Did you run across in your experience the use of charities to support terrorist groups? And why charities?

Absolutely. Charitable networks [are] one of the primary ways in which Al Qaeda raises money throughout the Muslim world and the Arab world in particular. There are a lot of advantages for Al Qaeda in using charities in this manner. One is just simply the pattern. Charitable organizations played a great role in supporting the financial network that supported the war against the Soviets in Afghanistan. And that was the network, of course, that Osama bin Laden originally helped create. That's the network that he built over time; that's the network that followed him in his life. And that's the network that provides the foundation, to this very day, for Al Qaeda's financial network.

A former CIA official tells us that in fact, that's what he was really good at -- that bin Laden was good at fundraising. He's very good at fundraising. He's a very unusual terrorist leader, as most terrorist leaders become famous for running a local terrorist cell, for great acts of valor in war.

... Osama bin Laden became famous for his ability to raise and move money. That's a fundamental difference from what we're used to. And we have to make sure that we constantly remember that fundamental fact when we're thinking about what Al Qaeda is.

How would he raise money?

He did it through his Rolodex that he had as the scion of a great family. He did it also through the much larger more retail charitable networks that exist in Islam. Pious [people] believe that as one of the fundamental pillars of their religion, they need to give money to the poor, to the weak -- they need to give money to charities. It is something that is intrinsically related to their religious nature.

It is therefore also something that the state has not really had a great role in regulating and overseeing. It's a method by which money is raised in cash. Not through credit cards, not through checks. When we raise money in the United States, when all the celebrities go on TV and do a big show, people are calling up and they're giving their credit card numbers.

That's not how it works in many other places in the world. It's certainly not how it works in much of the Arab world. In that part of the world, money is raised in the old-fashioned way, with cash in a plate, usually somehow connected to the mosque.

And this is not really unique to the Islamic world -- giving money to charities, and charities in turn getting involved in politics or being used for political purposes or even terrorist purposes. [It] happens in Europe, happened with the IRA, right?

Absolutely. It's a very standard way that terrorist groups have been raising money for many, many years. It's a way that Hamas and Hezbollah have raised money. It's the way that the IRA has raised money for decades in Boston and New York from Irish populations.

There are a number of advantages. Not only is it a great source for money, not only does the money come in cash, not only is it an easy way to solicit people who might be predisposed to agree with your cause, but these charitable networks have offices throughout the world, and move money quite often. And by doing charitable works as well as terrorist works, you help win the hearts and minds of the people that you're trying to help in your cause.

... There was a day when many of these efforts were not secret. When Osama bin Laden and people like him were fighting the Russians in Afghanistan, the fact that they were raising money, the fact that the money was being raised through charitable networks, through direct solicitations, was no secret. This was something that was done quite openly. It was done with the support of the governments in question. It was done with the support of the United States government as well.

We wanted money and materiel and people to fight the Soviets in Afghanistan. But it is that network which provides the foundation for what Al Qaeda is today. It's changed, it's evolved. But that's where it started.

Today, some of these charitable organizations -- and I believe I noticed in a White House press release related to some of this -- there was an implication that they're connected to powerful people, to wealthy people in some of these countries, and therefore, there may be some embarrassment.

Well, undoubtedly so. We have to remember that, just because a terrorist organization uses a charitable organization, doesn't mean that everybody who gives money or who is associated with that charity is therefore guilty, by definition, of supporting terrorism. [But] sometimes the charitable groups in question are simply fronts for terrorists. The people who run the charitable groups and the people who are giving money to the charitable groups know exactly what they're giving money to.

The Nairobi bombers had a charity, almost a paper charity, that seemed to be a front.

There are many examples like that. On the other end of the spectrum, there are charitable organizations that give money for widows, for orphans, that do a lot of really good social work out there in the world. The people who are running them think that that's all they do. The people who are giving money to them think that that's all they're doing.

But yet, there might be someone from Al Qaeda who is in that organization, who is siphoning money off illegally, and frankly stealing from the charity -- using the charity as cover to move around the world. And then, in between, there are organizations, there are charities, that do both -- that abet terrorist groups and provide legitimate charitable services. And especially in that middle area, that's where you might get into some of the problems that you're discussing now, of wealthy, powerful people being involved and not quite knowing what kind of entities they're involved with. ...

