International banks recently won a significant legal battle that could reshape the scope of potential liability in terrorism-related lawsuits. The U.S. Court of Appeals for the Second Circuit ruled in favor of three major banks dismissing claims that they helped terrorists by providing banking services.
What Happened?
American service members and civilians who were injured or killed in terrorist attacks in Afghanistan between 2011 and 2016 sued these banks under a law called JASTA (Justice Against Sponsors of Terrorism Act). The plaintiffs claimed the banks indirectly helped terrorist organizations in three ways:
First, they said one of the banks provided normal banking services to Pakistani fertilizer companies whose products were later smuggled into Afghanistan and used to make bombs. Even after U.S. military officials warned the bank about this connection, it continued providing services.
Second, they argued all three banks helped with money laundering operations that eventually benefited terrorist groups. The theory was that since money moves around, some of it must have reached the terrorists.
Third, they claimed the banks processed transactions related to European tax fraud schemes that were used to fund terrorism.
The Second Circuit applied a recent Supreme Court decision called Twitter v. Taamneh, which raised the bar for these types of cases. The key rule now is that a plaintiff must show "conscious and culpable participation" in terrorist activities—not just passive involvement or poor oversight.
The court found that:
- Government warnings aren't enough: Even when officials explicitly warn banks about potential problems, continuing to provide banking services without additional wrongful conduct likely isn't sufficient for liability.
- "Willingness to aid" matters: Courts look for whether banks were willing to help suspicious clients, not whether they simply maintained normal business relationships.
- Money laundering claims need specific connections: Banks can't be held liable based on vague theories that "some money must have reached terrorists somewhere."
What This Means for Banks
This decision provides important protections for financial institutions:
Good news: Banks can continue providing standard commercial services to legitimate businesses with less risk of Anti-Terrorism Act liability. The decision makes clear that banks aren't responsible for every crime their customers commit.
Important distinction: The ruling doesn't give banks complete immunity. Cases involving clear evidence of intent to help terrorism will likely face different outcomes.
Compliance still matters: While strong compliance programs weren't the deciding factor here, they remain important for demonstrating lack of intent to assist wrongdoing.
Looking Forward
This ruling significantly strengthens banks' position in terrorism-related lawsuits and provides clearer guidelines about what constitutes illegal assistance versus normal business operations. However, maintaining robust compliance programs and carefully documenting decision-making processes can reduce banks’ risk.
The decision shows courts are drawing a line between legitimate business activities and truly culpable conduct. For international banks, this represents a major victory in an area of law that has created significant litigation risk.
For our detailed legal analysis of this decision and its full implications for your institution, read our more detailed breakdown below.
*********
More detailed summary:
The U.S. Court of Appeals for the Second Circuit handed international banks a significant victory last month in Ashley v. Deutsche Bank Aktiengesellschaft, affirming the dismissal of Justice Against Sponsors of Terrorism Act (JASTA) claims against three international banks. The decision provides crucial guidance for financial institutions facing terrorism-related litigation and clarifies the boundaries of secondary liability under JASTA.
Case Background
American service members and civilians killed or injured in terrorist attacks in Afghanistan between 2011 and 2016 sued three major international banks under JASTA. The plaintiffs advanced three primary theories of liability:
- Fertilizer Company Services: One of the banks allegedly provided routine commercial banking services to Pakistani fertilizer companies whose products were later smuggled into Afghanistan and used in improvised explosive devices (IEDs)
- Money Laundering Operations: All defendants allegedly facilitated large-scale money laundering schemes that ultimately benefited terrorist organizations
- VAT Fraud Schemes: The banks allegedly processed transactions connected to European tax fraud schemes used to finance terrorism
The Court's Analysis
Heightened Standard Following Twitter v. Taamneh
The Second Circuit applied the Supreme Court's recent decision in Twitter, Inc. v. Taamneh (2023), which clarified that JASTA requires "conscious and culpable participation" in terrorist activities—not mere passive nonfeasance or negligent oversight. The court emphasized that aiding-and-abetting liability is reserved for "cases of truly culpable conduct."
Rejection of Routine Banking Services Claims
The Fertilizer Company Theory: Even though one of the banks continued providing banking services to Pakistani fertilizer companies after U.S. military officials explicitly warned that the companies' products were being used in IEDs killing Americans, the court found this insufficient for liability. The decision emphasized that:
- The bank provided only commercial banking services (foreign exchange, export finance, letters of credit)
- The bank was several steps removed from the actual terrorist attacks
- There was no evidence that the bank sought to assist terrorist activities
- Continuing services after government warnings, without more, constitutes "passive nonfeasance" rather than culpable assistance
Money Laundering Claims Fail the "Fungibility Theory"
The court explicitly rejected plaintiffs' "fungibility theory"—the argument that because defendants facilitated money laundering operations generally, some laundered funds must have reached terrorist organizations. This theory would have effectively eliminated the distinction between JASTA aiding-and-abetting claims and material support violations.
Key holdings on money laundering include:
- Attenuation Problem: Multiple degrees of separation between bank conduct and terrorist attacks create insurmountable causation challenges
- Nexus Requirement: Plaintiffs must demonstrate a concrete connection between specific banking services and terrorist attacks, not just general criminal activity
- Systemic Aid Standard: Even pervasive involvement in money laundering is insufficient without evidence the banks intended to aid specific terrorist organizations
VAT Fraud Claims Dismissed for Lack of Awareness
The court found insufficient allegations that any defendant bank was aware of its customers' connections to terrorist organizations when processing VAT fraud-related transactions. Mere "red flags" indicating possible criminal activity were insufficient to establish the required general awareness of terrorist connections.
Key Implications for International Banks
1. Government Warnings Alone Insufficient
Even explicit warnings from government authorities about potential terrorist connections may not establish liability if banks continue providing only routine services without additional culpable conduct. However, banks should carefully document their responses to such warnings and consider enhanced due diligence measures.
2. "Willingness to Aid" Remains the Key Differentiator
Courts will scrutinize whether banks demonstrated a willingness to aid terrorist activities. The decision favorably cites Kaplan v. Lebanese Canadian Bank, where the Second Circuit revived JASTA aiding-and-abetting claims based on allegations that the bank helped obscure terrorist financing.
3. Money Laundering Defenses Strengthened
The explicit rejection of fungibility theories provides banks with stronger defenses against broad money laundering claims. Plaintiffs must now demonstrate specific connections between individual transactions and terrorist activities rather than relying on general theories about criminal proceeds.
4. Compliance Programs Gain Additional Importance
While robust compliance programs were not dispositive here, the decision's emphasis on distinguishing between general awareness and knowing assistance suggests that well-documented compliance efforts may help demonstrate lack of culpable intent.
Looking Ahead
This decision significantly strengthens the position of international banks facing JASTA claims and provides clearer guidance on the boundaries of secondary liability. However, the result does not provide banks complete immunity—cases involving clear evidence of intent to facilitate terrorism will likely face different outcomes.
The Second Circuit's analysis also suggests that future JASTA litigation will focus more heavily on the specific nature of banking services provided and evidence of culpable intent, rather than broad theories about institutional complicity in global financial crimes.
