Saturday, April 5, 2008

Ties That Bind, Part 1

An email tipster sent me a link to a recent blurb on Dr. Rachel Ehrenfeld's case.

As my regular readers know, Dr. Ehrenfeld is a scholar who studies terrorism, with a focus on how terrorism is financed. I featured some of her work in my previous post, Riding on the Backs of Americans.

Her studies have connected the financing of Islamic extremism, including Osama bin Laden's Al Qaeda, to (among others) a Saudi billionaire, Sheikh Khalid bin Mahfouz, who is one of the world's richest men.

Sheikh bin Mahfouz is now waging a legal battle against all the scholars who connect him to his terrorist friends; Dr. Ehrenfeld, however, is one scholar who refuses to back down in the face of the legal pressure she is under. For more information on the Ehrenfeld case and on Dr. Ehrenfeld's work, you can visit her website, where you can make a contribution to her legal counterjihad.

The linked article, from yesterday, is entitled Libel protection law, and addresses the ramifications of a recent bill passed by the legislature in Dr. Ehrenfeld's home state, New York; in fact, this bill was inspired specifically by her case. Here is the article, in its entirety:

New York gladly welcomes foreign tourists and their money, but now the state is ready to turn away those who come shopping for a place to enforce dubious libel judgments won abroad against journalists and publishers.

Under the guidance of Sen. Dean Skelos (R-Rockville Centre) and Assemb. Rory Lancman (D-Fresh Meadows) the "Libel Terrorism Protection Act" was unanimously passed by the State Legislature last month. Gov. David Paterson should waste no time signing it.

The law's title stems from a case involving Rachel Ehrenfeld, a Manhattan author who investigates terrorist networks. Her book, "Funding Evil: How Terrorism is Financed and How to Stop It," named Khalid bin Mahfouz, former banker to the Saudi royal family, as a financier to Osama bin Laden and al-Qaida. Mahfouz, who vehemently denies funding terrorists, sued Ehrenfeld in London, winning a $225,000 judgment against her.

International plaintiffs choose British courts because it's easy to win a libel judgment there. Ehrenfeld's book wasn't even published in England, but Mahfouz won because 23 copies purchased over the Internet were shipped there.

The Skelos-Lancman bill would prohibit New York courts from enforcing any defamation judgment obtained in a foreign jurisdiction that did not provide the considerable free speech and free press protections provided in the United States by the federal and state constitutions. Now that's having a day in court.

Of course, this only touches on the ramifications.

An article that appeared in early 2002, at, entitled Sins of the Father? by Nathan Vardi, had this to say about Sheikh bin Mahfouz:

Khalid bin Mahfouz, a Saudi billionaire, spent the 1990s engaged in financial folly and funding what the U.S. government calls a front for Al-Qaeda. Now a new generation tries to escape the shadow.

In November Abdulrahman bin Mahfouz paid a visit to the American consul general in the Saudi Arabian coastal city of Jidda. The 31-year-old Mahfouz wanted to pass the word on to Washington, D.C. He had heard President Bush's challenge and had an unambiguous reply: "We are with you, not the terrorists."

It was a calculated gesture, prompted by renewed grief for the Mahfouz clan. Trouble seems to stalk Abdulrahman's father, Sheik Khalid bin Mahfouz. In 1999 there was the forced nationalization of his bank, Saudi Arabia's biggest. This followed by eight years the collapse of his biggest investment, Bank of Credit & Commerce International (BCCI), amid worldwide scandal. This time events had caught up with Abdulrahman himself. He had been a board member of the Muwaffaq ("blessed relief") Foundation, a charity that the U.S. Treasury Department labeled a front for Al-Qaeda in October.

The U.S. government has not accused Khalid and his family, estimated to be worth $1.7 billion, of funding terrorism, despite Abdulrahman's acknowledgment to FORBES GLOBAL that the foundation was the brainchild of his father, who funded it with as much as $30 million. Yasin al-Qadi, the Saudi hired to run the charity, has had his assets iced by the Treasury, which calls him a supporter of terrorism.

Abdulrahman, who with his brother, Sultan, has been taking over the management of the Mahfouz business interests, finds them suffering new blows since Sept. 11. Negotiations for a $200 million loan deal to the family's Nimir Petroleum, which produces most of its 35,000 barrels of oil a day in Colombia, recently stalled: European bankers wondered to whom they were lending the money. European lawyers and accountants have quit working for the family, which has had to explain itself to its business partners, such as the Singapore Port Authority, with which they're developing a port in Aden, Yemen.

The Mahfouzes aren't alone in feeling this heat. Charities dubbed sinister by the Bush Administration are connected to other elite Saudi families. OPEC's oil price hikes in the 1970s created the largest transfer of wealth in the 20th century and produced ten known Saudi billionaires, more per capita than 80% of the industrialized democracies, including Japan, France and the U.K. The philanthropy coming out of those fortunes has flowed to Islamic partisans, and the benefactors are now being scrutinized.

