THEIR BOTTOM LINE PROVIDING A LEGAL BASIS FOR … · 2019] 173 THEIR BOTTOM LINE: PROVIDING A LEGAL BASIS FOR REGULATING RATINGS AGENCIES TO COMBAT MONEY LAUNDERING IN THE BANKING

2019] 173

THEIRBOTTOMLINE:PROVIDINGALEGALBASISFORREGULATINGRATINGSAGENCIESTOCOMBATMONEY

LAUNDERINGINTHEBANKINGINDUSTRY

MelanieGoldberg*+

TheAmericanbankingindustryhaslongcomplainedaboutoverregulationanditsineffectiveness.Althoughbanksdoneedspace to operate and to ensurea capitalistic societyfunctionsat premium levels, taking a step back fromregulation,asthisadministrationseemstobedoing,resultsinanuptick in terrorist fundingbybanks.Nevertheless, there isstill a need to put pressure on banks to ensure they are notcomplicit in terrorist acts, let alone ensuring they are notaiding in forwarding them.This is especially significant giventhatthepriorregulations,whichhavebeeninplacesince2001,andsubsequentlawsuits,haveprovenineffective.

However, there are alternatives to lawsuits andregulationstoforcebanksintocompliance.Themosteffectivealternative ensures that ratingsagencies will drop a bank’srating for financing terrorism. This is in contrast to pursuinglawsuitsagainstsuchbanks,orregulatingthem,whicharethecurrent modes of policing the offending institutions. Thisworks because theratingsagencies hold significant influenceover a bank’s actions. Therefore, forcing them to consider abank’sviolationswhencalculatingtheirratingisthepreferable

*MelanieGoldbergservesasanAssistantLawClerkfortheNewYorkStateSupremeCourt,AppellateDivision,FirstDepartment.Herworkinbothpublicandprivatepracticefocusesonsecuritiesregulation,compliance,litigation,andappeals.ShegraduatedfromBenjaminN.CardozoSchoolofLawinNewYorkCityinMay2017,andwasadmittedtotheNewYorkandNewJerseyStateBarsin2018.ThisarticleisthesoleopinionofMrs.Goldberg,andnotnecessarilytheopinionofheremployer.+TheprecursortothisarticleappearedinbothEnglishandHebrewintheJuly2018issueofTheInstituteforNationalSecurityStudiesatTelAvivUniversity,JournalofStrategicAssessment,accessiblehere:http://www.inss.org.il/publication/numbers-involving-rating-agencies-fight-terrorism/.

National Security 174 Law Journal [Vol.6:2

option Americans should pursue if they wish to stop thefinancingofterrorontheirsoil.

I. INTRODUCTION......................................................................................174II. BACKGROUND&ANALYSIS..................................................................176

A. TheReachoftheAnti-TerrorismAct&ItsFailure..................176B.OFAC&ItsIneffectiveness.................................................................185

III.ANALYSIS................................................................................................198IV. PROPOSAL...............................................................................................203IV. CONCLUSION...........................................................................................208

I. INTRODUCTION

Since the onset of the financial crisis, a debate haspersisted among policymakers about how best to regulatebankinginstitutions.Largely, thisdebatehasfocusedonhowtostabilize the American financial industry and economywithoutsacrificing its dynamism.1 A growing facet of this debate,however, has little to do with the domestic effects of bankingregulation; rather, because “terrorist financing is hitting a newstage...[andbecause]wehavemajororganizationsaroundtheworld that want to access the [American] financial system,because they have significant amounts of capital to invest,”banking regulations have become a focal point in the fightagainstterrorism.2Still,withthecurrentadministrationtakinga

1AlanS.Blinder&MarkZandi,TheFinancialCrisis:LessonsfortheNextOne,CTR.ONBUDGET&POL’YPRIORITIES(Oct.15,2015),https://www.cbpp.org/research/economy/the-financial-crisis-lessons-for-the-next-one.ThisarticlewascompletedinFebruary2019,justwhenthenewDemocraticHousemajoritytookeffect.2TracyKitten,TerroristFinancingaGrowingWorryforUSBanks,BANKINFOSECURITY(Mar.16,2016),http://www.bankinfosecurity.com/interviews/terrorist-financing-growing-worry-for-us-banks-i-3125.

2019] TheirBottomLine 175

stepbackinbankingregulation,3effectiveregulationisaneasilyneglectedaspect.

It remains important to put pressure on the bankingindustry to ensure they do not forward terrorist acts. This isespeciallysignificantgiventhattheregulations,whichhavebeenin place since 2001, and litigation,which has been pending fordecades,havebothproventobeineffectivedeterrents.Yet,therearealternativestolawsuitsandregulationsthatforcebanksintocompliance.

Thisarticleseekstoestablishamoreeffectivealternativetoincreasedbankingregulationandcivilianlawsuitstodissuadebankinginstitutionsfromfinancingterror.Specifically,itprovesthatbankswillbeeffectivelydeterredfromfinancingterrorismiftheir ratings are dropped because of their terror-moneylaunderingactivities.Toprovethis,thisarticlewillfirstfocusonthe history of American banking regulation regarding terroristfinancinganditscurrentstateofaffairs.Itwillalsoexaminehowcivilianshave sued someoffendingbanks, andhow those sameoffending banks have settled countless violations with the U.S.Department of Treasury (Treasury). The ineffectiveness of thelawsuits in policing these offendingbanking institutions is bestillustratedbyemphasizinghow longeachsuit took toprogress,the inability to collect upon a guilty verdict, and the incessantappeals that resulted, which often overturned the guilty juryverdicts on obscure procedural grounds. This article will thendiscusstheoperations,regulations,andsettlementsoftheOfficeofForeignAssetsControl(OFAC).Thefailureofsuchsettlementswill then be reflected in showing the recidivism rate of thebanking institutions that settled. Finally, this article will showthe significant influence that ratings agencies have on bankinginstitutions. Therefore, forcing ratings agencies to consider abank’s OFAC violations when calculating their rating is the

3SylvanLane,FedBankRegulatorWalksTightropeonDodd-Frank,THEHILL(Nov.14,2018),https://thehill.com/policy/finance/416771-fed-banking-regulator-walks-tightrope-on-dodd-frank.SeealsoUpdatefromtheComptrolleroftheCurrency:HearingBeforetheS.Comm.onBanking,Housing,andUrb.Aff.,115thCong.19(2018)(testimonyofJosephM.Otting,ComptrolleroftheCurrency).


preferable option for stopping the financing of terror onAmericansoil.

II. BACKGROUND&ANALYSIS

A. TheReachoftheAnti-TerrorismAct&ItsFailure

In response to the 1985 Palestinian hijacking of theAchille Lauro cruise ship, in which an American citizen wasmurdered, Congress enacted the Anti-Terrorism Act (ATA) in1992 as a private civil remedy provision.4 The ATA allowsindividualvictimsof terror toseekdamages for“violentactsoracts dangerous to human life.”5 The provision acts both as aterrorism deterrent and as a means of affording remedies tothosevictimizedby terrorismbyallowingvictimsof terrorandtheir surviving family members to sue terrorists and theirfinanciers in federal court.6 However, “[w]ith perpetratorstypicallydifficulttofind,someobservershadwrittenofftheATAas impractical and largely symbolic. After the attacks ofSept[ember]11ththough,thatbegantochange.”7

InBoimv.QuranicLiteracyInst.,theUnitedStatesCourtof Appeals for the Seventh Circuit allowed parents of anAmerican teenager, killed in Israel in 1996 by a member ofHamas, to sue multiple Islamic charities based in the UnitedStatesforchannelingmoneytoHamas.8TheCourtheldthatthe 4PaulBarrett,TheBigBettoHoldBanksLiableforTerrorism,BLOOMBERGBUSINESSWEEK(Feb.19,2015),https://www.bloomberg.com/news/articles/2015-02-19/are-credit-suisse-rbs-standard-chartered-hsbc-and-barclays-terrorist-banks-.518USC.§2333(a)(2018).6Id.7Barrett,supranote4.8Boimv.QuranicLiteracyInst.,291F.3d1000,1001(7thCir.2002).Althoughplaintiffssecureda$156millionjuryverdictagainstdefendantsinitially,thejudgmentwassubsequentlymodified,andthedefendantsthendeclaredbankruptcyandneverpaidthedamages;accordingtoa2017decisionbytheNorthernDistrictofIllinois,althoughdefendantsrecommencedtheiroperationsunderdifferentnames,theCourtdeclinedtoreimposethe$156millionverdictonproceduralgrounds.SeeBoimv.QuranicLiteracyInst.,No.00C2905,2017WL2179457,at*4(N.D.Ill.May18,2017).Asofthecompletionofthisarticle,plaintiffshaveyettoappeal.


