TRADE BECOMES ROUTE FOR MONEY TIED TO TERRORISM

Illicit Commodity Deals Are Hard to Spot, Trace; A Trail of Sugar to Gaza

PARIS -- After a long and intense crackdown on cross-border money
laundering, authorities say terrorist supporters, narcotics
syndicates and sanctions busters have adopted a new method of
sneaking funds past the watchful eye of the law: the global commodity trade.

The practice, known as "trade-based money laundering," was pioneered
by Latin American drug smugglers in the 1990s. Now, it is spreading
to Europe and the Middle East.

Here's how the practice works: Instead of wiring money directly from
one country to another, a would-be money launderer buys foodstuffs
like sugar or vegetable oil or other goods. Those goods are far
easier to deliver to restricted destinations like Iran and the
Palestinian territories because they often look like legitimate aid.
When they arrive, local merchants transfer the goods on, or simply
sell them for cash. A portion of the proceeds end up with local
terrorist groups or criminals.

The illicit trades are often blended in with legitimate ones, which
makes them difficult to single out and the source of their funding
hard to trace. Authorities say the scope and prevalence of the
practice is tough to determine with any precision, but it is clearly
on the rise.

One such case recently surfaced in Europe when French authorities
discovered that a Paris-based charity the U.S. officially designates
as a sponsor of terrorism has been buying large lots of commodities
for delivery to the Palestinian territories. While much of the goods
constitute legitimate aid, a portion of the shipments ultimately ends
up with terror groups, officials allege.

Funds for the original goods purchases by money launderers
increasingly come from Iran, Israeli officials say. Some of the funds
and goods allegedly end up with Palestinian Islamic Jihad and Hamas.
Both groups are seeking to disrupt the Palestinian peace process with
Israel and often sponsor terrorist attacks.

For at least two years, Israeli and European counterterrorism
officials allege, supporters of the Palestinian groups have been
using donations raised in Europe to purchase sugar and other commodities.

U.S. officials have been warning about such swap deals since the
State Department's release of its 2004 International Narcotics
Control Strategy Report. "As both the formal international financial
system and money-service businesses become increasingly regulated,
scrutinized, and transparent, criminal money launderers and terrorist
financiers are increasingly likely to use fraudulent trade-based
practices in international commerce to launder, earn, move, and
integrate funds and assets," the report said.

Now, U.S. officials say the trade-based model is being adopted across
the Persian Gulf region. U.S. sanctions on Iran and Tehran's own
rigid financial controls promote the practice, the State Department
said in a recent report. "The trade and smuggling of goods into
Iranian commerce leads to a significant amount of trade-based money
laundering," according to the department's annual narcotics-control
report released in March.

"There is no reliable estimate on trade-based money-laundering
because no authorities are looking systematically at their trade
activities," says money-laundering expert Nikos Passas of
Northeastern University in Boston. "The vulnerability is gigantic
though, and undermines all other financial controls we have in place,
no matter how well these may be implemented."

Much of the money in question is laundered in the United Arab
Emirates, the primary conduit for Iranian imports. Trade-based
laundering in the Emirate of Dubai also helps finance the booming
Afghan-Iran heroin trade, according to U.S., Italian, and U.A.E.
law-enforcement officials.

In February, U.A.E. officials arrested 40 people on charges of
commodities-based money laundering for narcotics traffickers. Many of
the trades were placed through at least 15 different accounts at Man
Financial Inc. in New York, U.S. officials said. The firm wasn't
accused of any wrongdoing.

In the Palestinian territories, French and Israeli police are
scrutinizing several commodities transactions involving goods either
paid for or purchased on behalf of the Comite de Bienfaisance et de
Secours aux Palestiniens, or the Committee for Palestinian Welfare and Aid.

Since 2003 the Paris-based charity has been listed by the U.S.
Treasury Department as a supporter of terrorism. The CBSP denies any
wrong doing. It is a legal organization in France, which has declined
U.S. requests to list the group as a supporter Hamas. A spokesman for
the Paris prosecutors' office said the CBSP is the subject of a
preliminary money-laundering inquiry. French police declined to comment.

In March, a Paris court convicted the Simon Wiesenthal Center, a
Jewish international human-rights organization, of defamation after
one of its employees accused the CBSP of sending funds to Palestinian
suicide bombers. The center was given a suspended fine of €1,000, or
about $1,350, and ordered to pay a euro in symbolic damages. It is appealing.

