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December 1, 2002

Saudis Called Slow to Help Stem Terror Finances


WASHINGTON, Nov. 28 While both countries say that progress has been made, American officials are finding it hard to stop the longtime flow of money from wealthy Saudis and Saudi-financed charities to people and groups deemed by the United States to be supporting terrorist attacks around the world.

Saudi officials have repeatedly pledged to tighten regulations on some 300 charities that dole out as much as $4 billion a year, but a senior Bush administration official said Saudi cooperation in stopping the money flow had been "difficult and slow" since the Sept. 11 attacks.

"The Saudi banking system is not totally transparent, and Riyadh has not maintained strict oversight" on nongovernmental organizations abroad, Carl W. Ford Jr., the assistant secretary of state for intelligence and research, said in recently released written responses to questions from the Senate Select Committee on Intelligence. Congressional leaders criticized the Bush administration for not being more aggressive in pressing the Saudi government, particularly since 15 of the 19 hijackers in the Sept. 11 attacks were Saudi citizens.

The longstanding tensions between the two countries over the financing issue erupted this week after reports that about $2,000 from the wife of Saudi Arabia's ambassador to the United States may have inadvertently aided two of the Sept. 11 hijackers. Administration officials responded with praise for Saudi efforts and defended the ambassador, Prince Bandar bin Sultan, and his wife, Princess Haifa al-Faisal.

Hassan Yassin, a former Saudi information officer in Washington, said in a telephone interview from London that the Saudis were moving at their own pace to curb terrorism. Toward that end, he said, Crown Prince Abdullah, the kingdom's de facto ruler, recently sought to limit overseas donations by emphasizing that Saudis should help the poor in their own country.

The issue is not new. Two decades ago, the State Department tried unsuccessfully to pressure Saudi Arabia to stop underwriting militant Islamic groups in Algeria. Saudi officials said that the financial support did not constitute official policy, but also insisted that "they couldn't tell Saudis where to put their money," Edward S. Walker Jr., a former top State Department official involved in the talks, said in an interview.

Saudi officials say the country's leaders are committed to fighting terrorism, and the administration credits the Saudis with backing the American campaign against it. They said that the government had already blocked $70 million at the request of the United States and that banking regulators were auditing the network of Islamic charities that extend the Saudis' reach worldwide through donations that Saudi officials estimated at $200 million to $300 million a year.

A Saudi official said the government had taken many steps to tighten controls, including forbidding banks from transferring cash to individuals without an audit trail. The official said the government had also set up a financial intelligence unit to share information about bank transactions, and bank executives now exchange information about financial transactions. He said that while Saudi law now required charities to "coordinate" donations overseas with the Foreign Ministry, the kingdom was slowly moving toward banning such aid except through official government channels.

Outside experts have been more critical of the Saudis. A report sponsored by the Council on Foreign Relations last month said Saudi Arabia was the largest source of financing for Al Qaeda, and blamed both the American and Saudi governments for not being tough enough.

Matthew Levitt, a fellow at the Washington Institute for Near East Policy and a former terrorism analyst for the Federal Bureau of Investigation, said Saudi officials and state-paid religious leaders sat on the boards of charities the American government suspected of supporting terrorism.

"More than a year into the war against terrorism, Saudi officials continue to actively support organizations that finance international terrorism," he said in an interview.

The latest dispute comes at a critical moment in American-Saudi relations. The Bush administration is working to obtain permission to use Saudi air bases if there is a war against Iraq, and to make sure the Saudis step up oil production to fill a possible worldwide shortage in the event of war.

Saudi Arabia's role as a major oil supplier to the West and an ally has kept Washington from pressing too hard for tough action against terrorism, said current and former government officials. and outside experts.

"It has been a longstanding policy of the United States government over several decades that if the kingdom helps us with oil and helps us with the Middle East we won't ask them about their internal issues," said William F. Wechsler, the head of an interagency group in the Clinton administration that sought to disrupt Al Qaeda's finances and one of the authors of the recent Council on Foreign Relations report.

But Saudi Arabia's internal issues have a way of leaking into the rest of the world. Giving a small percentage of your wealth to charitable or humanitarian causes is a tenet of Islam, called zakat. The kingdom's oil wealth has made it a significant source of aid for poorer Muslim nations and communities through a network of Saudi-based charitable organizations.

In the 1980's, the kingdom and individual Saudis, with American blessing, were the most important source of financing for the mujahedeen fighting the Soviets in Afghanistan. The money helped to serve as the foundation on which Osama bin Laden, a Saudi, built Al Qaeda.

