Court finds UBS not liable in lawsuit by attack victims

A U.S. appeals court refused Thursday to revive a lawsuit against UBS AG by U.S. victims of Hamas and Hezbollah attacks in Israel who claimed the bank aided international terrorism.

The 2nd U.S. Circuit Court of Appeals in New York said the plaintiffs could not obtain relief against the Swiss bank on their claims. However, it also ruled a trial judge was wrong in holding that the victims lacked the legal standing to bring the case under federal terrorism laws.

The lawsuit, filed in 2008, sought damages under the Anti-Terrorism Act on behalf of plaintiffs who said they or their family members were victims of bombings and rocket attacks from 1997 to 2006 conducted by Hezbollah and Hamas.

The plaintiffs had contended that the two organizations, which the U.S. government has labeled terrorist groups, received billions of dollars in funding from Iran, which had received billions in cash from UBS from 1996 to 2004.

UBS was fined $100 million by the Federal Reserve in 2004 for violating sanctions by sending money to countries including Iran, which the U.S. government deems a state sponsor of terrorism.

Karina Byrne, a UBS spokeswoman, said that while the bank "expresses sympathy for the plaintiffs, as victims of terrorism, today's decision further vindicates the firm's strong repudiation of the plaintiffs' claims."

Robert Tolchin, a lawyer for the victims, called the ruling "unfortunate" and said he was considering whether to seek an appeal to the U.S. Supreme Court.

"It seems to give Iran and those who do business with Iran a free pass," he said.

Judge Amalya Kearse, writing for a three-judge panel, said the court was not convinced Congress intended victims to be able to recover damages under the Anti-Terrorism Act without plausibly alleging UBS's transfers caused their injuries.

Kearse said the fact the transfers went to Iran "of course made it more likely that the moneys would be used for terrorism than if the transfers were to a state that did not sponsor terrorism."

"But the fact remains that Iran is a government, and as such it has many legitimate agencies, operations, and programs to fund," she wrote.

U.S. District Judge Jed Rakoff in Manhattan had initially dismissed the lawsuit in 2009. But a year later, the 2nd Circuit sent the case back to him for reconsideration after the Supreme Court upheld a law allowing the government to prohibit support of terrorist organizations.

Rakoff dismissed the case again in 2011. The plaintiffs' appeal of that ruling drew opposition not just from UBS but also the Swiss government and several European banking associations.

The case is Rothstein, et al., v. UBS AG, 2nd U.S. Circuit Court of Appeals, 11-0211.

(Reporting By Nate Raymond in New York; Editing by Martha Graybow and Alden Bentley)