They don't necessarily know. But one of the real strategic changes that we all -- the United States and Saudi and Egypt and Pakistan and all the countries of the world that have to march together to fight the war on terrorism -- one of the real strategic chances that we need to make is to make it so that that is not the case.

... [They] have not built up the legal and regulatory mechanisms that we have in the United States on how charities operate. The charities aren't audited regularly. They don't have the supervisory and regulatory superstructure about them. They don't have to report where their money goes and where, how it comes from and what it's used for. [They don't have] the whole tax deduction system that we have in the United States. These things simply don't exist in many other parts of the world.

And that's the real problem, because it makes it very opaque for anybody on the outside, and quite frankly, even some people on the inside, to know exactly what's going on. That's a structural weakness in many of these countries that makes it difficult to get our hands around how the terrorists raise money and how they move money.

Well, frankly, this individual and others that we've interviewed sort of laugh when we bring up this whole subject of trying to trace the money and deal with the money, because in that part of the world, people use cash, people use jewels. People aren't using credit cards. Is it true that it's not vulnerable to the kinds of investigations that we would be used to, let's say, in an organized crime case?

It is vulnerable to those investigations. It does make it harder. We have these same problems in the United States. The same characteristics that you just described could apply to the United States some decades ago. Over time, we, in the United States, and people in Europe and people in Japan and other countries built up a regulatory environment, an anti-money laundering regime, which included bank supervision, included charitable supervisions. It included a whole bunch of provisions which made it more difficult to launder criminal money. It didn't stop the problem. There's still crime in the United States, there's still money that's laundered in the United States. But it did make it more difficult to do. It did deter it from happening, and it makes it easier after the fact for us to investigate these questions.

This road has just now been started down by Saudi Arabia, by the United Arab Emirates, by Egypt. And it's going to be a while before they get up to where they need to be. ... They don't have mandatory customer identifications for banks. Banks are not effectively regulated and supervised. They don't have suspicious activity reporting. Money laundering isn't a crime to the degree that it needs to be. They don't cooperate with international law enforcement. Those five things are at the basis of international anti-money laundering standards. And many countries in the world do not meet those standards in all five. ... There's a long way that we have to go in order to bring the rest of the world up to strong international anti-money laundering standards. And there's a way that these countries need to go in particular to make sure that they're on the right side in the war against terrorism. It's something that they've started recently; it's something that we have to continually push them to do. But they need to do it if we are to eventually succeed.

In 1998, in the wake of the Nairobi bombings, the Treasury Department sent some delegations to Saudi Arabia and the Persian Gulf. What did they learn about bin Laden? What was the result of those visits?

The key thing to understand is, in 1998, the strategy changed. Prior to that, to the degree that the U.S. government was looking into the Al Qaeda financial network, the goal of most of that effort was a law enforcement goal, to help build law enforcement cases.

After 1998, President Clinton signed an executive order under the International Emergency Economic Powers Act, imposing sanctions on bin Laden. He later did the same thing against the Taliban. President Bush just used the same act, imposed similar sanctions. That blocked accounts. But much more importantly, it allowed the United States to threaten to impose the exact same sanctions against anybody else out there in the world -- any person, any corporation, any financial institution, any charity, anybody who we would later determine acted on behalf of Al Qaeda or bin Laden or the Taliban or materially supported them. ...

We could impose the exact same sanctions on them. We could make it illegal for them to have any business, whether with any American anywhere in the world, and have all their assets that had to be in U.S. banks anywhere in the world to be immediately blocked.

This is powerful leverage. And what you can do with this leverage is you can go around the world, and sometimes you want to use it. But other times, you actually just want to hold the threat of it, and you want to see what you can get for not using it; what kind of information the United States can get, what kind of actions the United States can see, that might not have happened otherwise. That became the strategy that was used post-1998, and that's the strategy that they're still using today.

So basically it's holding a sword over people's heads if they were to be so foolish as to do business with Al Qaeda or with Mr. bin Laden?

Absolutely.

Is Mr. bin Laden really a $300 million sort of venture capital operation that's financing terrorism?

We should not make the mistake of confusing his personal wealth with the amount of money that Al Qaeda has today. Undoubtedly, Osama bin Laden's personal wealth and his inheritance has been very valuable to him over the years. But it's a wrong picture to think of Al Qaeda as one person's checkbook, that he is just personally giving money to terrorist groups around the world.

