Staff Report to the Commission

was optimistic. A Department of State memo from January 2003 referring to al Haramain

and other cases of concern suggested that “there is every indication that the Saudis are

135 A “nonpaper” is generally understood to be an official but not definitive statement on an issue by a U.S.

government agency.

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121

ready to work with us on these specific cases now that we have specific information for

them to act upon.”

The nonpaper set out al Haramain’s ties to terrorism, with details on various individuals,

branch offices, and methods of transferring funds. The nonpaper suggested that many al

Haramain field offices and representatives operating throughout the world, as well as its

headquarters in Saudi Arabia, appeared to be providing important support to al Qaeda.

The nonpaper recited prior U.S. requests for information from the Saudis and specific

points of intelligence the United States had shared with the Saudis since 1998, and it

noted that the United States had shared with the Saudis very little information between

9/11 and its delivery.136 The nonpaper contained substantial information, including details

on the role of the HIF headquarters in supporting terrorist organizations. Reflecting the

new U.S. strategy, the U.S government was more direct and forceful in its message and

gave the Saudi government concrete challenges to meet.

While the nonpaper represented a new and effective tactic, its delivery illustrated a

shortcoming in the U.S. government’s approach to Saudi Arabia on terrorist financing:

Cofer Black and Rand Beers were new faces for the Saudis on this issue, and their

portfolios were much broader than the fight against terrorist financing. The U.S.

government had used a number of messengers, and there was no single person sending

the Saudi government a clear message; each individual spoke about terrorist financing

and HIF in the context of his or her predetermined and wide-ranging agenda; each

individual spoke to different interlocutors with differing responsibilities and chains of

command; and despite the sensitivity of the issue, not all the officials were senior. A U.S.

official on the PCC said that Saudi representatives complained that junior U.S. officials

were, in essence, bothering them. This failure to focus U.S. engagement of the Saudis

was most apparent during our efforts to raise the reopenings of the Bosnian and Somali

offices with Saudi officials. Within a six-week period in the fall of 2002, about five

emissaries from the United States approached the Saudi government. Our efforts suffered

from the diffusion of the message and, in the words of one senior U.S. official, the U.S.

government allowed itself to be “gamed”  by the Saudis because it failed to speak with

one voice.

Moreover, it was acknowledged that the Saudis would be more likely to follow the

leadership of the U.S. government on this subject if a senior White House official served

as the interlocutor on terrorist financing to the Saudi government. In fact, the Saudis

requested such an appointment in the fall of 2002. The U.S. government agreed the idea

was a good one, but could not settle on an appropriate individual for the role until more

than six months later. This failure to appoint a senior White House official in a timely

fashion arguably caused a crucial delay in U.S. efforts to engage the Saudis on terrorist

financing and al Haramain. One U.S. terrorist-financing official said the Saudis did not

take terrorist financing seriously until this appointment was made. They looked at U.S.

actions and concluded that terrorist financing was not as important to the United States as

other issues.

136 At that time, most of the intelligence on HIF released to the Saudis since 9/11 related to the Bosnian and

Somali offices of HIF, in connection with the U.S.-Saudi joint designation of these offices in March 2002.

National Commission on Terrorist Attacks Upon the United States

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From 9/11 to May 2003: A lack of real cooperation from the

Saudis

After 9/11, Saudi government officials appeared to be in denial that vast sums of money

were flowing from Saudi Arabia to al Qaeda and related terrorist groups, or that the

government had any responsibility in connection with these money flows. Some in the

U.S. government thought that it simply never occurred to the Saudi government that a

charity could be a conduit for terrorist financing. As well, some argued that charities’

record keeping and the Saudi government’s controls were insufficient for the Saudi

government to know of al Haramain’s links to terrorist organizations.

Even after the Saudi government froze the assets of the Bosnian office in March 2002,

one senior Saudi government official denied in the press that the al Haramain office in

Sarajevo was engaged in illicit activities. He claimed that the U.S. government had

apologized to HIF for designating the wrong office. Another senior Saudi official

characterized any terrorist financing out of the Kingdom as involving isolated cases and

government controls as sufficient to prevent further problems; a third described HIF’s

clandestine activities as outside activities. We know these descriptions were inaccurate,

as the U.S. and Saudi governments continued to take action against al Haramain and its

employees.