The Mahfouz wealth derives from the good fortune of Abdulrahman's grandfather, Salim Ahmed bin Mahfouz. An illiterate and ambitious Yemeni immigrant moneychanger, in the 1950s he convinced King Abdul-Aziz bin Saud to allow him to start the first bank in the kingdom, which at the time was having its banking needs met by foreign institutions. He built the National Commercial Bank (NCB) on government connections, merchant contacts and his standing as the royal family's banker. The 1970s oil squeeze expanded assets at Saudi Arabia's 12 banks twentyfold. He handed management to his eldest son, Khalid, in the 1980s.

Khalid proceeded nearly to run NCB into the ground, much to the dismay of Saudi bank regulators. The royal family ran interference for him but could not save Khalid from getting NCB deep in the BCCI infamy. Khalid bought up to 30% of BCCI in the mid-1980s and became a director of the bank, which later became notorious for ripping off depositors and laundering money, often for terrorists and arms dealers.

A New York state grand jury indicted Khalid for fraud, and the U.S. Federal Reserve alleged that he breached banking regulations. He denied any wrongdoing. The charges were dropped in 1993, but only after Khalid agreed to pay $225 million, including $37 million in lieu of fines. Khalid together with NCB was also involved in a separate $253 million deal to settle claims with BCCI's creditors. Khalid left the embattled NCB in the hands of his brother Mohammad, who hired veterans of Citibank to rescue it.

The BCCI scandal is now notorious. BCCI funded terrorists and criminals like you can't imagine; even the CIA used it to support black ops by laundering money into the hands of its associates. BCCI was very involved with Pakistan's ISI and Islamic extremists based in Afghanistan and Pakistan -- Al Qaeda comes to mind here, as it evolved from these very groups.

Khalid returned to run the rehabilitated NCB in 1996, only to oversee a dramatic increase in the bank's nonperforming loans, some of which were made to Khalid himself. Things got so nasty that in 1999 the government stepped in, buying a controlling 50% stake of NCB from Khalid for at least $1 billion, partly used to wipe Khalid's debt from the books. Khalid and his family retained 34% ownership, but he again surrendered his management positions. The flawed financier, now 55 and said to have recently received treatment for undisclosed ills in the resort town of Taif, also maintained his controlling stake in Crédit Libanais, Lebanon's eighth-largest bank, and a 16% holding in Housing Bank, Jordan's second biggest.

The extent of Khalid's mismanagement at NCB remains shrouded. NCB has not issued audited numbers since 1998, but it did acknowledge last year that provisions for bad loans in 1999 and 2000 reached $934 million, covering 86% of its doubtful debt.

While suffering reverses at his bank, however, Khalid was setting up Muwaffaq. The charity was registered in 1992 in the Channel Islands, off the coast of France, and run from Jidda, operating schools and health clinics in such places as Pakistan, Bosnia and Somalia. UNICEF teamed up at least once with Muwaffaq in Sudan, contributing $7,000 worth of supplies to develop a feeding center for malnourished children. Muwaffaq's Pakistan branch hired an affiliate of Arthur Andersen to audit its books.

Nonetheless, in 1995, Africa Confidential, a British newsletter, accused the charity of having connections with terrorists. Trustees of the charity sued Africa Confidential in London, settling the case only after it issued an apology in open court. The bad publicity spurred the Saudi government to order Muwaffaq to cease operating by 1997, say sources close to Abdulrahman, but the charity's infrastructure--its legal registration and perhaps some of its schools and clinics--was never formally dismantled.

The U.S. Treasury put a spotlight on Muwaffaq in October, describing it as "an Al-Qaeda front that receives funding from wealthy Saudi businessmen." Abdulrahman calls the label "demonstrably false," but Martin Indyk, a former U.S. ambassador to Israel who is now a senior fellow at the Brookings Institution, says that Muwaffaq was part of a push after the Gulf war by Saudi rulers to shore up their long political relationship with puritanical Wahhabi religious leaders by financing the building of mosques and schools outside the kingdom. He believes that the royal family often got Saudi tycoons to foot the bill for such efforts, which Osama bin Laden was able to hijack and use as covers for Al-Qaeda.

The Mahfouz family recently hired Fulbright & Jaworski, a major U.S. law firm, to investigate the charity, a process that could take many months, since Muwaffaq's documents are strewn across the globe. Abdulrahman says, by e-mail: "While we have heard that the allegations related to the Muwaffaq charity may be based on only one or two isolated financial transactions, we have been unable to obtain any specific information regarding these transactions."

Khalid bin Mahfouz was repeatedly able to brush off his many miscues. This time the muck may prove stickier, both for his heirs and the Saudi nation itself.

The muck is indeed stickier, and Libel Terrorism -- suing people for pointing out one's connections to funding terrorists -- is nothing new. Four years ago, publication of one new book in the UK was cancelled for fear of libel lawsuits.

Interestingly, that book also showed something that it was not supposed to: in addition to the connections from bin Mahfouz to the world's most notorious jihadist, Osama bin Laden, it showed the connections from bin Mahfouz going the other way, to the world's most notorious counterjihadist, US President George W. Bush.

Stay tuned for Part 2.

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