Economic Sanctions and Lawsuits Against Terrorists - Module 4 of 5
Module 4:
Economic Sanctions and Lawsuits against Terrorists
In our fourth module on counter-terrorism, we
start our discussion of non-law enforcement related methods to combat
terrorists and their supporters. Specifically, we’ll analyze economic
sanctions, which consist of trade sanctions, financial sanctions, technology
transfer restrictions and seizure of terrorism-related assets. Second, we’ll
look at how civil litigation unfolds against a foreign terrorist organization,
a terrorist organization supporter or a state sponsor of terror and when these
three parties may be civilly liable.
How Economic Sanctions Work
The United States imposes economic sanctions to
alter a state and non-state actor’s activities that could threaten its
interests or violate international norms of behavior.[1] Some critics argue
that economic sanctions are often poorly conceived and rarely successful in
changing a target’s conduct, while supporters contend they have become more
effective in recent years and remain an essential foreign policy tool.
Proponents of sanctions also argue that they are effective because they hurt
the target country's economic welfare and thus force a state sponsor of
terrorism to abandon its objectionable policy.[2]
Economic sanctions are traditionally defined as
the “deliberate, government-inspired withdrawal, or a threat of withdrawal, of
customary trade and financial relations with a target country in an effort to
change that country's policies.”[3]
Prior to imposing an economic sanction against a
terrorist organization or a state sponsor of terror, the Secretary of State
must first find that the proposed target of sanctions is a “foreign terrorist
organization” or a “state sponsor of terrorism.”
Under the Anti-Terrorism and Effective Death
Penalty Act,[4] amended in the Intelligence Reform and Terrorist Prevention Act
of 2004,[5] the Secretary of State designates a foreign terrorist organization
by finding: (1) that the organization is a foreign entity (2) that engages in
terrorist activity which (3) threatens U.S. citizens or U.S. national security.[6]
The Secretary of State can label a country as a
“state sponsor of terrorism” if it has repeatedly provided support for
international terrorist acts. Three federal laws, Section 6(j) of the Export
Administration Act, Section 40 of the Arms Export Control Act, and Section 620A
of the Foreign Assistance Act, work together and guide the Secretary of State
in this analysis.[7] Four countries—North Korea, Iran, Sudan, and Syria—are
currently listed as state sponsors of terrorism.[8]
When the United States lists an organization or
country as a foreign terrorist organization or a state sponsor of terrorism,
the International Emergency Economic Powers Act allows the President to impose
various economic sanctions against it. The President can declare a foreign
threat to the national security, foreign policy or the economy, block economic
transactions and freeze assets to deal with the threat, and, in the event of
foreign attack, confiscate property connected with the country, group or person
that made, carried out or supported the threat.[9]
After the September 11th attacks, President
George W. Bush signed Executive Order 13224 pursuant to the Act, declaring a
national emergency and directing the government to find and freeze the assets
of people, groups, and countries involved in the ongoing terrorist threat to
the United States.[10] Since then, the Secretaries of State and Treasury and
the Attorney General have designated over 6,000 people, groups, and countries
as “Special Designated Nationals” and “Specially Designated Global Terrorists
to whom the order applies.[11]
Trade Sanctions
The first type of economic sanction
is a trade sanction, which means a restriction or ban on the imports of goods
and services from the state sponsor of terrorism or country that harbors
terrorists.[12] The Treasury Department’s Office of Foreign Assets Control
enforces trade sanctions against targeted foreign countries and terrorist
organizations and can levy fines against those who trade or do business with Special
Designated Nationals or Specially Designated Global Terrorists.
One of the most well-known trade
sanctions is the Iran Sanctions Act of 1996. After Congress and the Secretary
of State found that Iran “uses its diplomatic facilities and quasi-governmental
institutions outside of Iran to promote acts of international terrorism,” the
U.S. imposed sanctions hindering Iran’s ability to refine, sell, or otherwise
trade petroleum on the international market.[13] This trade sanction has broad
reach as it severely limits Iran’s ability to work with any American who could
provide goods, services, technology, or support that could directly and
significantly facilitate the maintenance or expansion of Iran's domestic
production of oil.
