July 29 (Bloomberg) -- Libyan leader Muammar Qaddafi and Saudi Arabia's Crown Prince Abdullah weren't getting along at a March 2003 meeting of the Arab League in Sharm el Sheikh, Egypt.

Qaddafi, wearing an orange embroidered robe that matched the round cap atop his head, berated the prince for allowing U.S. troops on Saudi soil. Abdullah shot back from across the white conference table, shaking his right fist, ``Your lies precede you, while the grave is ahead of you.''

Then Qaddafi decided the Saudi leader should meet his own grave first, at the hands of assassins, according to documents filed in the case against Abdurahman Alamoudi, 53, a U.S. citizen and lobbyist for Muslim causes who pleaded guilty to financial crimes connected with the failed plot.

New York-based Citigroup Inc. and American Express Co. performed the funds transfers and processed the charge card payments the U.S. cited in bringing its case against Alamoudi, according to the Sept. 29, 2003, criminal complaint filed in U.S. District Court in Alexandria, Virginia, by Brett Gentrup, a U.S. Immigration and Customs Enforcement special agent.

Citigroup accepted Libyan government funds for Alamoudi's Washington-based American Muslim Foundation in 1999 and 2000, and Amex processed Alamoudi's payments for two airplane tickets to Libya from Zurich in 2000 and 2001, the complaint says.

At the time, U.S. law prohibited American citizens from purchasing travel to Libya and from having financial dealings with Libyan government entities without U.S. government permission.

Weak Enforcement

Alamoudi's case shows how the biggest U.S. financial companies and their regulators can fail to protect the banking system from abuse by people engaged in political violence, money laundering or terrorism, says Raymond Baker, 69, a guest scholar at the Brookings Institution in Washington and author of ``Capitalism's Achilles Heel: Dirty Money and How to Renew the Free-Market System'' (John Wiley & Sons, 2005).

``Of the money that our laws attempt to stop, 99.9 percent gets through,'' Baker says. ``This, along with a lot of other examples, points out weaknesses in the enforcement system,'' he says of the Alamoudi case.

Baker cites the cases of former Chilean dictator Augusto Pinochet and his family stashing at least $15 million in more than 125 accounts at Washington-based Riggs National Corp., Citigroup and seven other banks from 1979 to 2005, and of Bank of New York Co. employees admitting they had set up a wire-transfer operation to launder billions of dollars from Russia through the bank in the 1990s.

No Punishment

There's no indication in public Treasury Department records that Citigroup, the biggest U.S. financial services company, or American Express, the world's biggest travel agency, is being punished under the U.S. Terrorism List Governments Sanctions Regulations, issued by the Treasury Department to help enforce the Antiterrorism and Effective Death Penalty Act, signed by President Bill Clinton on April 24, 1996, or the Libyan Sanctions Regulations of January 1986. Those rules generally prohibited U.S. citizens and companies from having financial dealings with Libyan entities unless specifically authorized by a license.

Alamoudi was indicted in 2003 and again in 2004 by grand juries in U.S. district court in Alexandria on a total of 34 charges, including making false statements, conducting prohibited financial transactions with the Libyan government and money laundering.

He made a plea bargain in which he said he was guilty of three charges: conducting prohibited transactions with Libya, unlawfully procuring U.S. citizenship and engaging in a corrupt endeavor to impede administration of tax laws. Alamoudi is serving a 23-year sentence at U.S. Penitentiary McCreary in McCreary, Kentucky, 208 miles (335 kilometers) south of Cincinnati.

Dealings Disclosed

His wife, Shifa Alamoudi, declined to comment when contacted at the couple's home in Falls Church, Virginia, referring questions to her husband's attorney, Stanley Cohen, 51, in New York. Cohen says Alamoudi isn't granting interviews from prison.

Gentrup, the immigration and customs agent, disclosed the Citigroup and Amex dealings in an affidavit attached to the Sept. 29, 2003, criminal complaint in which the U.S. charged Alamoudi with conducting prohibited Libya-related transactions. The dealings involving Citigroup and Amex comprised four of the five alleged violations for which Gentrup said there was probable cause that Alamoudi had violated the sanctions.

