A US federal court has delivered a major blow to the case that terror victims’ families have brought against the Bank of China, as it has granted Israel’s request to block a key former government agent from testifying on behalf of the families.New York Federal Court Judge Shira Scheindlin issued the ruling late Monday against the family of Daniel Wultz, with the ruling applying to another 22 families represented by Shurat Hadin – Israel Law Center.The ruling is a significant blow to the case because the testimony of the agent, Shaya – a unique eyewitness to critical dealings with the bank – was considered a smoking gun that would prove the bank had known it was involved in terror financing. It is surprising because until now, Scheindlin has issued several favorable rulings for terror victims’ families in both this and other cases, including implying at earlier dates that she might compel Shaya to testify.With the US State Department staying out of the issue, the Israeli government had even been concerned that it could be held in contempt, creating a larger diplomatic mess.The ruling also came as a shock because Shurat Hadin had fought (and won on May 30) a massive legal battle to move the decision about Shaya back to Scheindlin’s court, after Israel had tried to push the decision before a federal court in Washington that it thought would be more favorable.The lawsuits are related to attacks in Israel against Americans between 2003 and 2008.Shaya’s testimony was said to be so significant that it elicited deep concern in China – and therefore in Israel, where the government, despite initial supposed promises to help the families, turned against them. Court documents indicate that Shaya worked on national security issues from 1984- 2007. They also indicate that from 2004-2007, he worked on the state’s national security task force dealing with terror financing.He and the state learned in 2004 that account-holder Said al-Shurafa and some members of his family, along with Islamic Jihad and Hamas, were allegedly laundering millions of dollars through the bank, according to the documents.Shaya and other Israeli officials met with the bank in 2005, providing them with evidence of the laundering and asking the bank to close the problematic accounts, but the bank refused to do so, the documents say.The plaintiffs allege that Israel turned its back on them in November 2013, after Prime Minister Binyamin Netanyahu’s state visit to China, out of concern that the testimony would harm its business interests there.The Prime Minister’s Office, led by former national security adviser Ya’acov Amidror, has said its reasons for blocking Shaya from testifying relate to the preservation of classified security information and international cooperation in fighting terror financing.The plaintiffs say that for years, they expected Shaya to testify to facts already specified in a court affidavit by former Israeli government agent Shlomo Matalon regarding Israel’s putting the bank on notice.Part of the bank’s main defense is the argument that it did not know about the money-laundering until 2008. Shaya’s testimony that it knew in 2005 could have pummeled that defense. But later, in an affidavit by Amidror, Israel suddenly opposed having Shaya testify.Scheindlin noted Shurat Hadin’s arguments that the Matalon affidavit and prior Israeli government cooperation had already put all the needed information into the public sphere and waived any possible defense that the information was classified for national security reasons.But she overruled this argument, saying that at most, Shaya had said he was “inclined” to testify, while always noting that he would not be able to if the Israeli government did not permit it.Beyond that brief comment, Scheindlin, surprisingly, did not scrutinize the issue of whether – with the substance of Shaya’s information already public – the state had functionally waived any possibility that the information was classified. Rather, she sufficed with saying that courts should not second-guess governments regarding whether an issue should be classified, and noted a recent case in which a different US court had deferred to such concerns even though the disputed information had been otherwise publicly released.Shurat Hadin’s next potential steps are to file a motion for reconsideration to Scheindlin, appeal to the Second Circuit’s US Court of Appeals, and file a motion for sanctions against China for allegedly threatening Israel in order to compel it to keep Shaya from testifying.The NGO hopes the sanctions motion could lead to a jury instruction preventing the bank from denying the information that Shurat Hadin says Shaya would have given had the bank not (allegedly) interfered with his testimony.Still, the NGO said it was confident that it would ultimately prevail on the basis of documents Israel had provided the group before ceasing to cooperate, plus additional documents the NGO might receive in a request pending before the Justice Ministry and the High Court of Justice.Discovery in the case is scheduled to continue until September, with expert discovery to end in November.