ATA“wouldhave littleeffect if liabilitywere limited topersonswhopullthetriggerorplantthebombbecausesuchpersonsareunlikely to have assets,much less assets in theU.S., andwouldnotbedeterredbythestatute.”9Inasubsequentdecisionforthesame case in 2008, Judge Richard Posner also expressed anexpansive interpretation of the ATA when he compareddonationstoHamaswith“givingaloadedguntoachild,(whichalsoisnotaviolentact),[asbothare]act[s]dangeroustohumanlife.”10Bothdecisionswereconsideredexpansiveinterpretationsof the ATA; however, this interpretation ultimately was notapplied in other circuits, leading to a split.11 Although the juryawarded $156million to the plaintiffs, the familieswere neverable to collect under the ATA, as the defendant foundationsdeclaredbankruptcy.12

ThelessexpansiveapproachoftheATAwascementedin2016 when Congress passed the Justice Against Sponsors ofTerrorism Act (JASTA), by overriding President Obama’s veto.AlthoughJASTAamendedthefederaljudicialcodetoexpandthejurisdictionofAmericancourtsoverforeignstatesbynarrowingtheirimmunity,itonlyauthorizesfederalcourtjurisdictionovercivilclaimsagainstforeignstatesforphysicalinjurytoapersonorpropertyordeaththatoccursinsidetheU.S.asaresultof:(1)an act of international terrorism, and (2) a tort committedanywhere by an official, agent, or employee of a foreign stateactingwithinthescopeofemployment.13Further,thelegislationclarifiedthat“internationalterrorism”doesnotincludeanactof

9Boim,291F.3dat1021.10Boimv.HolyLandFoundation(BoimIII),549F.3d685,690(7thCir.2008).11CompareBoimIII,549F.3dat693withWeissv.NationalWestminsterBankPLC,768F.3d202(2dCir.2014).Foramoreindepthdiscussion,seegenerallyOliviaG.Chalos,BankLiabilityUndertheAntiterrorismAct:TheMentalStateRequirementUnder§2333(a),85FORDHAML.REV.303(2016);Freemanv.HSBCHoldingsPLC,No.14CV6601(DLI)(CLP),2018WL3616845(E.D.N.Y.July27,2018).12SeeBoim,2017WL2179457,at*4(“Theplaintiffshavenotprovidedsupportbywayofcaselaworstatutoryauthorityforanexparteorderdeeming,inadvance,thattheproposedserviceundertheIllinoisstatutewillbeproper.”).13JusticeAgainstSponsorsofTerrorismAct,Pub.L.114-222,130Stat.852(2016).


war, and that a tort claim based on an omission or merelynegligent act was not within federal court jurisdiction.14Additionally, it also allowed anAmericannational to file a civilaction against a foreign state for physical injury, death, ordamagebecauseof anactof international terrorismcommittedbyadesignatedterroristorganization.15

JASTA further amended the federal criminal code toimpose civil liability on a person who conspires to commit oraidsandabets,byknowinglyprovidingsubstantialassistance,anactofinternationalterrorismcommitted,planned,orauthorizedbyadesignatedterroristorganization.16However,JASTAdidnotdefine “aids and abets,” and “substantial assistance” is a vagueterm. Additionally, JASTA further permitted the Department ofJustice (DOJ) and the State Department to intervene in JASTAactions and seek a stay if they could certify that the StateDepartment was engaged in good-faith discussions with theforeignstate to resolve thecivil claims.17However, it isnotablethat JASTA did not supersede the ATA, adding additionalcomplicationsforthosetryingtoproperlyinterpretboth.

Becauseof thevagaries inherent to theATAand JASTA,various lawsuits commenced as to their ultimate reach.18 ThefirsttolimittheirreachwasJesnerv.ArabBank.

14Id.15Id.16Id.17Id.18Notably,therearecurrentlynumerouslawsuitsattemptingtouseJASTAtosueGoogleandTwitter,andarecurrentlypendingonappeal.SeegenerallyGonzalezv.Google,Inc.,335F.Supp.3d1156(N.D.Cal.2018)(currentlyonappeal);Crosbyv.Twitter,Inc.,303F.Supp.3d564,565(E.D.Mich.2018)(currentlyonappeal);Penniev.Twitter,Inc.,281F.Supp.3d874,877(N.D.Cal.2017),appealdismissed,Penniev.Twitter,Inc.,No.17-17536,U.S.App.LEXIS29753(9thCir.Oct.19,2018)(holdingthattherewasn’tsufficientnexusbetweentheinjuryandwheretheserviceswereentitledtoimmunityunderCommunicationsDecencyAct(CDA)fromaction).


i. Jesnerv.ArabBank

OnApril24,2018, initsdecisioninJesnerv.ArabBank,the Supreme Court inherently limited the reach of the ATA,notably without mentioning JASTA.19 In its decision, the Courtfound thatnon-Americancitizens inAmericancourtsunder theAlienTortStatute(“ATS”)forextraterritorialactswherethelawof nations did not impose such liability could not sue foreigncorporations, including banks.20 Enacted in 1789, the ATSoriginallygaveAmericancourts jurisdictionoverclaimsagainstforeign defendants accused ofmisconduct outside of America’sborders, and allowed foreign individuals to seek remedies inAmericancourtsforhumanrightsviolations.21In2013,however,the Supreme Court first limited the reach of the ATS in itsdecision in Kiobel v. Royal Dutch Petroleum,22 noting that theATS can be used by foreign entities against foreign entities inAmerican courts only if violations “touch and concern theterritory of the US.”23 Although the Supreme Court has yet todecide the jurisdictionalreachof theATA, therearesimilaritiesbetween the ATS and the ATA, a point that has been usedemphatically by defendants in the relevant ATA cases, namelyFreemanv.HSBCandLindev.ArabBank.24

ii. Freemanv.HSBC

In2014,130 familiesofAmericanswhowerevictimsofIranian-sponsored terrorism in Iraq between 2004 and 2011filed suit against HSBC, Standard Chartered Bank, Barclays,Commerzbank, Credit Suisse, and Royal Bank of Scotland

19Jesnerv.ArabBank,PLC,138S.Ct.1386,1404-05(2018).20Id.at1403.SeealsoAlisonFrankel,HumanRightsLawyersLookforSilverLininginKiobelBlackCloud,REUTERS(Apr.17,2013),https://reut.rs/2KJhHnM.2128U.S.C.§1350(2018).22Kiobelv.RoyalDutchPetroleum,569U.S.108,124-25(2013).23Id.Note,thereisaCircuitsplitinthereachoftheATS.SeeKiobelv.RoyalDutchPetroleumCo.,621F.3d111,120(2dCir.2010);Flomov.FirestoneNat.RubberCo.,LLC,643F.3d1013,1021(7thCir.2011);DoeVIIIv.ExxonMobilCorp.,654F.3d11,71(D.C.Cir.2011).24HSBCCase,OSENLAWLLC,http://www.osenlaw.com/case/hsbc-case(lastvisitedFeb.12,2019).


(RBS).25 The suit claimed that more than 1,000 Americanservicememberswerekilledor injuredbyIranian-designedandmanufactured IEDs, and that Iranwould not have been able tomanufacturesuchexplosiveshadthenamedbankinginstitutionsadhered to OFAC sanctions.26 Additionally, the suit alleged aconspiracy27 between the banks, Iran, and Iranian Banks, thattransferred“billionsofUSdollars throughthe[US] inamannerdesigned to circumvent US regulators’ and law enforcementagencies’abilitytodetectandmonitorthetransactions,”andthatthismoneywentdirectlytoterroristorganizationsthatmaimedandkilledU.S.servicemembersduringthewaronterror.28

Thisattempt to legallypin culpability forviolentdeathsonbankersreliedupon

an intricate theory of causation: The European-basedbanks have handled hundreds of billions of dollars ininternational transfers for Iranian financial institutions.The Iranian financial institutions, in turn, have movedmoney for the IslamicRevolutionaryGuardCorps(IRGC),an elite Iranian paramilitary organization, and forHezbollah, themilitant Shiamovement based in Lebanonand backed by Iran. The Revolutionary Guard andHezbollahhavetrainedandarmedShiagroupsinIraqthathavekidnapped,shot,andblownupAmericans.29

25Id.26Id.27Freeman,2018WL3616845,at*22:Intermsofconspiracyliability,sincetheLindecourtdidnotexpresslydescribethestandardstofollowinassessingaconspiracyclaim,thisCourtconcludesthattheSecondCircuitwouldassessconspiracyclaimsundertheconstructbyHalberstamv.Welch,705F.2d472(D.C.Cir.1983).BasedonHalberstam’sdescriptionofconspiracyliability,asbolsteredbytraditionalconspiracylaw,theplaintiffsmustallege:(1)anagreementtojoinaconspiracy,whichcanbeinferredfromatacitunderstanding;(2)theperformanceofunlawfulactsaspartoftheconspiracy;(3)injurycausedbyoneormoreoftheparties;and(4)thattheseovertactswerepursuanttothecommonschemeandobjectiveoftheconspiracy.Thepartiesneednotsharethesamegoalinjoiningtheconspiracy;normusttheybeawareofaco-conspirator’sintentionsorgoalsincarryingoutitsovertacts.28HSBCCase,supranote24.29Barrett,supranote4.


Althoughthiscaseisstillpending,thereisachancethattheSupremeCourtmaynotholdthedecisioninJesnerapplicableto Freeman, given that it concerns American citizens, and thatthe defendant banks actually conducted this illegality onAmericansoil,whichmaybefoundto“touchandconcern”aU.S.territory.30 It isofnote that subsequent to theSupremeCourt’sdecision in Jesner, on July 27, 2018, the District Court for theEasternDistrictofNewYorkdidnotdismissFreemanuponthedefendant’s motion to dismiss, and the case is currentlyproceeding before the Eastern District, according to thestandardssetforthinLindev.ArabBank.31

iii. Lindev.ArabBank

In July 2004, American terror victims and their estatessued Arab Bank, PLC, also in the District Court for the EasternDistrict ofNewYork.32 The suitwas premised on theATA, andwasthefirstcivillawsuitofitskind.33ThesuitattemptedtoholdArabBank liable “for deaths and severe injuries resulting fromacts of international terrorism that Palestinian terrorist groupsperpetratedbetween2000and2004.”34

The action commenced after a Passover bombing at ahotel in Netanya, Israel killed 30 people, including Americans,andwoundedanother140.35Aftertheattack,“theIsraelimilitaryrecoveredatroveofdocumentsintheWestBankthatallegedlylinkedArabBank toHamaspayments to the families of suicidebombers.”36 Israel made the documents publicly available, andthe suit was brought upon the realization that Arab Bank