Courts have upheld trade restrictions as lawful
exercises of inherent and statutory authority of the President in foreign
affairs. For example, in Kashani v. Tsann Kuen China Enterprise Co., an
American plaintiff contracted to build a factory in Iran to produce computer
products that one defendant, an American subsidiary of a Chinese corporation,
planned to sell in Iran. However, when the defendant didn’t proceed with
the contract on the ground that U.S. sanctions prohibiting trade with Iran
rendered the contract illegal, the plaintiff sued for breach of contract.
The California Court of Appeal held
that the plaintiff had no remedy.[14] It reasoned that under the Iran Sanctions
Act, as well as other presidential directives, such as Executive Order 12959, which
prohibited “any new investment by a United States person in Iran or in property
owned or controlled by the Government of Iran”,[15] almost all forms of trade
between Iran and the U.S. were banned. The plaintiff’s contract was therefore
unenforceable, and he couldn’t sue for contract breach.
Financial Restrictions
The second type of economic sanction is a
financial restriction, which stops terrorists and their supporters from
borrowing, investing, and managing capital. Funding disruption and restriction
are key prongs in this counter-terrorism strategy.[16]
Let’s look at an example of a statute imposing a
financial restriction. Section 321(a) of the Antiterrorism and Effective Death
Penalty Act imposes civil penalties of up to $250,000 or double the amount
transferred in violation of the law on U.S. citizens or corporations that enter
into any unlicensed financial transactions with state sponsors of
terrorism.[17]
One of the most publicized examples of a
financial restriction and penalty on a firm that has helped a state sponsor of
terrorism with borrowing, investing, and managing capital is that of BNP
Paribas, a French multinational bank. In 2014, it pled guilty in federal court
to violating financial sanctions against Sudan, Cuba, and Iran, two of which
are classified as state sponsors of terrorism. The plea agreement acknowledged
that BNP Paribas had falsified business records, laundered money through the
U.S. financial system on behalf of sanctioned entities and deliberately
provided state sponsors of terrorism with capital used to harbor and provide
material support to terrorists between 2004 and 2012. The court sentenced BNP
Paribas to five years’ probation, ordered it to forfeit nearly $9 billion,
barred it from conducting certain business related to the transaction for one
year and levied a $140 million fine.[18]
Technology Transfer Restrictions
The third form of economic sanction
is a technology transfer restriction. This is an important tool to combat terrorism
because it denies and disrupts a state sponsor of terrorism or a foreign
terrorist organization’s access to technology that would enhance its ability to
harm the United States.
Examples of technology that the
United States restricts the transfer of includes:
·
dual-use items, which have civilian and military uses, like computers or
certain metals or timing devices; and
·
critical technologies, which can be electronics, telecommunications,
information security technology and aerospace technology.[19]
If an item is on the Commerce Control List and
the end-user may be connected to terrorist activity, the Department of
Commerce’s Bureau of Industry and Security can deny the exporter of that
technology an export license.[20] The Bureau can also prohibit exports to
any entity barred by the International Traffic in Arms Regulations from
exporting defense articles.[21] Finally, the Arms Export Control Act
allows the U.S. government to penalize an exporter up to $500,000 for any transfers
of certain weapons and ammunition to end-users who are connected to
terrorism.[22]
Here are a couple examples. Weatherford
International, a multinational energy company, paid over $250 million to
resolve export control and sanction violations for an unauthorized transfer of
drilling equipment to and for conducting business in Iran, Sudan, and Syria,
which are all state sponsors of terrorism.[23] Academi LLC, formerly Blackwater
Worldwide, also avoided prosecution by agreeing to pay $7.5 million in
forfeitures and fines for violating federal law by exporting satellite phones
and proposing to provide security services to Sudan, a state sponsor of
terror.[24]
Freezing Assets
Fourth, the Secretary of the Treasury, acting
under the International Emergency Economic Powers Act and Executive Order
13324, can freeze the assets of terrorists, state sponsors of terrorism and
foreign terrorist organizations.[25] Three Treasury Department components, the
Office of Terrorism and Financial Intelligence, Office of Foreign Assets
Control and Terrorist Finance Tracking Program, can identify assets, such as
bank accounts, located in the U.S. and freeze them by blocking access.
