Clarifying the Status of Arab Bank in the U.S.

By Jonathan Winer

Yes, Arab Bank, despite the statement of its principal regulator on February 8, 2005 that it would withdraw from the U.S. market, is still doing business in the U.S., as I have been reminded by its public affairs spokesman. The spokesman contacted me following my last posting to the CT blog regarding Iranian-related money laundering risk, in which I mentioned Arab Bank in passing as an example of an institution that experienced significant consequences for having failed to implement anti-money laundering policies and procedures sufficient to detect illicit transactions. At the spokesman’s urging, I provide this to clarify and expand on the single sentence in my previous post regarding Arab Bank.

As CT Blog readers may recollect, in 2005, as a result of a consent order entered into with U.S. federal regulators, Arab Bank was required to close its branch in the U.S., to cease participating in wire transfers in the U.S., to end all correspondent banking relationships, and to pay $24 million in penalties, one of the largest money laundering-related sanctions applied to a financial institution in U.S. history. The consent order stripped Arab Bank of its direct participation in the U.S. payments system, although it left it with an agency office. At the time, the Arab Bank's regulator, the Central Bank of Jordan, told the Associated Press that Arab Bank would gradually close its New York operation and withdraw from the U.S. market.

What happened next? According to the Arab Bank spokesman, Arab Bank has not withdrawn from the U.S. market, and its business in the U.S. today has the same focus as it did prior to the enforcement action. As stated by the spokesman, the Arab Bank’s New York office “still provides corporate finance services which was a primary focus of its business before the consent order.”

A more extended discussion of these issues, and information available to the public regarding the Arab Bank and information pertaining to its acting as a conduit for terrorist funds, is provided below.

When the coming Congress prepares to exercise oversight hearings on terrorism and terrorist finance issues, it will be interesting to see whether Congress views this result to constitute an appropriate resolution of the compliance failures described by the regulators in the consent orders.

Disclosure Note: The author has previously been engaged as an expert witness in connection with a plaintiff’s case brought against the Arab Bank, on the issue of whether foreign bank secrecy laws justify the withholding of foreign bank record information alleged to pertain to terrorist finance activities. His opinion was that they do not.

Why was the Arab Bank required to close its New York branch in 2005? The reasons are set forth in part in an order issued by the Financial Crimes Enforcement Network (“FinCEN”) of the Treasury, which described Arab Bank’s failings as follows:

". . . [D]uring the period from 2000 through 2004, management of an Arab Bank affiliate in the Palestinian Territories received, from regulatory authorities in the Palestinian Territories, orders that focused explicitly on funds transfers to a number of beneficiaries with accounts at members of the Arab Bank Group in the Palestinian Territories. In addition, regulatory authorities in the Palestinian Territories issued circulars containing the names of suspected criminals and ordered institutions holding accounts of the suspected criminals to either freeze the accounts or place the accounts on a watch list. Despite the heightened risk of illicit activity, Arab Bank - New York failed to implement procedures for obtaining this type of information from other members of the Arab Bank Group, to mitigate the risk and ensure compliance with the Bank Secrecy Act. Moreover, Arab Bank - New York failed to implement procedures, commensurate with the risks posed by its U.S. dollar clearing activities, for obtaining and utilizing publicly available information, to monitor and identify funds transfers that warranted further investigation, or to conduct follow-up investigations if Arab Bank- New York had identified anomalies or potentially suspicious funds transfers. Names similar to those of originators and beneficiaries in funds transfers cleared by Arab Bank - New York appeared in credible sources of publicly available information. The sources included Congressional testimony, indictments in the United States, and well-publicized research and media reports. Due to the heightened risks of money laundering and terrorist financing, Arab Bank- New York should have developed procedures for utilizing - to the extent appropriate and practical - publicly available information concerning beneficiaries and originators, on a risk-assessed basis. . . . Arab Bank - New York failed to identify a number of potentially suspicious funds transfers. Had Arab Bank - New York implemented an adequate, risk-commensurate anti-money laundering program, identified certain funds transfers for further investigation, and performed an appropriate investigation, Arab Bank - New York would have found that names similar to those of originators and beneficiaries in funds transfers cleared by Arab Bank - New York appeared in credible and publicly available sources of information, including Congressional testimony, indictments in the United States, and well-publicized research and media reports, linking the originators and beneficiaries to illicit activity. Some originators or beneficiaries appeared in subpoenas or other legal process that Arab Bank- New York received from law enforcement in the United States."

