CHICAGO – Deutsche Bank helped Iran avoid sanctions over its sponsorship of terror but that doesn’t mean the bank conspired to spread terror, Seventh Circuit appeals judges ruled on Dec. 12.
They affirmed Chief District Judge Michael Reagan at the Southern District of Illinois, who dismissed a mother’s suit connecting Deutsche Bank to her son’s death in Iraq.
Chief Judge Diane Wood wrote, “The facts here suggest only that Deutsche Bank may have engaged in business dealings that incidentally assisted a separate terrorism related conspiracy involving Iran.”
“They do not suggest that Deutsche Bank ever agreed to join that conspiracy,” she wrote.
The bank signed a consent decree with New York State in 2015, paying $258 million for violating csanctions and firing employees around the world.
Rhonda Kemper of Randolph County sued the bank in 2016, under the Anti Terrorism Act.
A roadside bomb killed her son, Army specialist David Schaefer Jr., in 2009.
Deutsche Bank moved to dismiss the suit for lack of jurisdiction and failure to state a claim.
Reagan granted the motion on Dec. 17, 2017, finding Kemper failed to plead facts plausibly indicating the bank’s actions caused her son’s death.
Kemper appealed, and Seventh Circuit judges heard oral argument in September.
Wood wrote that it was easy to understand why Kemper wished to hold someone responsible.
“But not everything is redressable in a court,” she wrote.
She found it plausible that Iran had a role in the attack because “explosively formed penetrators” from Iran leave a distinctive fingerprint on debris.
“But for Iran, the technical sophistication and explosive power found in EFPs would be unavailable to Iraqi militias,” Wood wrote.
She wrote that the U.S. designated Iran a sponsor of terrorism in 1984, and imposed broad sanctions prohibiting almost all trade in 1995. Then in November 2008, an exception allowed Iran access to U.S. banks through a regulation known as the U-Turn exemption.
“This exemption allowed Iranian entities to use a non Iranian bank with a correspondent account in the United States to process transactions,” she wrote.
She wrote that it was a practical necessity because Iran’s oil market is conducted in U.S. dollars.
“The U-Turn exemption thus gave Iran the ability to use its earnings from oil sales for legitimate non terroristic purposes,” she wrote.
“By strategically removing names or otherwise hiding the existence of potentially sanctioned counter parties to U.S. dollar clearing transactions, Deutsche Bank avoided the U-Turn exemption’s transparency requirements and thus the additional regulatory scrutiny called for by the U.S. sanctions.”
Wood wrote that the bank charged a premium for this service, and that the bank put practices in place around 1999 and maintained them until at least 2006. And even after the bank formally undertook to abolish them, illicit transactions persisted.
She wrote that the bank offered the service to banks in Libya, Syria, Burma, and Sudan, and to other entities subject to U.S. sanctions.
“Over seven years, Deutsche Bank processed more than 27,200 transactions valued at approximately $10.86 billion for these customers,” she wrote.
At least one board member was kept aware of the program - that employees trained employees for it - and that the bank issued formal and informal instructions for it.
She wrote that the bank’s conduct was not violent or dangerous to human life as the terror law requires, nor did the bank display terroristic intent as the law requires.
“That these business dealings may violate U.S. sanctions does not convert them into terrorist acts,” she wrote.
She wrote that to an objective observer, the bank was motivated by economics. Further, a consent order never mentioned terrorism.
“Indeed, that decree repeatedly states that Deutsche Bank built its sanctions evading business because it was lucrative,” she wrote.
She wrote that two circuits have noted that Iran is a sovereign state with many legitimate agencies, operations, and programs to fund.
“Finding that a sovereign state’s actions supersede other more tangential causes prevents the scope of liability from extending to the many individual persons, businesses, and other sovereigns that interact with that state,” she wrote.
She wrote that the United Kingdom has authorized Iranian entities, Bank Saderat and Shipping Lines, to operate subsidiaries in its territory.
“The existence of these subsidiaries surely furthers Iran’s ability to engage in terrorism, but we cannot imagine that U.K. regulators could be held responsible for Iran’s terrorist acts,” she wrote.
She wrote that purchasers of Iranian oil and gas contribute funds that Iran might use to support terrorism, but those purchasers aren’t liable for attacks that Iran might facilitate with those funds.
“None of the allegations suggest that Deutsche Bank cared how its Iranian customers obtained or spent the funds that it processed for them,” she wrote.
Larry Hepler of Edwardsville represented Deutsche Bank, along with others in his firm and firms in New York and Washington.
Gary Osen of Hackensack, N.J, Tab Turner of Little Rock, and Douglas Dowd of St. Louis represented Kemper.