Legal Landmines Ahead: U.S. Firms in Palestinian Territories Face New Liability Risks

The U.S. Supreme Court's June 20 ruling in Fuld v. Palestine Liberation Organization has reignited legal risks for U.S.-listed companies operating in the West Bank and Gaza. By upholding the Promoting Security and Justice for Victims of Terrorism Act (PSJVTA), the Court cleared the path for U.S. plaintiffs to sue entities like the PLO and Palestinian Authority (PA) in federal courts over terrorism-related harms. But the ripple effects extend far beyond those groups: U.S. firms with ties to Palestinian economic activity—particularly in energy, construction, and financial services—are now exposed to heightened litigation risks, operational disruptions, and reputational fallout. For investors, this creates a compelling case to short equity and credit instruments of exposed companies while avoiding new investments in these sectors.

The Legal Basis for New Risks: A Shift in Jurisdiction

The PSJVTA allows U.S. courts to assert personal jurisdiction over the PLO and PA if they make payments to terrorists or maintain a physical presence in the U.S. (excluding their U.N. mission). While the law targets these entities directly, its implications for U.S. firms are indirect but significant. By enabling lawsuits tied to terrorism-related activities, the ruling creates a legal precedent that could be weaponized against companies perceived as supporting settlements or enabling PA/PLO operations.

For instance, if a U.S. firm's equipment or technology is used in settlements deemed illegal under international law, plaintiffs could argue that such support indirectly benefits groups linked to terrorism. This creates a liability chain where companies face claims under the Antiterrorism Act (ATA), even if they lack direct ties to the PLO/PA.

Sector-Specific Risks: Where the Legal Minefield Lies

1. Construction: Caterpillar's Exposure to Settlement Infrastructure

Caterpillar Inc. (CAT) has long supplied bulldozers and heavy equipment to Israeli construction projects in disputed settlements. While CAT's sales in the region are modest relative to its global business, the Supreme Court ruling amplifies reputational and legal risks. Lawsuits could arise if settlements are linked to terrorism-related acts, such as home demolitions or infrastructure supporting military operations.

CAT's stock has underperformed peers amid geopolitical volatility. Investors should brace for further pressure if litigation costs or divestment campaigns escalate. Recommendation: Short CAT equity or consider underweight positions.

2. Financial Services: Booking Holdings' Controversial Travel Ties

Booking Holdings Inc. (BKNG), owner of Booking.com and Kayak, faces scrutiny for listing accommodations in Israeli settlements. The U.N. labeled it one of 17 companies operating in settlements in 2023. Harvard's $150 million reinvestment in BKNG in 2024, despite student protests, highlights how institutional investors may overlook geopolitical risks.

The Fuld ruling could embolden activists to sue BKNG under the ATA if settlements are tied to terrorism. Even if BKNG isn't directly liable, reputational damage could deter customers and investors.

Activism is rising, but BKNG's stock remains resilient. A tactical short could profit from eventual market realization of these risks.

3. Energy: Phoenix Financial's Settlement-Funded Projects

Phoenix Financial Ltd. (PHX), a U.S.-linked Israeli firm, finances infrastructure in settlements like solar farms and shopping malls. Jared Kushner's Affinity Partners now holds nearly 10% of PHX, leveraging Saudi funding to expand its role in settlement construction.

The PSJVTA's jurisdictional expansion could expose PHX to claims if its projects indirectly benefit the PA or groups linked to terrorism. Even if PHX avoids direct liability, U.S. regulators or courts might scrutinize Kushner's ties to its operations, creating compliance headaches.

PHX's credit rating (currently A-) could face downward pressure as legal risks mount. Consider shorting its bonds or avoiding new exposure.

Geopolitical Implications: A Shift in U.S. Policy and Capital Flows

The Trump administration's push to normalize settlement activity has drawn criticism but also incentivized U.S. firms to engage in West Bank projects. However, the Fuld ruling complicates this calculus. Companies may now face:
- Operational disruptions if projects are halted over legal concerns.
- Litigation costs from ATA lawsuits, even if ultimately unfounded.
- Divestment campaigns from socially conscious investors, similar to the BDS movement.

The geopolitical risk premium for these sectors is rising. Firms with Palestinian exposure could see borrowing costs spike as insurers and lenders demand higher returns.

Investment Strategy: Shorting and Avoidance Are Key

The Supreme Court's decision marks a turning point for U.S. firms in Palestinian territories. Investors should:
1. Short equities: CAT, BKNG, and PHX are prime candidates due to their direct exposure.
2. Avoid new credit investments: Corporate bonds of exposed firms could underperform as risks crystallize.
3. Monitor activist campaigns: Harvard's stance on BKNG may shift if divestment movements gain traction.
4. Watch for regulatory moves: The Biden administration could tighten guidelines on U.S. firms operating in settlements.

Conclusion: A Legal Minefield for Palestinian-Tied Firms

The Fuld ruling has transformed the risk landscape for U.S. companies in the West Bank and Gaza. With litigation costs, reputational damage, and geopolitical headwinds mounting, the case for shorting exposed equities and credits is compelling. Investors should proceed with caution—and bet against firms stuck in the crossfire of law, politics, and human rights.

Stay vigilant, and avoid stepping on the mines.