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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).

[6] 8 U.S.C. §1189 (a)(1-4).

[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.

[9] 50 U.S.C.§§1701-1707 (2004).

[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.

[12] 22 USC§2349aa-9(a).

[13] Iran Sanctions Act of 1996, 50 U.S.C. § 1701 note, https://www.treasury.gov/resource-center/sanctions/Programs/Documents/isa_1996.pdf.

[14] Kashani v. Tsann Kuen China Enterprise Co.,Ltd., 13 Cal. Rptr. 3d 174 (Ct. App. 2004).

[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).

[22] 22 U.S.C. §2780(k)(2012).

[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).

[33] Almog v. Arab Bank, PLC, 471 F. Supp. 2d 257, 285 (E.D.N.Y. 2007).

[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).

[36] Foreign Sovereign Immunities Act of 1976 (FSIA), §§ 1602-1611 (2012); 28 U.S.C. § 1330,