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Jordan-Based Lender, Accused Of
Moving Jihadist Money, Has Also Helped the West. Fine Could Top $20
Million
By GLENN R. SIMPSON
Staff Reporter of THE WALL STREET JOURNAL
April 20, 2005
NETANYA, Israel – Two blocks from the
beach on a spring day here in March 2003, a 20-year-old Palestinian
named Rami Ghanem walked up to the London Cafe and blew himself up,
shattering the cafe's 15-foot-high windows and seriously wounding
more than 35 people. Hours later, the Syrian-based terror group
Palestinian Islamic Jihad took credit for the attack, while the
Israeli military demolished the house where Mr. Ghanem lived with
his parents.
A few weeks afterward, Mr. Ghanem's
father received at least $14,000 from an account at Jordan's
Arab Bank PLC -- money that
was delivered thanks to a local Islamic charity, according to
Israeli documents. In an interview at his new house in a West Bank
village, the elder Mr. Ghanem said he believes the funds were sent
by Islamic Jihad.
Arab Bank is now at the center of a
diplomatic dilemma for the U.S. In lengthy dossiers, the Israeli
military and U.S. bank regulators have traced how large sums often
flowed from suspected terrorist fund-raisers through the bank's New
York branch into accounts at the bank's Mideast branches. In many
instances these accounts were controlled by charities affiliated
with terrorist groups.
Yet at a time of hope for peace in the
Israeli-Palestinian conflict and in Iraq, the bank is sometimes also
a valuable ally of Israel and the U.S. In Iraq it is moving to open
several branches at the request of U.S. State Department officials.
With the backing of U.S. and Israeli officials, it is the only
commercial bank with a broad network in the Palestinian territories.
Arab Bank's New York branch was involved
in the transfer of more than $20 million to or from more than 45
suspected terrorists or terrorist groups, account data show. The
bank acknowledges many of the transactions occurred. But Shukri
Bishara, its chief banking officer, says the bank was unaware of any
organized program to fund terror. "We never knew of the existence of
such a program, and had we known of such a program we would not have
allowed it," he said in an interview at Arab Bank's headquarters in
Amman, Jordan. "We find suicide bombing an abominable human act."
The bank is the subject of potentially
crippling lawsuits in U.S. courts by American and Israeli victims of
the attacks, who are seeking more than $1 billion in damages. The
suits have also triggered a probe by U.S. bank regulators and a
Justice Department criminal investigation. The bank will shortly be
hit with a fine of at least $20 million by bank regulators for its
alleged failure to report suspicious transactions, according to
lawyers familiar with the matter.
Arab Bank agreed in February to close
its U.S. branch, meaning it can no longer accept deposits. It can
still conduct more limited business such as issuing letters of
credit in international transactions. The Office of the Comptroller
of the Currency, the main U.S. regulator of banks, wants it to pay
some $40 million in fines, say U.S. officials and lawyers familiar
with the matter.
A storied financial institution with $32
billion in assets, Arab Bank is a pillar of the Middle East economy.
It acts as de facto treasurer for the Palestinian Authority and has
repeatedly saved it from bankruptcy by providing bridge loans when
revenues ran short -- saving the U.S. and the European Union from
having to bail out the Palestinians themselves.
The bank's biggest stockholders include
the governments of Jordan and Saudi Arabia and wealthy Arab
investors including the heirs of late Lebanese Prime Minister Rafik
Hariri, who controlled a 9% stake. It is a bulwark of both the
Jordanian and Palestinian economies and its shares account for more
than one-third of the capitalization of the Amman Stock Exchange.
"They are a fundamentally important bank," says Faris Sharaf, deputy
governor of the Central Bank of Jordan.
At the core of Arab Bank's defense of
itself is ambiguity about what kind of "suspicious" transactions it
is obligated to report to U.S. authorities. The American Banking
Association recently complained to the government that "no standard
appears to exist" for a proper compliance program.
Most of the suspect funds originated
with other banks, with Arab Bank acting as a middleman. Other
institutions, including Citigroup Inc. and Israel Discount Bank
Ltd., also moved substantial sums for the same suspected terrorists
who used Arab Bank, according to previously undisclosed transaction
records. To date there has been no sign of a regulatory inquiry into
those institutions concerning the transfers. An Israel Discount Bank
spokeswoman said she wasn't familiar with the transactions. With a
few minor exceptions, Arab Bank has refused to move money for any
group that has been officially designated by the U.S. as a sponsor
of terrorism, bank records show. Virtually all of the problematic
transactions came before such identifications.
Top Jordanian and Palestinian officials
have pleaded that U.S. regulators look favorably upon Arab Bank in a
series of private talks with senior Bush administration officials.
The Treasury Department has responded by demanding that Jordan
install new oversight mechanisms for Arab Bank, a U.S. official
said. U.S. and Jordanian officials wouldn't comment on whether
Jordan's King Abdullah took the matter up directly with President
Bush at a meeting in March, but one Jordanian official said the
bank's predicament "has been raised at the highest levels between
the royal court and the White House."