But we used to think that.

We did used to think that.

When did that change, and why?

Once we really started looking into this, particularly after 1998, when we looked at what was going on, what we saw was a much more complex picture -- a complex picture of money continuously being raised and continuously being moved. When money was spent, there was more money coming. This wasn't the picture of one person's bank account somewhere. This was a picture of an organization that had legal businesses, that had criminal enterprises, that had direct solicitations. It had charitable fundraising all throughout the world.

This was the picture of an organization that moved money through simple cash movements; through the Western global financial system, as we call it; through the Islamic banking system, which is a parallel banking system that exists throughout the Middle East; and through underground banking systems like the hawala banking system that also exists around the world, including in the United States. It's a much more complicated picture, and one that makes it harder to really take down.

What do you mean, "hawala?"

Hawala is a banking system that's been around for centuries. It was originally developed to help Arab traders move their money back and forth from South Asia. It is dominated by South Asian persons.

By South Asian, you mean Pakistanis? Indians?

Indian, Pakistanis, most of whom have been in this business for generations. Hawala is a system of money transfer without money movement. What that basically means is, if you were to go to a hawaladar [dealer] in New York City -- of which there are many, virtually unregulated, usually in the back of a shop somewhere - and you were to say, "I want to send money back to my mother in some rural part of Pakistan..." Yes, you could go to, say, Citibank. But in that case, it might take a long time. There might not be a Citibank branch where your mother lives. There might be capital controls. There might be all sorts of reasons why...

The government may have regulations.

Exactly. So you go to the hawaladar. You give them money in cash. He takes a little fee for doing this. And he simply picks up the phone or sends an email or sends a fax to another hawaladar in the town in which your mother lives in Pakistan. That hawaladar then takes money out of his store of cash and gives it to your mother. Very simple, no connection to the global financial system, no standard electronic trail for law enforcement to trace. Very little written records at all in the whole system.

And they reconcile things later?

They reconcile things later. Hawala is derived from, as I'm told, an Arab word meaning "change," and a Hindi word meaning "trust." And trust is the essence of the system. You can't just show up one day and say, "I'm a hawaladar, now I want to be part of the system." You're a hawaladar because your father was and your grandfather before that.

Any hawaladar working with another hawaladar knows that the other person is good for the money. You don't have to clear the books every day. You know that eventually there's going to be money going in the other direction. There might even be money going in the direction that very same day. The Pakistani authorities have estimated, for instance, that three times as much money comes into the country through the hawala system than comes through the regular banking system. It's a massive amount of money. ...

[What is the Islamic banking system?]

The Islamic banking system operates in countries predominantly where there isn't a very strong bank regulatory mechanism. Banks are not examined regularly and they also operate in the system. One might also expect that there might be a significant percentage of people who operate in the Islamic banking system by virtue of their strong adherence to their faith. They might be more sympathetic to Al Qaeda or people who support causes like Al Qaeda.

I guess what you're saying is that there are charities, there is the Islamic banking system, there's the cultural hawala system that's traditionally been there. There's a multifarious means for them to move money around.

Absolutely.

And what's the reality of us really being able to track it?

If you're hoping to wake up tomorrow and read in the newspaper that we've frozen all of Al Qaeda's money and it is no more, it's not going to happen. That's not the way this works. But over the long term, over many years, going after the money, attacking a financial network, is an indispensable part of taking down the entire organization. You have to do it. And over time, it can be one of the most effective ways to do it.

But it does take time. It takes long concerted efforts. It was started really in 1998, and it's going to be many years before this is done. It's going on much stronger now in the wake of what happened on Sept. 11. But it's going to take time. Consider our own experience in the United States dealing with organized crime. We've been going after the financial network, the supports for organized crime in the United States ever since we got Al Capone for tax evasion. That was a long time ago. And you know what? Organized crime still exists in the United States.

And there's still a financial network which supports organized crime. Now, that said... Organized crime is a mere shadow of what it was 20, 30 years ago. That's a measure of success. That's a measure of real success. And it's that kind of success and that kind of time frame that we're going to have to look to when we think of the terrorist financial network. ...

Over the long run, we can, by going after the money, you can help take down the organization. But it is the long run. In the short run, what you can do is disrupt the organization. And that's important. That's valuable. That's a degree of success. It's not a permanent success. But a success, nonetheless, because if you find a key node in the financial network, a key mechanism by which money is raised or moved, and you can disrupt that for a time, then that means that Al Qaeda takes time and money and resources and people and effort to rebuild what we've destroyed.