Despite having frozen the accounts of entities and individuals listed by the United

Nations under UNSCR 1373, the Saudis did little else initially. They insisted that their

then 12-year-old charities law would suffice, as would their then 7-year-old anti-moneylaundering

statute. Foreign operations of charities were not regulated until 2002, when

the Ministry of Islamic Affairs was put in charge of overseeing them. In the summer of

2002, the Saudis claimed that all out-of-country charitable activities had to be reported to

the Foreign Ministry, but later in the year a representative of the Foreign Ministry said he

knew of no such regulation. They claimed that they were reviewing all domestic charities

in 2002 but took no actions and did not inform the U.S. government of any findings, even

while clandestine activity continued. They repeated promises throughout 2002 to

establish a High Commission that would oversee all charitable activities, and then

claimed to have created such an entity in December 2002. By late fall of 2002 the Saudi

government said it was moving to regulate charities further, but the U.S. government had

not seen any documentation to that effect as of spring of 2003.

The Saudis responded to the increase in U.S. pressure, exemplified by the delivery of the

al Haramain nonpaper in early 2003, by articulating additional counterterrorism policies.

The measures were to include Ministry of Islamic Affairs preclearance of transfers of

charitable funds overseas, host government approval of all incoming charitable funds

from Saudi Arabia, and monitoring of charities’  bank accounts through audits,

expenditure reports, and site visits. Also in the spring of 2003, the Saudi Arabia

Monetary Authority (SAMA) was said to have instituted a major technical training

program for judges and investigators on terrorist financing and money laundering.

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On al Haramain, the Saudi press reported in February 2003 that the Saudi government

was planning to restructure the charity. The Saudi government had also reportedly

initiated an investigation of al Haramain and was examining the personal accounts of

senior officers. However, the Saudis resisted taking action against a top HIF executive

despite U.S. requests. In April 2003, the Saudi government said that a new Board of

Directors would be appointed for al Haramain, no new offices would be permitted, no

third-country nationals would be hired, all overseas offices were to have their own local

lawyers and accountants, and a licensing procedure would be implemented. Again, there

was a sense that the Saudis wished to take such actions quietly. On May 8, 2003, the U.S.

embassy in Riyadh reported that the Saudi government would close ten al Haramain

branch offices pending review of their finances. This claim was reiterated several times

by Saudi or HIF officials over the summer of 2003.

Although these measures were all steps in the right direction, the Saudi government

generally failed to carry out a number of the actions pledged. For instance, they did not

close the branch offices of HIF as promised. As well, the Saudi government remained

cautious about speaking publicly about counterterrorism issues and ramping up its

reforms. Some in the U.S. government thought that public statements by the Saudi

government could have gone a long way toward deterring Saudi financial support for

terrorists. Admittedly, the Saudis were, and still are, cautious about how any reforms and

close cooperative efforts with the United States are perceived in the Kingdom.

Underlying the Saudi government’s reluctance to act against charities funneling money to

terrorists lay several issues.137 First, at the time the Saudi government did not view al

Qaeda as a domestic threat. The Saudis simply may not have believed that al Qaeda

would attack it, despite the known hatred of al Qaeda and Bin Ladin for the Saudi regime.

The signs were there, however, and even the U.S. government had warned the Saudis of

possible upcoming attacks in the Kingdom.

Second, the Saudi government’s efforts on terrorist financing were domestically

unpalatable. It had been content for many years to delegate all religious activities,

including those of charities, to the religious establishment and was reluctant to challenge

that group. Since the Saudi government did not view al Qaeda as a domestic threat at that

time, it could not justify the potential domestic rancor that would have resulted from a

strong program against terrorism financing. The challenge was to find a way to increase

oversight over charities, mosques, and religious donations without endangering the

country’s stability. Of course, by failing to reassert some measure of control over the

religious establishment, the House of Saud was just as likely to endanger its stability.

137 In addition to the points stated below, some with the U.S. government have speculated that the Saudi

government resisted investigating al Haramain and other charities for fear that such investigations might

unearth information implicating, or at least unflattering to, senior members of the Saudi government in the

clandestine activities of the charity. The Commission staff has found no evidence that the Saudi

government as an institution or as individual senior officials individually funded al Qaeda.

National Commission on Terrorist Attacks Upon the United States

124

Third, the Saudi government did not have the technical capabilities to stem the flow of

funds to terrorists from charities in Saudi Arabia. The Mubahith lacked the necessary

investigative expertise to track financial crimes. In addition, as described in an internal

OFAC document from April 2002, “The SAG [Saudi Arabian government] does not have

the legal or operational structures in place at this time to effectively implement the U.N.

resolutions relating to the prevention and suppression of the financing of terrorist acts.”138

Although the Saudis claimed to be developing procedures to track all donations to and

from charities in October 2002, by January 2004 they were described as just starting to

have such capabilities. Moreover, tighter control over money flows can be achieved only

if the banks in Saudi Arabia are capable of monitoring and freezing funds. In 2002, the

U.S. intelligence community was highly skeptical that Saudi banks had the necessary

technical abilities.