30Freemanv.HSBCHoldingsPLC,1:14-CV-06601,COURTLISTENER,https://www.courtlistener.com/docket/4323872/freeman-v-hsbc-holdings-plc/(lastvisitedFeb.12,2019).ItisalsoofnotethatanewcasewastransferredandconsolidatedwithFreeman,namely,Martinezv.DeutscheBankAG,No.16-1207-DRH,2017U.S.Dist.LEXIS56095(S.D.Ill.Apr.12,2017).31Freeman,2018WL3616845,at*22.32ArabBankCase,OSENLAWLLC,http://www.osenlaw.com/case/arab-bank-case(lastvisitedFeb.12,2019).33Id.34Id.35Barrett,supranote4.36Id.


provided the critical link between donors and theencouragementofsuicidebombers.37Theextentof theproofoftheperpetrationincludedthatArabBankhad

knowinglyprovidedmaterialsupporttoHamasbyillegallymaintainingaccountsforHamas[anditsseniorleader]...that accepted multiple checks explicitly made out tobeneficiary “Hamas;” ... Arab Bank [also] knowinglyprovided material support to terrorist groups such asHamasandHezbollahthatfacilitatedmillionsofdollarsindirect transfers to the families of suicide bombers andotherterroristoperativesthroughtheSaudiCommitteeforthe Support of the Intifada al Quds and the Al-ShahidFoundation. Lastly, the Plaintiffs proved that Arab Bankknowingly provided material support to Hamas bymaintaining accounts for eleven Hamas-controlledorganizationsinthePalestinianTerritories.38

Aftermorethantenyearsoflitigation,ajuryfoundArabBank liable for “knowingly providing financial services forHamas”thatprovidedtheterroristorganizationwithmillionsofdollars over a period of five years, an offense sufficient tocriminally convict an entity under the ATA.39 After the verdict,ArabBank filed threemotions,oneofwhichpetitioned theU.S.Court ofAppeals for the SecondCircuit for review.40 TheCourtdenied such review, noting that the Bank’s liability wasestablished “[by] volumes of damning circumstantial evidencethatdefendantknew itscustomerswere terrorists.”41Followingthisdenial,ArabBankchosetosettleallATAclaims,butonlyifitwould be allowed to take a one-time appeal of the liabilityverdict,againtotheSecondCircuit,whichwouldthendeterminethesettlement’sprecisecontours.42

37Id.38ArabBankCase,supranote32.39Lindev.ArabBank,PLC(LindeI),97F.Supp.3d287,299(E.D.N.Y.2015),vacatedonothergrounds,Lindev.ArabBank,PLC(LindeII),882F.3d314(2dCir.2018).40SeegenerallyLindeII,882F.3dat314.41LindeI,97F.Supp.3dat313.42ArabBankCase,supranote32.


On February 9, 2018, the SecondCircuit reversed itself,deciding that “material support” may not satisfy the ATArequirementofsupportinginternationalterrorismasamatteroflaw, and found procedural error in a jury instruction.43 It thenarticulatedanewparametertopursueanybankundertheATA,stating that plaintiffs seeking to pursue claims of primaryliabilitymustprovemorethansimplyaviolationofthematerialsupportprovisionsoftheATA;theremustbeproofoftheotherelementsnecessary toprovean “actof international terrorism”as defined by 18 U.S.C. §2331.44 In other words, to establishprimary liability, theremust be proof that the defendant’s acts“alsoinvolveviolenceorendangerhumanlife,”and“appeartobeintended...tointimidateorcoerceacivilianpopulation...[or]to influence [or to affect] ... a government.”45 The courtconcludedthat

providing routine financial services to members andassociates of terrorist organizations is not so akin toprovidingaloadedguntoachildastoexcusethechargingerrorhereandcompelafindingthatasamatteroflaw,theservices were violent or life-endangering acts thatappeared intended to intimidate or coerce civilians or toinfluence or affect governments. That conclusion is onlyreinforcedbyourholding, inthecontextofachallengetoproof of the causation element of an ATA claim, that themere provision of “routine banking services toorganizations and individuals said to be affiliated with”terrorists does not necessarily establish causation. To besure, the ATA’s causation and terrorist act elements aredistinct, and plaintiffs argue that Arab Bank’s financialservices to Hamas should not be viewed as routine. Butthat raises questions of fact for a jury to decide. Becausewecannotconcludethatajuryproperlyinstructedastoalldefinitionalrequirementsof§2331(1)wouldhavetofindArab Bank’s financial services to constitute acts ofinternational terrorism supporting ATA liability, we

43LindeII,882F.3dat314,332.44SeeFreeman,2018WL3616845,at*22.45Id.


adheretoourconclusionthattheidentifiedchargingerrorrequiresvacaturandremand.46

Pursuant to thesettlement,nonew jurywas impaneled,or trial was had. However, the Second Circuit’s surprising andfickle change of course should be of concern to those worriedabout stopping banks from financing terrorism via the ATA,especiallyinapost-Jesnerera.47

Additionally, it is notable that after Lindewas filed, butbefore the jury verdict, OFAC launched its own probe againstArab Bank.48 In 2005, the bank “agreed to a settlement with[OFAC]’s Financial Crimes Enforcement Network, which hadbeen looking into whether the bank had adequate protectionsagainst money laundering and terrorism finance. Withoutadmitting wrongdoing, Arab Bank agreed to pay a $24millionfine and limit activities of its New York branch. [But] thesettlement focus[ed] on the bank’s procedural shortcomings,”and not the fact that the bank was helping funnel money toterrorists.49

TheStateDepartmentandtheDOJwerealsoinvolvedinpretrialworkagainstArabBank:

ArabBankobjected[todiscoverymeasuresasthey]wouldkill its chances at trial and “threaten the ruin the singlemost important financial institution in the Palestinianterritories and Jordan if not the entire Middle East,”[o]fficials at the US Department of State shared at leastsomeofthebank’salarm,althoughthe[DOJ]andTreasurydepartments argued that the Obama administration

46LindeII,882F.3dat327.47AsummaryofthenewparameterscanbefoundinthelatestdecisioninFreeman,2018WL3616845,at*22(“Havingsetforththeseelements,theCourtmustexaminethepleadingstodeterminewhetherplaintiffshavemettheirburdenatthisstageofeitherallegingthedefinitionalrequirementsofSection2331(1)underatheoryofprimaryliabilityundertheATA,orsufficientlypleadingtheelementsofaconspiracyclaimassetoutinHalberstamnecessarytosurvivedefendants’motiontodismissunderRule12(b)(6).”).48Barrett,supranote4.49Id.


shouldn’ttakethesideoftheaccusedbank.Intheend,theadministrationsplit thedifference. [DOJ] filedabrief thatMay,warningthatthe[discovery]order“couldunderminethe United States’ vital interest in maintaining closecooperative relationships with Jordan and other keyregionalpartnersinthefightagainstterrorism.”But[DOJ]also urged the Supreme Court to reject Arab Bank’s pleaforpretrialintervention,advicethehighcourtfollowed.50

While there are major differences between the facts inLinde, Freeman, and Kiobel, namely, that HSBC violated OFACregulationswhileonAmericansoil,51incontrasttoJesner,thereis no telling how this limiting trend will now affect theenforcement of the ATA. While Congress passed the ATA “toimposeliability‘atanypointalongthecausalchainofterrorism,’including the flow of money,”52 the ATA, which in its decades-longhistoryhasneverpermitted aplaintiff to collect,53maybefurtherdefangedbytheprogenyofJesnerandtheenactmentofJASTA, and, in any event, reinforces the need to pursue adifferentpathotherthanlawsuitstocombatterroristfinancing.

B. OFAC&ItsIneffectiveness

Historically, the American government has used“targeted economic sanctions as a tool against internationalterroristsandterroristorganizations.”54However,afterthe9/11terroristattacks,

50Id.51SeeFreeman,2018WL3616845,at*22.5218U.S.C.§2333(a).53SeeSeanSavage,SupremeCourtWillNotHearCaseRegardingAmericanVictimsofPalestinianTerror,JEWISHNEWSSYNDICATE(Apr.2,2018),https://www.jns.org/us-supreme-court-will-not-hear-case-on-american-victims-of-palestinianterror/.Althoughthecaseisnotindicativeofbankinginstitutions,theSecondCircuitdecisionholds“thatthevictimsneededtoshowtheywerespecificallytargetedorthattheattackersintendedtoharmUSinterests,”tousetheATA.Id.54OFF.FOREIGNASSETSCONTROL,DEP’TOFTREASURY,TWENTY-FOURTHANNUALREPORTTOTHECONGRESSONASSETSINTHEUNITEDSTATESRELATINGTOTERRORISTCOUNTRIESANDINTERNATIONALTERRORISMPROGRAMDESIGNEES2(2015).


PresidentBushissuedExecutiveOrder13224[alsoknownas the “Patriot Act”], significantly expanding the scope ofthen-existingUSsanctionsagainst terroristsand terroristorganizations. The combination of programs targetinginternational terrorists and terrorist organizations withthose targeting terrorism-supporting governmentsconstitutes a wide-ranging assault on internationalterrorismanditssupportersandfinanciers.55

To “[s]top[] the ability of terrorists to finance theiroperations ... the [Bush] Administration ... implemented athree-tiered approach based on (1) intelligence and domesticlegal and regulatory efforts; (2) technical assistance to providecapacity-buildingprogramsforUSallies;and(3)globaleffortstocreateinternationalnormsandguidelines.”56Thisarticlefocusesprimarilyonthefirsttier:theintelligenceanddomesticlegalandregulatoryefforts.

