Charity’s Fate Seen as Test of Wider War on Terror

For a decade, the Holy Land Foundation for Relief and Development was the nation’s fastest-growing Islamic American charity, its suburban North Texas headquarters brimming with cash and checks collected in the name of refugees in the Mideast. The charity exists only in the abstract now, decimated by America’s war on terrorism.

The foundation’s bank accounts are frozen by government edict. Its possessions, from computers to potted plants, have been locked away in government storerooms for nearly two years. The charity’s sole activity is a lawsuit aimed at recovering $5 million in assets frozen by the U.S. Treasury Department.

Federal judges have repeatedly upheld the government’s authority to shut down Holy Land because of its suspected ties to the Palestinian militant group Hamas. At the same time, the Justice Department is targeting the charity in a criminal investigation that accelerated last month with a round of subpoenas ordering several former employees to appear before a Dallas grand jury.

“Every day,” said Shukri Abu Baker, Holy Land’s Palestinian American director, “I wake up thinking: ‘Is this the day they will come to handcuff me?’ ”

Holy Land’s public transformation from almsgiver to pariah reveals a charity whose deeds were blurred by associations with suspected militants.

Wracked by a decade of internal debate over how to deal with the charity, the U.S. government veered from inaction to crackdown. There have also been missteps. The Times has learned that a secret FBI application for surveillance connected to the Holy Land case was flawed and could prompt a new legal challenge.

The government’s stance against Holy Land reflects the official view that Hamas operations inside the United States require the same level of scrutiny as Al Qaeda, even though the Palestinian faction has not been known to target American citizens. Hamas cultivates Palestinian popular support and deflects international criticism by blending welfare with violence -- sending bomb-laden recruits against Israeli civilian targets while showering social aid on destitute refugees.

Holy Land’s fate has become a key test of the Bush administration’s expanded view of terrorism: that charities can pose a threat by funding legitimate programs used to provide cover for militants. Officials charge that Holy Land secretly aided Hamas by funneling donations to Palestinian schools, hospitals and other aid programs tied to the resistance group -- and to stipends that nurtured the families of suicide bombers.

“We don’t deny that a lot of their funds went for good works,” said Juan C. Zarate, deputy assistant Treasury secretary for terrorism and violent crime. “But they helped an organization that had a larger agenda of fomenting terrorism.”

Holy Land’s officers and lawyers counter that no donations were knowingly given to any Hamas entity. The funds were directed to nonpartisan Palestinian agencies and to impoverished families with no known Hamas affiliations, said Holy Land lawyer John Boyd. He accused the government of distortions, false testimony and “crushing an Arab American success story.”

Hamas, formed by Islamic fundamentalists in 1988 to resist Israeli occupation, spurned the secular opposition led by Palestine Liberation Organization chief Yasser Arafat. Its campaign of suicide bombings has killed hundreds of Israelis -- and several Americans -- over the last decade. Hamas leaders insist their political and military wings act separately, a rationale rejected by the Bush administration.

As new violence in recent weeks has dashed hopes for the U.S.-backed “road map” to peace in the Middle East, the Treasury Department has blocked the assets of six senior Hamas leaders. Among them is Mousa Abu Marzouk, a top strategist who heads the Hamas political wing and allegedly helped organize Holy Land’s creation in Southern California in the late 1980s.

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President Bush froze Holy Land’s funds and designated the charity a terrorist group three months after the Sept. 11, 2001, attacks -- part of his first official response to the mass deaths in New York, at the Pentagon and in Pennsylvania. Donations “raised by the Holy Land Foundation,” Bush said, gave Hamas “much of the money that it pays for murder abroad.”

Investigators have not found any direct links between Hamas and Holy Land and the Sept. 11 plot. But the shock of the events of two years ago prompted federal officials to reexamine all U.S.-based organizations suspected of terrorist activities.

Hamas had been classified as a terrorist group by President Clinton in 1997. The move made funding any Hamas entity a crime. More recent authorizations by Bush and Congress allowed the Treasury Department to block the assets of anyone suspected of providing financial and material support. And, Zarate said, the agency also now has the “revolutionary” ability to make a detailed case against designated terrorist groups without filing criminal charges.

