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Bcci model used to fund terrorists with gold { February 17 2002 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/ac2/wp-dyn/A22303-2002Feb16?language=printerhttp://www.washingtonpost.com/ac2/wp-dyn/A22303-2002Feb16?language=printer
Correction to This Article
A Feb. 17 article about the use of gold in al Qaeda and Taliban financing reported incorrectly that a Saudi banker, Sheikh Khalid bin Mahfouz, is a brother-in-law of Osama bin Laden. The report was based on congressional testimony by a former director of the CIA. The story also erred in stating that Mahfouz is under house arrest. A representative of Mahfouz also denied information attributed in the story to U.S. officials that Mahfouz was under detention in 1999 and that an audit of the Saudi bank of which he was director showed links to charities controlled by bin Laden. The representative said no such audit was conducted.
Al Qaeda's Road Paved With Gold
Secret Shipments Traced Through a Lax System In United Arab Emirates
By Douglas Farah
Washington Post Foreign Service
Sunday, February 17, 2002; Page A01
DUBAI, United Arab Emirates -- Just as the United States and its allies swept toward Afghanistan's main cities last autumn, the ruling Taliban and Osama bin Laden's al Qaeda network sent waves of couriers with bars of gold and bundles ofdollars across the porous border into Pakistan.
In small shops and businesses along the border, the money and gold, taken from Afghanistan's banks and national coffers, were collected and moved by trusted Taliban and al Qaeda operatives to the port city of Karachi, Pakistan, according to sources familiar with the events.
Then, using couriers and the virtually untraceable hawala money transfer system, they transferred millions of dollars to this desert sheikdom, where the assets were converted to gold bullion. The riches of the Taliban and al Qaeda were subsequently scattered around the world -- including some that went to the United States -- through a financial structure that has been little affected by the international efforts to seize suspected terrorist assets.
This account of the flight of the Taliban and al Qaeda treasure from Afghanistan is based on dozens of interviews in Pakistan, the United Arab Emirates, Europe and the United States. The gold trail was described by intelligence officers, law enforcement officials, gold brokers, and sources with direct knowledge of some of al Qaeda's financial movements, but not by Taliban or al Qaeda operatives.
The interviews offered a tantalizing glimpse into the critical yet mysterious role played by gold in the finances of al Qaeda, both before and after the Sept. 11 attacks. Gold has allowed the Taliban and bin Laden to largely preserve their financial resources, despite the military attack that battered their forces in Afghanistan, investigators and intelligence sources said.
Al Qaeda also used diamonds purchased in Sierra Leone and the Democratic Republic of Congo, tanzanite from Tanzania and other commodities to make money and hide assets. But gold played a uniquely important role in the group's financial structure, investigators and intelligence sources said, because it is a global currency.
"Gold is a huge factor in the moving of terrorist money because you can melt it, smelt it or deposit it on account with no questions asked," said a senior U.S. law enforcement official investigating gold transactions. "Why move it through Dubai? Because there is a willful blindness there."
Exempt from international reporting requirements for financial transactions, gold is a favored commodity in laundering money from drug trafficking, organized crime and terrorist activities, U.S. officials said. In addition, Dubai, one of seven sheikdoms that make up the United Arab Emirates, has one of the world's largest and least regulated gold markets, making it an ideal place to hide.
Dubai is also one of the region's most open banking centers and is the commercial capital of the United Arab Emirates, one of three countries that maintained diplomatic relations with the Taliban until shortly after Sept. 11. Sitting at a strategic crossroad of the Persian Gulf, South Asia and Africa, Dubai has long been a financial hub for Islamic militant groups. Much of the $500,000 used to fund the Sept. 11 attacks came through Dubai, investigators believe.
"All roads lead to Dubai when it comes to money. Everyone did business there," said Patrick Jost, who until last year was a senior financial enforcement officer in the Treasury Department's Financial Crimes Enforcement Network.
Hand-Carried by Couriers
When the U.S. bombs began pounding Taliban and al Qaeda targets last autumn, the rush of gold and money out of Afghanistan intensified.
Pakistani financial authorities said that $2 million to $3 million a day is usually hand-carried by couriers from Karachi, Pakistan, to Dubai, mostly to buy gold. Late last year that amount increased significantly as money was moved out of Afghanistan, they said. Pakistani and U.S. officials estimate that about $10 million from Afghanistan was taken out by courier over three weeks in late November and early December. The Taliban fled Kabul, the capital, late on Nov. 12 and abandoned Kandahar on Dec. 7.
