US legislation that allows families of victims of the 9/11 attacks to sue Saudi Arabia threatens to deter investment in the US and risks triggering the sale of billions of dollars of assets, Gulf bankers warn.

The US Congress voted overwhelmingly on Wednesday to override a presidential veto of legislation that waives claims of foreign immunity for terrorist attacks in the US.

Riyadh has not responded officially to the congressional vote. But Saudis have privately expressed concern to bankers that their assets could eventually become the target of legal action.

Bankers say they expect Saudi Arabia to act cautiously as they monitor any legal processes. But Saudi concerns are undermining the case for new investments and raising the prospect of liquidations, they added.

“The Saudis will certainly be more cautious, and the longer-term implications for Saudi assets in the US could be huge,” said a banker who manages Saudi money.

A fund manager in the Gulf said Saudi investors would already be planning to reduce exposure to US and preparing to cut back US investments.

“They are worried about an asset freeze,” he said.

Bankers estimate that most of the Saudi government’s and the royal family’s assets are held in the US, placing hundreds of billions of dollars at risk of liquidation. The central bank holds an estimated $170bn in US Treasury bills alone, bankers say.

“It is possible that every institution or person connected to the Saudi government or royal family would have to withdraw their money from all US-based banks,” said the banker. “If a US court orders seizures, it would apply across all US-registered companies.”

The September 11 2001 attacks were claimed by al-Qaeda as its work and mainly involved Saudi nationals. There are lingering suspicions in the US that Saudi government officials gave assistance to the hijackers while they were in the country.

Riyadh and Washington, who are traditional allies, have always denied any official Saudi involvement.

President Barack Obama warned on Wednesday that the legislation, which he vetoed before Congress overrode him, was a “mistake”. He said eliminating the notion of sovereign immunity could put American soldiers at risk, saying the US “could potentially start seeing ourselves subject to reciprocal loss”.

It is possible that every institution or person connected to the Saudi government or royal family would have to withdraw their money from all US-based banks

Jack Quinn, a former White House counsel who lobbied Congress to pass the measure, said it paved the way for a New York appellate court to send to trial a case that had been on appeal over the issue of sovereignty. It was brought by more than 2,000 family members of the victims of the 9/11 attacks.

But Mr Quinn, who serves as co-counsel in the case brought by the 9/11 families, said the bill would not threaten US interests, arguing that it was only a narrow restatement of a provision that had existed before Saudi Arabia challenged the cases.

“It enhances the efforts of our nation to avert and defeat terrorism along with our allies, while also meeting America’s fundamental obligation of ensuring justice for the victims of terrorism that occurs on our soil,” he said.

While the legislation will remain intact for now, some senators, including Bob Corker, the Republican head of the foreign relations committee, are working on measures to address some of the White House’s concerns. But those efforts are unlikely to bear fruit before November’s election.

Saudi investors repatriated billions of dollars from the US to the Middle East in the wake of the 9/11 attacks amid fears that their assets would be targeted by officials tracing charities and institutions suspected of financing al-Qaeda.

In the run-up to Wednesday’s vote, Saudi officials lobbied allies in corporate America, warning them of the potential impact for bilateral political and commercial ties.

“This bill will diminish the attractiveness of US bonds internationally,” said Mohammed Alyahya, a non-resident fellow at the Atlantic Council. “From now on, investors will factor-in the risk posed by limited sovereign immunity on their investments.”



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