Al-Qaida Funds Belong to Feds, Not Insurers

(CN) - A divided 7th Circuit held that $6 million al-Qaida invested with a Chicago firm belongs to the federal government, not insurance companies who paid 9/11 victim claims.

In the aftermath of the Sept. 11, 2001 terrorist attacks, Congress passed the Terrorism Risk Insurance Act, or TRIA, which allows insurance companies and the government to share losses in the event of a terrorist attack.

President Barack Obama extended the act Jan. 12, pushing the expiration date to 2020. The act applies to the execution of blocked assets, according to Friday's ruling.

Insurance companies that paid more than $2.5 billion in property damage and other claims related to the 9/11 attacks, and that have been awarded a judgment against al-Qaida by a New York district court, filed a claim for funds invested by Abu al Tayyeb, an operative for the terrorist ground who was arrested by Saudi Arabian authorities in 2006.

. The Manhattan Federal Court ruled in 2006 that al-Qaida was responsible for the 9/11 attacks, and entered a default judgment of liability against the terrorist group and in favor of insurance companies and several thousand individual plaintiffs. The initial judgment didn't include a dollar amount, but a final judgment entered in 2012 was for $9 billion against al-Qaida.

A judge in the Chicago Federal Court ruled in favor of the insurance companies and personal injury claimants based on the assumption that the al-Qaida funds were blocked under the TRIA. But, to complicate matters, the federal Office of Foreign Assets Control, or OFAC, granted the Justice Department a license to take all actions necessary to pursue forfeiture of the money and it was seized in July 2011, two years before the Northern Illinois district court judgment.

This week, the 7th Circuit vacated the district court's summary judgment in favor of the insurers, holding that the funds in question do not qualify as blocked assets because they are subject to a federal government license and have been arrested for civil forfeiture. Therefore, the insurance companies' claims fail under TRIA, a majority of the three-judge panel ruled.

"By the time appellees filed their initial, verified claims, OFAC had already issued its license and the funds had already been arrested to preserve them for forfeiture," U.S. Circuit Judge Michael Kanne wrote for a three-member panel. "In sum, the funds were no longer blocked. To appellees, that result may seem unfair, but it is the only permissible reading under the statute."

The appeals court, however, acknowledged that 9/11 victims may be allowed to recoup through a remission process.

"It is unfortunate, to say the least, that the victims of September 11 are still seeking relief, all these years later, for their tragic losses," Kanne wrote. "For that reason, we are also mindful of the United States' concession at oral argument that the victims of al Qaeda will be allowed to use the remission process to submit claims for relief. If that process proves to be inadequate, perhaps Congress can revisit TRIA to strengthen its means of recovery for victims of terror."

U.S. Circuit Judge Daniel Manion dissented, believing that the money should go to the insurance companies. He claims that the Justice Department's forfeiture license unblocked the al Qaeda funds for the purpose of forfeiture, but did not unblock the money for anyone else, evidenced by the fact that al Tayyeb couldn't access the money if the government failed in its forfeiture action.

"Neither the forfeiture license nor the arrest warrants in this case unblocked the funds for the purpose of TRIA. Consequently, the funds are still blocked and available to satisfy the insurance companies' judgment," Manion wrote. "To hold otherwise would render meaningless our opinion that TRIA's 'notwithstanding' clause supersedes civil forfeiture standing requirements."

Manion also criticized the executive branch for controlling the pace of the proceedings surrounding the al Qaeda Chicago money and stonewalling the insurance companies.

"The funds were blocked by the government from 2007 to 2011. After ignoring FOIA requests from the insurance companies for years on the grounds that they were exempt from disclosure for reasons of national security, the government finally disclosed the identity of the blocked assets when, in June 2011, the government initiated a forfeiture proceeding against them," Manion wrote.

"In August 2011, the insurance companies timely asserted their interests. The government resisted, but lost in district court. Now, on appeal, the government argues that its acquisition of a forfeiture license unblocked the assets, and because the assets are unblocked they are no longer within the ambit of TRIA. Because the court accepts this argument, the insurance companies are out of luck, and the assets will be forfeited to the government without ever seeing the light of day. The government accomplishes this coup d'etat despite the fact that the forfeiture license that is the lynchpin of its theory is not on the record, so we do not have the complete picture of its contents."

The other judges acknowledged Manion's concern but said the court's ruling is consistent with the text of the act.

"We are mindful of the dissent's concern regarding the litigation tactics of the executive branch. That the executive branch could delay revealing the existence of these particular funds, and then employ measures designed specifically to take them outside the scope of TRIA - a remedial statute - smacks of gamesmanship," Kanne wrote. "But the United States' approach to litigating this case falls within the bounds of what Congress permitted when it enacted this iteration of TRIA. Is it not the function of the courts to disturb the policy judgments of the legislative branch."

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