Treasury's War Page 10
Still, we would learn more about the financial networks and donors over time. With the growing success of the Saudi crackdowns on terrorist networks—including arrests of terrorist financiers—and mounting efforts to stop terrorist financing, funding coming from Qatar and Kuwait soon became the greater issue.
In 2006, we would designate three deep-pocket donors from Kuwait for their role in supporting terrorism. In 2007, the Saudis would wrap up a network of financiers who were passing along mobile messages from Ayman al-Zawahiri exhorting supporters to donate to the cause. In June 2008, we named additional Kuwaiti financiers tied to groups supporting Al Qaeda, including a charity called the Revival of the Islamic Heritage Society (RIHS). RIHS’s Peshawar office in Pakistan was a charity, but it was also a front for moving funding directly from Kuwait to Al Qaeda in western Pakistan. In 2011, the Treasury Department would publicly designate the most significant Al Qaeda terrorist financing network that had been revealed in the past five years. The network relied on several donors in Kuwait and Qatar—Ezedin Abdel Aziz Khalil, Atiyah Abd al-Rahman, Umid Muhammadi, Salim Hasan Khalifa Rashid al-Kuwari, Abdallah Ghanim Mafuz Muslim al-Khawar, and ‘Ali Hasan ‘Ali al-’Ajmi. These donors were providing funding directly to the Al Qaeda core via a financial facilitation network in Iran. In designating this Al Qaeda financial network, the Treasury announced, “This network serves as the core pipeline through which al-Qa’ida moves money, facilitators and operatives from across the Middle East and South Asia.”9 In October 2012, the Treasury would add another name to the list of those who formed part of this Iran-based financial network.
We knew we were going to have a generational struggle and a problem on our hands for years with supporters of terrorist causes in the Arabian Gulf. The dialogue with the Saudis, Kuwaitis, and Qataris would remain tense, with the Treasury Department serving as the gadfly. A series of Treasury officials would publicly articulate our frustration with slow progress in shutting down and regulating suspect charities, holding terrorist financiers accountable, and addressing the underlying problem of Wahhabi proselytization. In 2003, David Aufhauser, Treasury’s general counsel, testified before the Senate, calling Saudi Arabia the “epicenter of terrorist financing.” These episodes were deeply embarrassing to the Saudis and did not match up with their sense of friendship with the United States and their broader cooperation with the United States’ counterterrorism efforts.
The Saudis would often push back, asking for the evidence to justify our charges. Sometimes we could not provide the information they requested because of the sources and methods we had used. Other times, we just did not have enough information to satisfy the Saudis—especially when taking controversial actions such as freezing assets or arresting a prominent individual. The Saudis frequently complained that they were providing information to the United States and could not understand why the Treasury Department was complaining—but the problem in some cases was that they were giving the information to the CIA, and the CIA was not sharing the information with the Treasury Department.
To manage this important counterterrorism relationship across the board, the White House assigned Frances M. Fragos Townsend, who was then the deputy national security adviser for combating terrorism, to the job of referee. Townsend later served as homeland security adviser to President Bush from 2004 to 2007. It would be left to her to smooth ruffled feathers when Treasury officials criticized the Saudis, and it would be her job to ensure that there was information sharing within the US government—especially between Treasury and CIA. Townsend would take interagency delegations with her to Saudi Arabia to present a united front. On several occasions, I was a part of these delegations. By 2007, Treasury had assigned a full-time attaché to sit in Riyadh to interact with the Saudi government. All of these measures helped to improve the level of communication between Treasury and both the Saudis and the CIA.
The pressure on the Saudis was real—and not just from the Treasury Department. There was public and congressional scrutiny over their actions, public heat from Treasury designations and statements, and FBI investigations over Saudi embassy funding that found its way to some of the 9/11 hijackers.
In late 2003, Prince Bandar, the longtime Saudi ambassador to the United States and dean of the diplomatic corps, paid a visit to the Treasury Department to meet with Secretary Snow about the state of US-Saudi relations. Bandar could get a meeting with the president whenever he needed, and he was always considered a critical figure in the relationship between the United States and Saudi Arabia, though he took a less and less public role in the United States after 9/11. Bandar considered himself a real friend to the United States, having trained to fly military jets with American pilots. He had served as the key interlocutor in the early 1980s to ensure funding to equip the Afghan mujahideen against the Soviets.
Secretary Snow received Prince Bandar in his small conference room. It was not clear exactly what Bandar wanted to discuss, so Snow included a small group of us to listen and assist if necessary. From the moment Bandar entered the small conference room, he filled the space with his larger-than-life presence and big personality. As always, Bandar was friendly and garrulous, but he had come with a specific problem in mind. Bandar was disturbed by the investigations into the embassy banking practices led by the FBI—they were proving embarrassing to him and the Saudis. Much public attention had been given to the cash payments from the embassy to Saudi citizens out of its account at Riggs Bank. These had included some payments to Khalid al-Mihdhar and Nawaf al-Hazmi, two of the 9/11 hijackers. Although there was no evidence that the Saudi government had tried to assist the 9/11 hijackers, the payments looked very bad. The FBI was investigating to get to the bottom of suspicions that the embassy had been subsidizing the hijackers’ stay in the United States.
