Newsweek:Bandar and the $2 Billion Question

Bandar and the $2 Billion Question
Newsweek
Michael Isikoff and Mark Hosenball with Emily Flynn Vencat in London

June 18, 2007 issue - 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.

http://www.msnbc.msn.com/id/19140637/site/newsweek/

Riggs account.

http://en.wikipedia.org/wiki/Riggs_Bank