Staff Report to the Commission

88According to OFAC, in practice, an interagency group discusses and agrees to any designation.

89 Shenon, “A Nation Challenged: The Money Trail”, New York Times, Dec. 18, 2001.

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The original plan did not call for searches or takedowns of the GRF and BIF offices in

Illinois. Rather, the FBI was to use its FISA warrants to monitor the charities’ reaction to

the overseas searches. This plan went awry when word of the impending action

apparently leaked to GRF. FBI personnel learned that some of the targets of the

investigations may be destroying documents.90 As a result, the FBI decided to do an

unprecedented “overt” FISA search of both GRF and BIF offices, which was hastily

assembled and conducted. Following a chaotic process, the government agents searched

both BIF and GRF offices in Illinois on December 14, 2001, carting away substantial

evidence. The agents also searched the residence of GRF executive director and Arnaout.

On December 14, 2001, the INS detained GRF fund-raiser Rabih Haddad, one of the

subjects of the Detroit investigation, on the basis that he was out of his allowed

immigration status, having overstayed a student visa issued in 1998. Following bond

hearings that were closed to the press, public, and Haddad’s family, an immigration judge

denied bail and ordered Haddad detained.91

While officials and investigators around the world moved to eliminate the perceived

WMD threat and shut down the operations of BIF and GRF, investigators working on the

9/11 attacks sought to understand a curious connection between hijackers Nawaf al

Hazmi and Khalid al Mihdhar and a GRF fund-raiser. On 9/11, the FBI learned that two

days before, hijackers Hazmi and Mihdhar had dropped off bags at an Islamic prayer

center in Maryland. The bags, to which the hijackers had affixed a note stating “[a] gift

for the brothers,” contained fruit, clothing, flight logs, and various other materials. The

FBI launched an investigation to determine if the imam of the prayer center played any

roles in the attacks. The investigators quickly determined in addition to his other

responsibilities, the imam worked part-time raising money for GRF, at the direction of its

executive director in Illinois. The FBI investigated his involvement with 9/11 for one and

a half years. It ultimately concluded that he had no role in supporting the 9/11 attacks,

although the investigating agents considered him to be a supporter of and fund-raiser for

the international jihadist movement.

BIF and GRF challenge the government’s actions

The charities aggressively denied any connection to terrorism and condemned the raids

and assets freeze. GRF’s lawyer immediately called the government’s action “a terrible,

terrible, terrible tragic mistake,” and stated, “If they’re investigating terrorism, they’re

not going to find anything here.” Another GRF spokesman said the government seized

90 Press leaks plagued almost every OFAC blocking action that took place in the United States. The process

had extremely poor operational security. In a number of instances, agents arrived at locations to execute

blocking orders and seize businesses only to find television news camera crews waiting for them.

91See Detroit Free Press v. Ashcroft et al, 303 F.3d 681 (6th Cir. 2002) (setting out background). The

hearing was closed pursuant to a September 21 directive from the chief immigration judge that immigration

judges close immigration proceedings in certain “special interest” cases defined by the chief judge.

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resources that GRF used to “prevent the slow starvation and gruesome death in parts of

the Muslim world that rely on such badly needed aid.”92

On January 28, 2002, GRF sued the Secretaries of Treasury and State, the Attorney

General, and the Directors of OFAC and the FBI in federal court in Chicago. GRF

requested that the government “unfreeze”  its assets and return the items it seized during

the December 14 searches. Two weeks later, GRF filed a motion for a preliminary

injunction, contending that the government’s blocking of its assets and records violated

the law and Constitution.93 BIF filed a similar suit on January 30, 2002, and a similar

motion on March 26, 2002. BIF’s complaint proclaimed its activities “entirely lawful,”

and contended that since its founding in 1992 it “has provided tens of millions of dollars

worth of humanitarian aid in a dozen countries around the world, as well in the United

States.”94

Upon filing the complaint, BIF’s lawyer said, “The government’s actions threaten to

destroy our essential constitutional liberties. If we no longer live in a society where we

are secure from unreasonable searches and from the taking of liberty and property

without any form of due process, then the terrorists will have succeeded in an even

greater degree of destruction than the devastation of Sept. 11.”95 Despite the blocking of

its assets, BIF and GRF could retain counsel because OFAC granted them “licenses” to

do so. A license is written authorization from OFAC to spend money in ways otherwise

prohibited by the blocking order, such as the release of blocked funds to pay for legal

services.