The Department of Treasury’s intelligence bureau
employs data analysis software to find a questionable account and then freeze
it. A party in charge of that account will be notified of an account
freeze in the Federal Register, or by the financial institution that was
ordered to freeze the assets.
Courts have held that freezing
assets is a constitutional assertion of governmental counter-terrorism power
even when done without prior notice or a hearing. In Kadi v. Geithner, the
Office of Foreign Assets Control froze the U.S.-based assets of Yassin Adbullah
Kadi, a Saudi citizen who had allegedly managed money and business affairs for
Osama bin Laden, al-Qaeda, Hamas and several other foreign terrorist
organizations. The court held that because the administrative record compiled
by OFAC established there was a “reasonable basis” to conclude that Kadi was a
financial supporter of terrorism, the freezing of his assets was lawful.[26]
Freezing assets doesn’t just mean
blocking access to accounts; it also means seizure of assets and civil
forfeitures. In one case, in re 650 Fifth Avenue, the U.S. seized a 36-story
office tower in Manhattan worth over $500 million and $4 million in cash after
proving that majority ownership in these assets was in a foundation that
provided unlicensed services to and was directly supervised by Iran.[27]
In another case, the Treasury Department
discovered that Lebanese Canadian Bank, two Lebanese money exchange houses, a
shipping company and 30 U.S.-based car dealers conspired to wire the proceeds
of a criminal enterprise in Lebanon and West Africa into the United States.[28]
These funds, totaling $329 million, were then used to purchase used cars that
were shipped to and sold in West Africa. Cash from the car sales, along with
proceeds of narcotics trafficking, were then funneled into Lebanon through money
laundering channels managed by Hezballah, a terrorist organization. The U.S.
demanded forfeiture of defendants’ assets as proceeds of law violations and
money laundering. LCB settled for a forfeiture of $102 million.[29]
Private Litigation and Terrorism
Civil suits against terrorists can compensate
victims and make it more difficult for a state sponsor or an FTO to finance
terrorism. Section 2333 of the Anti-Terrorism Act specifies that “any national
of the U.S. [or his estate or heirs] injured in his or her person, property, or
business by…an act of international terrorism” may sue for damages in federal
court. This enables civil litigation against terrorists and their
supporters,[30] although collecting judgments is complicated by the difficulty
in locating and seizing terrorist assets and by possible assertions of
executive authority to prevent collection from disrupting foreign policy.[31]
An individual terrorist is hard to sue for two
reasons. First, a terrorist is elusive to capture because he’s often either
hiding, jailed, dead or otherwise impossible to hail into court. The second
reason is because he will usually lack the money to pay any judgment awarded
against him.
Since an individual terrorist is hard to sue, a
victim of a terrorist act will typically sue either a foreign terrorist
organization, an organization supporting terrorists or a state sponsor of
terrorism. Any of the three can be sued because it is secondarily liable for
the acts of terrorist individuals, and each possesses assets that can be seized
to satisfy judgments.
For example, in Boim v. Holy Land Foundation,
unnamed terrorists affiliated with Hamas murdered David Boim, a U.S. citizen
who had been living in Jerusalem. Boim’s parents sued persons and organizations
they claimed provided financial support to Hamas.
The federal district court jury awarded $52
million to Boim’s parents. The defendants appealed claiming only the
individuals who killed Boim bore any civil liability because the Anti-Terrorism
Act does not create liability with regard to those who support, rather than
commit, terrorism. The Seventh Circuit held that despite the statutory silence
on secondary liability for aiders and abettors of terrorism, and despite there
being no common law basis for imposing such liability, a “good sense” reading
of the Anti-Terrorism Act as a “counterterrorism measure” made the defendants —
individuals and organizations that knowingly finance terrorism — civilly liable
for Boim’s death.[32]
Similarly, in Almog v. Arab Bank, PLC, more than
1,600 U.S. and non-U.S. plaintiffs sued the defendant bank, which has an
international presence, alleging the bank had provided financial services to
Hamas and other terrorist organizations in a decades-long campaign to kill
Americans in Israel via suicide bombings and other attacks. The plaintiffs also
alleged that the bank had paid families of suicide bombers, consistent with the
Hamas’s conspiracy to kill Americans.