In the Citigroup funds transfers, the Libyan mission to the United Nations wired $5,000 on Dec. 3, 1999, from its bank account to a Citibank account held by the American Muslim Foundation, of which Alamoudi was founder and president, according to the criminal complaint. In November 2000, the Libyan mission to the UN wrote a $2,000 check from its bank account to the American Muslim Foundation, which deposited the money in its Citibank account.

Citigroup Payments

The American Muslim Foundation reported a $5,000 donation from the Libyan mission to the UN in its tax return for 1999, the same year in which Citigroup accepted the $5,000 wire transfer, according to the criminal complaint. The American Muslim Foundation no longer exists, Cohen says. Its phone number is no longer in service.

The U.S. granted the Libyan mission a license to hold a U.S. bank account, according to a November 2001 report of the UN's Committee on Relations with the Host Country. The permits allow routine payments such as phone and electric bills, says Hal Eren, who wrote licenses as a lawyer at the U.S. Treasury's Office of Foreign Assets Control from 1992 to 2000.

``It is not for the purpose of financing or facilitating transactions incident to any assassination attempts or even charitable donations,'' says Eren, 44, whose Washington-based Eren Law Firm advises banks on sanctions issues.

``Like most banks, Citibank processes routine payments by licensed foreign missions, and such processing does not constitute a violation of sanctions,'' Citigroup spokeswoman Shannon Bell says.

American Express

She declined to answer further questions, including how Citigroup may have come to the conclusion that the transfers to the American Muslim Foundation qualified as ``routine payments'' by the Libyan mission.

Banks receiving transfers from the Libyan mission to the UN should inquire whether the mission has a license, says J. Scott Maberry, 41, a partner at Washington-based law firm Fulbright & Jaworski LLP, whose practice includes sanctions law.

``You probably want to know if there's a license and what the provisions are,'' he says. ``It's a question of whether your inquiry was reasonable and whether your interpretation was reasonable.''

In the American Express charges, Alamoudi used his card in January 2000 to buy a $1,877.70 round-trip ticket from Zurich to Tripoli, Libya, on Swiss Air and in August 2001 to buy a $2,014.28 ticket for the same route, according to the criminal complaint.

Amex Not Fined

American Express should have blocked the purchase if it knew the charge was prohibited, Eren says. Often a card company such as American Express doesn't know what's being purchased, he adds. The complaint doesn't specify whether Alamoudi bought the tickets from Swiss Air or from a travel agent.

``Their ability to interdict and block is dependent on the information coming into the system,'' Eren says, and the card company won't get fined if there's no way it could have known what was purchased. ``There's a weakness in the system,'' he says.

American Express spokeswoman Judy Tenzer in New York says the company hasn't paid any fines in the case. She declined to comment further about Alamoudi because American Express doesn't discuss individual accounts.

``We comply with all applicable laws in the countries where there are sanctions,'' she says. ``As a matter of policy, American Express will self-report to government agencies if we are aware of activity that could be a violation of sanctions.''

Indicted for Purchases

Grand juries in U.S. district court in Alexandria included the American Express ticket purchases as two of the counts with which they charged Alamoudi in an 18-count indictment on Oct. 23, 2003, and a March 25, 2004, superseding 34-count indictment. The Amex purchases are also in Alamoudi's July 30, 2004, plea agreement, in which he declared its facts to be true.

Assistant U.S. Attorney Gordon Kromberg in Alexandria and Special Assistant U.S. Attorney Steven Ward, who prosecuted the case, declined to comment, as did Frank Shults, a spokesman for U.S. Attorney Paul McNulty of the Eastern District of Virginia, whose office oversaw prosecution of the case.

Immigration and Customs Enforcement's Gentrup declined to be interviewed for this article. ``ICE has no information that Citibank or American Express knowingly engaged in any wrongdoing in connection with the Alamoudi case,'' says Dean Boyd, a spokesman for the office, which is part of the U.S. Department of Homeland Security.

Terror Sponsor

Boyd says it's up to the U.S. Treasury Department, which regularly fines companies for unknowingly handling funds transfers, to determine whether to impose penalties on the companies.

