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Bad (and Good) News for Terror Victims: 7th Rules on al-Qaeda Funds

By Casey C. Sullivan, Esq. on April 08, 2015 | Last updated on March 21, 2019

Insurance companies who lost billions after the September 11th terrorist attacks won't be able to recover that money from $6 million in seized terrorist accounts, the Seventh Circuit ruled last week. Though the Terrorism Risk Insurance Act (TRIA) authorizes the use of such assets to pay judgments against terrorists, these funds fall into one of the act's exceptions.

It's not all bad news for victims of terrorism, though. While the insurers won't be able to collect from these funds, the Seventh split with the Fifth and adopted a broad reading of TRIA's "notwithstanding any provision of law" clause, finding it allowed claimants to avoid innocent ownership requirements of civil forfeiture law.

Bad Guys, Bad Investments

Abu al Tayyeb provided financial and military support for al Qaeda's operations in Afghanistan. From 2003 to 2005, he invested over $26 million in futures trading accounts with a financial firm in Chicago. To say it wasn't a good investment would be awfully generous. In less than a year the investments shrunk to $6 mill, losing over 80 percent of their value.

When the government brought an action to have the funds forfeited, their existence came to the attention of September 11th insurers and victims, who also filed claims to the funds. The Southern District of New York had judged al Qaeda liable for the September 11th attacks in 2006, though it did not ascribe a damage amount until 2012.

TRIA's Notwithstanding Clause Trumps Forfeiture Rules

The federal government and the insurers tussled over who should have the funds. The government argued that the insurers did not have standing to bring a civil forfeiture action since they had not obtained an ownership interest in the property. That's true, though the court notes that's also because the U.S. government hid the money from public knowledge.

TRIA however, provides a way around normal forfeiture requirements. The act states that it applies "notwithstanding" other laws. The Seventh read this broadly, finding it superseded the innocent ownership requirement of civil forfeiture. They rejected the logic developed in the Fifth Circuit's Holy Lands case, where they found the "notwithstanding" clause to only apply directly to conflicting statutes.

But You Still Can't Get the Money

Unfortunately for the insurers, the money was still outside the reach of the TRIA. The TRIA clearly states that it applies only to blocked assets and assets subject to a government license for payment, transfer or disposition, do not qualify as blocked assets. In 2011, the Department of Justice seized the funds -- or, if you want to be fancy, executed a warrant of arrest in rem. That warrant is a license for transfer and disposition, the Seventh found, and exempted the funds from TRIA.

So, while the ruling may should be a good sign for future TRIA litigants in the Seventh, it still leaves claimants to al Tayyeb's funds empty handed.

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