By Glenn R. Simpson, July 2004

WASHINGTON—American victims of terrorist attacks in the Palestinian territories and their families have filed suit against Jordan-based Arab Bank for allegedly transferring millions of dollars from Saudi Arabia to the families of suicide bombers.

The plaintiffs, including the widow of a man killed in the Gaza Strip while guarding U.S. diplomats, claim that Arab Bank processes and delivers indemnity payments of $5,316 per "martyr" on behalf of a Saudi committee.

The suit is the latest salvo in a legal war between U.S. trial lawyers and Middle Eastern banks over the financing of terrorism. The disputes are causing diplomatic tensions between Washington and governments in the region, and could hurt the banking industry there if the suits are successful and cause U.S. banks to cut off business with financial institutions there.

A group of lawyers heading an initiative called the Terror Victims Litigation Project filed the complaint late Friday in U.S. District Court for the Eastern District of New York. U.S. terrorism statutes explicitly permit U.S. citizens harmed by foreign terrorists to sue those terrorists and their supporters in federal court.

"We allege, and have proof, that Arab Bank was providing support to Hamas and Islamic Jihad through charitable front organizations," said lead lawyer Mark Werbner of Dallas.

Arab Bank is based in Amman and has branches throughout the Palestinian territories as well as across Europe and the Middle East. In its 2003 annual report, Arab Bank PLC reported assets of $24.5 billion and shareholder equity of $2.8 billion. Its stock is traded publicly on the Amman stock exchange. Messages left at its branch in New York yesterday weren't immediately returned.

Mr. Werbner said the bank's New York branch helped facilitate the payments by converting Saudi riyals into U.S. dollars for the so-called martyrs accounts. "I have transaction-specific documentation—namely, bank statements, receipts, and wire transfer records—that substantiate that the New York branch was knowingly used to fund terrorists," he said.

The Saudis and many of the banks that operate in the territories don't deny that millions of dollars in donations are channeled from the kingdom into the region. But they insist that the payments are directed toward victims of confrontations between unarmed Palestinian civilians and the Israeli military.

The Israeli intelligence service claims otherwise, using documents seized by their police and intelligence services in a series of recent raids. In a lengthy dossier released in Washington earlier this year, Israeli intelligence contended that the Saudi funds are specifically earmarked for the families of suicide bombers. The lawsuit closely tracks the dossier.

Saudi Arabia, which is now fighting its own domestic war on terror, faces increasing criticism in the U.S. and Israel for its support of the Palestinians. Since the attacks of Sept. 11, 2001, the U.S. position on financial support for terrorism has evolved toward the Israeli view, which is that paying indemnities to the families of suicide bombers is tantamount to directly financing acts of violence.

The committee to support the intifada, or uprising, is headed by Interior Minister Prince Nayef bin Abdul Aziz. The official Saudi Press Agency has chronicled its activities, announcing in February 2002, for example, that a sum of four million Saudi riyals ($1.1 million) "was transferred to families of 200 persons martyred recently, with each family receiving 20,000 Saudi riyals."