Influential Mideast bank accused of funding militants

WASHINGTON —  A three-year investigation into the activities of one of the Middle East’s largest and most influential banks is producing extensive evidence of how tens of millions of dollars have flowed from wealthy Saudi Arabians to Palestinian groups that allegedly used some of the money to pay off suicide bombers and their survivors.

The information being turned up by government inquiries and lawyers suing Arab Bank “will give people a better understanding of the way money moves in that part of the world to support Hamas” and other militant groups in the West Bank and Gaza Strip, said Stephen Kroll, a terrorism finance specialist and until recently counsel to the U.S. Senate Committee on Banking, Housing and Urban Affairs.

“It’s important in focusing the public’s attention on the issue of what is and what is not acceptable for banks to be involved in,” Kroll said.

The Justice Department is conducting a criminal investigation into the New York branch of Arab Bank, which is based in Jordan, and its financial links to organizations and individuals accused of terrorism, according to three former U.S. counter-terrorism officials.

In 2005, the bank agreed to pay the federal government $24 million in fines for violating U.S. laws aimed at preventing terrorist financing, including failing to report suspicious transactions.

The bank is also being sued in federal court in Brooklyn by Americans and Israelis injured in suicide bombings or other fighting in Israel and the occupied territories, and by the relatives of others who were killed. No trial date has been set, but assuming the cases go to trial, they could establish ground rules for what obligations banks have in handling money bound for militant groups. They could also provide an unusually detailed and public look at the flow of money from Saudi donors to Palestinian groups that the U.S. and Israel list as terrorist.

Lawyers suing Arab Bank accuse the firm of facilitating acts of terrorism by providing accounts and other financial services to Hamas, Islamic Jihad and similar groups. Arab Bank also acted as the administrator of a plan in which suicide bombers and others designated as “martyrs” by the Palestinian Authority and other organizations were compensated for their actions on a sliding scale, based on the extent of their injuries, according to documents filed in the cases. The lawsuits charge that the payments -- and thus Arab Bank -- provided an incentive for suicide bombings.

Arab Bank officials deny such charges and say they have never knowingly supported acts of terrorism. Bank officials say their agreement to pay the fine in 2005 was not an acknowledgment of any wrongdoing.

Bank officials say they provide an important financial service in the impoverished Palestinian territories and that they were merely acting as intermediaries between banks representing Saudi donors and Palestinian organizations and individuals who were being compensated for suffering at Israeli hands.

They also say that a “martyr” can mean almost any Palestinian killed or injured as part of the struggle with Israel, including innocent victims.

“Arab Bank had reason to believe these were humanitarian payments or social welfare payments, and there was certainly nothing in any of the public information that suggested to the bank at the time that these were in any way [meant] to induce terrorism or reward terrorism,” said Robert Chlopak, a Washington-based spokesman for the bank.

Chlopak said the bank had checked out clients and transactions and that it did not process any payments to individuals or organizations that were designated as terrorist.

In one instance in which plaintiffs’ lawyers allege that Arab Bank maintained an account for Hamas in Beirut, bank officials said that once they learned of the suspicious account, they froze it and reported it to authorities.

Arab Bank also said that it was primarily transferring funds sent to it from other banks on behalf of legitimate Saudi donors that have not been linked to terrorist activities. To win their case, the plaintiffs’ lawyers would have to prove that Arab Bank knew that it was doing business with terrorist individuals or entities.

In 2005, the Treasury Department and the Office of the Comptroller of the Currency found that Arab Bank’s New York branch had transferred funds between 2001 and 2004 for organizations that were later designated by the U.S. as terrorist groups. The Treasury Department said the bank had “largely complied” with the requirement to stop the transfers after the groups were identified.

But the department said that after the government designated these groups as terrorist, the bank failed to go back and review its accounts to see what dealings it had had with them and report any suspicious activities.

Some of the initial allegations in the lawsuits, most of which were filed in 2004, were based on documents seized by the Israeli military during raids on charities, businesses and other locations in the West Bank and Gaza in 2002. Among the documents were records indicating that Arab Bank provided financial services for Hamas and at least 41 organizations and individuals allegedly related to it or to Islamic Jihad.

Plaintiffs’ lawyers Gary Osen and Michael Elsner used those records as a jumping-off point for a wider investigation in which they have gained access to tens of thousands of financial records from Arab Bank.

The records detail financial transactions that began in 2000 with the start of the second Palestinian intifada, or uprising. Saudi government officials created two special fundraising committees to help Palestinians battle Israeli forces and otherwise resist the occupation, according to court documents.

One of them, the Saudi Committee for Aid to the Al Quds Intifada, decreed that the life of anyone who died as a “martyr” in the conflict with Israel was worth 20,000 Saudi riyals, about $5,300 at the time. The committee began wiring that sum into accounts that families were instructed to set up at Arab Bank branches, the lawsuits allege. The average Palestinian salary is about $3,000 a year.

In all, the Saudi Committee made about 200,000 wire transfers for the Palestinian cause, totaling more than $90 million, Shukry Bishara, Arab Bank’s chief banking officer, said in a court declaration. Much of that money went to pay for hospitals and social welfare programs, or to compensate people injured or imprisoned -- or the families of those killed -- in the Israeli-Palestinian conflict.

But the money also included an undetermined amount paid to the families of suicide bombers, and those injured or imprisoned by Israel, according to the lawsuits.

The plaintiffs allege that bank officials knew that those listed as “martyrs” included suicide bombers because it was publicly advertised. They cited a Feb. 10, 2001, edition of the Saudi newspaper Al Jazirah in which the Saudi Committee listed the names of Palestinian martyrs, including those killed in suicide bombings, whose families received payments.

Several lawmakers and Bush administration officials involved in the investigation of Arab Bank have expressed concerns about its activities.

At one House Finance Committee hearing in May 2005, Treasury Undersecretary Stuart Levey said that during his visit to the West Bank city of Ramallah to discuss the issue, the Arab Bank manager for the Palestinian territories told him that he “had not filed a single suspicious activity report in the past two years across all the Arab Bank branches in the West Bank and in Gaza.”

“It appears that such controls were indeed sorely lacking at Arab Bank across all of their global operation,” Levey said.

josh.meyer@latimes.com