The Persian Gulf war in 1991 prompted Saudi Arabia to re-examine the activities of its wealthy philanthropists. Saudis close to the royal family said King Fahd urged the kingdom's richest families to be more careful in how their charitable donations were used. A council was set up to supervise requests for money, and collecting money without official permission was banned.

Still, some individual Saudis and charities continued to finance extremist Islamic groups, wittingly or unwittingly, and Islamic charities figured in some prominent attacks. In one example, federal prosecutors said a charity was used to provide cover for plotting the bombings of the American embassies in East Africa in August 1998.

The Clinton administration discussed the issue with Saudi officials periodically. In July 1999, midlevel officials traveled to the kingdom after Vice President Al Gore raised the matter with Crown Prince Abdullah, American officials said.

But the effort to persuade the Saudis to crack down on the charities never became a high-level issue for the Clinton administration and soon faltered, said Stuart E. Eizenstat, the deputy secretary of the Treasury at the time. Saudi Arabia, he said, was treated "with kid gloves."

Until Sept. 11, the Bush administration paid little attention to terrorist finances. But within a few weeks of the attacks, the administration blocked the assets of various charities and their supporters. Many were on a secret list of 31 suspect charities distributed to American antiterrorist specialists as far back as 1996.

In October 2001, the Treasury Department identified one Saudi charity on the 1996 list, the Muwafaq Foundation, as a Qaeda front. Officials said the group had transferred millions of dollars to Mr. bin Laden. The government froze the assets of Yasin Al Qadi, the Saudi businessman who headed the foundation. Mr. Qadi said he had never helped terrorists and went to court in London to contest the freeze.

Most of the foundation's $20 million endowment came from Sheik Khalid bin Mahfouz, a prominent Saudi businessmen and a former banker to the royal family, according to his spokesman, Cherif Sedky. Mr. Sedky said the money was intended solely for humanitarian purposes. Sheik Khalid has not been accused of any wrongdoing and his accounts have not been frozen. A lawsuit brought by some families of Sept. 11 victims, however, names him as a defendant along with dozens of other prominent Saudis, including members of the royal family.

Mr. Sedky said the charities mentioned in the lawsuit were not known in 1998 to be conduits for terrorism. "We continue to have no reason to believe that any of the funds Sheik Khalid provided were used other than for the charitable purposes intended," he said.

The lawsuit has strained American-Saudi relations, and Bush administration officials said they might move in a federal court to have the suit dismissed or delayed.

Last March, the administration and the Saudis together moved to shut down two overseas branches of Al Haramain, a Saudi charity suspected of funneling money to extremists under cover of supporting Islamic schools and orphanages.

The action closed branches in Bosnia and Somalia, but questions remain about whether its activities actually stopped. Al Qaeda's top representative in Southeast Asia told the Central Intelligence Agency last summer that the network's operations there were financed through Al Haramain, according to a transcript of his questioning. Around the same time, Arab news accounts suggested that the charity was active again in Bosnia.

Faced with rising criticism, the Saudi Embassy in Washington put out a statement last August saying that new regulations had been established to sever links between charitable groups and extremist organizations. "All charitable groups have been audited to assure there are no links to suspected groups," the statement said.

The Bush administration has not described publicly how far the Saudis have gone in carrying out the measures.

When a Congressional committee asked Kenneth Dam, the deputy secretary of the Treasury, whether the Saudis had taken the steps they had promised, he replied: "That's a sensitive question, and my answer would be sensitive. All I can say is that we are pleased with Saudi cooperation."

Evidence linking Saudi money to Al Qaeda has continued to mount. Last month, federal prosecutors in Chicago charged the head of Benevolence International Foundation, an Islamic charity with financial roots in Saudi Arabia, with running a criminal enterprise that supported Al Qaeda.

Investigators in Europe have also found ties between Al Qaeda and Saudi donors. The Spanish authorities, for example, say a Syrian accused of financing a Qaeda cell in Europe was backed by a Saudi trading company that solicited money from Saudis.

Last month, an American delegation went to Riyadh to press for increased scrutiny of charities and financial networks. It was headed by Alan Larson, the under secretary of state for economic affairs.

But in an illustration of the persistent quandary facing Washington, American and Saudi oil executives said Mr. Larson had another item on his agenda. He wanted to ensure, they said, that Saudi Arabia would pump millions of barrels of extra oil into the world market should there be a shortfall caused by an American-led attack on Iraq.

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