US federal regulators on Friday ordered Arab Bank, a Jordan-based bank facing several lawsuits filed in New York by victims of terrorist attacks, to suspend most of its operations in the US, saying its internal controls were inadequate.
The order, by the Treasury Department's Office of the Comptroller of the Currency, was issued in agreement with Arab Bank. It bars the bank from accepting new deposits in the US and requires it to close its lucrative money-transfer business. In addition, the bank has been ordered to maintain assets of US$420 million in the New York branch while the changes are being made.
But regulators did not expel the bank from the US, and the consent order left open the possibility that it could rebuild its business, although on a much-reduced scale and under strict monitoring.
The action was a conspicuous blow to a bank that is the focus of lawsuits accusing it of channeling money from Saudi Arabia to the families of Palestinian suicide bombers in Israel. The suits, in federal district court in New York, were brought by wounded survivors of the bombings and relatives of the victims who were killed. Arab Bank is also named in several suits on behalf of the victims of the attacks on the World Trade Center.
The regulators found that the bank had poor internal controls and was unable to monitor its transfers for possible money-laundering or other suspicious activity, the consent order says. The weak controls were "especially serious in light of the high-risk characteristics of many of the transactions," the order says.
Regulatory officials would not provide more detail about the risks they cited. The order is directed at the bank's branch in New York, its only US branch. Founded and managed by Palestinians, the bank has some US$28 billion in deposits worldwide.
A spokeswoman for the US Treasury Department, Molly Millerwise, said Arab Bank was also under regulatory review by the agency's financial crimes enforcement network, which investigates possible money-laundering, including any related to terrorism.
Arab Bank executives described the order on Friday in a more upbeat tone than the terse press release from the regulators. In a statement, Shukry Bishara, the bank's chief banking officer, said the bank planned to focus its New York activities on trade and corporate finance. He said the bank was committed to "achieving and implementing best practices" in reporting its transactions.
In early February, the central bank of Jordan, which oversees Arab Bank in that country, announced that it would close its New York branch.
Gary Osen, a lawyer representing some of the victims of suicide bombings, said the order could be helpful to their lawsuit because it revealed the bank's poor financial practices. But he added that it could be more difficult to collect damages if the victims won their suits.
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