By Alison Frankel

NEW YORK (Reuters) - Wounded U.S. veterans and family members of U.S. soldiers killed in Iraq sued five European banks on Monday, seeking to hold them responsible for shootings and roadside bombings because they allegedly processed Iranian money that paid for the attacks.

The lawsuit filed in U.S. District Court in Brooklyn, New York, named Barclays Plc, Credit Suisse Group AG, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Standard Chartered.

Barclays, Credit Suisse, RBS and Standard Chartered declined to comment. HSBC did not respond to requests for comment.

The lawsuit was brought under the U.S. Anti-Terrorism Act, a 1992 law that permits victims to bring private suits against alleged financiers of militant operations.

The lawsuit alleges the banks conspired with Iranian banks to mask wire transactions in order to evade U.S. sanctions. The Iranian banks then funneled more than $100 million to militant groups that operated in Iraq at Iran's direction, according to the suit.

The militant groups included a Shi'ite militia in Iraq, Kataib Hezbollah, as well as Quds Force, the overseas arm of Iran's Islamic Revolutionary Guard Corps, the suit says.

Since 2009, the five banks have agreed to pay about $3.2 billion to the U.S. government to resolve allegations that they handled money in violation of sanctions against nations such as Iran, Libya and Cuba. All the banks signed deferred prosecution agreements with the U.S. Justice Department in addition to settlements with U.S. banking regulators.

The agreements did not allege a link between the transactions, which the U.S. government viewed as unlawful, and militant operations.

Patrick Farr, a California-based plaintiff whose son Clay was killed by a roadside bomb in February 2006, said the lawsuit has given him "a sense that I was able to do something, hold someone accountable for his death."

The case faces major obstacles, said Jimmy Gurule, a Notre Dame University law professor. The Anti-Terrorism Act does not specifically permit conspiracy claims, and federal courts in New York have previously refused to permit cases to proceed unless they allege a direct link between banks and militant attacks.

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The law also bars claims for wartime injuries. "The law was not intended to give a private right of action to soldiers in a military conflict," Gurule said.

UNIQUE USE OF 1992 LAW

The suit is the first case under the Anti-Terrorism Act in which former U.S. soldiers seek damages against international banks. It is also one of the first to be crafted as a conspiracy case.

The lawyers who filed the suit, Gary Osen and Tab Turner, were part of a team that tried an Anti-Terrorism Act case against Arab Bank earlier this year in Brooklyn. Jurors found Arab Bank liable for financing 24 Hamas attacks in Israel and the Palestinian Territories between 2001 and 2004.

That case linked Arab Bank specifically to wire transfers to alleged Hamas leaders and payments to Palestinians killed, injured and imprisoned in the anti-Israel uprising.

The new lawsuit does not assert a direct connection between the European banks and the allegedly Iran-directed attacks carried out in Iraq. Instead, the complaint claims that the banks indirectly facilitated the attacks by entering into agreements with Iranian banks to mask U.S. dollar wire transactions sent through the United States.

"Each defendant understood that their conduct was part of a larger scheme engineered by Iran," Osen said in an interview. At a minimum, he said, the banks were "deliberately indifferent" about the transactions they processed for Iran.

Osen said that through press accounts, declassified U.S. military reports and documents posted by WikiLeaks, he built a file on attacks on U.S. forces that were traceable to Iran. One of the boldest attacks took place in January 2007, when attackers dressed as American soldiers infiltrated a compound in Kerbala, Iraq, and killed five U.S. military personnel.

Charlotte Freeman, whose husband Brian was one of the soldiers killed in Kerbala, said she and her mother-in-law decided to join the case to make a statement. "I never suspected these big banks would turn a blind eye," she said. "Even if the case doesn’t get that far, at least the story is told. It needs to be exposed."