BIF also sought a license to dispense the bulk of the funds blocked by the government,

which totaled $700,000–800,000, to fund its overseas charitable causes, including a

tuberculosis hospital for children in Tajikistan and the Charity Women’s Hospital in

Makhachkala, Daghestan. BIF supported its request with evidence of its charitable work,

including affidavits from nurses in the hospital attesting to the importance of BIF’s

donations. According to BIF’s counsel, the organization wanted to give away $500,000

of the blocked funds rather than let legal bills consume the money, and it even offered to

have FBI agents accompany the funds overseas to their charitable destination. OFAC did

not grant the license due to concerns that even funds sent to seemingly legitimate

charities can be at least partially diverted to terrorist activities and OFAC’s extremely

limited ability to monitor the use of funds overseas. OFAC did license BIF and GRF to

sustain some operations—retaining some employees and paying utilities, taxes and U.S.

creditors—but most of the employees had to be let go, and the charities could neither

raise new funds nor distribute existing funds overseas.96

92 Deanna Bellandi, “Two Chicago-area Muslim Charity Groups Raided by Federal Agents; Assets

Frozen,” Associated Press, Dec. 15, 2001.

93 See, Global Relief Foundation, Inc. v. O’Neill et al., 207 F. Supp. 2d 779 at 787 (N.D. Ill. 2002),

affirmed 315 F.3d 748 (7th Cir. 2002) (quoting complaint).

94 Benevolence International Foundation Inc. v. Ashcroft, (N.D. Ill.), Complaint.

95 Laurie Cohen, “2nd Muslim Charity Sues U.S. Officials on Terrorism,” Chicago Tribune, Jan. 31, 2002,

p. 1.

96 Ultimately, the charities’ legal bills consumed most of the frozen money, which angered donors who had

intended their donations be used for humanitarian relief. See, e.g., Gregory Vistica, “Frozen Assets Going

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Supporters of GRF fund-raiser Rabih Haddad, who was detained on immigration

violations, rallied to his defense. Pointing out that Haddad had condemned the 9/11

attacks and contending he was a moderate and respected religious leader in the Detroit

community, they considered his detention in solitary confinement on what appeared to be

a minor visa violation as a prime example of discrimination against Muslims and an

overzealous government response to 9/11, in violation of basic civil rights. For example,

a sympathetic story in a London paper quoted U.S. Representative John Conyers: “The

treatment of Rabih Haddad by the Immigration and Naturalization Service over the past

several weeks has highlighted everything that is abusive and unconstitutional about our

government’s scapegoating of immigrants in the wake of the September 11 terrorist

attack.”97

Efforts to develop criminal cases against BIF and GRF

After the preliminary designations and searches of December 14, 2001, the FBI and U.S.

Attorney’s Office in Chicago focused their attention on developing a criminal case. To do

so, they initially faced major logistical challenges. The Illinois searches yielded an

enormous amount of information, including hundreds of tapes and videos that had to be

translated and reviewed, and many computer hard drives. According to the legal

requirements imposed by FISA, all of this information had to be reviewed for

“minimization.” Since the evidence was seized under intelligence authorities, the Justice

Department could use only that evidence relevant to an intelligence investigation or a

crime such as terrorism. The logistical difficulties were compounded by the charities’

civil litigation, the blocking order and OFAC’s continued need for access to the materials

so that it could build a case for permanent designations. The latter issue caused

considerable frustration and confusion, as there were no rules about exactly what

information in the FBI files OFAC could lawfully see. In addition, the lead case agents,

who had been intelligence agents, lacked any significant federal criminal investigative

experience, let alone experience in preparing a complex, document-intensive financial

investigation for prosecution.

