Why did Arab Bank stand and fight when Iran ran?

The answer probably relates to size, prestige and the bank's different geopolitical setting being the largest bank of close US ally Jordan.

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September 24, 2014 06:17
3 minute read.
Iran

Iranian flag. (photo credit: REUTERS)

 
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One of the incredible characteristics of Monday night's historic terror financing jury verdict against Arab Bank was that there was a trial at all.

Shurat Hadin – Israel Law Center is likely the leader in the field of lawsuits related to terror financing and while it has collected significant damages in some rare cases, it has never gone to a full trial against a bank with the statute of Arab Bank (though it is working hard against Bank of China.)

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Most typically, the NGO or some of the few other players in this field, get default judgments against countries or financial institutions associated with Iran, Syria, North Korea or other rogue parties, some in the hundreds of millions of dollars, but they cannot collect on them.

The countries or parties do not show up to defend the case and essentially disappear.

They move their assets or never had significant enough assets in the US in the first place to make a meaningful seizure, or as in one rare case in Italy, courts allow the countries to remove their funds on an honor pledge by the party to continue to show up for hearings (which countries can break once the assets are moved.)

In some cases there have been quiet settlements for damages with Palestinian groups, but never high profile public trials revealing much of a bank's books and records relating to terror financing allegations.

Why did Arab Bank stand and fight the charges (aside from its obvious claim that it is innocent of any wrongdoing and free from liability) where the others did not?

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The answer probably relates to size, prestige and the bank's different geopolitical setting being the largest bank of close US ally Jordan.

The bank is a $46 billion bank, far larger than many previous parties being sued with hundreds of branches in 30 different countries on five continents, including being entrenched in the West at a level that many others who were sued had not reached.

From a prestige perspective, one of the bank's main selling points is that, even as it is not a bank originating from the West, it is a true international juggernaut with impeccable credentials.

Entrenchment and caring about prestige do not go well with quickly disappearing.

Finally, geopolitically Jordan views the US as a key ally which helps guarantee aspects of its security and stability so whereas Iranian institutions would get no push back from Iran's government for ignoring the US judiciary, a Jordanian bank does not have the same luxury.

All of this culminated in the bank taking the risk of its record being put on public display at trial, and as turned out, losing.

How will Arab Bank verdict impact international banking?

With the historic verdict against Arab Bank in Monday night, "bank compliance officers across the Middle East may already be scouring their accounts for connection to groups defined as terrorists in the US," said Jonathan Schanzer, Vice President for research at the Foundation for Defense of Democracies and a former terror finance analyst for the US Treasury Department.

The plaintiffs' lawyers and experts have said that large banks dealing with questionable clients in conflict parts of the world woke up to a new playing field in which feigned compliance with checking terror watch lists, while looking the other way, will no longer suffice.

What is more, is that experts view the verdict as having a potentially greater deterrent impact on misbehavior by banks in dealing with terror financing, than even actions by the Us Treasury itself.

In July, French mega bank BNP Baribas agreed to pay an $8.9 billion fine on criminal charges for processing funds on behalf of Sudan, and other mega banks HSBC, Lloyds, Credit Suisse, Barclays and Standard Chartered have also recently been hit with stiff fines in less invasive settlements with the US for violating sanctions laws.

In contrast, Schanzer said that the "making public" of Arab Bank's documents at trial and the formal court judgment for terror financing carries a stigma and a "shame" factor which will "reverberate" even more strongly within the banking community.

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