And while they're taking that time and money and effort, they're not using that same effort to blow something up. If we can stay ahead of them, if we can take down networks as they build them up, if we can take down cells as they build them up, if we can disrupt them in country after country around the world, that makes it all the more difficult for them to operate. Over time, it can seriously degrade their overall effectiveness. ...

Did it surprise you that 15 of the 19 hijackers are from Saudi Arabia?

Absolutely not.

Why not? They're our ally. It's a prosperous country.

Absolutely. But just as Timothy McVeigh doesn't represent all of Americans, these people don't represent all of the Saudis. And we should also remember that Osama bin Laden's main argument is not with the United States, but with the House of Saud itself. What drove him originally to become a terrorist was what he perceived as corruption in the Saudi regime, what he perceived as its distance from the truly Islamic way of behaving: its decision to allow the infidels, the United States troops on the holy land that includes Mecca and Medina. His problem is with the regime in Saudi Arabia. And he's not the only one in Saudi Arabia that thinks that way.

Did you ever get suspicious, when you were dealing with the Saudi government, that possibly there was more sympathy there for bin Laden -- and the anti-Americanism that that represents -- than they were willing to let on because of their lack of cooperation?

I never got the sense that the people that I was talking to in the Saudi government themselves had any sympathy for bin Laden. On the contrary. I think that the people that I was talking to knew very well the threat that bin Laden posed to themselves and their regime.

That said... It has always been an open question to what extent within the Saudi population bin Laden has supporters. We know, for instance, that it is not just the poor, the uneducated, the people with nowhere to go, with no options who are attracted to terrorism. Many of the apparent hijackers were solidly middle class. And of course bin Laden himself--

Solidly upper class.

-- is as rich as you get, and as much a part of the establishment as you can get in Saudi Arabia. So that immediately leads one to ask, "Are there others like him that are sympathetic to his cause?"

Was there any information that came your way, in terms of tracking money, that would indicate to you that people with wealth and power in Saudi Arabia were involved in financing this terrorist network?

I think the real answer to that is twofold. First of all, we know for a fact that people of wealth and power in Saudi Arabia supported this network when it fought the Russians in Afghanistan. We know there's a history there. We know for a fact that there are people of wealth and power in Saudi Arabia that support charities that have been at least used by terrorist organizations. It is an open question as far to any specific Saudi individual, whether or not they knowingly have supported terrorism in the past, or continue to do so and stay...

It's is absolutely the case that these people have been giving money to charities and other entities that themselves may have been used by terrorist organizations. What's unclear is the degree of complicity, knowledgeable complicity, that these persons of wealth and power in Saudi Arabia, and also in Egypt, and also throughout the Arab and Muslim worlds... How much they know that their money might be misused, might be moved in a different direction, might be going to terrorist causes without their knowledge. ...

We've seen a number of prominent names, wealthy Saudi businessmen ... connected to a charity that apparently was funneling money to this terrorist network, are we to believe that they really didn't know?

It's possible they didn't know. It's possible they did know. This question needs to be fully investigated. The best way for them to show, and for all other people in the Middle East to show that they are not involved, that they have not been involved, and that they don't want to be involved in the future, is by, right now, as thoroughly and as openly as they possibly can, to investigate these charitable networks, to investigate the financial institutions, to investigate the terrorist network, wherever the trail may lead. That's how, in the end, we take down the Al Qaeda financial network. And that's what needs to happen. ...

So we're really not at a place yet where we can decide how deeply the support network for Al Qaeda goes into the establishment of Saudi Arabia?

No, we don't know that yet. That's something that we need to know. The other thing I do want to say is that, simply because a name hasn't been put on the Treasury Department's list, doesn't mean that nothing is being done about it.

This is a tactical question. Any specific person or any specific company, or any specific bank ... you want to find out ... is it better for the United States to put them on the list, block their money? Or is there a way for us to get more out of it by not putting them on the list?

By watching them, you mean?

By watching them. By using the threat to put them on the list to get another country to give us information that it might not previously be interested in giving us; to take actions that it might not otherwise be interested in giving; to allow U.S. persons access to computers, to records, that we might not otherwise have.