To begin its regulatory efforts, theBushAdministrationestablished OFAC within Treasury. It designated OFAC as theleadoffice responsible for implementingsanctionswith respectto assetsof international terrorist organizations and terrorism-supporting countries.57 Still in operation, OFAC implementssanctionsaspartofitsgeneralmissiontoadministerandenforceeconomicandtradesanctionsbasedonAmericanforeignpolicyandnationalsecuritygoals.58 InadministeringandenforcingUSeconomic sanctions programs, OFAC focuses on identifyingpersons for terroristdesignation;assistsparties, suchasbanks,in complying with the sanctions prohibitions through itscompliance and licensing efforts; assesses civil monetarypenalties against persons violating the prohibitions, either

55Id.56MARTINA.WEISS,CONG.RESEARCHSERV.,RL33020,TERRORISTFINANCING:USAGENCYEFFORTSANDINTER-AGENCYCOORDINATION(2005).57AboutOPAC,DEP’TOFTREASURY,https://www.treasury.gov/about/organizational-structure/offices/pages/office-of-foreign-assets-control.aspx(lastvisitedFeb.12,2019).58OfficeofForeignAssetsControl-SanctionsProgramsandInformation,DEP’TOFTREASURY,https://www.treasury.gov/resource-center/sanctions/pages/default.aspx(lastvisitedFeb.12,2019).


through commencing lawsuits or orchestrating settlements;workswithotherAmericangovernmentagencies, including lawenforcement, on sanctions-related issues needing coordination;and coordinates with other nations to implement similarstrategies.59 Currently, OFAC administers sanctions programstargeting international terrorists and terrorist organizations,their supporters, and countries that have been designated asstate sponsorsof terrorism.60 “Manyof the sanctions arebasedon United Nations and other international mandates, aremultilateral in scope, and involve close cooperationwith alliedgovernments.”61

WhenOFACisalertedtopotentialviolationsofsanctions,it begins to probe into the bank’s alleged illicit activities. If itfinds such activity, it contemplates prosecution or settlement.Thebankinginstitutionsprefersettlement,asexemplifiedbythefact that OFAC has yet to commence a prosecution in theeighteen years since its enactment. Part of such OFACsettlements include DOJ deferred-prosecution agreements,“which have corporate defendants pay fines, don’t disputethey’vedonewrong,andpromisetoreform—allwiththethreatloomingofapotentialfuturecriminalindictmentshouldtheynotreform.”62Todate,althoughmanyfinancialinstitutionshavenot

59Id.OneofthemostrecentdevelopmentsinthisareawastheHizballahInternationalFinancingPreventionActAmendmentsAct(“HIFPAA”),whichimposessecondarysanctionsonthe[HezbollahForeignRelationsDepartmentor]FRD.WhiletheFRDisalreadysanctionedbytheUnitedStates,secondarysanctionsrequiretheadministrationtosanction‘anyforeignpersonthatthePresidentdeterminesknowinglyprovidessignificantfinancial,material,ortechnologicalsupportfororto’theFRD,inadditiontootherHezbollahactorsengagedinfundraisingandrecruitment.SeeMatthewZweig,USLawTargetsHezbollahinEurope,REALCLEARWORLD(Feb.26,2019),https://www.realclearworld.com/articles/2019/02/26/us_law_targets_hezbollah_in_europe_112972.html.60Id.61AboutOPAC,supranote57.62Barrett,supranote4.“CreditSuisseresolveditssanctionsviolationswithanagreementtopay$536millioninfinesinDecember2009.RoyalBankofScotlandagreedto$500millioninMay2010;Barclays,$298millioninAugust2010;StandardChartered,$667millioninDecember2012;andHSBC,$1.9billion,alsoinDecember2012.StuartGulliver,HSBCGroup’schief


reformed,63 theDOJhasdeclined to commenceanyprosecutionofthecontinuouslyoffendinginstitutions.

i. TheCreditSuisseSettlement

In2009,afterfunnelinghundredsofmillionsofdollarstosanctionedentities,64CreditSuissesettleditsOFACviolationsfor$536million.65 This settlement was orchestrated because bothOFACandtheDOJhadfoundthatCreditSuissehad

deliberately removed material information, such ascustomer names, bank names and addresses, frompaymentmessages so that thewire transferswould passundetected through filters at U.S. financial institutions.Credit Suisse was also convicted of training its Iranianclients to falsify wire transfers so that such messageswould also pass undetected through the U.S. financialsystem.ThisschemeallowedU.S.sanctionedcountriesandentities to move hundreds of millions of dollars throughtheU.S.financialsystem.

ForitsIranianclients,CreditSuissepromisedthatno message would leave the bank without being hand-checked by a Credit Suisse employee to ensure that themessage had been formatted to avoid U.S. filters. If anIranian clientprovidedpaymentmessages that contained

executiveofficer,saidofthesettlementthatthebank,Europe’slargest,was“profoundlysorry”andaccepted‘responsibilityforourpastmistakes.’”Id.63See,e.g.,NewsRelease,Fin.Indus.RegulatoryAuth.,FINRAFinesCreditSuisseSecurities(USA)LLC$16.5MillionforSignificantDeficienciesinitsAnti-MoneyLaunderingProgram(Dec.5,2016)[hereinafterFINRA],availableathttp://www.finra.org/newsroom/2016/finra-fines-credit-suisse-165-million-significant-deficiencies-its-aml-program.64ClaudioGatti&JohnEligon,IranianDealingsLeadtoaFineforCreditSuisse,N.Y.TIMES(Dec.15,2009),https://www.nytimes.com/2009/12/16/business/16bank.html.65PressRelease,Dep’tofTreasury,OFAC,U.S.TreasuryDepartmentAnnouncesJoint$536MillionSettlementwithCreditSuisseAG(Dec.16,2009),availableathttps://www.treasury.gov/press-center/press-releases/Pages/tg452.aspx;seealsoNewsRelease,Dep’tofJustice,OfficeofPublicAffairs,CreditSuisseAgreestoForfeit$536MillioninConnectionwithViolationsofInternationalEmergencyEconomicPowersActandNewYorkStateLaw(Dec.16,2009),availableathttps://www.justice.gov/opa/pr/credit-suisse-agrees-forfeit-536-million-connection-violations-international-emergency.


identifying information, Credit Suisse employees wouldremove the detectable information so that the messagecouldpassundetectedthroughOFACfiltersatU.S.financialinstitutions.66

Simply, OFAC, through its then-Under Secretary forTerrorismandFinancial Intelligence,StuartLevey,67 found that,for decades, “Credit Suisse’s international communicationsshowedacontinuousdialogueaboutthescheme,assessinghowto better process Iranian transactions to ensure increasedbusinessfromexistingandfutureIranianclients,goingsofarasproviding its Iranian clients with a pamphlet entitled, ‘How totransfer USD payments,’ which provided detailed paymentinstructions on how to avoid triggering OFAC filters orsanctions.”68 Assistant Attorney General Lanny A. Breuerarticulated it bluntly: “Through its egregious conduct, CreditSuisse illegally moved hundreds of millions of dollars throughthe American financial system and actively assisted sanctionedcountries in evading US laws. In essence, Credit Suisse said tosanctioned entities, ‘We’ve got a service, and that service ishelpingyouevadeUSbankingregulations.’”69

Still,insteadofpursuinglegalaction,OFACchosetosettlewith Credit Suisse, stating that since “[t]hroughout theinvestigation, Credit Suisse ha[d] provided prompt andsubstantial cooperation, including working with regulators tofindamethodconsistentwithSwisslawtodiscloseasignificantportion of the data, communications and documentationunderlying the misconduct.”70 Since “Credit Suisse has alsocommitted substantial resources to conducting an extensiveinternal investigation of the misconduct and has agreed to

66Id.67AlthoughLeveywasthefirstUnderSecretaryforTerrorismandFinancialIntelligenceinTreasury,servingfromJuly2004toFebruary2011,shortlyaftertheCreditSuissesettlement,LeveybecametheChiefLegalOfficeratHSBC,commencinginJanuary2012.SeeLeadership,StuartLevey,HSBC,https://www.hsbc.com/who-we-are/leadership/stuart-levey(lastvisitedFeb.12,2019).68Dep’tofJustice,supranote65.69Id.70Id.


enhance its sanctions compliance programs to be fullytransparent in its international payment operations,” and theycouldpinviolationsonnospecificperson,nosuchactionneededtobecommenced.71Instead,thissettlementwastobetheendofanysuchprosecutions.

While$530millionmayseemlikeaheftyfine,itisofnotethatthisoffensewasperpetratedovermanyyears,ofwhichtheaverageprofit forCreditSuissewasover$30billionperyear.72Moreover, while the financial crisis has something to do withCredit Suisse’s sharp downturn in gross profit in 2008, it is ofnotethatin2009,theyearofthesettlement,CreditSuissehada$22 billion increase in gross profit from 2008,73 while manybankswerestilldeclining inprofitability.This increase ingrossprofit despite the settlement underscores how a bank’sprofitabilityisnotbeingaffectedbythesettlements.

ItisunclearifanyoneatOFAC,inthetenyearssincetheoffense,hasmonitoredCredit Suisse toensure that it isnow incompliancewiththeregulations.However,itisnotablethat,justinDecember2016, the Financial IndustryRegulatoryAuthority(“FINRA”) found Credit Suisse to again be in violation ofsanctions.FINRAthenfinedthebank$16.5millionforfailingtoinvestigate high-risk activity, and for failing “to properlyimplement its automated surveillance system to monitor forpotentially suspicious money movements” from 2011 until2015,74 something thathadbeenapartof the initial settlementagreement in2009.75Thisquickrecidivismfurtherunderscorestheclearprofitabilityofbanksorchestrating terrorist financing,andhowthesettlementsdonotdeterbanksfromseekingtheseillicitprofitablemeasures.