The U.S. government was willing, and made several offers, to provide the Saudis with the

necessary training. In 2002, the Saudis were described as “reluctant to host trainers from

U.S. agencies on issues related to terrorist financing. This reluctance is partly cultural—

an attitude that training implies a lack of equality between the parties.” The U.S.

government sent a Financial Services Assessment Team (FSAT) to Saudi Arabia in April

2002 to learn about Saudi financial systems and structures and ascertain opportunities for

U.S. assistance and training, but the Saudis failed to schedule several key meetings

during this trip.

May 2003: Turning a corner

On May 12, 2003, al Qaeda operatives detonated three explosions in an expatriate

community in Riyadh, killing Westerners and Saudi Arabians. Since then, the Saudi

government has taken a number of significant, concrete steps to stem the flow of funding

from the Kingdom to terrorists. The Saudi government, in one of its more important

actions after the bombings, removed collection boxes in mosques, as well as in shopping

malls, and prohibited cash contributions at mosques. This action was important because

terrorist groups and their supporters have been able to siphon funds from mosque

donations. Its sensitivity cannot be overestimated. U.S. Ambassador to Saudi Arabia

Jordan described the removal of the collection boxes as a “cataclysmic event.” It was a

real action that the Saudi public has both seen and been affected by; it has forced

everyone to think about terrorist financing.

On May 24, 2003, the Saudi government followed up with comprehensive new

restrictions on the financial activities of Saudi charities. These included a requirement

that charitable accounts can be opened only in Saudi riyals; enhanced customer

identification requirements for charitable accounts; a requirement that charities must

consolidate all banking activity into one principal account, with subaccounts permitted

for branches but for deposits only, with all withdrawals and transfers serviced through the

main account; a prohibition on cash disbursements from charitable accounts, with

138 Department of the Treasury, “Note to File,” undated, but probably October 2002.

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payments allowed by check payable to the first beneficiary and deposited into a Saudi

bank; a prohibition on the use of ATM and credit cards by charities; and a prohibition on

transfers from charitable accounts outside of Saudi Arabia.

Also, after the May 12 bombings the Saudis initiated action to capture or otherwise deal

with known al Qaeda operatives, financial facilitators, and financiers in Saudi Arabia.

Early in this campaign, the Saudis killed a key al Qaeda leader and financial facilitator

known as “Swift Sword” in a firefight. The arrests and deaths of financial facilitators

such as Swift Sword have been a blow to al Qaeda and have hampered its fund-raising

efforts in the Kingdom.

The May 12 bombings caused the Saudis to become more receptive to disrupting al

Qaeda financing than ever before; the Saudis appeared ready to take seriously the

cooperative aspect of “quiet cooperation.”  At the same time, the U.S. government finally

developed a coherent approach to working with the Saudis on combating terrorist

financing. The United States had an agenda, the Saudi strategy, and was able to engage

the Saudis more forcefully on the issues than it could have otherwise. Most importantly,

the U.S. government raised the terrorist-financing dialogue to the highest levels. Fran

Fragos Townsend, then deputy assistant to the President and deputy national security

advisor for combating terrorism, was designated the senior White House liaison on

terrorist financing, and President Bush has publicly stated his confidence in her.

The U.S. government was therefore in a position to test the Saudis’ new focus on terrorist

financing. Townsend traveled to Saudi Arabia in early August 2003 and again in

September 2003. One product of the early high-level meetings was the establishment of

the joint task force on terrorist financing, described below.

Despite the positive atmosphere of the August meetings, one area of continuing concern

was that the ten al Haramain branches the Saudi government had committed to closing in

May 2003, before the bombings, were apparently still operating. There was apparently

some question as to whether the al Haramain head office really had control over its

branch offices and therefore whether closing the branch offices was the responsibility of

the Saudi government or the host governments. Some in the U.S. government believe this

discussion to be specious, since resources regularly flow from the head office to the

branches. They argue, plausibly, that even if the Saudi government itself cannot control

the flows of funds, it can pressure the headquarters to cut off these resources to the

branches or pressure the heads of governments of the countries where the branch offices

are located to close those offices.

In the fall of 2003, the Saudi government passed new anti-money-laundering and

terrorist-financing legislation. This law updated the 1995 anti-money-laundering law and

improved reporting and record-keeping requirements, created new interagency

coordination mechanisms, and established a financial intelligence unit to collect and

analyze suspicious financial transactions. Also that fall, the Saudi government permitted

a team of assessors from the Financial Action Task Force (FATF) and the Gulf

Cooperation Council to visit the Kingdom to evaluate its anti-money-laundering and

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126

terrorist-financing laws and regulations. Finally, in September 2003 the Saudi

government questioned the executive director of HIF, Abd al-Rahman Bin Aqil.