Treasury spokeswoman Molly Millerwise declined to discuss both the Alamoudi case and specific licenses. Donations to charities usually fall outside the scope of such diplomatic licenses, she says.

The U.S. lifted most economic sanctions against Libya in 2004 after Libya cooperated with weapons inspectors. It still considers Libya a state sponsor of terror, so U.S. citizens remain barred from receiving donations from the Libyan government. The U.S. will still prosecute violations that occurred before the bulk of sanctions were eased, President George W. Bush said in his Sept. 20, 2004, executive order lifting them.

Abdulhamid Yahya, deputy chief of mission at the Libyan Liaison Office in Washington, the country's diplomatic outpost in the U.S., didn't return calls.

Treasury `Overstretched'

The Treasury Department's enforcement of sanctions is hampered by limited resources, says Magnus Ranstorp, director of the Centre for the Study of Terrorism and Political Violence at Scotland's University of St. Andrews.

``The U.S. Treasury Department is continuously overstretched and have to prioritize what they're going after,'' he says. ``They're always going to play catch-up.''

Even when the Treasury does fine banks under its sanctions program, the amounts are small -- a maximum of $11,000 per transaction. ``It doesn't cut it,'' the Brookings Institution's Baker says of the fines. ``I don't know if that gets the attention of the banks.''

The Treasury has already fined Citigroup and American Express several times for dealings related to Libya. In the most recent fines, each company paid $5,500 for funds transfers by their banking units in 2001, according to records posted on the department's Web site in August and September 2004. The transfers don't match any of those described in the Alamoudi case.

Muslim Activist

The tale of the alleged plot to assassinate the Saudi ruler and Alamoudi's relationship with Libya is disclosed in documents filed in federal court, which show that Alamoudi received at least $910,000 from the Libyan government over several years.

Born in 1952 in Asmara, Ethiopia, in what is now Eritrea, Alamoudi earned a bachelor's degree in pharmacy from Cairo University and then moved to the U.S. in 1979, according to government filings in his case.

``Very early on, as a young man, he began to get involved in community activities,'' Cohen, Alamoudi's lawyer, says. ``He was an activist in the Muslim community.''

Alamoudi earned a master's in business administration in 1988 from Southeastern University in Washington and was the founder in 1990 of the American Muslim Council and American Muslim Foundation. The latter was a not-for-profit group whose activities included persuading the U.S. military to hire Muslim chaplains. Alamoudi, who also holds a Yemeni passport, became a naturalized U.S. citizen in 1996, the court filings say.

Libyan Funding

Alamoudi's first contact with the Libyans, as documented in court papers, came in 1997. That was when he approached the country's ambassador to the UN, Abuzed Dorda, asking for help in financing the struggling American Muslim Foundation, according to an interview of Alamoudi conducted in August 2003 by British agents of New Scotland Yard's terrorist financial investigations unit. The interview is cited in the U.S. criminal complaint.

Alamoudi discussed the Libyan assets that the U.S. government had frozen as part of its sanctions. The criminal complaint says Dorda suggested that Alamoudi could get a cut of any of the $1 billion in funds that he succeeded in having the U.S. release.

Dorda, who became chairman of the Libyan Railways Executive Board after his posting at the UN, didn't respond to questions faxed and e-mailed to railway offices in Tripoli. A woman who answered the phone there said he was too busy to speak to a journalist.

Alamoudi arranged a series of meetings with U.S. officials, the filing says, and they told him the assets were frozen as a result of the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland.

Swiss Account

The Libyan ambassador suggested in a subsequent meeting that Alamoudi try to secure money for his foundation from the Tripoli- based World Islamic Call Society, the complaint says. The Libyan society, which was founded and funded by Qaddafi, builds mosques and distributes food aid around the world with the goal of spreading Islam, according to its Web site.

In August 1999, Alamoudi opened bank account number 283- 810390 in his own name at UBS AG in Zurich with a $20,000 deposit. He later used the account to deposit money received from Libya and to funnel it back to the U.S., according to his plea agreement.

``UBS has fully cooperated with the relevant authorities,'' bank spokesman Christoph Meier says. ``There is no suggestion of any wrongdoing by UBS.''

