Saudi Arabia is prime source of terror funds, U.S. says

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Treasury official expresses frustrations with the administration's efforts to force action by the kingdom. A Senate panel orders a review.

By Josh Meyer, Los Angeles Times Staff Writer
April 2, 2008

WASHINGTON -- Saudi Arabia remains the world's leading source of money for Al Qaeda and other extremist networks and has failed to take key steps requested by U.S. officials to stem the flow, the Bush administration's top financial counter-terrorism official said Tuesday.

Stuart A. Levey, a Treasury undersecretary, told a Senate committee that the Saudi government had not taken important steps to go after those who finance terrorist organizations or to prevent wealthy donors from bankrolling extremism through charitable contributions, sometimes unwittingly.

"Saudi Arabia today remains the location where more money is going to terrorism, to Sunni terror groups and to the Taliban than any other place in the world," Levey said under questioning.

U.S. officials have previously identified Saudi Arabia as a major source of funding for extremism. But Levey's comments were notable because, although reluctant to directly criticize a close U.S. ally, he acknowledged frustration with administration efforts to persuade the Saudis and others to act.

"We continue to face significant challenges as we move forward with these efforts, including fostering and maintaining the political will among other governments to take effective and consistent action," Levey said, later adding: "Our work is not nearly complete."

Levey was the sole witness before the Senate Finance Committee, which Tuesday ordered an independent review of the efforts to choke off financing used by Al Qaeda and other extremist groups.

Sen. Max Baucus (D-Mont.), the committee chairman, announced the review at the end of the hearing held to assess the money-tracking campaign by Treasury's Office of Terrorism and Financial Intelligence, headed by Levey.

The Bush administration created the office in 2004 to spearhead efforts to disrupt the flow of money to extremist causes, primarily from wealthy donors in Saudi Arabia and elsewhere in the Persian Gulf.

However, U.S. officials and counter-terrorism experts have said that international support for the effort has waned while terrorist groups have found ways around the financial restrictions. At the same time, there have been turf battles among the 19 federal agencies that work on the problem.

Senators praised work done by Levey but expressed concerns about the overall U.S. effort. The committee's Democratic and Republican leaders cited a Los Angeles Times report last week detailing problems undermining the effort.

Sen. Charles E. Grassley of Iowa, the ranking Republican, said extremist groups had adapted to changing U.S. investigative methods: "We are simply not prepared right now to keep up with them and put them out of business once and for all."

Levey said the campaign has succeeded in disrupting terrorist financing by freezing suspicious assets and in gathering intelligence that could be used to identify extremists and disrupt their activities.

But under questioning by senators, Levey also spoke of difficulty in getting Saudi Arabia to take the steps U.S. officials consider necessary.

Levey said the Saudis had been aggressive in going after terrorist cells. But he said they had not lived up to promises to establish the kind of financial intelligence unit needed to trace the money trails of terrorists. Another problem is that the Saudi government has not set up a charity oversight commission to track whether donations end up in the hands of extremists.

Levey said the Saudi government has not moved to publicly hold accountable those within the kingdom who have been the subject of enforcement actions by the U.S. and other authorities.

Sen. Ron Wyden (D-Ore.) said the Saudi failures mean that Americans who pay more than $100 a barrel for oil are in effect bankrolling extremism because wealthy Saudis "back-door" their profits into charities that fund extremist causes.

Nail Jubeir, press attache for the Saudi embassy in Washington, dismissed those concerns, saying the Bush administration has repeatedly praised Saudi Arabia for its efforts to combat terrorism.

"We have been very vigilant in our campaign against terrorism financing," Jubeir said. "We have come a long way since 9/11 on this issue."

Jubeir confirmed that Saudi Arabia has not set up the financial intelligence unit or charity commission, but said it was cracking down on the financiers of terrorism in other ways, such as making it illegal for anyone to send money outside the kingdom "without going through official government channels."

Alleged financiers of terrorism identified by the United States are being investigated, and their assets have been frozen, Jubeir said. "But unless we have evidence to try them . . . we don't parade them in public," he said. "What if it turns out they are innocent?"

At the hearing, senators also expressed concern about disputes among U.S. agencies and other administrative and investigative functions of Levey's office. Baucus and Grassley asked that the Government Accountability Office review its internal efficiency and effectiveness as well as its cooperation with foreign governments.

Levey said he had not seen the request from Baucus and Grassley, but added: "We welcome any source of advice as to how we can improve."

josh.meyer@latimes.com