The criminal investigation of BIF received a huge boost in March 2002. The Chicago

agents, who had been working with Bosnian officials on the case, provided the Bosnians

with enough evidence to gain legal authority to conduct a criminal search of BIF’s offices

there. An FBI agent accompanied the Bosnians on the search to ensure a proper chain of

custody necessary for the admission of anything found into a U.S. criminal proceeding.

This search yielded compelling evidence of links between BIF’s leaders, including

Arnaout, and Usama Bin Ladin and other al Qaeda leaders, going back to the 1980s. The

material seized included many documents never before seen by U.S. officials, such as the

actual minutes of al Qaeda meetings, the al Qaeda oath, al Qaeda organizational charts,

to Legal Bills,” Washington Post, Nov. 1, 2003, p. A6. According to OFAC, when BIF exhausted the pool

of blocked BIF funds, OFAC also issued licenses authorizing BIF to establish and maintain a legal defense

fund in which to accept donations to offset its legal expenses.

97 Andrew Gumbel, “The Disappeared,” The Independent, Feb. 26, 2002.

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and the “Golden Chain” list of wealthy donors to the Afghan mujahideen, as well as

letters between Arnaout and Bin Ladin, dating to the late 1980s. It was an enormous

break.

The Bosnian documents helped kick BIF investigation into high gear. Meanwhile, the

GRF investigation temporarily took a back seat. On April 30, 2002, Arnaout and BIF

were charged with two counts of perjury; the charge was based on a declaration that

Arnaout had filed in the civil case against OFAC, in which he asserted that BIF never

supported persons engaged in violence or military operations. Arnaout was taken into

custody and denied bail. In September, the court dismissed the charges because

established Supreme Court precedent held that the particular criminal statute under which

he was charged did not apply to the out-of-court statements in Arnaout’s declaration.98

The government filed a criminal obstruction of justice case against Arnaout that same

day, on the basis of the same false declaration. BIF was not charged again.

The government came back with a more substantive indictment of Arnaout in October

2002, directly alleging that BIF supported al Qaeda.99 The indictment alleged that

Arnaout operated BIF as a criminal enterprise that for decades used charitable

contributions to support al Qaeda, the Chechen mujahideen, and armed violence in

Bosnia. The government modified the allegations against Arnaout in a superseding and

then a second superseding indictment, the latter of which was filed on January 22, 2003.

It charged Arnaout with one count each of racketeering conspiracy under RICO (the

Racketeer Influenced and Corrupt Organization Act), conspiracy to provide material

support to terrorists, providing material support to terrorists, conspiracy to launder

money, and wire fraud and two counts of mail fraud.

Attorney General John Ashcroft personally came to Chicago to announce the filing of the

October indictment in a high-profile press conference. His public statements emphasized

BIF’s alleged support for al Qaeda and recounted much of the historic evidence linking

Arnaout to Bin Ladin, including a recitation of the most significant al Qaeda documents

seized at the BIF’s office in Bosnia. Condemning BIF and Arnaout, the Attorney General

declared, “There is no moral distinction between those who carry out terrorist attacks and

those who knowingly finance those attacks.”100 BIF’s lawyer believed that the Attorney

General’s inflammatory comments about al Qaeda and Bin Ladin compromised

Arnaout’s right to a fair trial before an impartial jury and characterized the press

conference as “astounding” and “egregious.”  The trial judge also took notice, later

referring to the extensive publicity the case received “in the wake of the Attorney

General’s remarkable press conference announcing this indictment.”101

98 United States v. Benevolence International, 02 CR 414, 2002 U.S. Dist. Lexis 17223 (Sept. 13, 2002)

(court opinion and order).

99 United States v. Arnaout, Second Superseding Indictment at ¶ 3 (same language in initial indictment).

100 Attorney General Remarks, Chicago, October 9, 2004

(www.usdog.gov/ag/speeches/2002/100902agremarksbifindictment.html, accessed Apr; 1, 2004).