By the end of 1999, the payments from Libya started. On Dec. 3, 1999, the Libyan mission to the United Nations wired $5,000 into the Citigroup account held by Alamoudi's American Muslim Foundation in northern Virginia.

Flying to Libya

The payment came shortly before Alamoudi started to travel to Libya using his American Express card to pay for tickets. In January 2000, he charged $1,877.70 to his card for the round-trip ticket from Zurich to Tripoli on Swiss Air.

In November 2000, the Libyan mission to the UN wrote the $2,000 check from its bank account, which Alamoudi's foundation deposited at Citigroup. In August 2001, Alamoudi used his American Express card again to buy the second ticket from Zurich to Tripoli, this time for $2,014.28.

The American Express ticket purchases are among 11 transactions related to travel to Libya for which Alamoudi was charged with violating the Libyan Sanctions Regulations in his March 25, 2004, indictment. The U.S. also charged him with separate crimes of traveling to Libya on a U.S. passport without permission from the State Department.

The ticket purchases are also mentioned in his July 30, 2004, plea agreement. Neither the indictment nor the plea agreement mentions American Express by name, but both give the same dates and dollar amounts that the criminal complaint naming Amex does. The documents don't disclose the payment method for the other nine tickets, some of which Alamoudi purchased and some of which the Libyan government bought for him, according to the plea agreement.

`Cooperate With the Devil'

The indictments and the plea agreement lack any reference to Citigroup accepting Libyan funds for the American Muslim Foundation's account, as mentioned in the criminal complaint.

On the afternoon of March 1, 2003, Qaddafi, 63, and Abdullah, who turns 81 this year, had their showdown. It was carried live on Egyptian state television from Sharm el Sheikh, a Red Sea resort on the tip of the Sinai peninsula.

Their exchange started with Qaddafi's jab that U.S. forces protected Saudi Arabia from Saddam Hussein's Iraq in exchange for U.S. access to Saudi oil.

``King Fahd told me that his country was threatened and he would cooperate with the devil to protect it,'' Qaddafi said, according to a partial transcript provided in Alamoudi's plea agreement. Caversham, England-based BBC Monitoring published a transcript of the rest:

The Grave Awaits

``America is used to protect this region because the latter is a very important source of energy,'' Qaddafi said before directly addressing the crown prince, the de facto ruler of Saudi Arabia because of King Fahd's longtime illness: ``If there is a correction, please go ahead, brother Abdullah.''

Abdullah -- wearing a white Arab headdress and robe while seated behind a green Saudi flag and chrome water pitcher -- then made his comments about the grave awaiting Qaddafi. Egyptian television then interrupted the live broadcast.

Twelve days after the Sharm el Sheikh confrontation, Alamoudi returned to Libya at the request of a Libyan government official identified in court records as LGO #1. The official asked Alamoudi to help the Qaddafi regime avenge Abdullah's insults, according to the plea agreement.

The government official started by asking Alamoudi to use his contacts with Saudi dissidents to create ``headaches'' in Saudi Arabia, the plea agreement says.

Meeting Qaddafi

In March and April 2003, Alamoudi met with Libyan officials in London and Tripoli, including a rendezvous in a London subway station, with the Libyans giving an unspecified amount of cash to Alamoudi.

He also sent money home, transferring $20,000 in March 2003 from his UBS account to one in Virginia under his name at First Union Corp., now part of Charlotte, North Carolina-based Wachovia Corp., according to an Oct. 22, 2003, supplemental declaration in support of detention filed by Gentrup. Unlike the Citigroup and American Express dealings, these transfers from UBS to the U.S. didn't involve the Libyan government as a direct party or the purchase of travel to Libya.

Alamoudi made three of his trips to Libya during the spring of 2003, according to the indictment. During one of those spring 2003 visits, Alamoudi met with LGO #5 -- Qaddafi himself, Cohen says. At the meeting, LGO #5 sent away the other agents to speak privately with Alamoudi, according to the plea agreement.

`Wacky as He Is'

That's when Alamoudi learned that the Libyans were plotting to assassinate Prince Abdullah, according to the plea agreement. The official identified as Qaddafi directed Alamoudi to tell his contacts among Saudi dissidents to arrange the killing of the Saudi prince, the plea agreement says.