The bank filed a motion to dismiss on the
grounds that it was not secondarily liable for the acts of terrorist
organizations and that “terrorism” is so ill-defined that acts alleging terrorism
do not constitute a “tort…in violation of the law of nations.” The court
disagreed and held that a bank could be sued. It reasoned that systematic
suicide bombings and other murderous attacks against civilians “for the purpose
of intimidating a civilian population are a violation of the law of nations for
which this court can and does recognize a cause of action under the Alien Tort
Statute” and that the financing of terrorism also constituted a tort under
international law.[33]
Finally, a state sponsor of terrorism can also
be sued for its acts. In March 2018, the D.C. District Court, in the most
recent of ten such verdicts against Iran, ordered that it pay $920 million to
the families of 80 U.S. Marines as compensation for Iran’s role in arming,
training, and otherwise materially supporting Hezbollah, which carried out the
1983 suicide bombing of the U.S. Marine Barracks in Beirut, Lebanon.[34]
In Gates v. Syrian Arab Republic, families of
two U.S. civilian contractors beheaded in Iraq by terrorists under orders from
Abu Musab al-Zarqawi, founder of al-Qaeda in Iraq, sued Syria, Syrian military
intelligence, and other Syrian agencies and government officials for wrongful
death and pain and suffering under the Alien Tort Statute. They alleged that a
state sponsor of terrorism had provided material support in the form of
intelligence, training, and money to al-Qaeda in Iraq, thereby causing the
contractors’ deaths.[35]
When Syria did not answer the lawsuit, the
district court entered a default judgment for $300 million. Syria appealed,
alleging it could not be sued because the Foreign Sovereign Immunities Act
generally prohibits suing foreign countries in U.S. courts.[36] The Court of
Appeals for the D.C. Circuit upheld the judgment, citing recent amendments to
the statute under Section 1605(a)-(c), a counter-terrorism measure, that
expressly allows suits for money damages against states that sponsor terrorism
against U.S. nationals.[37]
In our final module, we will discuss international counter-terrorism efforts, including those of the UN and regional organizations, the legal and political bases for cooperation, and the policies that guide international counter-terrorism activities, including intelligence sharing, coalition military operations, financial cooperation and capacity building.
[1] Johnathan Masters, What Are Economic Sanctions? Council on Foreign Relations (Aug. 7, 2017), https://www.cfr.org/backgrounder/what-are-economic-sanctions.
[2] William H. Kaempfer & Anton D. Lowenberg, International Economic Sanctions 161 (1992).
[3] Gary Hufbauer & Barbara Oegg, A Short Survey of Economic Sanctions, Inst. For Int'l Econ. (2001), https://www.files.ethz.ch/isn/6866/doc_6868_290_en.pdf.
[4] Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. No. 104-132, 110 Stat. 1214 (1996).
[5] Intelligence Reform and Terrorist Prevention Act of 2004, Pub. L. No. 108-458, 118 Stat. 3638, 3801 (2004).
[7] State Sponsors of Terrorism, Dep’t of State, https://www.state.gov/j/ct/list/c14151.htm (last visited June 19, 2018).
[8] Id.
[10] Executive Order 13,224, Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. Reg. 49079 (Sept. 23, 2001) (as amended by Executive Order 13268 (Jul. 2, 2002)
[11] Specially Designed Nationals List – Data Formats & Data Schemas, Dep’t of Treasury (June 15, 2018), https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/sdn_data.aspx.
[13] Iran Sanctions Act of 1996, 50 U.S.C. § 1701 note, https://www.treasury.gov/resource-center/sanctions/Programs/Documents/isa_1996.pdf.
[15] Executive Order 12959, Prohibiting Certain Transactions With Respect to Iran, 60 Fed. Reg. 24757 (May 6, 1995).
[16] Carla E. Humud, Robert Pirogi & Liana Rosen, Islamic State Financing and U.S. Policy Approaches, Congressional Research Service (April 10, 2015), https://fas.org/sgp/crs/terror/R43980.pdf.