The joint task force on terrorist financing started operations in the fall of 2003 as well.

The task force consists of staff from both the United States and Saudi Arabia. The task

force seeks to identify and financially investigate persons and entities suspected of

providing financial support to terrorist groups. The U.S. government offered the Saudis

training in conducting financial investigations, and the Saudis “readily accepted.” This

training focused on the value of tracking financial transactions in an investigation and

provided practical case studies. The Saudi trainees were dedicated and enthusiastic,

although very much in need of training. One FBI official said, “I cannot overemphasize

the importance of this initiative and the efforts on the part of both our countries to make it

work.”139

In November 2003, another bombing in Riyadh further jolted the Saudi government to

take action on terrorist-financing issues and cooperate with the U.S. government. One

U.S. government assessment described the impact of the 2003 Riyadh bombings on the

Saudis, in conjunction with the May 12 bombings, as “galvanizing Riyadh into launching

a sustained crackdown against al-Qaida’s presence in the Kingdom and spurring an

unprecedented level of cooperation with the United States.” Similarly, it noted that “the

attack of 9 November [2003], which resulted in the deaths of a number of Muslims and

Arabs during the holy month of Ramadan, transformed Saudi public acceptance of the

widespread nature of the threat in the Kingdom.”140 As a result, the Saudi government

may have more latitude to act against terrorist financing than ever before.

Similarly, FBI officials have ranked Saudi cooperation on terrorist-financing issues as

“good” since the May 12 and November 8, 2003, Riyadh bombings. The Saudis have

aggressively interrogated people in their custody about financial matters, including

questions posed by the U.S. government, and have provided actionable intelligence to the

U.S. government. A senior CIA counterterrorism official agreed that there had been

progress in our cooperation with the Saudis. He described it as “not perfect” but a big

improvement from the difficult days before 9/11. In a sign of the level of U.S. confidence

in the Saudi effort, the U.S. government is now releasing very sensitive intelligence to the

Saudis.

By late fall of 2003, Saudis confirmed that since 9/11 they had taken several significant

steps to modify their rules and regulations to stem the flow of funds to terrorists. In

addition to the new charities regulations, the removal of zakat boxes, and the task force,

as described above, the Saudi government said it had established the High Commission to

oversee all charities, contributions, and donations; required all charities to undergo audits

and institute control mechanisms to monitor how and where funds are dispersed; directed

all Saudi charities to suspend activities outside Saudi Arabia; and investigated numerous

139 Testimony of Thomas J. Harrington, Deputy Assistant Director, Counterterrorism Division, Federal

Bureau of Investigation, before the House International Relations Subcommittee on the Middle East and

Central Asia, March 24, 2004.

140 Department of State, Patterns of Global Terrorism 2003, April 2004, p. 67.

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banks accounts suspected of having links to terrorism and frozen more than 40 such

accounts. The Saudi government has apparently also regulated hawalas through a

mandatory licensing requirement and legal, economic, and supervisory measures and

sought to decrease demand for unlicensed hawalas.

With respect to al Haramain, the Saudi and U.S. governments took further action at the

end of 2003 and into 2004. On December 22, 2003, the U.S. and Saudi governments

designated Vazir, an NGO in Bosnia, and its representative a terrorist supporter. It was

determined that Vazir was simply another name for the previously designated al

Haramain office in Bosnia. Then, in January 2004 the United States and Saudi Arabia

jointly designated four additional branches of al Haramain, in Indonesia, Kenya,

Tanzania, and Pakistan. The two governments held an unprecedented joint press

conference in Washington to announce the designation. The names of these branches

were subsequently submitted to the United Nations, which instituted an international

freeze on their assets. Also, in January 2004 Executive Director Aqil was removed from

his position. One public explanation was that the firing related to recent incidents

involving HIF’s operations in Bosnia.

On February 19, 2004, federal law enforcement took action against both the al Haramain

branch in Ashland, Oregon, and the imam of the HIF mosque in Springfield, Missouri.

The FBI and the IRS conducted searches of the Ashland offices of HIF as part of an

investigation into alleged money laundering and income tax and currency reporting

violations. Treasury took the additional step of freezing, during the pendency of an

investigation, the accounts of the branch in Oregon and the mosque in Missouri.

The Saudis continue to make changes to their charities laws and regulations. Rules

implementing the anti-money-laundering and terrorist-financing law were issued in