Militant financing case puts Israel and China in spotlight

Reuters

* U.S. family sues Bank of China in terrorism financing case

* Once supportive, Israel reconsiders sending witness

* Netanyahu faces Chinese pressure over law suit - report

By Crispian Balmer

JERUSALEM, Nov 1 (Reuters) - Long determined to depriveIslamist groups of funding, Israel has unexpectedly hit thebrakes in a U.S. court case centred on allegations that the Bankof China knowingly let cash flow to Palestinian militants.

Apparently reluctant to send a former Israeli intelligenceofficial who is a potentially crucial witness to testify in NewYork, Prime Minister Benjamin Netanyahu faces accusations fromhis critics that he might let the case unravel rather than putbilateral trade ties with Beijing at risk.

The law suit against the Bank of China was brought by theAmerican family of Daniel Wultz, a 16-year-old killed while onholiday in the Israeli city of Tel Aviv in a 2006 suicide attackclaimed by the Islamic Jihad faction during a Palestinianuprising.

From the horror of the attack grew a complex investigationthat has already seen the governments of Iran and Syriaconvicted in a U.S. court for sponsoring Islamic Jihad. Theywere ordered to pay $323 million in damages to the Wultz family,but have yet to hand over the money.

The family alleges that the Bank of China allowed money fromSyria, Iran and elsewhere to pass unhindered through itsaccounts to the Islamic Jihad, listed by Washington as aterrorist organisation, in violation of U.S. financing laws.

The bank, which is China's fourth largest lender, denies anywrongdoing and is contesting the case. Contacted in China, thestate-controlled company declined to comment further.

Israeli newspaper Yedioth Ahronoth said last month thatNetanyahu, looking to pave the way for a high-level visit toChina in May, had promised not to let any civil servant, past orpresent, give testimony which might help the prosecution.

Netanyahu's office declined to comment on the report.

A Chinese Foreign Ministry spokeswoman in Beijing, HuaChunying, said she was not aware of the case. She added thatChina implemented "a strict oversight ... to prohibit anyinstitution from supporting terrorist activities in any way".

Showing discontent within the Israeli establishment, theformer head of Israel's Mossad spy agency has said he was readyto defy Netanyahu and testify himself if the original witness,ex-intelligence official Uzi Shaya, was muzzled.

"If they ask me, if I receive a request from a U.S. court totestify, I would go testify at any time," Meir Dagan, who ledMossad from 2002-2010, told Reuters.

A regular critic of Netanyahu, Dagan helped to orchestrateIsrael's international drive to strangle militant funding.

"I think that a continued war on terror, and a clear Israeliposition on the matter, should be our priority. Because we,unlike other countries, suffer from terrorism all the time, andapparently we will continue to suffer from it," he said.

ALARM BELLS

Israel was the driving force behind the Wultz case againstthe Bank of China, but alarm bells rang for the family in Julywhen Shaya did not give his eagerly awaited deposition. Shayacould not be reached to explain his failure to testify.

"The Israeli government wanted to initiate this case insupport of stopping those who help finance terrorism and itprovided critical information," said Daniel's father, YekutielWultz, who was wounded in the blast on April 17, 2006.

Israel was keen for the family of Daniel, who was the onlyU.S. victim of an attack that killed 11 people, to file the suitin the United States to take advantage of anti-terrorism lawsthat banks operating on U.S. soil must honour, a legal sourceclose to the case said.

In their 2008 suit against China, the Wultzs say the bank's"conduct was criminal in nature, dangerous to human life,outrageous, intentional, reckless and malicious, and so warrantsan award of punitive damages".

Bank of China is expanding its U.S. network, and this casecould have implications for its future development in America.

In an emailed statement, Wultz, who lives in Florida, didnot speculate why there was a hold-up in the testimony, sayingonly that the family was "determined to see this through".

U.S. authorities issued a subpoena to Shaya when he visitedWashington in September, ordering him to make his deposition onNov. 25.

The prosecution has said it hopes he will confirm thatIsrael had told China about accounts that Islamic Jihad, whichlargely operates out of the Gaza Strip, was covertly using tolaunder funds from Iran and to pay for their operations.

According to court transcripts seen by Reuters, the Bank ofChina has denied any knowledge of a meeting in 2005 when Israeliofficials, including Shaya, allegedly told their Chinesecounterparts about suspect bank transactions.

Judge Shira Scheindlin, hearing the case in the SouthernDistrict of New York, has written to Israel's Justice Ministryon at least three occasions this year seeking information onwhether it planned to let Shaya testify.

Addressing a court session on July 19, she told lawyers itmade sense to her that China would not want Shaya to testify.

"It seems pretty plain to me right now that that would betheir wish," she said, according to a transcript of the hearingreviewed by Reuters.

"If the decision is no ... that may be a make-or-breakdecision for this case," she said, adding: "This may be the onlyperson who really has the knowledge as to what transpired at the(2005) meeting."

Israeli officials declined to discuss any aspect of thecase, saying that they were still considering the matter.

"I will not comment on this issue," Israeli Deputy ForeignMinister Ze'ev Elkin told Reuters. "It is a very delicate issue.We are dealing with it in our way and I am not sure that itshould be part of public discussion."

GAZA FAMILY, MULTIPLE ACCOUNTS

Prosecution lawyers in a Sept. 17 letter to the U.S. courtsaid 22 members of the al-Shurafa family from Gaza had accountsat a Bank of China branch in Guangdong province. The lawyerssaid hundreds of thousands of dollars moved through the accountsto help bankroll Islamic Jihad operations.

Since the case surfaced, Bank of China has shut theaccounts, and a member of the Shurafa family was expelled fromChina. The Shurafa clan owns a string of stores in Gaza, aPalestinian coastal enclave, and says it had opened legitimateaccounts to pay for the import of Chinese goods.

A member of the family, who declined to give his first namebut who spoke on behalf of the family, said their only dealingwith Islamic Jihad was when it wired them money to pay for aconsignment of school bags for a charity project.

"We are shocked at what happened. We lost our business linefrom China ... We are the ones who should claim compensation forhuge financial losses we have suffered," he said.

Israel has lobbied countless countries over the yearsconcerning the need to crack down on money laundering. Netanyahuhimself has developed a strong rapport with U.S. policymakers,thanks partly to his image as an uncompromising figure in whatthe United States calls its "war on terror".

The case has generated U.S. political interest, where thefamily has secured support of Florida politicians, includingU.S. Congresswoman Ileana Ros-Lehtinen, chairman of theinfluential House Committee on Foreign Affairs until January.

"The Congresswoman and Prime Minister Netanyahu have hadconversations regarding this matter and want a resolution toit," her spokesman said in an email, declining further comment"due to the sensitive nature of the case".

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