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N.Y. Judge Allows Exploration of Bank of China's Alleged Role in Terrorism
New York Law Journal
Victims of terrorist attacks against Israel by Hamas and the Palestine Islamic Jihad can proceed with a lawsuit accusing Bank of China Ltd. of knowingly allowing money transfers that funded the terror groups, a state judge in Manhattan has ruled.
In Keren Elmaliach v. Bank of China Ltd., 102026/09, New York Supreme Court Justice Barbara R. Kapnick ruled that while banks generally have no duty to protect non-customers from intentional wrongs committed by its customers, the plaintiffs had alleged facts suggesting that the state-owned Chinese bank was specifically told that it was funding terrorism and took no action. Kapnick also refused to dismiss the case on forum non conveniens grounds.
The lawsuit was filed on behalf of about 50 people either injured or related to those who were killed in rocket attacks carried out in Israel from 2005 through 2007 by Hamas and Palestine Islamic Jihad. Both groups have been designated foreign terrorist organizations by the United States.
Bank of China began providing services to the groups in 2003, administering accounts registered to Said al-Shurafa, a senior operative in both groups. Between 2003 and 2007, the bank executed "dozens" of wire transfers amounting to millions of dollars for the groups, according to Kapnick's opinion. The transfers were executed through Bank of China's branch offices in the United States.
The plaintiffs allege the bank knew the money it was transferring was being used to fund terrorism since at least April 2005, when Israeli counterterrorism officers met with China's security and central bank authorities and demanded the transfers be stopped. Although China's central bank told Bank of China of the demand, the bank continued allowing the transfers, according to the suit.
Plaintiffs also allege Bank of China should have known the transferred funds were being used for illegal activity because of various "red flags," such as money being withdrawn as soon as it was deposited and wire transfers made in amounts slightly less than round figures. Plaintiffs are seeking damages under Israel's Civil Wrongs Ordinance.
Bank of China moved to dismiss the case, both on the grounds that it never had knowledge the wire transfers were funding terrorism and that continuing with the action in New York was inconvenient to the parties.
Kapnick distinguished this case from Licci v. American Express Bank Ltd., 704 F.Supp.2d 403, which was dismissed in 2010. The plaintiffs in that case, she said, never alleged the bank had explicit notice of the terrorism.
"In contrast, the plaintiffs herein allege that BOC was specifically advised by Chinese officials that Shurafa's accounts were being used to fund terrorism, but nevertheless continued to facilitate the wire transfers."
She also noted that in a separate case in the Southern District of New York, Wultz v. Islamic Republic of Iran, 755 F.Supp.2d 1 (2010), which also names Bank of China as a defendant, the federal judge had found that the alleged contacts between Israeli and Chinese officials were enough to support an inference that the bank had notice that the wire transfers were funding terrorism.
The judge handed a small victory to Bank of China, writing "that the alleged red flags which arose in connection with Shurafa's account activity prior to April 2005 would, at best, impute constructive knowledge to BOC, and thus could not alone suffice as a basis for liability."
However, Kapnick said she would not dismiss claims arising before April 2005 yet, saying that "a final determination shall await discovery on the general question of BOC's relationship with Shurafa and knowledge of his activities with Hamas from the time the accounts were opened in 2003."
She also rejected the bank's forum non conveniens argument, noting it was conducting discovery in New York in Wultz.
"The bank's failure to seek a forum non conveniens dismissal in that forum significantly undercuts any claim of hardship," she said. "To the contrary, dismissing this action in favor of a Chinese forum would only increase the hardship on both parties by requiring that discovery on the same issues proceed in two different countries."
Robert J. Tolchin, of counsel to Jaroslawicz & Jaros, who represents the plaintiffs, said Kapnick's decision was "right on the mark."
Walter P. Loughlin of K&L Gates represents Bank of China.
"My client and I are reviewing the court's opinion. No decision to appeal or not to appeal has yet been made," he said Thursday.