71Id.72CreditSuisseGroupGrossProfit2006-2018,MACROTRENDS,https://www.macrotrends.net/stocks/charts/CS/credit-suisse-group/gross-profit(lastvisitedFeb.12,2019).73Id.74FINRA,supranote63.75Dep’tofJustice,supranote65.


ii. SubsequentRegulatoryModificationsSincetheCreditSuisseSettlement

After the Credit Suisse Offense, Congress stepped in bychoosing to increase fines to dissuade offenders,76 instead ofchoosing to improve monitoring and regulation. Perhaps thiswas because the banking industry was already so heavilyregulated;77 perhaps thiswas because Congress thought higherfines would be an adequate dissuasion to stop banks fromfunnelingmoneytoterrorists.Eitherway,analystsfoundthat,by2014, “OFAC fines ha[d] skyrocketed ... [W]hen Congresseffected an increase in the statutory maximum per violation,[theymoved the] cap [from]$11,000 to $250,000per violationortwicethevalueoftheunderlyingtransaction.”78

However,Congress thenclarified that “[w]henassessingfines,OFAC[should]look[]toamyriadoffactors,includingtheawarenessofseniormanagement, thesizeandsophisticationoftheentity,andreportingprocedures.Themoresophisticatedtheentitybeing investigated,andthehigherthe levelofknowledgeof the infractions within the entity, the heftier the fines.However,ifanentityself-reportsaviolation,finescanbeslashedinhalf.”79

Even with this modification, however, Congress’samendmentshaveallowedOFACtorakeinan

[U]nprecedented amount of fines. In 2008, beforeenhanced penalties became effective, total penaltiesamassedwere approximately $3.5million for 108 settledmatters. Just one year later OFAC amassed an amount of

76EricaSollie,$1.1billionandcounting–theneweraofOFACenforcement,BAKER&HOSTETLERLLP(Mar.4,2014),http://www.bakerlaw.com/alerts/11-billion-and-counting-the-new-era-of-ofac-enforcement.77S.Comm.onBanking,Housing,andUrbanAffairs,supranote3.78Sollie,supranote76.79Id.ThisisfurtherillustratedintheRoyalBankofScotland(RBS)settlement,wherethebankpaid$33milliontosettleOFACviolationsarisingoutoftransactionsmadeinIran,Sudan,Myanmar,andCuba,butbecauseRBSself-reportedtheseviolations,itwasabletoavoidpayingthestatutorymaximumofover$132million.Id.


over$772millionforjust27matters–increasingpenaltiespermatterbynearlyone-thousand-fold.Recentyearshaveproven that this jump was no anomaly, but rather thebeginning of a new era of heightened OFAC enforcementand penalty assessment. 2012 was the biggest year thusfar, with OFAC windfalls of over $1.1 billion for only 16matters.80

In 2014, such settlements were “indicative of a globalmovement toward international and national bankinginstitutions uncovering and disclosing past OFAC regulatoryviolations to regulators,” which should assure bankingcompliancewithOFACregulations.81Thisissimplynotthecase,however, as evidenced by the recidivism of Credit Suisse andcountlessothers,includingHSBC.82

iii. TheHSBCSettlement

JustovertwoyearsaftertheCreditSuisseSettlement,in2012, anewoffenderwasput onOFAC’s radar:HSBCHoldingsPLC. The offenses seemed similar and as egregious as those ofCreditSuisse, even thoughCongresshadput thenewmeasuresinplacetodetersuchviolations.83Theoffensesseemedtostemfrom an internal email from a HSBC Europe relationshipmanager to members of the HSBC US Compliance Unit thatstated: 80Id.Throughoutthoseyearssettlementsincluded:HSBCwithafineof$1.9billion;INGBankwithafineof$619million;StandardCharteredBankwithafineof$132million;BankofTokyo-MitsubishiUFJ,Ltd,withafineof$8.5million;JPMorganChaseBankwithafineof$88million;LloydsTSBBankwithafineof$217million;andBarclaysBankPLCwithafineof$176million.Id.81Id.However,sincethestartoftheTrumpadministration,we’veseenanunprecedentedlesseninginOFAC’sactivities,withonlytwosettlementsthusfarin2019,andsevenin2018,comparedwithfifteenin2015,andtwenty-twoin2014.SeeDEP’TOFTREASURY,CIVILPENALTIESANDENFORCEMENTINFORMATION,https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/civpen-index2.aspx(lastvisitedFeb.12,2019);seealsoSamuelRubenfeld,SocieteGeneraletoPay$1.3BilliontoResolveU.S.Sanctions,Money-LaunderingViolations,WALLST.J.(Nov.19,2018),https://www.wsj.com/articles/societe-generale-to-pay-1-3-billion-to-resolve-u-s-sanctions-money-laundering-violations-1542652611.82FINRA,supranote63.83Sollie,supranote76.


[W]ehaveinstructedBankMellitoaltertheformatof[its]payments to achieve straight through [processing] ...wehavefurtheraskedthemtoonlyput‘Oneofourclients’infield 52, thus removing the chance of them inputting an‘Iranianreferenced’customername,thatcausesfalloutofthe cover payment sent to HBUS and a breach of OFACregulations ... The key is ... that the outgoing paymentinstruction from HSBC will not quote ‘Bank Melli’ assender- justHSBCLondon ...This thennegatestheneedtoquote‘DONOTMENTIONOURNAMEINNEWYORK’infield72.”84

This email explicitly endorsed the practice of officialsevading OFAC filters, and allowed close to $500 million totransfertoIranandotherOFACsanctionedcountries.Italsowasclear that officials throughout HSBC US, including complianceofficials, their head, and business managers, “were aware thatHS[BCEurope]wasdiscussingwithBankMellihowtostructureIranian-relatedpaymentstobeprocessedthrough[theUS]”eventhough they were warned that “OFAC might view [the]formatting instructions to Bank Melli as a willful disregard orevasionofUSsanctions,and that thenon-transparentnatureofthe paymentmessages couldmake it impossible ... to confirmthat any payment would be permissible ... pursuant to USsanctions regulations.”85 Further, although a few headsattemptedtostopthisillegalactivity,andaproposalwasagreedupon,itwasneverimplemented,nordidanyoneatHSBCappeartobeinchargeof implementingit.86Additionally,byJune2007,“as a result of ameetingbetween a senior . . . Treasuryofficialand the HSBC Group Compliance head, the HBME DeputyChairmanandHSBCheadofGroupComplianceagreedthatHSBCGroup should immediately end its Iranian relationships.”87

84SettlementAgreementBetweenOff.ForeignAssetsControlandHSBCHoldings,Dep’tofTreasury(Dec.10,2012)[hereinafterSettlementAgreement],https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/121211_HSBC_Settlement.pdf.85Id.ItisnotablethatclosetothetimeoftheOFACsettlement,Levey,theformerUnderSecretaryforTerrorismandFinancialIntelligenceoftheTreasury,becametheChiefLegalOfficeratHSBC.SeeHSBC,supranote67.86SettlementAgreement,supranote84.87Id.


However,itisunclearifthatagreementwaseverputintoaction,as HSBC continued to have an Iranian presence88 at least until2012,whenthesettlementagreementwasimposed.

While OFAC was deciding what to do about HSBC’snumerous violations, the US Senate published an investigatoryreportthatwasstronglycriticalofHSBC’spoliciespromotingtheevasionofOFACfilters.89Thereportallegedthat

HSBC ... [1] hadnot treated itsMexican affiliate ashighrisk, despite the country’s money laundering and drugtrafficking ... [2] had transported $7 billion in US banknotesto[sanctionedentities]...[3]hadcircumventedUSsafeguards designed to block transactions involvingterrorists,drug lordsandroguestates, includingallowing25,000 transactions over seven years without disclosingtheir links; [4] providingUSdollars andbanking servicesto some banks in Saudi Arabia despite their links toterrorist financing; [and 5] in less than four years it hadcleared $290 m[illion] in “obviously suspicious” UStravellers’checks.90

Despite the Senate report and the ensuing negativepublicity,OFACdecidedtosettleonceagain,forcingHSBCtopay$1.9billioninfines.91

“[A]sbigasthe$1.9bnpenalty looks, itcouldhavebeenmuchworse,”92BBCBusinessEditorRobertPestoncommented. 88AllThingsConsidered(NPRBroadcastDec.11,2012),https://www.npr.org/2012/12/11/167000599/hsbc-officials-knowingly-dealt-with-iranian-banks.89RobertPeston,HSBCtoPay$1.9bninUSMoneyLaunderingPenalties,BBCNEWS(Dec.11,2012),http://www.bbc.com/news/business-20673466.90HSBCBlastedfor‘StunningFailuresOverOversight’,BBCNEWS(Dec.11,2012),http://www.bbc.com/news/business-20683421;seegenerallySTAFFOFS.PERMANENTSUBCOMM.ONINVESTIGATIONS,112THCONG.,U.S.VULNERABILITIESTOMONEYLAUNDERING,DRUGS,ANDTERRORISTFINANCING:HSBCCASEHISTORY(Comm.Print2012).91SettlementAgreement,supranote84.92Peston,supranote89.ItisofnotethatHSBCprofitin2012wasstillalmost$72billion.SeeHSBCGrossProfit,MACROTRENDS,https://www.macrotrends.net/stocks/charts/HSBC/hsbc/gross-profit(lastvisitedFeb.12,2019).


