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Link to Terrorism Poses Dilemma for U.S. Policy

By Glenn R. Simpson, April 20, 2005

Jordan-Based Lender, Accused of Moving Jihadist Money, Has Also Helped the West.

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."

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