Israel Matzav

Corporate directors sued for funding terror

This is my 8,000th post since starting this blog in January 2006.

If this lawsuit is successful, will it cast a pall over corporations doing business with terror regimes (like Iran?)?

American and Israeli victims of terrorism have filed a precedent-setting suit against three U.S. oil companies and their directors, charging them that they indirectly assisted the funding of terrorist organizations. This is the first time that Israeli victims of terrorism have filed a suit of this kind against American firms.

...

The suit argues that the companies and their directors traded with Saddam Hussein's Iraq during the period 2000-2003 under the framework of the United Nations' Oil for Food program. Investigative reporting and a UN probe revealed that bribes were paid and other violations were carried out in order to bypass the limitations set by the program, which was meant to allow Iraq to sell some of its oil in order to purchase food and medical equipment for the civilian population of Iraq.

The UN probe concluded that Saddam Hussein and senior officials of his regime also transferred funds to terrorist organizations and the families of suicide bombers, in order to encourage terrorism during the intifada.

Saddam Hussein announced at the time that he would make a $25,000 contribution to the family of each terrorist. Among those benefiting from the money were Hamas, Al-Aqsa Martyr's Brigades of Fatah, Islamic Jihad and the Arab Liberation Front, a group set up during the 1960s by Iraqi intelligence.

The suit emphasizes that the aim of these groups was to engage in systematic and widespread acts of terror, crimes against humanity and genocide with the publicly stated goal of destroying and eliminating the state of Israel and ethnically cleansing its Jewish population. The suit also mentions dozens of attacks that claimed the lives of more than 100 Israelis.

After the American invasion of Iraq in 2003, U.S. intelligence found documents that allegedly proved that the oil companies named in the suit and their directors bribed Saddam and senior officials in his regime in order to win tenders. The bribes were allegedly placed in secret bank accounts which were not reported to the UN.

In 2007 the companies and the directors were tried, admitted part of the charges against them and reached plea bargains which included jail time and millions in fines.

The issues in this kind of case are whether the payments were made, whether they 'proximately caused' the terror, whether that causation was foreseeable by those who made the payments and whether the plaintiffs were damaged by the terror.

Given that Saddam Hussein publicized the fact that he was paying terrorists for committing terror attacks, it was likely foreseeable that funds paid to him as bribes would go for that purpose (or would free up other moneys to go for that purpose) and that they would encourage terrorism.

But what was unusual about Saddam was that he made direct payments to persons who carried out terror attacks or their families. While Iran, to use an obvious example, supports Hamas and Hezbullah, it does not - to my knowledge - make direct payments to individual terrorists like Saddam did. Therefore, even if these plaintiffs win their case (and I hope they will), whether it will serve as a precedent for other terror financiers is questionable.

On the other hand, if the directors are forced to pay damages to the plaintiffs, I wonder whether their directors and officers' insurance (that nearly all corporations carry for their directors and officers) will cover the payments. While D&O insurance policies exclude coverage of actual bribe payments as against public policy, they may leave open the question of whether damage caused to third parties by the bribe's use is covered.

In any event, you can bet that if it exists, the insurance companies will close that loophole in the future. And that would be a good thing because it will give corporate directors an additional reason to think twice about paying bribes.

posted by Carl in Jerusalem @ 8:58 AM