He further explained thatwhatOFAC had donewas essentiallyput the bank on probation for funneling billions of dollars toterrorists globally.93 This was clearly the preferable option forHSBC,because“ifHSBChadbeenindictedfortheseoffences,thatwouldhavemeant that theUSgovernmentandotherscouldnolongerhaveconductedbusinesswithit,whichwouldhavebeenhumiliatingandhighlydamaging.”94Further,itsnewChiefLegalOfficer, Levey, knew all too well that this was the preferableoption,havingservedastheUnderSecretaryforTerrorismandFinancial Intelligence in Treasury from July 2004 to February2011.95

OFAC explained that this option was also preferable tothe US government. As the bank “had taken on new seniormanagement [including Levey] since the time the problemshappened...[I]tha[d]appointedaformerUSofficialtoworkasitsheadoffinancialcrimecompliance,whichisanewposition.”Further, as with Credit Suisse, OFAC explained that it did notcommence a criminal prosecution because, “they never foundone bank official or any collection of bank officials actingtogetherthatweredoingthisonpurpose.Theypaintedapictureof a disorganized bank not communicatingwith itself thatwascollectingallofthesefeesandeithernotknowingornotwantingtoknowwhereitwasallcomingfrom.”96

However,in2016,OFAC’sfailuretocommenceacriminalprosecutionagainstHSBCbecameknown.AccordingtoaHouseCommittee Report, OFAC chose not to prosecute HSBC notbecause they lacked “adequate evidence to prove HSBC’scriminal conduct[; rather] internal Treasury documents showthat DOJ leadership declined to pursue” a prosecutionrecommendation by the agency’s Asset Forfeiture and MoneyLaundering Section staff “because senior DOJ leaders wereconcerned that prosecuting the bank ‘could result in a global

93Id.SeealsoSettlementAgreement,supranote84.94Peston,supranote89.95SeeHSBC,supranote67.96CBSNews,WhyNoProsecutionforHSBCMoneyLaundering?,YOUTUBE(Dec.11,2012),https://www.youtube.com/watch?v=4C05S0pVKQE.


financial disaster’—as [Britain’s Financial Services Authority]repeatedlywarned.”97

It is understood that the government ought to avoidcausing a global financial disaster, but as a result, bankinginstitutionssimplyhavenotbeenheldaccountableforfinanciallyaiding terrorists. This inexcusable lack of governmentprosecutionculminated in theATAfinallybeingused inciviliansuits98 against the biggest offenders in the industry, includingHSBCandCreditSuisse,asdiscussedsupra.Oneoftheplaintiffs’lawyers for the Linde and Freeman cases, Gary Osen, hasexplained this need to use the ATA: “[t]he governmentsettlements don’t connect the dots between the evidence ofwidespreadconcealmentofthedefendants’dealingswith[thoseterrorists] financed by those [ ] banks. [So our suits are]connectingthedots.”99

iv. TheCurrentStateofOFAC

Since the election of the new administration, there hasbeen a steady decline in OFAC activity.100 This can be for avariety of reasons. On the positive end, many bankinginstitutionsnowhaverobustcompliancedivisionsofwhichsomeof their duties are dedicated to OFAC enforcement,101 and lawfirms have created divisions to counsel clients on how to

97REPUBLICANSTAFFOFH.COMM.ONFIN.SERVS.,114THCONG.,TOOBIGTOJAIL:INSIDETHEOBAMAJUSTICEDEPARTMENT’SDECISIONNOTTOHOLDWALLSTREETACCOUNTABLE27(Comm.Print2016)[hereinafterComm.onFin.Servs.].98HSBCCase,supranote24.99Barrett,supranote4.100Dep’tofTreasury,supranote81.AnotableexceptiontothisisOFAC’sNovember2018SocieteGeneralesettlement,inwhichSocieteGeneralewasfined$1.34billionforoffensessimilartothosecommittedbyHSBCandCreditSuisse.Prosecutorsallegedthatthebank“avoideddetection,inpart,bymakinginaccurateorincompletenotationsonpaymentmessagesthataccompaniedthetransactions...[and]engagedinadeliberatepracticeofconcealing.”However,itisarguablethatthisinvestigationandnegotiationscommencedpriortothecurrentadministrationtakingoffice.SeeRubenfeld,supranote81.101AnthonyEffinger,TheRiseoftheComplianceGuru–andBankerIre,BLOOMBERG(Jun.25,2015),https://www.bloomberg.com/news/features/2015-06-25/compliance-is-now-calling-the-shots-and-bankers-are-bristling.


mitigaterisksbeforeOFACcommencesactions.102However,oneof the current administration’s main platforms is bankingregulation rollback,103 and it has regularly followed through onthis promise.104 Further, Comptroller of the Currency JosephOttinghasmadeitclearthatreforminthisareaisoneofhistoppriorities, stating in testimony before the Senate BankingCommitteethatcompliancewithcurrentanti-moneylaundering(“AML”) requirements has become “inefficient and costly,”requiring banking institutions to spend “billions each year,”105and confirming that therewouldbe rollbackson regulations asagenciesattempttofurtherstreamlinethem.

Still, the likelihood that most banking institutions aresuddenly compliant with AML and sanctions regulations isunlikely, given the rate of recidivism106 before the currentadministration was elected. Additionally, FINRA stated in its2018ReportonExaminationFindings that it “continues to findproblems with the adequacy of some firms’ overall AMLprograms; allocation of AML monitoring responsibilities,particularly responsibilities for trademonitoring; data integrityin AML automated surveillance systems, especially in suspenseaccountsforprocessingforeigncurrencymoneymovementsandconversions;firmresourcesforAMLprograms;andindependenttesting of AMLmonitoring programs.”107 Therefore, even if thecurrentadministrationfollowsthroughonitsplannedrollbacks,intheAMLandsanctionsarenasomesortofpolicingofbanking 102MatthewL.Biben,StrengtheningYourAMLComplianceProgram,N.Y.L.J.(Mar.27,2018),https://www.law.com/newyorklawjournal/2018/03/27/strengthening-your-aml-compliance-program/?slreturn=20190118154814;seealsoJeremyPaner,Nearly75PercentofOFACPenaltiesHaveOneCommonality,HOLLAND&HART,TRADESANCTIONSBLOG(Apr.2,2018),http://www.tradesanctions.com/nearly-75-percent-ofac-penalties-one-commonality/#page=1.103SeeLane,supranote3.104SeeAliciaAdamczyk,WhatTrump’sBankingDeregulationsMeanforYou,LIFEHACKER:TWOCENTS(Jun.1,2018),https://twocents.lifehacker.com/what-trumps-banking-deregulations-mean-for-you-1826484981.105S.Comm.onBanking,Housing,andUrbanAffairs,supranote3.106FINRA,supranote63.107SeeFin.Indus.RegulatoryAuth.,ReportonFINRAExaminationFindings(Dec.2018),10availableathttp://www.finra.org/sites/default/files/2018_exam_findings.pdf.


institutions isstillnecessarytoensuretheUSfinancial industryisnotusedasafinancialplaygroundforterrorists.

III. ANALYSIS

After the Credit Suisse Offense, Congress chose toincrease fines foroffenders,108 insteadof improvingmonitoringandregulationofthebanks.Inaddition,whileOFAChasproudlyproclaimed that it has raked in an “unprecedented amount offines,”109 this increase in fines and settlements simply provesthatfinesdonotadequatelydeterbanks110fromcontinuingtheirillegalactivities,or, if theyhaveyettobecaught, fromstoppingthoseactivitiesaltogether.111

Furthermore,legalactionisnowpendingagainstmanyofthe settled banks that had promised reform.112 Credit Suisse inparticular had promised to have new measures in place toinvestigate its high-risk activity and ensure compliance withOFAC sanctions. However, in December 2016, FINRA foundCredit Suisse to again be in violation of the US financialregulatory scheme, and again fined the bank $16.5 millionprimarily for failing to investigate high-risk activity, and forfailing“toproperlyimplementitsautomatedsurveillancesystemto monitor for potentially suspicious money movements” from2011 until 2015.113 This partial failure of implementation just

108Sollie,supranote76.109Id.110Becausetheaforementionedexamplesaresoexemplary,thisSectionwillfocusonHSBCandCreditSuisse’scontinuedoffensessincethesettlements.111Forexample,SocieteGeneralecontinuedtocommititsoffensesevenafterHSBCandCreditSuissesettledwithOFAC,undeterredbytheimmensefinesbothbankshadpaid;inaddition,CreditSuissereoffendedafteritssettlement,undeterredbythefineititselfhadpaid.SeeRubenfeld,supranote79;FINRA,supranote63.112SeeFreeman,2018WL3616845,at*1.113FINRA,supranote63.Notethat,FINRA’s2019RiskMonitoringandExaminationPrioritiesLetteralsonotesthatFINRAwillcontinuetoreviewforcompliancewithAML,whichremainsanongoingareaoffocusfortheagency.SeeFin.Indus.RegulatoryAuth.,2019RiskMonitoringandExaminationPrioritiesLetter(Jan.2019),availableathttp://www.finra.org/sites/default/files/2019_Risk_Monitoring_and_Examination_Priorities_Letter.pdf.However,FINRAisnotOFAC,andjustbecauseFINRA


twoyearsafter theCreditSuissesettlementmaybecredited tothe lack of OFAC oversight of Credit Suisse subsequent to thesettlement; however, itmay also be creditedwith the fact thatfines are simply not an adequate deterrent to stop banks fromcontinuingtheirillegalactivities.

Anotherreasonforthisrateandtendencyforrecidivismis likely the substantial profit the banks make from the illegalactivities,sinceitisfargreaterthanthefinesOFACimplements.To take the Credit Suisse example, Credit Suisse conductedthousandsofillegaltransactionsspanningtwodecades,butonlypaida$536million fine.114Tosay that the finewas larger thanthe profit Credit Suissemade from such transactionswould beludicrous, as in 2009, the year of the settlement, Credit Suisserakedinover$30billion ingrossprofits,whichwas$22billiongreaterthan itsgrossprofits in2008asaresultof the financialcrisis.115Overthemanydecadesthatbankshaveengagedinthiskindofactivity,givenhowmuchtheystandtofinanciallygainoneach individual transfer, the insignificance of the even largersettlements,likeSocieteGenerale’ssettlementof$1.34billion,116and HSBC’s settlement of $1.9 billion,117 becomes obvious.Settlementssimplydonotforcebankstorethinktheirillegalandimmoralfinancialbehavior.

This tendency for recidivismmayalsobebecausemanybanks, especially those based in Europe, do not care forAmerican regulations and sanctions, especially after the Iran

iscontinuingtomonitoroffensesdoesnotmeanthatOFACiscontinuingtomonitororisdoingsoeffectively.114Dep’tofTreasury,supranote65.115MacroTrends,supranote72.SeealsoMattEgan,AmericanBankProfitsAreHigherThanEver,CNNBUS.(Mar.3,2017),https://money.cnn.com/2017/03/03/investing/bank-profits-record-high-dodd-frank/index.html.116KatangaJohnsonet.al,SocieteGeneraletoPay$1.4billiontoSettleCasesintheU.S.,REUTERS(Nov.19,2018),https://www.reuters.com/article/us-usa-fed-socgen/societe-generale-to-pay-1-4-billion-to-settle-cases-in-the-u-s-idUSKCN1NO26B.117SettlementAgreement,supranote84.