Bandar sat down and spoke passionately for over an hour. He laid out the history of his relationship with the United States and the role he had played as a trusted interlocutor from president to president. He spoke of the 1980s and how he had brokered payments to the Pakistani government and ensured that weapons and supplies were delivered to Afghan mujahideen who were fighting the Soviets. He talked of the checks that were written and cut to fund weapons and allegiance using the very same embassy bank accounts. Bandar saw himself as America’s closest friend and most critical Cold Warrior. Why was he now under scrutiny?
This was a new period, where the old rules no longer applied. What was clear was that Bandar was making a plea for a return to a time when the allies trusted each other implicitly, and when money could flow easily without questions to allied causes and people. The conversation he had with us was more about a longing for a different period than a realistic argument for any change in policy. September 11 had changed this relationship and the nature of the world forever.
There was now suspicion between the longtime allies. Those whom we had supported in Afghanistan had now turned their guns on us, and money had to be monitored. Suspicious and blind transactions now had to be questioned. We listened respectfully, and the conversation ended without any conclusion or course to follow. The conversation left a deep impression on me as well as on the others who were present that day. Secretary Snow recalls this meeting as one of the most interesting of his tenure. Prince Bandar was a good friend to the United States, and he would continue to play an important role in the relationship between our two countries. Importantly, Bandar has reemerged in 2012 as the Saudi external intelligence chief—helping to orchestrate Saudi Arabia’s efforts to counter Iran in the region and to support Syrian rebels in their fight against President Bashar al-Assad. Saudi funding and Prince Bandar are again in the middle of a critical international security crisis—one vital to the United States.
The private sector did not know how to address the changing environment in Saudi Arabia. There were suspect individuals with historical ties to bin Laden or groups associated with Al Qaeda in the Saudi kingdom. There seemed to be tainted money flows coming out of Saudi Arabia. And
there were actions by the state that could not be fully reconciled with the requirements that states now had after 9/11 to ensure that their banks were not being misused by terrorist groups and financiers.
In early 2002, the CEO and representatives from Citibank paid a visit to the Treasury Department to talk about Saudi Arabia. Secretary O’Neill hosted the large group, to include Citi’s chief lawyers, in the main conference room. The Citibank officials wanted to know whether they should stop doing business in Saudi Arabia altogether due to the risk of terrorist financing.
At issue was what they referred to as “Account 98.” This was a series of unified charitable bank accounts at major financial institutions in Saudi Arabia. Created in October 2000 by order of the Saudi royal family, Account 98 held funds dedicated to “humanitarian” efforts in Palestine—including both financial and material aid—during the Al Quds Intifada. The initiative was managed by the Saudi Committee for the Support of the Intifada Al Quds (later renamed the Saudi Committee for the Relief of the Palestinian People), run by Interior Minister Prince Nayef bin Abdulaziz al-Saud. It also received support from Prince Salman bin Abdulaziz, governor of Riyadh.10 The account was similar to others dedicated to needy Muslims in areas such as Bosnia and Chechnya.11
According to a 2001 official Saudi report published in the United States by the Middle East Media Research Institute, funds were directed through the Palestinian Authority under the close supervision of several top-ranking Saudi officials and the Arab League.12 The report also shows that in its first year alone, Account 98 was used to funnel 10,000 to 20,000 rials to 986 families of Palestinian “martyrs,” many of them suicide bombers and members of Hamas.13 Increased scrutiny of the funds’ use showed a pattern of terrorist financing. In one case, Israeli authorities searching the possessions of a Hamas operative who was involved in a deadly bombing discovered a spreadsheet bearing the official mark of the “Kingdom of Saudi Arabia, the Saudi Committee for Support of the Intifada Al Quds,” and detailing funds received by the operative, his family, and eight other suicide bombers through Account 98.14
Despite criticism from the US Treasury Department, Saudis renewed calls for donations to Account 98 in a December 2001 announcement on a government website.15 In April 2002, King Fahd sponsored a telethon that raised over $110 million.16 When outright allegations of terrorist financing arose, Saudi officials insisted the funds were being channeled through international organizations such as the Red Cross and the United Nations and used for legitimate humanitarian purposes.17
The growing public discussions and questions about Account 98 were disconcerting to American financial institutions doing business in Saudi Arabia. It wasn’t just their reputation that was on the line—Citigroup had held a 20 percent stake in the Saudi American Bank (Samba) since 1955.18 The activities of Samba and the role of Account 98 in funding families of suicide bombers became a central issue for Citibank. Citigroup had run the bank under a management contract since 1980 and had 62 offices in Saudi Arabia to maximize the bank’s ties to the Saudi elite. In 2002, Samba was named as a defendant in a lawsuit filed by 9/11 victims for allegedly collecting Saudi funds to support the Palestinian uprising. Samba filed a motion to dismiss the case, but Citigroup attempted to investigate the allegations.