In addition to keeping down the size of
the fine soon to be levied by U.S. regulators, Arab Bank's
supporters want to help it avoid criminal charges, keep open the
scaled-down New York operation and fend off the civil suits. One
wild card: Congress is planning hearings into the bank, which could
spur regulators to take tougher action.
Senior policy makers at the State
Department and the White House debated whether to intervene with
regulators but decided against it, two U.S. officials said. "In our
communications with Arab Bank, we have stressed the importance of
working with the OCC to resolve its concerns," a State Department
official said. A White House spokesman declined to comment.
The case against Arab Bank rests on
numerous questionable transactions. Over more than a decade,
according to transaction records, its 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.
Among these hundreds of transactions,
the bank reported only a few as suspicious to the U.S. government
despite a federal law requiring such reports, people familiar with
the bank's operations said. Despite regular audits of the bank, U.S.
regulators never noticed. "There were issues about the completeness
and accuracy of the information that was given to us by the bank,"
says Robert Garsson, a spokesman for the Office of the Comptroller
of the Currency. He declined to give details, citing the open
investigation.
Arab Bank's Mr. Bishara says his bank
has consistently received high marks from U.S. regulators on money
laundering and other compliance issues -- a point the U.S. doesn't
dispute. He says the standard for "suspicious" activity is too vague
and is being tightened retroactively. Among the OCC's criteria is
whether someone involved in a transaction has been accused of
terrorism in a newspaper article. People who work with Arab Bank say
terrorism is discussed so often in Middle Eastern newspapers that
it's difficult to keep track of who has been called a terrorist.
The bank, founded in 1930, is closely
identified with Islam and the Palestinian claim to the lands west of
the Jordan River serially occupied over the last century by the
Ottomans, the British and the Israelis.
Its founder was a Palestinian
entrepreneur named Abdul Hameed Shoman, who as an illiterate youth
of 21 emigrated in 1911 from a small village near Jerusalem to the
U.S. He taught himself English and gradually assembled a small
fortune as a peddler and shopkeeper in Buffalo, N.Y., and Baltimore.
Renowned both for his religious piety and fierce nationalism, Mr.
Shoman recounted his life in a posthumously published 1984 memoir,
"The Indomitable Arab." The book's title refers to an incident in
Pittsburgh in which he smashed a chair over the head of another man
who jokingly accused the mufti of Jerusalem of consuming alcohol.
Returning to the Middle East shortly
before the Great Depression, Mr. Shoman immersed himself in an armed
Palestinian revolt against the British, giving £5,000 to the rebel
cause. He founded Al-Bank Al-Arabi in Jerusalem in 1930 "not to make
a profit but to serve the Arabs of Palestine and their national
welfare," his memoir states. Only Arabs were eligible to buy shares.
As the only Arab receptacle for deposits from Arab merchants, it
grew quickly even as Mr. Shoman and his elder son devoted much of
their time to the Palestinian revolt.
On at least two occasions, Mr. Shoman
was arrested and jailed by the British for funneling funds to
Palestinian fighters. "Funds in support of the revolution were
transmitted from Iraq and arrived at the Arab Bank as bank drafts,"
says "The Indomitable Arab." "The two men, father and son,
personally saw to it that each draft, once converted into cash, was
dispatched through the appropriate channels until it reached the
nominated payee. Sometimes it was necessary for one of the two to
travel under an assumed name, and by night, to some remote village
or mountain resort in order to deliver the funds needed by the
Revolution to continue its struggle." Mr. Shoman's son, Abdel Majeed
Shoman, succeeded his father and, at age 93, is now Arab Bank's
chairman.
An oasis of stability in a region of
frequent economic turbulence, the bank honored its deposit
obligations even in the wake of the bank nationalizations that swept
the Arab world in the decades after World War II. Arab Bank lost its
units in Syria, Iraq, Libya, Saudi Arabia, Sudan and Egypt. "We paid
out every single obligation we had, despite the very severe and
truly adverse circumstances. This history of commitment and extreme
reliability established Arab Bank's credibility," says Mr. Bishara,
a Palestinian Christian who has been an employee of the bank for a
quarter-century. The bank moved its headquarters to Amman following
establishment of the Israeli state in 1948.
When the Palestine Liberation
Organization was founded in 1964, the Shomans became major
supporters. The younger Mr. Shoman was appointed the first chairman
of its financial arm, the Palestine National Fund. During the 1980s
and 1990s, Arab Bank managed tens of millions of dollars for the
group, and maintained accounts for the family of PLO leader Yasser
Arafat up to his death last year, records show. Mr. Bishara says the
relationship was strictly business. "I am sure the PLO has held
accounts with us but we were not their major banker," he said.
The bank has also had a working
relationship with both Israel and the U.S. Following the 1993 Oslo
peace accords, Mr. Bishara said, American diplomats and Israeli
officials encouraged the bank to open branches in the Palestinian
territories.