The CBSP has worked in concert with Abu Aker for Export & Marketing,
a commodities firm based in Gaza and headed by Fayez Abu Aker. In
December 2005 the firm was banned from doing business in Israel due
to its alleged role in funding terrorism.

In an interview, Mr. Abu Aker said he has worked with Fatah, the
political party of Palestinian President Mahmoud Abbas. He denied
supporting terrorism. His Israeli lawyer said he is contesting Israel's ban.

Mr. Abu Aker said he was selected through an open tender in 2005 to
carry out the trades for a local Gaza charity, the National
Association of Moderation & Development, for which CBSP had agreed to
finance food distribution. Under terms of the deal, Mr. Abu Aker
agreed to deliver crushed lentils, jam jars and macaroni from the
U.S. He produced a receipt for the final contract, showing a value of
$521,130. He also faxed pictures showing vegetable oil and other
foodstuffs being delivered to a large refugee camp in Gaza during the
Ramadan holiday in 2005.

Counterterrorism officials allege that some of the proceeds from
these deals were passed on to terrorists, either directly or through
a third party. Officials with access to financial records say some of
the CBSP commodity deals were financed by an Iranian group called the
Organization for Supporting the Intifada, which is based in Tehran.
Intifada is the name given to the Palestinian uprisings in
Israeli-occupied territories.

Youcef Benderbal, a CBSP spokesman, says his group is devoted
strictly to the welfare and relief of Palestinians and is "a
completely independent association" with no ties to terror groups. He
said his group does pay for food aid to Palestinians -- as do many
charities -- but denies it has received any Iranian donations. He
said the group gets money solely from individuals in France.

Bauche SA, a French sugar-trading company, said it received a
transfer from CBSP to pay for goods shipped to Abu Aker. Last year,
the CBSP transferred more than €400,000 -- or more than about
$540,000 -- to Bauche to buy goods, say Mr. Abu Aker and Jean-Marc
Sebag, a sugar trader at Bauche. French police blocked the
transaction, say people familiar with the matter.

Mr. Sebag confirmed he received orders for sugar cargoes from Mr. Abu
Aker and even met with him. Mr. Sebag also said CBSP paid for the
goods in one instance. He said he stopped dealing with the Gaza
trader after a warning from French authorities. Mr. Sebag said Bauche
repaid the more than €400,000 to CBSP after the transaction was blocked.

Other companies which have entered into deals with Abu Aker include a
British coffee concern and a Sri Lankan tea company. Simon Wakefield,
managing director of London-based coffee company D.R. Wakefield &
Co., says he had dealings with Abu Aker but stopped them after being
warned off by authorities.

The Iranians paid for the Sri Lankan tea, counterterrorism officials
say, which was then transferred to Abu Aker in the summer of 2006.
Mr. Abu Aker said he didn't have any dealings with Iran.

Separately, Israel has seized five containers of vegetable oil headed
for the territories from a Turkish firm doing business with Mr. Abu
Aker. The oil was paid for by Palestinian charities in Europe. In
late February, Israel's tax police and the military-intelligence
agency Shin Bet raided two Israeli companies, Shintraco Ltd. and
Maayan Ltd., for carrying out similar commodities deals with Mr. Abu
Aker's company. The two Israeli concerns share an address.

Shalom Hatuka, general manager of Shintraco, denied any wrongdoing
and said he was the victim of a "misunderstanding."

Much of the trades in question allegedly end up with the main Islamic
Jihad charity, the El Ehssan Charitable Association, which is
designated as a terrorist entity by the U.S. El Ehssan and Islamic
Jihad spokesmen denied conducting any business with Abu Aker.

To be sure, many suppliers in the operations appear to be unaware of
any links to terrorist activity.

English farmer Anthony Byass, for example, began supplying seed
shipments to Palestinian firms in 2002. Mr. Byass, who sells produce
from his farm in York through a company called Lanwin Pulses Ltd.,
began delivering legumes to the Palestinian territories after
responding to a British government trade bulletin.

In November 2005, three containers of seeds from Lanwin Pulses were
confiscated by Israeli authorities in the West Bank after the
Israelis concluded the commodities were intended for the Abu Aker
firm and were purchased with money from CBSP. Some of the donations
came from Tehran, counterterrorism officials say.

In a brief phone interview, Mr. Byass said he had no knowledge that
his Palestinian customers were allegedly involved in terrorism but
added that he no longer sells his produce in the region. "It is a
mess, isn't it? It's very difficult to trade in there," he said
before hanging up.