[18] U.S. v. BNP Paribas, No. 1:14-cr-00460 (S.D.N.Y. 2014); BNP Paribas Agrees to Plead Guilty and to Pay $8.9 Billion for Illegally Processing Financial Transactions for Countries Subject to U.S. Economic Sanctions, Office of Public Affairs, Dep’t of Justice (June 30, 2014), https://www.justice.gov/opa/pr/bnp-paribas-agrees-plead-guilty-and-pay-89-billion-illegally-processing-financial.
[19] Commerce Control List (CCL), Bureau of Industry and Security, U.S. Dep’t of Commerce, https://www.bis.doc.gov/index.php/regulations/commerce-control-list-ccl (last visited June 19, 2018).
[20] Dual Use Export Licenses, Bureau of Industry and Security, U.S. Dep’t of Commerce, https://www.bis.doc.gov/index.php/licensing/forms-documents/doc_download/91-cbc-overview (last visited June 19, 2018).
[23] Litigation Release No. 22880, Sec. and Exch. Comm’n v. Weatherford Int’l Ltd., No. 4:13-cv-03500 (S.D. Tex. November 26, 2013),https://www.sec.gov/litigation/litreleases/2013/lr22880.htm.
[24] David Ingram, Company Formerly Called Blackwater to Pay Sanctions Fine, Reuters (Aug. 7, 2012), https://www.reuters.com/article/us-usa-blackwater-fine-idUSBRE87701H20120808.
[25] 8 U.S.C. §1189(a)(2)(C); Executive Order 13,224, Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. Reg. 49079 (Sept. 23, 2001) (as amended by Executive Order 13268 (Jul. 2, 2002)).
[26] Abdullah v. Geithner, 42 F. Supp. 3d 1 (D.C. Dist. 2012).
[27] In re Fifth Avenue, 2013 WL 5178677 at *1, No. 08 Civ. 10934 (KBF) (S.D.N.Y. Sept. 16, 2013); Brad Gershel & Marjorie J. Peerce, Lessons in Civil Forfeiture and Attachment: U.S. May Seize 650 Fifth Avenue, Ballard Spahr (July 6, 2017), https://www.moneylaunderingwatchblog.com/2017/07/lessons-in-civil-forfeiture-and-attachment-u-s-may-seize-650-fifth-avenue/.
[28] Civil Suit Seeks More Than $480 Million from Entities That Facilitated Hizballah-Related Money Laundering Scheme, U.S. Attorney’s Office, (Dec. 15, 2011), https://archives.fbi.gov/archives/newyork/press-releases/2011/civil-suit-seeks-more-than-480-million-from-entities-that-facilitated-hizballah-related-money-laundering-scheme.
[29] Manhattan U.S. Attorney Announces $102 Million Settlement of Civil Forfeiture and Money Laundering Claims Against Lebanese Canadian Bank, Dep’t of Justice (June 25, 2013), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-102-million-settlement-civil-forfeiture-and-money.
[30] 18 U.S.C.§2333(a) (2012).
[31] Jack D. Smith & Gregory J.Cooper, Disrupting Terrorist Financing with Civil Litigation, 41 Case W. Res. J. Int’l L. 65 (2009). The difficulty in collecting judgments is beyond the scope of Module 4.
[32] Boim v. Holy Land Foundation for Reliefand Development (Boim III), 549 F.3d 685 (7th Cir. 2008). However, a recent Supreme Court denial of certiorari regarding a Second Circuit decision overturning a jury award for families of victims of terrorism committed by Palestinian FTOs introduces uncertainty as to whether U.S. courts have extraterritorial civil jurisdiction over terrorism committed by FTOs against U.S. citizens. Sokolow v. Palestine Liberation Org., No. 15-3135 (2d Cir. 2016 August 31, 2016), cert. denied (Apr. 2, 2018).
[34]Debra C. Weiss, Beirut Barracks Bombing Victims and Their Families Are Awarded $920M Judgment Against Iran, ABA Journal, (Mar. 2, 2018), http://www.abajournal.com/news/article/beirut_barracks_bombing_victims_awarded_920m_judgment_against_iran
[35] Gates v. Syrian Arab Republic, 580 F.Supp. 2d 53 (Dist. D.C. 2008), aff’d, 646 F.3d 1(D.C. Cir. 2011).