In politically charged terror finance case, Israeli bank ducks testimony

By Alison Frankel

A young Floridian named Daniel Wultz died tragically in 2006 when he was fatally wounded in a suicide bombing at a bus stop in Tel Aviv. Wultz’s parents believe that among those responsible for their son’s death is Bank of China, which they accuse of facilitating payments to Palestine Islamic Jihad, the group said to be responsible for the attack. The Wultzes and their lawyers at Boies, Schiller & Flexner contend that Israeli counterterrorism officials warned the Chinese government at meetings in China in April 2005 that an alleged Islamic Jihad leader, Said al-Shurafa, was financing the group’s operations through his Bank of China accounts. The Wultzes’ Antiterrorism Act suit, filed in federal court in Washington but later transferred to Manhattan federal court, alleges that Chinese officials passed those warnings on to the bank.

The politically explosive case has already occasioned a diplomatic crisis for Israeli Prime Minister Benjamin Netanyahu, whose government at first encouraged the Wultzes to sue Bank of China and agreed to permit testimony about the 2005 meeting in China from a former member of the counterterrorism staff of Israel’s national security council. Netanyahu’s government has since backed away from the Wultzes’ case, reportedly under pressure from China, which has strong economic ties to Israel. The former Israeli counterterrorism official, Uzi Say, has nonetheless indicated that he is inclined to testify for the Wultzes and other bombing victims suing Bank of China, even without clearance from his government.

In that context, a dispute over Bank of China’s subpoena for third-party testimony from a corporate official of Israel’s Bank Hapoalim is definitely a tangential matter, without the emotional or geopolitical resonance of the Wultzes’ underlying claim. But the fight between Bank of China and Bank Hapoalim raises some interesting questions about the reach of a subpoena for expert corporate testimony under the Federal Rules of Civil Procedure. And a decision Tuesday by U.S. Magistrate Judge Gabriel Gorenstein that Bank Hapoalim does not have to produce a witness from Israel could severely impair Bank of China’s defense in this most sensitive of cases.

Bank of China’s lawyers at Patton Boggs wanted testimony from Bank Hapoalim to bolster the bank’s argument that it never received any Israeli warnings about a Bank of China account holder named Said al-Shurafa. As the Chinese bank explained in its opposition to Bank Hapoalim’s motion to quash the subpoena, it doesn’t believe Israel even regarded Shurafa – whom it claims lived in China in order to supply Chinese-made clothing to his father’s store in Gaza – as a terrorism financier. Bank of China has evidence that Bank Hapoalim, which is regulated by the central Bank of Israel, initiated wire transfers to Shurafa’s accounts in China. The Chinese bank said it doesn’t make sense that Israeli officials would have traveled to China in 2005 to demand that China block money from flowing into Shurafa’s accounts in China if the Israeli government was at the same time permitting a bank it regulated to send the money out from Israel.

“Hapoalim is uniquely positioned to provide testimony that will be critical in demonstrating whether the Israeli government took steps to stop wire transfers to Shurafa’s BOC accounts,” the Bank of China brief said. “Testimony confirming the absence of Israeli government efforts, at home in Israel, to block Hapoalim’s origination of transfers to Shurafa would make it unreasonable to infer that the Israeli government at the same time traveled thousands of miles to China in an effort to block Shurafa’s receipt of such transfers.” The Chinese bank said it wanted Hapoalim to designate an official to testify under Rule 30(b)(6) of the Federal Rules of Civil Procedure on a wide range of topics, including specifics of the Shurafa wire transfers and communications between Hapoalim and the Israeli government about Shurafa, as well as, more broadly, Hapoalim’s compliance procedures and policies on interactions with the government about alleged terrorist organizations.

Bank Hapoalim, represented by Herrick Feinstein, raised all sorts of objections to the subpoena: It would require the bank to violate Israeli bank secrecy laws so shouldn’t be enforced on international comity grounds; it called for irrelevant or improper information; and it “does not constitute the ‘compelling and rare circumstance’ necessary to compel a nonparty to disclose confidential and protected information,” the Hapoalim brief said. Even more fundamentally, Bank Hapoalim agued, Bank of China’s subpoena violated the federal rule that non-party subpoenas are restricted to witnesses within a 100-mile boundary. None of Hapoalim’s employees in New York could address the demands of Bank of China’s subpoena, Herrick Feinstein said in Hapoalim’s brief. Only officials in Israel could – and they’re outside of the reach of the Chinese Bank’s subpoena.

Bank of China didn’t dispute that Hapoalim employees in New York can’t answer its questions, but it insisted that Hapoalim was obligated either to produce a witness from Israel or to “educate” a New York employee to testify. The court’s jurisdiction over Hapoalim’s New York operation, the Chinese bank argued, meant that all the knowledge of the Israeli corporate entity is discoverable under Bank of China’s subpoena to the New York office.

Judge Gorenstein’s opinion roundly rejected that argument, which he found to be completely unsupported by precedent. The magistrate kept his ruling quite simple. He didn’t venture into Israeli law or international comity, finding that he didn’t need to address those issues because Bank of China’s subpoena reached beyond his jurisdiction. The rules are intended to prevent excessive burdens on witnesses without a stake in the litigation, he said. “Here, there is no evidence disputing Hapoalim’s contention that none of its employees who live and work in New York have any knowledge of the information sought by the subpoena,” Gorenstein wrote. “Thus, in order to produce a knowledgeable designee for the deposition, Hapoalim would presumably have to send an employee from Israel to New York, a distance much greater than 100 miles, a result plainly barred by case law.” Similarly, the magistrate said it would also be an undue burden to expect a witness from Bank Hapoalim in Israel to bring a New York bank employee up to speed on matters the New York branch has absolutely no knowledge of.

Gorenstein isn’t the first judge to quash a third-party subpoena for exceeding the geographic scope specified in the federal rules of civil procedure. And though the case law is pretty sparse, he’s not even the first to do so in a terror financing suit; his opinion cites two previous rulings, from federal judges in Manhattan and Washington, quashing subpoenas of the BBC after the news organization said all of the witnesses who could respond were located in London.

Gorenstein’s ruling is notable, however, for the problems it will cause Bank of China, if you believe the bank’s gloomy predictions about how much it needed third-party testimony from Hapoalim. Assuming that the former Israeli counterterrorism official does indeed defy his government and appear as a witness against Bank of China, the bank and the Chinese government won’t be able to challenge him with deposition testimony from Hapoalim. They’ll only be able to ask why the Israeli bank permitted money to be wired to Shurafa, not to supply any answers from Hapoalim about the Israeli bank’s instructions from its government.

Bank Hapoalim counsel Carol Goodman of Herrick said the bank has no comment. Bank of China counsel Mitchell Berger of Patton Boggs didn’t respond to a phone call requesting comment.

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