Citi’s leadership wanted answers from the US Treasury. In the meeting in the secretary’s conference room, the mood was dark and serious. The Citi executives had a major problem on their hands and had little information to help them make a hard choice. Would they stop doing business in Saudi Arabia because of concerns about potential terrorist financing? Was there enough information to make that risk assessment? This was a major decision for a quintessential American financial institution that had done business in Saudi Arabia for decades.
As we sat across the large conference table, the Citi officials explained their predicament and asked for as much information as possible regarding Account 98 and our suspicions about terrorist funding out of Saudi Arabia. Citigroup claimed not to have taken note of the special account earlier because Saudi secrecy laws limited access to information about it.19 We did not know much more than they did about Account 98. We knew it had been mandatory for banks operating in Saudi Arabia to establish these accounts and to transfer the monies deposited to the Palestinian territories. It appeared that some of the funding did go to help those in need, but it was also clear that there were problematic transactions and uses, including the payments to families of suicide bombers. We were pressuring the Saudi government to shut down the accounts or stop problematic payments and to lift the requirement that the account be maintained in all the relevant institutions. There was little that we could say that would satisfy the Citi leadership. They wanted more information and clarity to be able to make a decision. They didn’t get much of either. In early 2003, Citi requested information officially from the Saudi government, Treasury, and the State Department, but with little success.20
The Citigroup executives made a decision to limit their exposure and potential liability. They could not operate in an environment in which their institution might be used to support terrorist causes and could not bear the reputational risks and liabilities that came with this. Account 98 has now been phased out and the funds directed to other accounts.21
This would not be an isolated action or consideration for the private sector. The new international environment had shifted the paradigm of risk and reputation for the banks. Governments—driven by the United States—were now requiring financial institutions to apply strict compliance standards and programs to their business. The color of money had changed, and reputational risk was now a key element of a bank’s bottom line. Large, multinational banks needed to make sure that their institutions were not being misused by terrorists, and they were being forced by government regulations and policies to prevent the infiltration of the financial system. The banks were now viewed and treated as the guardians of the integrity of the financial system.
Many of the biggest financial institutions—including American, European, and Asian banks—were increasing exponentially the amount of reporting they submitted to government entities about suspicious financial activities. Banking officials were now spending hundreds of millions of dollars to ensure that they were scouring their systems to check for those designated or those suspected of illicit financing. These searches were not limited to Saudi Arabia. The concerns lay around the world—especially anywhere there was lack of transparency or accountability for financial transactions. The risk calculus had changed, and banks did not want to find themselves in the middle of a terrorist financing scheme.
Switzerland, Luxembourg, and Liechtenstein in particular were confronting an uncomfortable reality. The tradition of bank secrecy they had long followed was being pierced by the intensity of the international community’s focus on transparent and accountable financial transactions. It was no longer acceptable for a banking center or country to say simply that they did not know or could not find out whether tainted money was nested in their banks. Banking centers in places such as Dubai and Beirut would have to confront the financial activity in their midst, where commercial actors and players from around the world converged. These countries would need to adjust their systems and find a balance that ensured they were being cooperative with the international community while still allowing their banking system to survive and take on customers from around the world. They all had to adjust to the new risk calculus for financial institutions.
Quiet cooperation often followed, with bank accounts frozen and financial intelligence shared. Countries such as the United Arab Emirates and Bahrain wanted to demonstrate the vitality and integrity of their financial centers—sponsoring conferences and expanding their role in international bodies like the Egmont Group of Financial Intelligence Units and the regional bodies of the Financial Action Task Force. In the classic banking centers of Europe, there was a hard shift to greater transparency and accountability, with the Swiss and Liechtenstein governments
leading the way to reconsider their bank-secrecy foundations. The evolution occurred quickly, with the Swiss ultimately launching a “white money” campaign in 2010 to ensure that all its banking practices maintained the integrity of the system. Money, indeed, had a color after 9/11, and the banks and financial centers wanted to paint it white. It would be up to us at Treasury to leverage these changing dynamics of the financial industry explicitly in the financial campaigns to come.
By the time Osama bin Laden was killed, Treasury’s work had paid off. Al Qaeda’s old financial networks had been decimated, and the Al Qaeda core was pleading for money from its affiliates and donors and trying to find new ways to raise money. The Saudis and others had taken the concerns about terrorist funding seriously. Even Israeli counterterrorism officials marveled that by 2007, the flow of funds from Saudi Arabia to Al Qaeda had been greatly diminished. Regardless of diplomatic or geopolitical disputes, the fight against terrorist financing remained a consistent arena of cooperation. The art of financial diplomacy—with governments and banks—would play a prominent role in the financial battles ahead.
The Treasury had learned to flex its muscles and use most of the new tools and networks at its command aggressively along with new forms of financial intelligence. At times, the tools could be blunt financial instruments, but they were proving effective in isolating suspect people, institutions, and money. Now it was time to refine and sharpen our approach to address the financial chokepoints and vulnerabilities that remained.