101 United States v. Arnaout, 02 CR 892 (Jan. 28, 2003) (unpublished court order).

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The indictment itself contained almost no specific allegations that BIF funded al

Qaeda.102 Instead, the charges focused primarily on BIF’s diversion of charitable

donations to fund Chechen and Bosnian fighters. At the same time, the indictment

highlighted Arnaout’s historical relationship with Bin Ladin and BIF’s links to certain al

Qaeda leaders, including BIF’s origins with LBI, the Saudi entity Batterjee created in

1987 in large part to support mujahideen then fighting the Soviets in Afghanistan, and the

handoff of nominal control of BIF from Batterjee to Arnaout. The indictment described

Arnaout’s history of supporting armed jihad, including Arnaout’s having worked in the

1980s for the Mektab al Khidmat103 and LBI to support various mujahideen—among

them, those under the command of Usama Bin Ladin.104

The indictment charged Arnaout with racketeering conspiracy under RICO, alleging that

Arnaout, Batterjee, and others operated BIF as a criminal enterprise and used the cover of

a legitimate Islamic charity to support armed jihadist combatants. The government

contended that BIF fraudulently solicited and obtained donations by falsely representing

that the funds would be used solely for humanitarian purposes, while concealing that

some of the donated funds were used to support armed fighters engaged in violence

overseas. Through these illicit diversions, the indictment alleged, BIF provided a variety

of military supplies, including boots, uniforms, and communications equipment, as well

as an X-ray machine to fighters in Bosnia-Herzegovina and Chechnya. The indictment

alleged that the conspirators engaged in various acts to conceal their support of armed

militants and BIF’s relationship to al Qaeda and other extremists.

The indictment also alleged that Arnaout and others provided material support to

“persons, groups and organizations engaged in violent activities—including al

Qaeda[.]”105 The charge contains no specific claims about providing funds to al Qaeda,

although it alleges that in 1998 Arnaout facilitated the travel of a key al Qaeda member

into Bosnia-Herzegovina and that a leading al Qaeda member served as a BIF official in

Chechnya.106 An additional count in the indictment charged Arnaout with providing

material support to persons engaged in violent activity by supplying 2,900 pairs of steelreinforced

anti-mine boots to Chechen fighters. The remaining counts charged Arnaout

with money laundering and fraud in connection with BIF’s activities.

The government indictment drew heavily on the documents seized from the BIF office in

Bosnia that directly linked BIF and Arnaout to the formative period of al Qaeda. These

links included (1) notes summarizing meetings during which al Qaeda was founded in

Afghanistan in August 1988, and which specify the attendance of Usama Bin Ladin at the

102 The government did not charge BIF with providing material support to a designated foreign terrorist

organization (FTO) in violation of 18 USC 2339, which would seem like a logical charge had the

government been able to prove that the BIF funded al Qaeda after it was designated an FTO in 1999.

103As discussed above, the Mekhtab al Khidemat was an organization primarily operated by Sheik Abdullah

Azzam and Usama Bin Ladin to provide logistical support to the mujahideen in Afghanistan.

104 Of course, Arnaout’s defenders point out that supporting bin Ladin in the 1980s when he was fighting in

a cause supported by the United States is hardly evidence of supporting terrorism.

105 Second Superseding Indictment, count 2.

106 See discussion later in this chapter regarding OFAC designation of the BIF for more detail on the key al

Qaeda operative whose travel the BIF allegedly facilitated.

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original oath of allegiance (bayat) that prospective members made to al Qaeda; (2) a list

of wealthy mujahideen sponsors from Saudi Arabia, including references to Bin Ladin

and Batterjee; (3) various documents showing Arnaout’s substantial role in procuring

weapons for the mujahideen in the 1980s or early 1990s; and (4) a 1988 newspaper

article showing a picture of Arnaout and Bin Ladin.107

Arnaout initially pled not guilty to all charges and mounted a vigorous legal defense.