One of the couriers of cash and gold to Dubai was the Taliban consul general in Karachi, Kaka Zada, who took at least one shipment of $600,000 to Dubai in the last week of November, according to two Pakistani sources who witnessed him carrying the money.
In addition, U.S. and other officials said, millions more were sent through hawalas, the informal money transfer system widely used across the Middle East, North Africa and Asia that, outside of major cities, often serves as the only money transfer system. Rather than moving money through traceable mechanisms such as wire transfers, hawala brokers take a client's money, then call or e-mail a counterpart in the area where the client wants the money delivered. The counterpart pays out the sum. When the transaction is complete, the records are destroyed.
Gold is often used by hawala brokers to balance their books. Hawala dealers also routinely have gold, rather than currency, placed around the globe.
"There are no traditional banking systems in Afghanistan or Somalia," said Jost. "Everything is done through hawala, and gold is the fuel hawala runs on."
U.S. investigators, led by the Customs Service, have begun poring over transactions of some of Dubai's largest and most prestigious gold brokerages for possible links to the movement of al Qaeda or Taliban money, and have found unusual gold shipments into the United States after Sept. 11.
A Customs official said that as part of efforts to "investigate terrorist financing," the agency was "scrutinizing movements of gold by several companies, including ARY Gold," one of Dubai's largest and most prestigious gold bullion and jewelry dealers.
ARY's cramped headquarters is located in the heart of Dubai's gold market -- an area several blocks square, filled with stores that sell little else. Abdul Razzak, the Pakistani owner of ARY Gold, strongly denied knowingly doing business with the Taliban or al Qaeda.
"I am a God-fearing person, but all my life I have been afraid of religious people like the Taliban," said Razzak. "I wouldn't like to deal with Taliban people, and we don't like Taliban people.
"If you say you want 100 kilos [220 pounds] of gold, I can give you that wherever you want in 12 hours. What you do with it is your business," he said.
Razzak, who owns three of Dubai's largest gold jewelry stores, said he imports and exports gold legally. Dubai has no restrictions on either activity, and Razzak said competitors were spreading lies about his company out of jealousy.
During two interviews here, Razzak displayed few hints that he was a powerful political and financial broker. Wearing a simple white robe, he spoke in a small office separated by a glass partition from brokers monitoring a bank of computers. On the wall were plaques commemorating his gifts to charitable causes.
In 1998, Pakistani investigators looking into government corruption found two checks, each for $5 million, allegedly paid by ARY Gold in 1994 to Asif Ali Zardari, the husband of then-prime minister Benazir Bhutto, to secure a two-year monopoly on gold imports to Pakistan. While acknowledging he held the monopoly and shipped $500 million in gold to Pakistan from 1994 to 1996, Razzak said that he had paid no bribes and that "enemies" had falsified the bank documents.
Razzak was cleared of criminal charges in Dubai but still faces charges in Pakistan from that case, Pakistani authorities said.
"Always if you are doing good business, people are jealous," Razzak said. "Everyone, all the leaders of Pakistan, come to me for advice. We are well known and famous, and people don't like that."
Smuggling for Profit
In addition to using gold to hide assets, there is evidence that al Qaeda smuggled gold into Pakistan and India for profit. Smuggling gold is lucrative because the two countries have a high demand for gold and legal gold imports are taxed.
An al Qaeda manual found by British forces in Afghanistan late last year included not only chapters on how to build explosives and clean weapons, but on how to smuggle gold on small boats or conceal it on the body, British and U.S. officials said.
The officials said that the Taliban and al Qaeda moved large quantities of gold into Afghanistan after the Taliban rose to power in the mid-1990s, in part because most people in the region are more familiar with gold than foreign currencies.
The officials said the Taliban collected taxes in gold from the heads of Pakistani and Indian trucking networks that hauled cargo through Afghanistan.
Donations to al Qaeda and the Taliban from wealthy supporters were often made in gold, the officials said, and taxes on opium production, a source of revenue for both groups, were also paid in gold, according to U.S. and British officials.
Gold bullion was flown directly from Dubai to the Taliban stronghold of Kandahar on Ariana Afghan Airlines, the officials said.
"The Taliban took gold into Afghanistan because there was nothing else they could take there," said Jost, who has studied the use of gold by terrorist groups. "The local money was worthless [and] foreign currency brings suspicion, but if you show up with gold, people know exactly what that is worth."
For al Qaeda to operate, the gold must be easily convertible to cash, and be available around the world. For that, the organization is believed to rely on a hidden financial network across the Middle East, Pakistan and Europe, U.S. and European investigators said.
