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Bandar and the $2 Billion Question

by Michael Isikoff and Mark Hosen­ball with Emi­ly Fly­nn Ven­cat in Lon­don
NEWSWEEK [1]

Hun­dreds of pages of con­fi­den­tial U.S. bank records may be the miss­ing link in illu­mi­nat­ing new alle­ga­tions that a major British arms con­trac­tor fun­neled up to $2 bil­lion in ques­tion­able pay­ments to Sau­di Prince Ban­dar bin Sul­tan. The BBC and Guardian news­pa­per report­ed last week that BAE Sys­tems made “secret” pay­ments to a Wash­ing­ton, D.C., bank account con­trolled by Ban­dar, the long­time Sau­di ambas­sador to the Unit­ed States who is now the king­dom’s nation­al-secu­ri­ty advis­er. The pay­ments are alleged to be part of an $80 bil­lion mil­i­tary-air­craft deal between Lon­don and Riyadh. Last week British Prime Min­is­ter Tony Blair acknowl­edged that his gov­ern­ment shut down an inves­ti­ga­tion into the pay­ments, in part because it could have led to the “com­plete wreck­age” of Britain’s “vital strate­gic rela­tion­ship” with Sau­di Ara­bia. Before the U.K. closed the inquiry, British inves­ti­ga­tors con­tact­ed the U.S. Jus­tice Depart­ment seek­ing access to records relat­ed to the Sau­di bank accounts. Many of these records were first obtained by NEWSWEEK in 2004. At the time, the mag­a­zine report­ed that fed­er­al reg­u­la­tors had been alert­ed to mil­lions of dol­lars in “sus­pi­cious” activ­i­ties in Sau­di accounts at the now-defunct Rig­gs Bank.

Tom Rose, a British lawyer for Ban­dar, denied the Sau­di prince had received “improp­er secret” com­mis­sions. He said the BAE funds were actu­al­ly being paid into a Sau­di Defense Min­istry account over which Ban­dar had sig­na­ture author­i­ty, but any pay­outs from those accounts “were exclu­sive­ly for pur­pos­es approved” by the min­istry. The accounts were known both to the British and Sau­di gov­ern­ments. (A BAE spokesman said, “We deny all alle­ga­tions of wrong­do­ing.”)

The Rig­gs Bank records show the use of those funds raised con­cerns among bank offi­cials and U.S. reg­u­la­tors. In Novem­ber 2003, Rig­gs filed a “sus­pi­cious activ­i­ty report” with the Trea­sury Depart­ment dis­clos­ing that over a four-month peri­od, $17.4 mil­lion from the Sau­di Defense account had been dis­bursed to a sin­gle indi­vid­ual in Sau­di Ara­bia. When Rig­gs offi­cials asked the Saud­is who the per­son was and why he was receiv­ing the funds, they were told the indi­vid­ual “coor­di­nates home improvement/construction projects for Prince Ban­dar in Sau­di Ara­bia,” and the pay­ments were for a “new Sau­di palace,” one doc­u­ment shows.

In anoth­er instance, Ban­dar wired $400,000 from a Rig­gs account to a lux­u­ry-car deal­er over­seas. “It was impos­si­ble to dis­tin­guish between gov­ern­ment funds and what would nor­mal­ly be con­sid­ered per­son­al pur­pos­es,” said David Caru­so, who served as Rig­gs’s com­pli­ance offi­cer at the time. Caru­so also con­firmed to NEWSWEEK that the Sau­di Defense account was reg­u­lar­ly replen­ished with $30 mil­lion each quar­ter from an account in Lon­don. But the bank nev­er knew the source of the funds. The bank was so con­cerned about the with­drawals that it cut off all busi­ness with the Saud­is. In May 2005, the U.S. Trea­sury fined Rig­gs $25 mil­lion for fail­ing to mon­i­tor “exten­sive and fre­quent sus­pi­cious” activ­i­ty in Sau­di and oth­er accounts. (Asked about the Rig­gs records, Ban­dar’s lawyer said the palace in ques­tion was “Prince Ban­dar’s offi­cial res­i­dence” in Sau­di Ara­bia and that audits by the Sau­di Finance Min­istry found “no irreg­u­lar­i­ties” in the Sau­di accounts while Ban­dar was ambas­sador.)

The con­tro­ver­sy also rais­es ques­tions about what role Bandar—a close friend of the Bush family’s—will play in Wash­ing­ton’s future Mideast ini­tia­tives. Ear­li­er this year, after con­sult­ing exten­sive­ly with Ban­dar, U.S. offi­cials pushed for a new Mideast peace summit—only to learn lat­er that Sau­di King Abdul­lah was not onboard with the plan. Since then, Bandar—apparently out of pique at being overruled—has large­ly dropped out of sight, accord­ing to three U.S. offi­cials who asked not to be iden­ti­fied talk­ing about sen­si­tive diplo­mat­ic mat­ters. One source close to the Saud­is, who also asked not to be iden­ti­fied, said that Ban­dar spent much of the spring at his $135 mil­lion man­sion in Aspen, Colo., and that he is now back in Sau­di Ara­bia. U.S. offi­cials say they can’t con­firm this. “It’s all some­thing of a mys­tery to us,” said one offi­cial.