Deal.118 Such tendencies are exemplified by the results ofgovernmentinvestigations,whichciteto

numerous examples of [these] ... European banksallegedly seeking to obscure dealings with the Iranianinstitutions. In one series of internalmemos ... Barclaysemployees acknowledged using a method called “coverpayments”to“circumventUSlegislation”barringbusinesswith Iran, Cuba, and certain other countries. “Moral riskexistsifwecarryonusingcoverpayments,butthatiswhattheindustrydoes,”a...Barclaysmemostated.“IMHO”—inmy humble opinion—the memo continued, “we shouldcarryonusing coverpayments andaccept that there is arisk of these being used on occasion to hide truebeneficiaries (who may or may not be sanctionedindividuals or entities)” ... In an ... e-mail, the head ofStandardCharteredBank’sNewYorkoperationwarnedanexecutiveat thehomeoffice inLondon thatcontinuing todo business covertly with counterparties in Tehranpotentially exposed “management inUS andLondon (e.g.you and I) and elsewhere to personal reputationaldamages and/or serious criminal liability.” The StandardCharteredexecutive inLondonallegedly responded: “You[obscenity]Americans,whoare you to tell us, the rest ofthe world, that we’re not going to deal with theIranians?”119

Still,manybanksclaimthedefensethattheirrecidivismisnotintentional,120andistheresultofoverregulation,asbankscannot keep upwith every reformwhen there are somany.121Prior to 9/11, the AML regulations were really driven towardpreventing banks from processing transactions for drug

118Barrett,supranote4.119Id.120AmericanBanksThinkTheyareOver-regulated,THEECONOMIST(May4,2017),https://www.economist.com/special-report/2017/05/04/american-banks-think-they-are-over-regulated.121JohnMerline,USRegulatoryCostsareWorld’sNo.10Economy,INVESTOR’SBUS.DAILY(Apr.29,2014),https://www.investors.com/news/economy/regulatory-economy-booms-under-president-obama/.Federalregulatoryauthoritiesissued3,659ruleslastyearalone;thatisonenewruleevery2.5hours.Id.


traffickersandorganizedcrime.122Nevertheless,whenthe9/11terrorists spent between $400,000 and $500,000 to plan andconduct their attack, and used the anonymity of the globalfinancial system to move their money through ordinarytransactions,123 it was “realized that the financing of terrorismwassomethingthegovernmenthadtopayattentionto.”124Thiswasbecauseitwasnotthattheexistingmechanismshadfailed;rather, theexistingmechanismswere“neverdesignedtodetectordisrupttransactionsofthetypethatfinanced9/11.”125

Upon analysis, Congress decided that law enforcementagencies such as the FBI could not detect these transactionsalone; it needed help from the banking institutionsthemselves.126 But, these regulations have evolved significantlysince9/11, sonow“check cashers, credit card companies,wiretransfercompanies,jewelers...[aresubjecttoregulations]sinceeveryone’s worried something will slip through the cracks.Nobody wants to be the examiner for the bank where thetransactions that finance the next 9/11 goes through.”127 As aresult, regulators are requesting everything from the banks, tonot let the institution get awaywith anything.128However, thisreachesapointof“diminishingreturns,”129asbankswill“spendlotsandlotsofmoneytoshowprogressthatthey’redealingwiththese issues, but they’re not necessarily dealing with themsmartly. So now their resources are completely misfocused ontryingtoputtheirfingersintheholes ...andfixthelittleleaks,whilesomethingreallybadishappeningatthetop,andnoone’sreally had the bandwidth to step back and look at the biggerpicture.”130 The bigger picture, according to KPMG ForensicAnalystTeresaPesce,isaskingwhetherabankisreallystopping 122KPMGUS,TerroristFinancingandAnti-MoneyLaunderingRegulation,YOUTUBE(Jan.27,2016),https://www.youtube.com/watch?v=7Ldx2EVYnJI.123Id.124Id.125Id.(citingTHE9/11COMMISSIONREPORT:FINALREPORTOFTHENATIONALCOMMISSIONONTERRORISTATTACKSUPONTHEUNITEDSTATES(2004)).126Id.127KPMGUS,supranote122.128Id.129Id.130Id.


terrorist financing by looking at “all these student loantransactions, or credit card transactions, or auto financetransactions ... [because] the answer is probably not.”131 Note,financial institutions such as banks have already spent billionson anti-money laundering compliance efforts, yet they still fallshort ofmeeting regulators’ expectations.132 It is unclear if thebillions figure also includes the settlements they have paid toOFAC.

Besides the lack of deterrence due to either the lack ofpressuresettlementsputonbankreform,or theoverregulationof the industry, there is another particularly fascinating aspect.In 2016, the House exposed that a prosecution was notcommenced by OFAC not because the agency lacked “adequateevidence to prove HSBC’s criminal conduct[; rather] internalTreasury documents show that DOJ leadership declined topursue” a prosecution recommendation “because senior DOJleaderswere concerned thatprosecuting thebank ‘could resultin a global financial disaster’—as [Britain’s Financial ServicesAuthority] repeatedly warned.”133 The spokesman for the DOJsays thedecisionnot toprosecuteHSBCwasstillmade ingoodfaith, as the agency is “committed to aggressively investigatingallegations of wrongdoing at financial institutions, and ...holding individuals and corporations responsible for theirconduct.”134 Furthermore, “DOJ’sdecisions on potentialcorporate criminal cases must include consideration of 10factors,including‘whethertheprosecutionmayhavesubstantialadverse consequences for innocent third parties, such asemployees, customers, investors, pension holders and thepublic.’”135 Still, activity such as this promotes distrust ingovernment for those who think it is more important toprosecute theevilandachieve justiceoversaving theeconomy.

131Id.132Id.133Comm.onFin.Servs.,supranote97,at27.134KevinMcCoy,Report:DOJOverruledRecommendationtoProsecuteHSBC,USATODAY(Jul.11,2016),https://www.usatoday.com/story/money/2016/07/11/report-doj-overruled-recommendation-prosecute-hsbc/86942600/.135Id.


When unelected officials, such as those leading OFAC and theDOJ, choose to save the economy over saving civilian and/ormilitarylives,civiliansbegintothinkWallStreetplaystoobigapartinpolitics,andturnstoothermeasurestostopevil,suchasthrough legal action, as exemplified by Freeman v. HSBC, andthosewhohavejoinedthesuit,andLindev.ArabBank.

IV.PROPOSAL

In the eighteen years since the establishment of OFAC,and in the fourteen years since the first ATA lawsuitwas filed,there has not been a significant drop, if any at all, in terroristsusingbankstohelp financetheiractivities.136However, there isanalternativewaytopressurebanksintoadheringtosanctions,oneofwhich lies in thegreaterdomainofAML,andnot just inthe domain of counterterrorism financing: involving ratingsagencies. Themost effectivemeasure has ratings agencies takeinto account OFAC violations and pending ATA lawsuits whencalculatingabank’srating.

Ratingsagencies“aresomeofthemostpowerfulplayersinworld finance.Specifically, theyrate the ‘creditworthiness’ofcompanies and currencies. In the process, it is hoped that theygive investors an idea [of] which investments are safest tomake.”137When a ratings agency highlights a serious situation,there is a “cooling effect their downgrades have oninvestment.”138However,therehasbeensignificantpushbackonratings agencies’ influence,withmany stating that the agencies

136Id.;seealsoBarrett,supranote4.137PatrickKingsley,HowCreditRatingsAgenciesRuletheWorld,THEGUARDIAN(Feb.15,2012),https://www.theguardian.com/business/2012/feb/15/credit-ratings-agencies-moodys.Itisadmittedthat“[m]orepeoplewouldtrusttheagenciesiftheyhadn’tgotsomuchsowrongsorecently.In2009Moody’sissuedareporttitled‘InvestorfearsoverGreekgovernmentliquiditymisplaced’;withinsixmonths,thecountrywasseekingabailout.Meanwhile,S&P’ssovereigndebtteammiscalculatedUSdebtbyasmuchas$2tnwhenitdowngradedAmerica’screditratinglastAugust.”Id.138Id.“Theratingagenciesfuelledthecrisisin2008...andwecanquestionwhethertheyarenotdoingthesamethinginthecurrentcrisis.”Id.


were “very lax” during the sub-primemortgage crisis of 2008,andshouldhavebeenharsheronbanks,139leadingtodisaster:

In the run-up to 2008, a staggering proportion ofmortgage-baseddebtswereratedAAA,when...theywerejunk. The same goes for groups such as Enron, LehmanBrothers, and AIG. Days before they went bust, [the bigthree ratings agencies] all still rated these failingcompaniesassafe.140

Thesamecouldbesaidforratingsagencies’treatmentofbankscurrentlyviolatingOFACsanctions,astheratingsagencieshave been similarly unresponsive to the allegations of banksfinancially assisting terrorists. None of the banks thatwe havelookedat thus far141havebeendowngradedasa resultof theirOFACoffensesoronaccountoftheATAlawsuitspendingagainstthem.142 The ratings agencies’ failure to downgrade banks fortheir OFAC offenses or pending ATA lawsuits suggests theagenciesdonotthinksuchviolationsandlawsuitsaffectabank’sviability.143 This consistently lax attitude toward violationsinadvertentlyencouragesbanks to continue their activities thatviolateOFACsanctions,sincetheyknowtheirratingswillnotbeaffectedbydoingso.