William F. Wechsler, who monitored bin Laden's finances at the National Security Council during the last two years of the Clinton administration, told Congress in September that bin Laden initially rose to prominence for building "a financial architecture that supported themujaheddin in Afghanistan against the Russians."
"It's this financial architecture that continued with him when he turned to terrorism, and it's this financial architecture that is at the heart of how al Qaeda today gets its finances," he said.
Much of that architecture, according to French, Pakistani and American investigators, is modeled on the Bank of Credit and Commerce International (BCCI). BCCI was founded by Pakistanis and bankrolled largely by leaders of the UAE. In the 1980s it was used to launder drug money, harbor terrorist funds and buy illegal weapons. Its collapse in 1991 was a major global financial scandal.
The CIA used BCCI to funnel millions of dollars to the fighters battling the Soviet occupation of Afghanistan. Bin Laden had accounts in the bank, U.S. officials said. The bank also specialized in dealing in commodities such as diamonds and gold.
The BCCI Model
A 70-page French intelligence report, prepared for Parliament in October and obtained by The Washington Post, outlined some details of this network. "The financial network of bin Laden, as well as his network of investments, is similar to the network put in place in the 1980s by BCCI for its fraudulent operations, often with the same people (former directors and cadres of the bank and its affiliates, arms merchants oil merchants, Saudi investors)," the report said. "The dominant trait of bin Laden's operations is that of a terrorist network backed up by a vast financial structure."
A senior U.S. investigator said U.S. agencies were looking into these ties because "they just make so much sense, and so few people from BCCI ever went to jail. BCCI was the mother and father of terrorist financing operations."
The report identifies dozens of companies and individuals who were involved with BCCI and were found to be dealing with bin Laden after the bank collapsed. Many went on to work in banks and charities identified by the United States and others as supporting al Qaeda.
The French report highlighted the role of Saudi banker Khalid bin Mahfouz, a former director of BCCI, whose sister is married to bin Laden. In 1995 bin Mahfouz paid a $225 million fine in a settlement with U.S. prosecutors for his role in the BCCI scandal and went on to serve as director of the National Commercial Bank, one of Saudi Arabia's largest.
But in April 1999 bin Mahfouz was placed under house arrest in a hospital in Taif when Saudi officials, at the urging of the United States, audited his bank and found that millions of dollars were being funneled through the bank to charities controlled by bin Laden, U.S. officials and the French document said.
While retaining shares in the bank, the report said, bin Mahfouz no longer directs the institution and remains under house arrest. In the past he has denied ties to terrorist activities. U.S. intelligence officials said Washington pushed for the audit of bin Mahfouz's bank but was never allowed to question him.
Saudi officials "weren't willing to let us talk to him," said one U.S. source with direct knowledge of events, "and we asked at a very senior level."
U.S. and European investigators said it is al Qaeda's ability to tap into commodities such as gold, and to move its resources through both the hawala system and banking structures, that makes it so hard to disrupt.
Dubai's links to suspected terrorist financing and money laundering have long been a point of contention between the United States and the United Arab Emirates.
"There is no question the UAE was used by terrorists, the question is why," said a U.S. official. "It is no more lax and unregulated than many places. The answer is, Dubai is so damn convenient."
Three former Clinton administration officials said that two senior U.S. delegations went to the emirates, one in July 1999 and one in January 2000, to press for measures against terrorist financing. "We got exactly nowhere," said a participant in one of the meetings.
A spokesman for the UAE Ministry of Information said the "visits and requests from the U.S. in 1999 and 2000 represented a part of the normal exchange of information . . . aimed at enhancing cooperation and tackling issues of mutual concern."
Since Sept. 11, U.S. officials said, the emirates have been much more cooperative on tracing suspect finances and last month enacted the most stringent money laundering laws in the region.
U.S. investigators acknowledge they have been slow to focus on the trail of gold and the hawala network. While a handful of investigators had been urging that more attention be paid to those areas, they were largely ignored because the concepts are so foreign to the Western way of doing business, current and former officials said.
Wechsler, the former National Security Council official, said that U.S. law enforcement and intelligence know "virtually nothing" about how the hawala system operates and its relationship to gold.
"We don't know where the hawalas are, we don't even have an order of magnitude on how much money they move," Wechsler said. "We don't know how much it costs to be bin Laden. All I can say is, it costs millions and millions of dollars."
Researcher Robert Thomason in Washington and special correspondent Kamran Khan in Karachi contributed to this report.
© 2002 The Washington Post Company
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