The United States Court of Appeals for the Second Circuit issued an opinion on February 14, 2013, holding that the civil liability provision of the Anti-Terrorism Act of 1990, 18 U.S.C.§ 2333(a) (the “ATA”) does not permit secondary liability against foreign banks or other defendants on an “aiding and abetting” theory.1 The decision is significant because it is binding precedent in New York, where most cases against foreign financial institutions are brought. Previously, lower courts in New York had been divided on the question of whether the ATA permitted aiding and abetting liability.
The Decision
The Rothstein case was brought against a Swiss-based bank by forty-five victims of terrorist bombings and rocket attacks committed in Israel by Hamas and Hezbollah between 1997 and 2006. The bank was not alleged to have had any direct dealings with Hamas or Hezbollah. Rather, Plaintiffs based their claims on cash exchanges that the bank had made in Switzerland in its capacity as an Extended Custodial Inventory (“ECI”) facility pursuant to an agreement with the Federal Reserve. Under the terms of its ECI agreement with the Federal Reserve, the bank had agreed to comply with all regulations issued by the Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury Department. Plaintiffs alleged that in serving as an ECI facility, the bank had permitted Iran to exchange other funds for U.S. cash dollars; because the U.S. Department of State designated Iran as a “state sponsor of terrorism,” those financial transactions violated OFAC regulations.2
Plaintiffs sought to connect their injuries to the bank’s conduct by alleging that Iran had sent hundreds of millions of U.S. dollars in cash to Hamas and Hezbollah to fund terrorist attacks. Their complaint alleged that the bank had aided and abetted acts of international terrorism and sought civil damages pursuant to § 2333(a) of the ATA, which provides treble damages to U.S. nationals who are injured “by reason of an act of international terrorism.” Judge Rakoff of the United States District Court for the Southern District of New York dismissed the complaint. The decision assumed, without deciding, that § 2333(a) of the ATA permitted liability on an aiding and abetting theory, but dismissed the complaint because plaintiffs lacked standing under Article III of the U.S. Constitution. Judge Rakoff observed that allowing a claim on the alleged facts would create a dangerous precedent that even “the most remote and tenuous connections to organizations with some undefined relationship to undefined terrorist groups could subject potential defendants to ATA liability.”
The Second Circuit held that plaintiffs’ allegations satisfied the Constitution’s standing requirement but did not establish proximate cause. The bank had argued that the dollars provided to Hamas and Hezbollah by Iran could not fairly be traced to the cash exchanges because Iran held billions of dollars in its reserves. The Court disagreed, holding that “[i]t is reasonable to infer that Iran’s ability to amass U.S. currency was increased by the bank’s transfers.” Nonetheless, while these allegations were sufficient to establish some connection between the transfers and plaintiffs’ injuries, they were insufficient to establish proximate cause because “the fact remains that Iran is a...
