Politics & Policy

Let Global Banking Bloom

The Supreme Court should hear Arab Bank v. Linde — and affirm that judges should not dictate foreign policy.

The Framers of our Constitution wisely gave control of foreign policy to the political branches — the president and Congress. By and large, the judiciary was not part of the picture. On Thursday the Supreme Court will decide whether to hear an appeal — the case is Arab Bank v. Linde — focused on that separation of executive and legislative powers from judicial ones. The justices’ decision will have enormous implications for the global financial system and American interests in the Middle East.

To non-lawyers, the legal question at issue may sound arcane: whether to review a federal district court’s pretrial ruling in a mass tort action, brought under the Anti-Terrorism Act (ATA), for terrorist acts inside Israel. But the consequences could be far-reaching.

In more than 500 claims consolidated in Brooklyn’s federal district court, plaintiffs sought through discovery to obtain data on many tens of thousands of Jordanian-based Arab Bank accounts at branches in Jordan, Lebanon, the Palestinian territories, and countries throughout Europe. Providing the data would have required Arab Bank to violate the bank-privacy statutes of those jurisdictions (including Britain and France) and others, with the prospect of bank officers’ going to jail.

After years of country-by-country effort, leading to the release of 200,000 documents, the bank’s compliance with the court’s orders reached the limits that local laws allowed.

Under the federal rules of civil procedure, judges have broad discretion when defendants fail to produce documents. In one courtroom in Brooklyn’s federal courthouse, a judge assigned to just one of the ATA cases honored the standard practice of deferring to the laws of other countries when enforcing U.S. court rulings reaching into those countries. He later dismissed the suit as meritless.

In contrast, the judge assigned to the rest of the 500-plus cases brushed aside all standards of deference to foreign law, effectively stripped the bank of its defenses, and vowed to advise jurors that they could infer from the non-delivery of documents that the bank had intentionally acted to protect terrorists. As a practical matter, this ruling will almost certainly lead to a verdict against the bank.

In a recent article, “Terrorism as an Excuse for Lawyers to Loot Global Banks,” former British chancellor of the exchequer Norman Lamont laid out the dangers if U.S. law goes this route. The precedent will be set to sue banks doing business here in America to get bank-account information from countries with strong bank-privacy laws. Through expansive discovery demands, victories will be guaranteed even before a trial. Lord Lamont, a founder member of the U.K.’s Conservative Friends of Israel, concluded that “it can’t be in America’s interest to, in effect, legalize the blackmail of foreign banks by American trial lawyers — with potentially ruinous consequences for the international financial system.”

For Arab Bank, the ruinous consequences will be immediate. How can the bank remain a going concern once a verdict comes down? What bank will maintain a corresponding relationship with it, clear its checks, or include it in the normal flow of business? Every transaction will open other banks to copycat suits. But without these relationships, how long can Arab Bank continue in business? Consider how fast Arthur Andersen, the accounting firm, folded once it was tagged with potential liability in the Enron case. Andersen was cleared of the charges on appeal, but by then it no longer existed, except as a shell.

Letting the district court’s ruling stand will introduce tremendous new counterparty risks into international finance as a whole. The weight of American law will be shifted against one of the prime factors in American economic growth and in the emergence from poverty of billions in the developing world since the collapse of the Soviet Union — the globalization of finance.

Beyond that, an all-but-directed verdict against the bank would be, as the embassy of Jordan warned in a formal note to the State Department early this month, “devastating” to Jordan and the entire region. Arab Bank plays a role in the Jordanian economy, comparable to that of Citibank, JPMorgan, Bank of America, Goldman Sachs, and Morgan Stanley — combined — in the U.S. economy. If Arab Bank should be forced into collapse, the impact on Jordan would be bigger than that of the 2008 financial crisis on the United States. Add in that one of the bank’s principal customers is the Jordanian government, and a principal stockholder is the pension fund for Jordanian-government employees. With the region in fiery turmoil, an existential threat to the kingdom could rapidly develop, in the process creating a massive new security threat to Israel as well.

Given these factors, recommending for review should have been an easy decision for the solicitor general, following the justices’ call for his views last October. Instead, he advised against taking the case because, he said, the district judge’s decision could be “evaluated on appeal” after trial. Whatever its formal legal merits, this judgment is badly mistaken.

In its myopia, the decision of the district judge is a good example of why the courts should stay out of foreign policy. On Thursday, the Supreme Court should affirm the wisdom of the Founders and vote to hear Arab Bank v. Linde.

— C. Dean McGrath Jr. is adjunct professor of law at the Georgetown University Law Center. He was deputy chief of staff to Vice President Dick Cheney in 2001–05 and associate counsel to President Ronald Reagan in 1986–89.

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