A civil trial that's set to begin Thursday in federal court in Brooklyn will see the victims try to convince a jury that the bank helped Hamas finance a "death and dismemberment benefit plan" for martyrs - a claim that survived numerous legal challenges before being allowed to go forward amid a backdrop of the current Israeli-Palestinian conflict.
Lawyers for the plaintiffs call it the first terrorism financing case to go to trial in the United States and say it could result in the bank paying unspecified damages. Arab Bank, which has hundreds of branches around the world, including in New York and in the Palestinian territories, has denied it knew it was doing business with terrorists when it processed electronic transfers.
"Arab Bank has great sympathy for all victims of terrorism but is not liable for the tragic acts described by plaintiffs," it said in a statement.
A lawsuit filed in 2004 accused the bank of violating the US Anti-Terrorism Act, which allows victims of US-designated foreign terrorist organizations to seek compensation. The US State Department designated Hamas a terrorist group in 1997.
The suit accuses Arab Bank of setting up accounts to channel funds from an organization run by the Saudi government, the Saudi Committee for Supporting Al Quds Intifada, to at least two militant groups, Hamas and Palestinian Islamic Jihad. It also alleges that bank officials were aware that the funds were for an insurance program that provided a standard benefit worth more than $5,000 to the families of Palestinians who were killed in attacks on Israel, including suicide bombers.
The case had stalled in recent years as the bank fought demands that it turn over customer account information and other financial records, arguing that doing so would violate banking secrecy laws in Jordan and elsewhere. In 2010, a judge issued sanctions against the bank for its "recalcitrance" in withholding evidence - a penalty that would allow the court to instruct the jury that it could infer that it knowingly worked with terrorist organizations.
The ruling was later upheld by an appeals court. When Arab Bank asked the Supreme Court to intervene, the court sought the US government's input on whether it should hear the case - a request that reportedly created a dilemma for President Barack Obama's administration on how to respond in way that wouldn't harm diplomatic relations with Jordan.
A brief filed by Solicitor General Donald B. Verrilli Jr. described the Arab Bank as "a constructive partner with the United States in working to prevent terrorist financing" and "a leading participant in a number of regional forums on anti-money laundering and combating the financing of terrorism." But Verrilli concluded the Supreme Court should not intervene and should let the case play out, and the court agreed.
The defense has said another federal judge in the same Brooklyn courthouse threw out the case of a US man wounded in the Middle East who sought to hold Arab Bank liable for providing material support to Hamas.
"Moral blame should only follow if the harm caused by providing bank services to terrorists is foreseeable," US District Judge Jack Weinstein wrote. He added: "Hamas is not the defendant; the bank is. And the evidence does not prove that the bank acted with an improper state of mind or proximately caused plaintiff's injury."