So use the threat of stopping all their business as it may relate to the United States, or U.S. institutions, to get them to give up records and cooperate? A little arm-twisting?

Absolutely. A little arm-twisting, yes. We call it leverage.

Any examples of that leverage working?

There are some examples out there. Most of them are still classified. I'll give you one example that that is unclassified. When we in the Clinton administration were looking at Osama bin Laden's financial network and how it worked and how money was moved, one of the things that jumped out to us was that Ariana Airlines, the national airline of Afghanistan, was being used to ferry terrorists' finances as well as personnel and materiel back and forth from Afghanistan to places where then it could go anywhere in the world.

You mean they were flying from Kabul to ... where?

To Dubai, to Saudi, to Pakistan.

With terrorists on board, and weapons, and...?

Well, they certainly didn't do the kind of checks in Ariana Airlines that they're doing now in United Airlines. It was a relatively easy thing to determine that Ariana Airlines was controlled by the Taliban. They put all their people in charge of it. So we designated Ariana under the same sanctions.

So you publicly listed them as a terrorist airline?

Yes. We publicly listed them as being owned or controlled by the Taliban, who were listed because of their association with bin Laden. This did free some money, and it prevented them from ever flying to the United States. But they never flew to the United States.

But that wasn't the important part. What the important part was then you could go to other countries, and you could request that they stop allowing Ariana Airlines to land. And you could also raise the question about whether an airport that allows Ariana Airlines to land is materially assisting Ariana Airlines. Those airports would hate to be in a position of having to choose between Ariana's business and all of the American airlines' businesses.

So they started losing landing rights. ...

They started losing landing rights. And then, working with the Russians, the United States got the U.N. Security Council to pass a resolution banning Ariana Airlines altogether, giving a degree of ... multilateralism to what we were doing unilaterally.

That was a good success of how you disrupt, for a time, a key node of the Al Qaeda network. Now, over time, they're going to find ways to replace that mechanism. But in that period ... it takes them effort to rebuild. It takes them money to rebuild. And that's a success in the short term. ...

[Have we ever really dealt with this before?] And I mean it in this sense. In the Nairobi situation, they had a seed company. They had honey companies. They have charities. But it's all operating very low on the radar. We're not talking about people with large sacks of money moving around, or opening up large accounts.

Well, that's absolutely right. We should make sure that we don't confuse, though, the amount of money that any local cell has, and the amount of money that's available to the organization, or at large.

Take the U.S. military, for instance. The U.S. military, by any measure, has a lot of money available to it every year, almost $300 billion. But if you go to any army base around the country, you'll see people just scraping by with a little amount of money to do what they need to do.

That's how effective organizations are run. That's how Al Qaeda is run. Local cells have a little bit amount of money; you got some seed capital, don't really need a lot to operate; sometimes are encouraged to raise their own money, whether through solicitations, or through criminal activities. But the organization as a whole has a lot of money available to it.

We're dealing with a parent cell organization that seems to, in many cases, be self-sufficient. They only, in a way, ask for money when an operation is imminent, and they really need the money. Amounts of money [that] are not really great.

Yes...

We're actually dealing with a low-tech ... not only a low-tech operation, but an operation that's very low on the kind of sophisticated radar we've set up.

To some degree, yes. And to some degree, no. There are local cells that operate independently. It's a loose confederation of organizations. They're required to raise some of their own money. They do very simple crimes, simple frauds, simple smuggling, to raise some money.

That said... At a higher end, there's a lot of sophistication of how this money is moved. Osama bin Laden himself is reported to have said to a Pakistani newspaper that he is as aware of the weaknesses in the Western financial system as he is aware of the lines on his hand, and that he has at least three alternative financial networks that assist him in raising and moving money other than the Western financial system. These are words of somebody who was born in wealth, who has been moving and raising money for a long time, who knows how the system works, and is very sophisticated about it.

And it appears that they've always been involved in the illicit diamond trade in West Africa?

That's one thing that there have been reports on lately. Diamonds, gold, precious metals are very valuable for money-launderers, because it's a very easy and small store of wealth that can be moved back and forth across borders without great difficulty. It's much easier to smuggle one diamond in your pocket on an air flight than it is to smuggle a big suitcase full of cash. That's an advantage. There are a lot of other mechanisms like that, which they take advantage of, and that we need to stop. ...

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