OFAC refused to license BIF to use its blocked assets to pay for Arnaout’s criminal

defense on the grounds that BIF’s funds could not be used by Arnaout in his individual

capacity. Although Arnaout personally was not designated and could use whatever funds

he had to defend himself, the OFAC refusal impaired Arnaout’s ability to pay his counsel

and caused considerable bitterness among his supporters.

OFAC Designations

Following its blocking of BIF’s and GRF’s assets pending investigation, OFAC

continued to try to develop the evidentiary case it believed necessary to make permanent

designations. Meanwhile, the charities’ finances were effectively frozen, with the

exception of the licenses discussed above. At least one senior Treasury official was

concerned about the potential length of a temporary blocking order. On April 12, 2002,

roughly four months after the blocking order was issued, the Treasury General Counsel

wrote to other senior Treasury officials that “common fairness and principles of equity

counsel that we impose a reasonable end date on the duration of such orders.”108 On

October 18, 2002, OFAC designated GRF a specially designated global terrorist (SDGT)

pursuant to Executive Order 13224, thereby freezing its assets and blocking transactions

with it. As a result, four days later, the United Nations listed GRF as an organization

belonging to or associated with al Qaeda. BIF met the same fate, as a result of OFAC

action on November 19 and UN action on November 21.

The OFAC designations of BIF and GRF relied on the material gathered by the FBI

during its pre-9/11 investigations and, in the case of the former, on the materials obtained

in the March 2002 search of BIF’s Bosnian offices. In its official Statement of the Case

that provides support for the designation, OFAC traced BIF’s founding by Batterjee and

“the close relationship between Arnaout and Usama bin Ladin, dating from the mid-

107The government later put together this evidence and much more in an evidentiary proffer it submitted to

the court in advance of trial.

108 Treasury Memorandum, April 12, 2002. The memo proposed a six-month limit for discussion purposes,

and offered a “clear recommendation” that temporary blocking orders be pursued with “due diligence and

an anticipated end date.” In May and June 2002, OFAC provided GRF and BIF, respectively, with notice of

its intent to designate them and provided them with time to respond. The lengthy duration of the temporary

designations resulted in part from extensions of time requested by BIF and GRF. These requests were

necessary, at least in part, because OFAC continually added additional documents to the administrative

record, and BIF and GRF wanted time to review and respond to them before any permanent designation

was issued. In addition, BIF and GRF were only slowly getting access to their own records, which the

government had seized, and they wanted additional time to use these records in their defense.

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1980s and continuing at least until the early 1990s.”109 OFAC drew links between BIF

and Bin Ladin by noting (1) in 1998, BIF provided direct logistical support for an al

Qaeda member and Bin Ladin lieutenant, Mamdouh Mahmud Salim, to travel to Bosnia-

Herzegovina;110 (2) telephone records linked BIF to Mohammed Loay Bayazid, who had

been implicated in al Qaeda’s effort to obtain enriched uranium; (3) in the early 1990s,

BIF produced videotapes that eulogized dead fighters, including two al Qaeda members;

and (4) in the late 1990s, a member of al Qaeda’s Shura Council served as an officer in

BIF’s Chechnya office. OFAC cited a number of ways in which BIF’s activities differed

from its ostensible purpose (e.g., it altered its books to make support for an injured

Bosnian fighter appear as aid to an orphan), the purchase of equipment for Chechen

fighters, and the newspaper article the FBI agents had found in the trash, in which

someone had highlighted the weaknesses in the U.S. defenses against bioterrorism.

As for GRF, OFAC’s internal documents supporting the designation spelled out its ties to

al Qaeda leaders, including (1) evidence that GRF provided $20,000 to a suspected al

Qaeda fund-raiser in November 2001; (2) the phone contacts between GRF’s executive

director and the mujahideen leader associated with al Qaeda leadership; (3) the phone

contacts linking GRF to Wadi al Hage, UBL’s personal secretary, who was convicted in

the United States for his role in the 1998 embassy bombings; and (4) funds that GRF