"Lender Liability" - Fair Finance Watch Overview, Part 2

    An overarching issue with which the FFW is concerned is the responsibility -- and liability -- of financial institutions for their actions, and the actions of the enterprises which they support, through loans, capital markets services, and otherwise.

      In the second half of the 1990s, various financial institutions' involvement in the Holocaust finally began to be litigated, as class actions and otherwise. See, e.g., as to Swiss banks: Amended Complaint, Friedman v. Union Bank of Switz., No. 96-CV-5161 (E.D.N.Y. filed Oct. 21, 1996); Amended Complaint, Weisshaus v. Union Bank of Switz., No. 96-CV-4849 (E.D.N.Y. filed Oct. 3, 1996), consolidated as Telling-Grotch v. Union Bank of Switz., No. 96-5161 (E.D.N.Y. filed 1996). As to German banks, see, e.g., Complaint, Duveen v. Deutsche Bank AG, No. 99-CV-0388 (S.D.N.Y. filed Jan. 19, 1999); Complaint, Watman v. Deutsche Bank, No. 98-CV-3938 (S.D.N.Y. filed June 3, 1998); a French bank: Amended Complaint, Bodner v. Banque Paribas, No. 97 Civ. 7433 (E.D.N.Y. filed Mar. 20, 1998); an Italian insurer: Notice of Removal of Action, Friedman v. Assicurazioni Generali S.p.A., No. 98-5780, (C.D. Cal. filed July 17, 1998).

    The legal theories and resolutions of these cases -- several have been settled -- will have ramifications for the law, national and international, of banks' liabilities for other violations of human rights -- with, one hopes, less of a time-lag. A current test case, of human rights enforcement before the passage of decades, is presented by the revelations in 2000 that Credit Suisse, Citigroup and others handled fund for Nigeria's ex-dictator, Sani Abacha. See, e.g., the Swiss Federal Banking Commission's September 4, 2000, report, of which the Financial Times of September 5, 2000, reported: "Switzerland yesterday severely reprimanded Credit Suisse, the country's second biggest bank... for accepting [somewhat less than] $660 million from the family of the former Nigerian dictator Sani Abacha... who is accused of stealing more than $2 billion from his country during his five-year rule. Kurt Hauri, chairman of the FBC, said the scale of the Abacha funds which had found their way into Swiss banks was 'disturbing and damaging.'" (The SFBC report is available at <http://www.ebk.admin.ch/e/aktuell/neu14-00b.pdf>).

     In the United States, the issue of lenders' liability for the actions of their borrowers is being raised, in 2001, regarding "warehouse loans" to high-interest rate mortgage lenders. On FFW's Campaigns Page, this issue is documented and explored as to several institutions: Citigroup, HSBC, J.P. Morgan Chase, Deutsche Bank, and U.S. Bancorp. The phrase "lender liability" is somewhat loaded, coming, as it does, from litigation under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601-9675 (CERCLA). CERCLA was enacted in December, 1980 "to provide for liability, compensation, cleanup, and emergency response for hazardous substances released into the environment and the cleanup of inactive hazardous waste disposal sites." See, e.g., United States v. Hughes, 68 F.3d 811, 821 n.19 (3d Cir. 1995).

     As to lenders, the landmark case was United States v. Fleet Factors Corp., 724 F. Supp. 955, 960 (S.D. Ga. 1988), aff'd, 901 F.2d 1550 (11th Cir. 1990), in which the Eleventh Circuit Court of Appeals held that a secured creditor may be liable under CERCLA (Section 9607(a)(2)) by participating in the financial management of a facility "to a degree indicating a capacity to influence the corporation's treatment of hazardous wastes." 901 F.2d at 1557.

     Given the campaign contributions and lobbying power of the financial services industry, it is not surprising that, in 1996, the Fleet Factors decision was essentially overridden by statute, the Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996 (ALDA), Pub. L. No. 104-208, 110 Stat. 3009 (1996). The legal theories announced -- or confirmed -- by the Eleventh Circuit in Fleet Factors, however -- including the "capacity to influence" test -- clearly have implication beyond environmental law...

    The broader question, becoming even more important as banks globalize, and as foreign direct investment increases, is the responsibility -- and liability -- of financial institutions for their actions, and the actions of the enterprises which they support, through loans, capital markets services, and otherwise. It is in this issue-field that the Fair Finance Watch initiative begins. Click here to view examples of campaigns that have given rise to the FFW, including analyses of several multinational financial institutions' effects on consumers and the environment, worldwide. And click here to provide your feedback, your ideas and objections, and to get involved.

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