Dec. 9 issue - As FBI agents in Chicago pursued an investigation into alleged terrorist financing in 1998, they ran across a curious money trail that soon led them into a diplomatic swamp. A local chemical firm that was suspected of laundering money for Hamas, the Palestinian terrorist group, had received a $1.2 million cash infusion from the International Relief Organization, the U.S. branch of one of the world?s biggest Islamic charities. Determined to ?follow the money,? they traced some of the charity?s funding to a surprising and sensitive source: the Saudi Embassy in Washington.
THE MONEY FLOW from the Saudis set off alarms in Washington. Investigators were told by top Justice officials to move carefully, according to sources familiar with the case. Some Justice higher-ups appeared worried that any inquiries into the operations of the Saudi Embassy could jeopardize U.S.-Saudi relations. ?There was a concern about national security,? said one investigator. The agents did as they were told. A court affidavit spelling out $400,000 in money transfers to the organization was carefully edited-to omit any reference to the Saudi cash. Instead, the document referred blandly to funds from an unidentified ?embassy of a foreign government.? The president of the chemical firm was later convicted of fraud. But charges were never filed against the Saudi-financed charity. Investigators complain they were actively discouraged by Justice Department brass from pursuing the group?s possible links to terrorism.
Since 9-11, the mood in Washington, and in Riyadh, has changed. Today the International Relief Organization-and several other Saudi-backed charities, foundations and businesses-are at the center of a sweeping new U.S. government investigation into the terror-financing network. Officials suspect that millions of dollars that were donated by the Saudi government and wealthy Saudis were diverted by mainstream Islamic charities to Al Qaeda, Hamas and other terrorist groups. In some cases, U.S. investigators believe, Saudi funds may have bankrolled specific terrorist acts, including the 1998 bombings of two U.S. Embassies in Africa.
Last week the issue erupted anew, fueled by disclosures-first reported by news-week-that Princess Haifa bint Faisal, the wife of Saudi Ambassador Bandar bin Sultan, had written checks that ultimately totaled about $130,000 to associates of two of the 9-11 hijackers. Bandar, who did not respond to NEWSWEEK?s request for comment, told The New York Times that he was ?outraged? that he and his wife had been in any way connected to the terrorists, insisting that they had simply been responding to a 1998 letter from a destitute Saudi student in the United States pleading for help to cover the medical expenses of his wife. No evidence has surfaced tying the royal couple to the September 11 hijackers. Some investigators suspect that the two may actually have been scammed.
But the story was enough to unleash months of pent-up anger in Washington. Members of Congress are furious about what they view as the Saudi government?s persistent refusal to crack down on the charities-or keep closer tabs on where their own money was going. Inside the Bush administration, there is a division of opinion about how hard to press the investigation. ?There are a handful of people at Justice and Treasury who believed we should be putting the screws on the Saudis,? says one State Department official. ?But for people here and for those who are really in control at the White House, that wasn?t a possibility at all.? In a meeting between Prince Bandar and national-security adviser Condoleezza Rice last week, the imbroglio over his wife?s checks was barely mentioned. Instead, the two stuck to familiar topics like the stalled Israeli-Palestinian peace process and Iraq-an especially sensitive subject given the U.S. interest in Saudi bases and its appetite for the country?s oil.
Still, there are signs that the Saudis may be getting the message. This week the Saudi government is set to announce a series of stringent new controls on its charities, including cracking down on money transfers abroad and bringing in outside auditors to keep closer tabs on the books. More important, NEWSWEEK has learned, the Saudis are ready to acknowledge for the first time that there are indeed serious problems in the way their charities have conducted business-and that tens of millions of dollars in Saudi funds may have been misspent. ?There?s a lot of money unaccounted for,? one Saudi official told NEWSWEEK. Our charities were taking in massive amounts of cash... without any idea where the money was going. What you had was a massive fraud in the name of religion.?
Saudi Ambassador Bandar bin Sultan says he was ?outraged? at reports that he and his wife may have inadvertently provided financial aid to terrorists
The operations of the International Islamic Relief Organization, the parent of the U.S. Islamic Relief charity, exemplify the problem. Founded in 1978, IIRO is the Saudi equivalent of the United Way-a huge multinational operation, with headquarters in Jidda, whose proclaimed goal is ?to alleviate the suffering of human beings nationwide,? according to its Web site.
But U.S. officials have been suspicious of the group-or at least some of its top officials-for years. One IIRO officer, for example, was Mohammed Jamal Khalifa, who founded the IIRO branch in the Philippines in the mid-1990s. He also happens to be bin Laden?s brother-in-law. State Department cables in 1994 first identified Khalifa as a ?known financier of terrorist operations.? FBI documents obtained by terrorism expert Rita Katz later linked Khalifa to the plotters of the 1993 bombing of the World Trade Center in New York.
Evidence collected by the FBI during the investigation of the 1998 embassy bombings in Africa included several IIRO business cards found in the possession of Wadih El-Hage, bin Laden?s onetime appointments secretary, who was later convicted in the embassy-bombing plot. Last March, a team of U.S. Customs agents raided the suburban Washington office of the IIRO; no charges have been filed.
Saudi officials stress that none of this proves that the IIRO sanctions terrorism. But they do acknowledge that controls have been so lax that anything is possible. Inside the United States, funding for the IIRO was routinely run straight through the Islamic Affairs Department of the Saudi Embassy (the U.S. chief of IIRO has been quietly replaced and is now facing fraud charges in Saudi Arabia).
Some administration officials are encouraged that the Saudis have begun to tackle the problem. But the hard-liners want more. Officials at Treasury recently drew up a list of about 10 wealthy Muslims suspected of being the world?s top terrorist financiers. Most, though not all, of the names on the list are Saudis. Within the next three months, the hard-liners are expected to ask the NSC to present the Saudis with an ultimatum: crack down on the suspected terrorist financiers or Washington will. It may be as much a test of Washington?s resolve as Riyadh?s.
With Richard Wolffe and Tamara Lipper in Washington
© 2002 Newsweek, Inc.