In response to criticisms from the families of U.S. citizens who were held hostage by terrorist groups abroad and subsequently killed, the administration has announced an overhaul of its hostage policies. One component of this new policy is an explicit rejection of attempts to prosecute individuals for paying ransoms, including to designated Foreign Terrorist Organizations (“FTOs”) in exchange for hostages. Setting aside the issue of whether it is in the interest of the United States to permit ransoms, payments of this type may lead to liability on the part of financial institutions or others providing related assistance.
It’s important to begin from the fact that ransom payments to FTOs or Specially Designated Global Terrorists (“SDGTs”) identified by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) are illegal under U.S. law. Monetary contributions to FTOs are considered material support under 18 U.S.C. 2339B, while transfers to SDGTs are violations of economic sanctions imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”).
Furthermore, as the Financial Action Task Force (“FATF”) notes in discussion of ransom payments to the Islamic State in Iraq and the Levant (“ISIL”),
“[U.N. Security Council] Resolution 2161 applies to both direct payments and indirect payments through multiple intermediaries, of ransoms to groups or individuals on the Al-Qaida Sanctions List. These restrictions apply not only to the ultimate payer of the ransom, but also to the parties that may mediate such transfers, including insurance companies, consultancies, and any other financial facilitators.”
Nevertheless, the Obama administration has recently decided to formalize what has long been an unofficial policy of non-prosecution of families who pay, or attempt to pay, ransoms to terrorist organizations.
However, it is unclear what, if anything, this means for third party individuals and entities that must necessarily be involved in getting funds from the United States to kidnappers. These include consultants, intermediaries, and financial institutions both those involved in holding accounts used in connection to ransoms and in processing ransom payments. While the government has committed to non-prosecution of families, the fact remains that those involved in paying or facilitating the payment ransoms to designated terrorist groups are involved in criminal activity as defined by Federal Law.
If attempts to raise and transfer ransoms begin to occur with greater frequency as a result of this newly publicized policy, it could prove problematic to financial institutions in particular.
First, while the government says it will not go after relatives of hostages, the official policy of the United States is still that ransoms encourage more kidnapping of U.S. citizens and therefore they should not be paid. While it would seem disingenuous were the government to pursue civil or criminal penalties against financial institutions, while simultaneously rendering the originators of the payments off-limits, potential liability is still a concern. There may come a time where a future administration decides it is in the interest of the United States to deter ransoms without suffering the PR disaster that would accompany prosecution of a hostage’s family member.
Another potential concern is the possibility of a civil suit under the Anti-terrorism Act (“ATA”). Passed in 1990 and revised in 1992, the ATA, codified at 18 U.S.C. 2333(a), provides a private right of action to U.S. nationals who have suffered injury to “person, property, or business by reason of an act of international terrorism.” In the past several years it has been used with increasing frequency to target financial institutions that processed payments or held accounts on behalf of organizations supporting designated terrorist groups. See Linde v. Arab Bank, Weiss v. NatWest, Strauss v. Credit Lyonnais.
The September 2014 2nd Circuit ruling in Weiss v. NatWest is particularly relevant in this context. In its decision, the court overruled a lower court and allowed the Weiss v. NatWest suit after determining the lower court used an incorrect standard for determining whether a triable issue of facts was present in order to proceed with an ATA suit. The lower court ruled that the Plaintiffs did not show that NatWest demonstrated the requisite knowledge of, or exhibited deliberate indifference to, the fact that Interpal, a UK-based Palestinian aid group, was channeling funds to Hamas. Based on this ruling, they granted NatWest’s motion for summary judgment.
The 2nd Circuit ruled that a narrower standard applies.
“We conclude that the statute’s requirement is less exacting, and requires only a showing that NatWest had knowledge that, or exhibited deliberate indifference to whether, Interpal provided material support to a terrorist organization, irrespective of whether Interpal’s support aided terrorist activities of the terrorist organization.”
This ruling seems to open up financial institutions to liability under the ATA if the participate in efforts to transmit ransoms to terrorist groups. As families rarely have sufficient funds themselves to pay ransoms, donations must be solicited and gathered in bank accounts prior to transmission. While the names of hostages are often kept secret, this is not always the case. Large, unexplained deposits and withdrawals coupled with public disclosure of information of hostages could be enough for a future plaintiffs attorney to initiate a lawsuit claiming a financial institution had sufficient knowledge that a payment was going to be made to a designated entity. While the optics of such a suit may not be the best, it’s a scenario financial institutions may want to consider when analyzing potential risk.