“This is the destruction of a charity by executive fiat,” argues Holy Land lawyer Boyd. Since Dec. 4, 2001, when federal agents trooped inside the charity’s headquarters in the leafy Dallas suburb of Richardson, Holy Land’s officers have been publicly pilloried by the government for “nonexistent” Hamas ties, Boyd said.

Last month, a U.S. appeals court in Washington reaffirmed a June ruling that there is “ample evidence” of Holy Land’s links to Hamas. Complaining that judges ignored their requests for a due-process hearing into the government’s evidence, Holy Land’s lawyers plan an appeal to the U.S. Supreme Court.

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The shutdown was a traumatic blow to an organization that had become a point of pride among Muslims in Dallas and around the country. Holy Land had ranged beyond its charity role in the occupied territories to assist the needy elsewhere, from Bosnian refugees to Fort Worth tornado victims. Its billboards lined Texas highways and urged “More kindness for Humankind.” Its Arabic-language television ads beamed anguished Palestinian faces nationwide during the fasting month of Ramadan. Donations soared, doubling in 2000 to $13 million.

Arab American activists have rallied to Holy Land’s legal defense, claiming the charity’s treatment displays the government’s anti-Islamic bias. The charity “was a pillar for us,” said Mohammed Elmougy, Dallas director of the Council of American Islamic Relations. Baker, Holy Land’s director, is still sought for sermons at local mosques, lecturing recently to hundreds of worshipers at one Richardson shrine -- ever careful not to mention Hamas.

“I am not now, nor have I ever been, a member,” Baker said in a sworn deposition.

A detailed FBI memo asserts otherwise. Compiled by agents months before the Sept. 11 attacks, the file was used by the Treasury Department as its legal basis for shutting down Holy Land. Its senior author, now-retired FBI counterterrorism director Dale L. Watson, told Treasury officials in November 2001 that “numerous FBI sources have identified Baker as being a member of Hamas.” One informant reported Baker was introduced to a Culver City audience in 1994 as a Hamas “senior vice president.”

The memo is the government’s core case against the charity, based on classified volumes of phone intercepts, seized documents and informant testimony. The 49-page file offers glimpses of Baker and other Holy Land officers allegedly meeting with Hamas operatives and hatching financial deals with some, including Hamas strategist Marzouk.

U.S. authorities have never said how much money they think Holy Land funneled to Hamas. Instead, the FBI memo describes how Holy Land sent a steady stream of funds to Palestinian charity committees dominated by Hamas operatives across the West Bank and Gaza Strip. In turn, the committees meted out food, medical and other social services to the poor, “building Hamas grass-roots support through charitable projects,” the FBI said.

According to the FBI, a trove of secret evidence gleaned from wiretaps and informants document that Holy Land’s “annuities to families of Hamas members” provided “a constant flow of suicide volunteers and buttressed a terrorist infrastructure.”

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Behind drawn blinds in his suburban home, Baker wove an alternate history as he braced for the government’s next move. One former Holy Land staffer is reportedly cooperating with prosecutors. When Baker leaves home, his anxious wife stays constantly in touch with him on his cellphone.

Holy Land, Baker said, was inspired from his desperation over a daughter’s illness and the mounting deaths of Palestinians during the first uprising against Israel in 1987. Son of a Palestinian father and a Brazilian mother, Baker came to Orlando, Fla., in 1980 from England to study engineering but was soon swept up in a Palestinian nationalist fervor.

Staying in an Indianapolis hotel in 1988 while his daughter was being treated at a local hospital, Baker said he “turned on TV and saw Palestinians being crushed. It was a message -- why not copy America’s wonderful philanthropic system and use it to help my countrymen?”

He joined several Palestinian friends in California to test the idea, incorporating the Occupied Land Fund on Jan. 11, 1989, in Culver City. The charity was little more than a mail drop in its first year.

Three years later, Baker moved to Dallas after changing the charity’s name. He had jettisoned what he called the “politically loaded” Occupied Land Fund in favor of the broader and more religiously muted Holy Land Foundation. In Dallas, where the charity found a natural base in a settled community of 150,000 Muslims, Holy Land’s reputation and donations grew.