``As wacky as he is, he's a dynamic and charismatic person, and that sort of presence overwhelmed him,'' Cohen says of Qaddafi and the influence he had over Alamoudi, whom Cohen says didn't think the assassination would ever happen. ``He thought it was a way to get some money for his organizations,'' Cohen says of Alamoudi's role as middleman.

The cash continued to flow, and from May to June 2003, Libyan agents gave Alamoudi $250,000 as he continued his trips to Libya, according to the plea agreement. At some point, he received another $80,000 from the Libyans and went to Switzerland to deposit it in his UBS account, the plea agreement says.

The plot started to unravel in August 2003, when Alamoudi received another ``large quantity of cash'' from the Libyans, some of which he delivered to Saudi dissidents, according to the plea agreement. That last big payment came from the World Islamic Call Society, with which Alamoudi said he'd finally negotiated funding for his foundation, according to the criminal complaint.

Cash In Briefcase

On the morning of Aug. 13, 2003, someone speaking Arabic in a Libyan accent called Alamoudi's room at the Hilton London Metropole hotel in London, informing Alamoudi he had ``something'' for him, according to the criminal complaint.

The individual arrived at his door, handed Alamoudi a small ``Samsonite-style briefcase'' filled with cash and left before the two could have a conversation, according to the criminal complaint that cites the account Alamoudi provided to U.K. agents.

He put the money into his own carry-on baggage and, three days later, left the briefcase in the room and headed to London's Heathrow airport to catch a flight to Damascus, Syria. During a routine baggage screening, U.K. customs officers found $340,000 in 34 bundles of sequentially numbered $100 bills, according to the criminal complaint.

U.K. agents seized the money and detained and questioned Alamoudi before allowing him to leave for the Middle East. They also seized his electronic address book and shared his list of contacts with U.S. law enforcement.

Message to Kill

When asked by U.K. agents why, as a U.S. citizen, he'd work with a country under U.S. embargo, ``Alamoudi explained that as the Libyan regime had by then renounced terrorism, he felt obliged to bridge the gulf' between his adopted country and an Islamic state,'' the criminal complaint says.

The next month, in September 2003, Alamoudi met again with LGO #5, telling him he'd delivered the message to kill Prince Abdullah, according to the plea agreement. Libyan agents then gave him $500,000 to pay the Saudi dissidents, according to the plea agreement. Alamoudi kept $230,000 as a commission, which he handed off to a third party in London.

On Sept. 28, 2003, Alamoudi arrived back in the U.S. at Washington Dulles International Airport and falsely omitted from his customs form that he'd been in Libya. U.S. agents then took him into custody, where he's been ever since.

In the course of negotiating a plea with prosecutors, Alamoudi disclosed the Libyan assassination plot and agreed to cooperate with the U.S. investigation, Cohen says.

`Terrorists Need Money'

On Oct. 15, 2004, U.S. District Judge Claude Hilton in Alexandria sentenced Alamoudi to 23 years in prison for violating economic sanctions against Libya when he accepted and transported the $340,000, making false statements in his application for citizenship and a tax offense for actions that included not reporting his overseas bank accounts in Saudi Arabia and Switzerland. UBS, which is named in the plea agreement as holding an account in Switzerland for Alamoudi, isn't mentioned by name in the indictment.

The judge handed down an unusually long prison term because the case fell under the terrorism provisions of federal sentencing guidelines, according to a Justice Department statement. Cohen says a judge may reduce the jail time in exchange for cooperation in the continuing U.S. investigation of the assassination plot.

U.S. prosecutors celebrated. ``It is a clear victory in the war against terrorism,'' McNulty, the U.S. attorney for eastern Virginia, said in a statement on the day of the sentencing. ``Terrorists need money to operate, and the defendant was caught in the act of financing their deadly schemes.''

As the investigation showed, banks and charge card companies can also enable terrorists' schemes. That role will be a lot harder to stop.

To contact the reporter on this story: Vernon Silver in Rome vtsilver@bloomberg.net.

Last Updated: July 29, 2005 00:06 EDT