139Id.140Id.141Forsimplicity’ssake,IwillonlybelookingatS&P’sratingsofthebanksmentionedinthisArticle.ThoseratingsincludeCreditSuisse:A,positive;HSBC:AA-,negative;ArabBank:BB-,negative.S&PGLOBAL,https://www.standardandpoors.com/en_US/web/guest/home(lastvisitedMay4,2018).142Ratings,CreditSuisseAG,S&PGLOBAL,https://www.standardandpoors.com/en_US/web/guest/ratings/entity/-/org-details/sectorCode/FI/entityId/114352(lastvisitedMay4,2018).SeealsoS&P,CreditSuisseAG‘A/A-1’RatingsAffirmedOnHigherLossAbsorbingCapacity,LegalEntityRestructuring;OutlookStable(Nov.16,2016),https://www.standardandpoors.com/en_US/web/guest/article/-/view/type/HTML/id/1757074.143SeeReemHeakal,WhatisaCorporateCreditRating?,INVESTOPEDIA,http://www.investopedia.com/articles/03/102203.asp(lastvisitedMay4,2018).


Further, failure to acknowledge banks’ OFAC violationsappears inconsistent with S&P’s mission to honestly assess abank’s risk and give it a rating. When S&P rates a bank, itconsidersthefollowingfactors:abank’sinstitutionalframework,the current state of the economy, its management, financialmeasures such as liquidity, budgetary performance, andbudgetaryflexibility,anddebtandcontingentliabilities.144Often,aratingalsoincludesdecidingabank’sCreditWatchscore.S&P’sCreditWatchrating

highlights [the analyst’s] opinion regarding the potentialdirectionofashort-termorlong-termrating.Itfocusesonidentifiable events and short-term trends that causeratings to be placed under special surveillance by S&PGlobal Ratings’ analytical staff. Ratingsmay be placed onCreditWatchunder the followingcircumstances:Whenanevent has occurred or ... a deviation from an expectedtrend has occurred or is expected and when additionalinformation is necessary to evaluate the current rating.Events and short-term trends may include ... regulatoryactions,performancedeteriorationofsecuritizedassets,oranticipatedoperatingdevelopments.145

Although S&P says it will consider a regulatory actionwhenratingabank,thishasnotbeenreflectedbytheirratingsofthebanksatissueinthisarticle.146

This should change, since the threat of a lower ratingwould be an effective deterrent as banking institutions caredeeplyabout their ratings.147 “Therearemore than150 ratingsagencies worldwide, but in order to have any credibility,companiesreallyneedatleastone[ratingagency]ontheirside,andpreferablyallthree[majorratingsagenciesas]it’sdifficult,if 144JaneHudsonRidleyetal.,Rating’sAgencies:HowNewEvaluationCouldImpactYourRating,GOV’TFIN.OFFICER’SASS’N,http://www.gfoa.org/sites/default/files/Rating%20Agencies.pdf(lastvisitedFeb.12,2019).145RatingsDefinitions,S&PGLOBAL,https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352(lastvisitedJul.12,2019)(emphasesadded).146SeeRatings,supranote142.147Kingsley,supranote137.


not impossible, to do anything against [them].”148 Most bankscaresomuchabouttheirratingthattheypayupto$2.5millionjust to be rated in the first place.149 And that’s part of theproblem:

In theory, this [payment] creates a conflict of interest,because it gives the agency an incentive to give thecompanies the rating theywant. It couldexplainwhy, formuch of the past decade, agencies seemed happy not toquestion either the risks banks were taking, or theaccuracy of their accounts. “We rely on auditedstatements,”onesenioranalyst[said].“Wearehamstrungby audited statements. If lying accountants sign off on afiction...”Theanalyst...leftthesentenceunfinished,buther inferencewasclear: theagenciesareonlyaseffectiveastheirclientsarehonest.150

This “lack of objective information sources, as well asfallinginvestmentinresearch,isexpectedtoensuretheagenciesplay a vital role in global financialmarkets” even though somebankersare“increasinglyaskingclients for the flexibilitynot topeg investmentstocreditratings.”151Whilethischangeofheartmay come to fruition in a few years, for now, investors still docare about a bank’s rating, and, in turn, banks care about theirrating. That is why ratings agencies could effectively pressurebanks into changing their behavior, and, in turn, cut offterrorism’scashflow.

OnewaytoensureratingsagenciestakeOFACviolationsandpendingATA lawsuits intoaccountwhendecidingabank’sratingisbyproperlyregulatingratingsagencies’methodologies.Congresstookastepinthisdirectionin2006,whenitpassedtheCredit Rating Agency Reform Act, which allowed theSecurities

148Id.149Id.(“Intheory,this[payment]createsaconflictofinterest,becauseitgivestheagencyanincentivetogivethecompaniestheratingtheywant...[butalso]theagenciesareonlyaseffectiveastheirclientsarehonest.”).150Kingsley,supranote137.151ShankarRamakrishnan,InfluenceofRatingsAgenciesHardtoDismiss,REUTERS(Jul.2,2012),http://www.reuters.com/article/markets-credit-idUSL2E8I2BZ020120702.


and Exchange Commission (“SEC”)to regulate certain practicesofratingsagencies.152Then,in2010,CongresspassedtheDodd-Frank Act, creating the Office of Credit Ratings (“OCR”) withinthe SEC to “enhance the regulation, accountability, andtransparency of ratings agencies.”153 The Act required OCR tomonitorratingsagenciesto(1)ensuretheprotectionofusersofcreditratings;(2)promoteaccuracyincreditratings;(3)ensurethat credit ratings were not unduly influenced by conflicts ofinterest; and (4) that there was greater transparency anddisclosure to investors.154 Although the SEC has gutted thesestatutes through the regulatory process,155 these acts are ofsignificance because they delineate a legal framework forregulating ratings agencies methodologies. At the same time,neitherstatutenorregulationhastargetedtheratingsagencies’methodologies specifically.156 Subsequent regulations shouldencapsulatesuchguidance.

Within this new regulatory regimewouldbe amandateforcing ratings agencies to factor OFAC violations and ATAlawsuits into their ratings of banking institutions. WhenTreasurycommencesan investigation intoabank for terrorismfinancing, or when they settle, a ratings agency would berequiredby lawto factor thisnew information into their ratingof the banking institution, likely downgrading it. Whileproposingspecific legislationisbeyondthescopeofthisarticle,themain point is that government offices that already regulateratings agencies should compel ratings agencies to define theeffectoffinancingterroronabank’sviability.Ifratingsagenciesarecompelledtoconsidertheseillegalactivities,itwillprovidea

152DeniseFinney,ABriefHistoryofCreditRatingAgencies,INVESTOPEDIA(June4,2018),http://www.investopedia.com/ask/answers/102814/who-regulates-credit-rating-agency.asp.153AbouttheOfficeofCreditRatings,SEC,https://www.sec.gov/ocr/Article/ocr-about.html(lastvisitedApr.26,2018).154Id.155FrankPartnoy,What’s(Still)WrongwithCreditRatings,92WASH.L.REV.1407(2017);156Ramakrishnan,supranote151.Itshouldbenotedthatratingsagenciesconsidertheirratingstobefreespeech,and,therefore,thefactorstheytakeintoaccountshouldnotberegulated.However,thishasnothinderedanycongressionalregulationofratingsagencies.SeePartnoy,supranote155.


strongincentiveforbankinginstitutionstostopfunnelingmoneyto terrorists; if they laundermoney for terrorists, their bottomlinewilldropalongwiththeirrating.

This shifted focus on money laundering to be used inratings methodology would be consistent with each ratingsagency’s pledge to rate the quality, or “creditworthiness,” ofinvestments.157AsingleOFACviolationcansignificantlyaffectabank’s viability, and a bank’s rating ought to reflect that.Furthermore, although OFAC has yet to prosecute a bankinginstitution,Congresscouldstill increasethe fines for thosewhoviolate OFAC sanctions at will, as it has done previously,158 orcompel OFAC to prosecute rather than settle with offendingbanking institutions. Both of these possibilities significantlythreaten the viability of banks, and, aside from the moralobligation to obstruct terrorism, ratings agencies have aprofessionalobligationtoratethesefinancialinstitutionsfairly.

Additionally, it is unclear how the Supreme Court willcome out in deciding the applicability of Jesner regarding suitsagainstbanksforhelpingtofinanceterrorismonAmericansoil.If the Court accepts an expansive interpretation of the ATA, itwillmostcertainlyaffectabank’sviability,asbankswillthenbesubject tocountlessothersuits.Further,bankswillhave topayout treble damages under the ATA,159 forcing a bankinginstitution to likely settle many claims. Potential liability likethese certainly affect a banking institution’s “creditworthiness,”andasaresult,theyshouldbereflectedinitsrating.

IV. CONCLUSION

Inthe16yearssince9/11,thethreatofterrorismhasnotdropped; it has risen.160Moreover, although theWaronTerror

157Kingsley,supranote137.158Sollie,supranote76.15918U.S.C.§2333(a)(2018).160PamelaEngel,TheTerroristThreatisWorseNowthanitwasBefore9/11,BUS.INSIDER(Sep.11,2016),http://www.businessinsider.com/are-we-safer-now-than-on-911-2016-9.


has yet to produce significant results,161 there are battles to bewononotherfronts.Properlyregulatingratingsagenciessothatthey consider a banking institution’s participation in terroristacts is one such battle. If ratings agencies drop a bankinginstitution’s rating for financing terrorism, this will effectivelydissuadebankinginstitutionsfromviolatingOFACsanctionsandAMLregulationsaltogether,sincebankscareagreatdealabouttheir ratings. This is the preferable alternative because in theclose to two decades since the establishment of OFAC and thefiling of civilian lawsuits under the ATA and JASTA, bankinginstitutions seem to be less hindered by such lawsuits andincreased fines to OFAC. While sanctions, AML and financialcounterterrorism are not synonymous, we can fightcounterterrorism battles using the weapons of sanctions andAML.Thesearefrontsinwhichwecanwin.

161Id.