By Jonathan Stempel
NEW YORK (Reuters) - Banks must turn over Sudanese funds to victims of al Qaeda's 2000 bombing of the USS Cole who had won a $314.7 million judgment, a U.S. appeals court ruled, as it rejected U.S. arguments that this could interfere with treaties and its dealings with foreign governments.
By a 3-0 vote on Thursday, the 2nd U.S. Circuit Court of Appeals in New York refused requests by Sudan and the United States to reconsider its Sept. 23, 2015 ruling ordering the turnover.
Circuit Judge Denny Chin expressed "some reluctance" to reject the U.S. position, but said "the State Department's views are not conclusive."
Christopher Curran, a lawyer representing Sudan, declined to comment. The U.S. Department of Justice declined to provide immediate comment.
The Oct. 12, 2000 attack on the USS Cole, while the Navy destroyer was refueling in the Yemeni port of Aden, killed 17 sailors and injured 39 others.
Fifteen injured sailors and three spouses sued Sudan, saying it had provided support to al Qaeda for the bombing.
After winning the $314.7 million default judgment, the plaintiffs won court orders that BNP Paribas SA, Credit Agricole SA and Mashreqbank PSC turn over Sudanese assets to help cover it, court papers show.
Sudan then entered the case, saying the original lawsuit was not properly served on its foreign minister, and the turnover orders were improper.
The U.S. government got involved last November, saying the Sept. 23 ruling ran contrary to federal law and its treaty obligations, and left it vulnerable to being haled improperly into foreign courts.
But Chin said "the requirements of the statute were met" because the plaintiffs had mailed the documents to the Sudanese Minister of Foreign Affairs via the embassy, which acknowledged receiving them.
Andrew Hall, a lawyer for the plaintiffs, said in an interview: "The decision will force Sudan to recognize its responsibilities to the victims of terrorism, including victims of the USS Cole bombing."
Despite supporting a rehearing, the U.S. government said it "deeply sympathizes with the extraordinary injuries to the U.S. military personnel and their spouses who brought this suit, and condemns the terrorist acts that caused those injuries."
On Tuesday, the State Department said it welcomed Sudan's "recent efforts to increase counterterrorism cooperation with the United States." The U.S. designated Sudan a state sponsor of terrorism in 1993.
The case is Harrison et al v. Republic of Sudan, 2nd U.S. Circuit Court of Appeals, No. 14-121.
(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)