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Note: A proposed class of servicemen and civilians deployed in the Persian Gulf region during the 1991 Gulf War (Victims), sued for damages a group of banks1 (Correspondent Banks) that acted as correspondent banks under LCs supporting the sale of goods and services to Iraq. They alleged that Correspondent Banks were liable under domestic and international law for making possible the supply of materials used by the Iraqi government to manufacture chemical weapons. In this regard, the chemical weapons ultimately damaged Victims when detonated by the United States and its allies during the 1991 Gulf War conflict.

The U.S. District Court for the Eastern District of New York, Glasser, J., granted Correspondent Banks' motion to dismiss the complaint in its entirety.

First, the court concluded that Victims could not prove that Correspondent Banks violated the US Anti Terrorism Act (ATA). In this regard, the court stated that Victims failed to sufficiently allege that Correspondent Banks knew about any connection between the LCd and Saddam Hussein's stockpiling and use of chemical weapons. The court noted that "[t]he plain language of the ATA compels the conclusion that, by engaging in commercial banking activity, [Correspondent Banks] were not involved in 'violent acts or acts dangerous to human life.' Nor were their actions designed to coerce civilians or government entities ... Thus, [Correspondent Banks'] conduct does not constitute international terrorism." The court also noted that Victims failed to demonstrate that it was reasonably foreseeable to Correspondent Banks that issuing LC to manufacturers would in any way contribute to Saddam Hussein's use of chemical weapons.

Second, the court dismissed Victims' assertion that Correspondent Banks violated the Geneva Convention of 1925, several UN Security Council Resolutions and customary international law. The court concluded that neither the Geneva Convention of 1925 nor the Security Council Resolutions were self-executing agreements providing a private right of action for Victims. As to the alleged violation of customary international law, the court stated that Victims insufficiently alleged that providing LC constituted a violation of the rule of international law, as the only violation of such rule supported by the evidence was the "use of chemical weapons."

Third, the court rejected the allegation that Correspondent Banks aided and abetted violations of international law and tortious conduct. The court stated that Victims claim for aiding and abetting violations of international law must fail since the sources of international law on which Victims premised their claims do not provide private rights of action. Likewise, the court dismissed the claim of aiding and abetting tortious conduct under New York law because it requires actual knowledge for such cause of action and Victims failed to adequately allege that Correspondent Banks "had actual knowledge of the sales for which they issued letters of credits, or for that matter, any tortious conduct that allegedly caused Victims' injuries." In this regard, the court refused to rule on the extent of knowledge possessed by banks issuing LC. However, the court referred to Oei v. Citibank, N.A., (957 F. Supp. 492 (D.N.Y. 1997)), saying that "makes clear that issuers of letters of credit are 'third parties ignorant of the specifics of the transactions' who merely deal in documents describing the terms of the credit extended."

Fourth, the court dismissed Victims' conspiracy allegations because Victims did not adequately support that Correspondent Banks and the suppliers of good and services to Iraq agreed to participate in an unlawful act. In this sense, the court noted that Victim's complaint provided "no basis on which to conclude that [Correspondent Banks], the [suppliers] and Saddam Hussein shared a common goal relating to the proliferation and use of chemical weapons".

Fifth, the court dismissed the cause of action against Correspondent Banks for negligence and/or gross negligence. The court rejected the theory that Correspondent Banks, by issuing or acting on LCs necessary to the completion of transactions between suppliers and the Iraqi government, knew or reasonably should have known of their role in providing, selling and/or entrusting chemicals and equipment that could be used for making chemical weapons and knew or should have known that such actions would cause persons, including Victims, to be injured or killed. In this regard, the court could not find a duty owed to Victims by Correspondent Banks. Moreover, the court stated that even if Victims had established that Correspondent Banks owed them a duty, in this case, it was not foreseeable that providing LC for the sale of chemicals and manufacturing equipment between independent third parties was likely to result in Victims' injuries.

As a final point, the court noted that Correspondent Banks "persuasively assert strong policy reasons against imposing a duty of reasonable care. Extending the scope of duty to persons injured by a thing, the sale of which a bank facilitated by issuing a letter of credit to its manufacturer, would require banks to investigate the manufacturer of that thing; inquire as to the person or entities to whom that manufacturer then intends to sell that thing; investigate the uses to which that buyer intends to put the thing; and weigh the potential risks that the reasonable end user could or should foresee. To impose such a duty upon banks would impose an intolerable burden on the financial community in general and upon banks in particular, and wreak incalculable harm upon commerce."

[JEB/who?]

1. Deutsche Bank AG; ABN Amro Bank NV; Bayerische Landesbank; Gulf International Bank B.S.C.; Mizuho Corporate Bank Ltd., f/k/ a Dai-Ichi Kangyo Bank Ltd.; Societe Generale; Credit Lyonnais; BNP Paribas; DZ Bank AG; Bayerische Hypo-und Vereinsbank; Rabobank International; WestLB AG; State Bank of India; Banca Intesa S.p.a., f/k/a Banca Commerciale Italiana; Banca Nazionale del Lavoro; Banca Di Roma; Unicredito Italiano S.p.A.; Banca Popolare Di Milano; Westpac Banking Corporation; DnB Nor Bank ASA, f/k/a Den Norske Bank ASA; National Bank of Pakistan; Habib Bank Ltd.; Banca Comerciale Romana, f/k/a Romanian Bank of Foreign Trade; Arab Bank PLC.; Bank of Tokyo-Mitsubishi Ltd.; Sumitomo Mitsui Banking Corporation; Westpac Banking Corporation; Korea Exchange Bank; National Bank of Kuwait; and Dresdner Bank A.G.

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.