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Chasing al-Qaida’s money trail

There’s an unsavory element to some Persian Gulf money — an al-Qaida connection. CNBC’s Tom Costello followed the money trail to the Persian Gulf.
/ Source: CNBC

The streets of many Persian Gulf nations have been paved with the proceeds from oil — most of it quite legitimate. But there is also an unsavory element to some Persian Gulf money — an al-Qaida connection. CNBC’s Tom Costello followed the money trail to the Persian Gulf.

In the back streets of Dubai, in the Gold Souks, as they’re known here, investigators have been chasing al-Qaida’s money trail. Millions of dollars of gold and diamonds, smuggled by al-Qaida and former Taliban officials, reportedly moved through here and onto other points around the world.

Al-Qaida’s financial empire is thought to be worth some $30 million. And investigators believe much of the money used to pay for the 9/11 attacks was funneled through banks here in Dubai.

That’s a black eye for this wealthy Persian Gulf emirate, just as it’s vying to become a banking center in the gulf. And already, the government here is moving to tighten its money laundering laws, according to Dubai Economic Development Director Mohamed A. Alabbar.

“Money probably from these horrible organizations has moved from many systems in the world,” he said. “Probably through Tokyo, so much has gone through New York anyway, so much through London.”

But Dubai is notorious for its loose regulatory environment. For years, this former pirates’ cove turned a blind eye to the unscrupulous. In the 1980s and early 1990s, tainted money from the failed Bank of Credit and Commerce International — or BCCI — also flowed through here.

Today, serious investment money is not in Dubai, but farther up the Persian Gulf in Bahrain, a country that has generally managed to keep terror money out of the financial system. The home of the U.S. 5th Fleet is also the banking capital in the gulf with $100 billion in financial assets. And to keep those banks in Bahrain, the country is building a massive new financial district.

Jim Abernathy has spent 25 years in the gulf and today runs the Bahrain Institute for Banking and Finance.

“Bahrain has a legacy of being the center of banking and financing in the gulf for several years now,” he said. “That’s due to the very strong regulatory agency laws and regulations that the government of Bahrain has put in place and enforced.”

Indeed, Chicago’s DePaul University this year opened an MBA program in Bahrain. The students come from across the region to learn the American approach to business and finance.

Middle East money flows
So we came to Bahrain to get answers — about whether serious investment money from the Middle East might get caught up in a geopolitical play.

As much as $1.3 trillion of Middle East wealth was invested abroad last year. Of that, some $450 billion went into the U.S. markets. What makes some on Wall Street nervous is the prospect that some of those dollars could be repatriated back here to the Middle East.

“From our end, obviously we would like to see some of the wealth that has migrated to the rest of the world — not just to the U.S. — to come back to this region,” said Sheikh Daij S. Al-Khalifa at the Ministry of Commerce and Industry here. “I believe there is a wealth of opportunity in this region.”

But almost everyone agrees that so far, that hasn’t happened. In fact, Abernathy says most Middle East investors are too financially astute to play politics with their investments.

“Given the state of the world’s economies,” he said, “the more attractive places to invest these days are North America or Western Europe. And they’re not going to pass those opportunities.”

And the governor of Kuwait’s central bank, Salem Abdul-Aziz al-Saud al-Sabah, told CNBC he’s been looking for signs of abrupt changes in money flows. But so far — nothing.

“We have not noticed or detected any kind of repatriation of funds,” he said. “There is capital inflow and outflow of funds, but we have not seen any kind of funds coming back to Kuwait.”

Among the money managers in the wealthy gulf states, you will have a hard time finding anyone who will admit to having any sympathies for Saddam Hussein — not to mention al-Qaida. In business and international financial circles, this region is eager for acceptance.

“You want to progress as a commercial hub?” said Mohamed Alabbar. “You have to behave in internationally accepted manners. Otherwise, no one would do business with you anyway.”