Federal officials allege that Baker and the other founders acted as surrogates for Marzouk, said to be Holy Land’s real creator. Marzouk is described as a militant Johnny Appleseed who roamed the United States in the 1980s with a near-bottomless bankroll and a plan to build an American Hamas underground.

“Marzouk was the rainmaker” who started Holy Land’s real growth, said Danny A. Defenbaugh, a former FBI agent who headed the bureau’s Dallas office during its scrutiny of Holy Land in the 1990s.

Federal documents show Marzouk gave $200,000 to Holy Land in 1992. It was among several donations he and associates made to Islamic activist groups. At the same time, U.S. officials allege, Marzouk and his inner circle transferred hundreds of thousands of dollars to operatives in the United States to buy weapons and train recruits for Hamas activities in the occupied territories.

Baker admitted he has known Marzouk since the mid-1980s but denied any Marzouk role in creating Holy Land. “Did he have strong views about Palestine? Of course, we all did,” Baker said. Marzouk’s gift came with “no strings.” Baker taped a copy of one $100,000 check to his office wall.

Despite Baker’s denials, Ahmed Agha, an Oklahoma doctor and former Holy Land treasurer, recalls that Marzouk was involved in early general discussions and may have provided other, smaller donations.

“Mousa gave them organizing pointers,” then “shook their hands and said, ‘Good luck,’ ” agreed Marzouk’s lawyer, Stanley Cohen. “Nothing illegal.” Detained by authorities in New York in 1995, Marzouk was deported to Jordan in 1997 and is now reportedly in Syria.

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Holy Land’s reach became more sophisticated as its donations grew: Its appeals ranged from street solicitations and phone banks to lavish fund-raising affairs with executives and public officials. Baker hired social workers for West Bank and Gaza Strip offices and set up a corporate matching campaign in the United States, linking with banks and air-mileage programs. He laid plans for ambitious scholarship programs for Islamic students.

FBI counter-terrorism agents soon had Baker’s name in their files. Their suspicions date to October 1993, when a wiretap aimed at a Hamas suspect overheard Baker and other activists in a Philadelphia hotel allegedly discussing plans to raise funds for the terrorist group and cryptically referring to “Samah” -- Hamas spelled backward.

Boyd, Holy Land’s lawyer, said the FBI “distorted” innocent discussions. References to Samah were “just joking,” Baker said. Throughout the late 1990s, Baker and Holy Land lawyers pressed federal officials for hints that the charity had run afoul of the law. They learned nothing. Holy Land mistook the government’s silence for tacit acceptance, authorities said.

While FBI counter-terrorism agents in Dallas, Chicago, New York and Southern California amassed Holy Land intelligence files, senior federal officials were divided over how to proceed. Some felt it was crucial to build more intelligence on the Hamas hierarchy inside the United States. Others insisted that new presidential directives against Hamas and a toughened 1997 anti-terrorism law provided strong tools to prosecute.

One faction of National Security Council aides pressed for indictments, insisting Clinton’s designation of Hamas as a terrorist group gave the FBI ample authority. “The FBI just sat there,” said one former NSC official, still fuming.

Justice Department and FBI counsels cautioned that untested anti-terrorism laws could sink a prosecution and lead to bias protests from Arab American groups. Even criminal convictions might yield only minor prison terms.

“The bureau wanted to nail these guys but not at the expense of good intelligence,” said Robert Blitzer, a former FBI counter-terrorism director.

Arguments spilled out between investigators. One Chicago FBI agent, Robert Wright, sued bureau officials last year, charging that they prematurely halted a broad Illinois-based investigation of suspected Hamas operations, including Holy Land. A portion of the investigation has since been revived before a Chicago grand jury.

“There was huge competition between the ‘intel’ side and the criminal side. The result was status quo, nothing changed,” said Mark Flessner, a former federal prosecutor in Chicago who worked with Wright.

By the late 1990s, U.S. and Israeli operations had gleaned much about Holy Land’s inner workings. According to Reuven Paz, a former Israeli Shin Bet intelligence official, the charity’s aid went mostly to relatives of Hamas prisoners but also to families of suicide bombers. The point, said Paz, an analyst of Islamist movements, “was to make everyone know they took care of their people.”