But when Hamas, Islamic Jihad and a wing
of the PLO began sending waves of suicide bombers into Israel in the
late 1990s, the Israelis gradually discovered that the families of
so-called martyrs were receiving payments from Saudi, American and
other foreign donors transmitted through Arab Bank's many branches
in the West Bank and Gaza, according to interviews with Israeli
officials. In 1997, Israel outlawed four alleged Hamas affiliates,
including the U.S.-based Holy Land Foundation. All four continued to
do business at Arab Bank as well as at U.S., European and even some
Israeli banks, transaction records show.
Following the attacks of Sept. 11, 2001,
the U.S. opened a sustained campaign against the financing of
terrorism, prompting the Israelis to step up their own sporadic
efforts in this area. Both countries quickly concluded that the
primary means used by Islamic terrorists to raise and move money
were charitable organizations.
To get more evidence on terror funding,
the Israel Defense Forces conducted a series of raids beginning in
mid-2003 targeting alleged terrorist charities and offices of Arab
Bank. The results ended up on the Web site of the Center for
Strategic Studies, an Israeli military-backed think tank.
In 2004, the Israeli Web site came to
the attention of a New Jersey lawyer named Gary Osen. He has also
represented German Jews whose landholdings were confiscated by the
Nazis and recently won a case in Germany giving his clients title to
real estate in central Berlin worth hundreds of millions of dollars.
When a neighbor of Mr. Osen was killed in the Sept. 11 attacks, he
began helping the man's widow and children with legal issues and
filed a lawsuit on behalf of victims of terror attacks in Israel and
the Palestinian territories. Later he shared information from the
Web site with regulators from the Office of the Comptroller of the
Currency, according to other lawyers with knowledge of the matter.
The regulators had just taken a beating
in Congress for overlooking widespread violations of money
laundering and antiterror statutes by Riggs National Corp., a
leading Washington, D.C., bank. They quickly swung into action last
July with an intensive probe.
It soon emerged that Arab Bank's New
York office had developed an extensive business processing wire
transactions for other banks seeking to send money to the Middle
East, and particularly into the Palestinian territories. Even when
the wires originated in the Middle East, the money tended to flow
through the New York branch, which had access to dollars through the
Federal Reserve. Often, these wires ended up with Arab Bank account
holders in the territories, where it has 15 branches.
Among the biggest users of this service
was the U.S.-based Holy Land Foundation for Relief and Development.
It sent some $3 million through Arab Bank to the Palestinian
territories in more than 170 transactions ending in late 2001, when
the group was designated a front for Hamas by the U.S. Treasury,
according to court filings and other records. (Its leaders are
currently under federal indictment in the U.S. on terror-financing
charges; they have pleaded not guilty.) A Chicago-based charity
called the Global Relief Foundation, which the Treasury Department
says supported al Qaeda, sent $650,000 in 24 transactions before it
was designated as a terrorism supporter, according to transaction
records.
A substantial portion of the funds
flowing into the territories through Arab Bank first passed through
Citibank, transaction records show. For example, the Global Relief
Foundation wired funds to the territories through Arab Bank from a
Citibank account in Illinois. Contributions for Palestinian causes
from Kuwaiti charities were sent through Citibank by the Kuwait
Finance House, a Kuwaiti bank. Citibank then passed the money on to
Arab Bank. A lawyer for the Kuwait Finance House said the bank has
never let its accounts be used for terrorism and is unaware of any
investigation. A Citigroup spokeswoman said the firm has
"industry-leading" controls against money laundering. "We maintain
rigorous compliance procedures in all our businesses," she said.
One illustration of where the money
ended up comes in a table the Israelis say they seized from the
Elehssan Charitable Society of Tulkarm. The table lists 13 families,
their Arab Bank account numbers, and the payments they allegedly
received in connection with their participation in the fight against
Israel. The table states that the father of Rami Ghanem received
$21,000 in his Arab Bank account after the young man blew himself up
outside the London Cafe in Netanya -- $14,000 in compensation for
the loss of his house and $7,000 for the loss of his son.
During the interview at his new
two-story stone home, where he keeps a poster of his son carrying a
Kalashnikov, Mr. Ghanem confirmed receiving a payment through Arab
Bank but said he only received $14,000. He said the funds were
entirely compensation for the destruction of his home by the
Israelis. "For all the money in the world, I wouldn't let my child
go" on a suicide attack, he said, adding that he is a Palestinian
Islamic Jihad supporter.
In a statement, Arab Bank said its
records don't show any transfers from the charity to the elder Mr.
Ghanem. The only transfers close to the amounts mentioned in the
records seized by Israel "were from individuals with the same family
name," it said.
"We never put in a program that
facilitated transfer of money to the parents of suicide bombers,"
said Mr. Bishara of Arab Bank. "If a couple of payments slipped
through to the parent of a suicide bomber, I tell you it is possible
because there is no system that is foolproof. I wish there was such
a system."
--Benoit Faucon and Mitchell Pacelle contributed to this article. |
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