The federal regulators have not publicly provided details regarding the "illicit activity" referred to in the FinCEN order pertaining to Arab Bank. On contacting me, Arab Bank’s public affairs spokesman advised that there has never been a “finding” that Arab Bank handled funds for Hamas, and that Arab Bank was not “forced out of the U.S.” Indeed, the spokesman advises, “there is no such finding in the OCC or FinCEN consent orders (or in Court ruling) and having lived through those, I can tell you with certainty that if the government had evidence that Arab Bank did business with Hamas, they would have included it in these orders.”

Persons not working for Arab Bank may not share with its spokesman the opinion that "with certainty” the U.S. government has no evidence that Arab Bank was used to provide funds in support of Hamas or other terrorist groups. The federal government routinely chooses not to disclose information pertaining to ongoing investigations of criminal activity at the time an order is issued imposing sanctions on a financial institution. Moreover, as readers of this blog know, there are multiple public sources regarding the use of Arab Bank in connection with funds transfers relating to terrorism. They include:

http://www.terrorism-info.org.il/malam_multimedia//ENGLISH/MARKETING%20TERRORISM/PDF/NOV7_04.PDF

http://www.terrorism-info.org.il/malam_multimedia//ENGLISH/MARKETING%20TERRORISM/PDF/JULY_12_04.PDF

http://www.terrorism-info.org.il/malam_multimedia//ENGLISH/MARKETING%20TERRORISM/PDF/JULY_11_04.PDF

http://www.terrorism-info.org.il/malam_multimedia//ENGLISH/AUTHORITY-HAMAS/PDF/APR5_04.PDF

Further examples are provided by Glenn Simpson of the Wall Street Journal, who reported in an April 20, 2005 article that, “[o]ver more than a decade, according to transaction records, [Arab Bank’s] New York office transmitted money for more than 20 Islamic charities identified by the U.S. government as conduits for al Qaeda, Hamas, Palestinian Islamic Jihad, and other terror groups. It also handled funds for an offshore bank that is accused of transmitting money for Osama bin Laden, several top Hamas leaders, and a Brooklyn, N.Y., shop called Carnival French Ice Cream allegedly used by al Qaeda's wing in Yemen.”

In 2004, the State Department described the use of the Arab Bank by Palestinian Islamic Jihad as follows:

"Terrorist Financing: Palestinian Islamic Jihad. The FBI-Tampa office initiated a long-term investigation against Sami Al-Arian and other members of the Palestinian Islamic Jihad (PIJ). PIJ was first declared a “specially designated Terrorist Organization” by the United States in January 1995. The investigation focused on Al-Arian and his associates’ financial support of the PIJ from U.S.-based fund raising events from 1988 through 2002. In addition, the investigation sought to establish their culpability for the over 100 murders (including two U.S. citizens) conducted by this terrorist organization through violent acts in the Middle East."

"The FBI’s financial analysis of over 90 bank accounts held by Al-Arian and associates, evidence obtained via subpoena, search warrants, intelligence techniques and through witness interviews, pinpointed the U.S.-based funding mechanisms used by the PIJ to support the organization and its terrorist activities. PIJ financed the organization by obtaining funding from state sponsors (Iran, Sudan, Syria, Libya) through Iranian Embassy channels in the Middle East, including Damascus, Syria. Couriers sent the money to the West Bank and Gaza Occupied Territories. Funds were also sent to “straw” accounts set up in Arab Bank branches in West Bank and Gaza Occupied Territories."

"In addition, money was raised in the U.S. through mosques and “front” companies controlled by PIJ operatives including suspicious charities. The collected funds were then sent to the Middle East through “straw” accounts and moneychangers. The funds were wire transferred from the PIJ leadership in Lebanon to operatives in the West Bank and Gaza Occupied Territories. The investigation also revealed that money was sent from U.S.-based PIJ members to the accounts of the PIJ family members of PIJ affiliated suicide bombers in the Middle East."

See here: http://www.state.gov/p/inl/rls/nrcrpt/2003/vol2/html/29912.htm

On its own website, Arab Bank directs people interested in its "USA" operations to a page that specifies what the webpage describes as one of its "branches" with a New York office address and a manager.

See here: http://www.arabbank.com/user_country_redirect.asp?cname=USA

The statement on the webpage that this New York office is one of the Arab Bank's "branches" appears to be in error, a pre-consent order legacy that Arab Bank has yet to update, but it certainly sends the clear message that Arab Bank remains actively in business in the U.S., just as its spokesman has advised.

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