Social agencies aided by Holy Land also provided cover for militants, said Matthew Levitt, a former FBI terrorism specialist. Hamas-linked hospitals hid militant meeting places. Hamas also “buries caches of arms and explosives under its kindergarten playgrounds,” said Levitt, senior fellow at the Washington Institute for Near East Policy.

Unable to trace Holy Land funds directly to Hamas, the Israelis relied on raids and arrests, Paz said. U.S. officials point to a 1997 confession to Israeli police by Muhammad Anati, director of Holy Land’s West Bank office. The FBI summary reports that Anati admitted “some of the aid was channeled to Hamas.”

An original transcript of Anati’s questioning, Boyd charged, does not contain that admission -- among several “phony translations” marring the Holy Land evidence, he said. “The government is simply not playing fair.”

Fawaz Hammad, an officer of Holy Land’s West Bank office until Israeli officials closed it in 1997, insisted in a telephone interview that the “political background” of poor orphans and families made no difference in determining who was granted aid. But the FBI says that Hammad’s own background is suspect and that he was arrested several times by Israeli police for Hamas activities. Hammad confirmed that he was questioned about “money distribution and [his] connection with Shukri Abu Baker,” but denied any relation with Hamas.

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Despite mounting evidence, federal officials said it was several months before Sept. 11 that agents at the Justice Department and the Treasury Department’s office of foreign assets control were told to prepare for a Holy Land shutdown. Even then, it took the terrorist attacks to “clear the boards,” Blitzer said.

But new trouble had emerged. Federal officials discovered errors in a secret FBI affidavit that had been used to obtain wiretaps in a Holy Land intelligence-gathering operation. The flawed document was handled by an FBI counter-terrorism official who also played a key role in assembling the bureau’s memo on the charity’s alleged ties to Hamas.

Current and former federal officials familiar with the classified case told The Times that the flawed wiretap application was submitted more than three years ago by Michael Resnick, an FBI counter-terrorism supervisor in Washington. Resnick coordinated Hamas case agents around the country and processed FBI requests to the Foreign Intelligence Surveillance Court, a judicial panel that oversees all wiretaps, mail intercepts and clandestine searches of suspected foreign operatives.

In November 2000, surveillance court judges, frustrated by the FBI’s “inaccurate affidavits,” barred Resnick from appearing before them.

According to federal officials, the judges were irritated that FBI agents had repeatedly provided misinformation about how the bureau’s intelligence and criminal operations were kept separate -- a policy used to ensure that prosecutions were not tainted. The 1978 law that formed the surveillance court allowed for the limited use of intelligence evidence under strict oversight. In the 1990s that evolved into “the wall,” a rigid system that enforced the separation but dissuaded prosecutors from using secret files.

At least 75 FBI surveillance applications were marred by errors, but Resnick was the only agent disciplined by the court. The court’s decision prompted the bureau to start an internal investigation of other Resnick surveillance applications, officials said. That effort turned up the affidavit used to authorize Holy Land surveillance. FBI agents in Dallas and Chicago had to correct the errors before the intercepts were reapproved, officials said.

Resnick declined to comment on the matter, citing national security. Colleagues blamed some of the errors on agents who had handled the applications before him. “Mike Resnick is one of the best agents I worked with,” Levitt said.

One senior FBI official insisted the mistakes did not compromise the wiretap’s legality. Others said that even if tainted evidence was stricken by a judge, authorities have alternate sources of evidence.

The government’s hand was also strengthened, authorities said, by the passage of the USA Patriot Act and by a federal appeals court decision in November that overturned the surveillance court’s use of “the wall.” The court allowed prosecutors to use intelligence evidence that was once off-limits in order to strengthen their criminal cases.

The ruling paves the way for “legally obtained intelligence [to be] spread to appropriate personnel,” said Jeffrey A. Breinholt, a Justice Department coordinator for the enforcement of terrorist-financing cases. Investigators have already begun reviewing the massive decade-old Hamas intelligence file for possible use in prosecutions.

But some FBI agents still worry that the flawed wiretap applications could hobble any Holy Land trial. “It’s an opening lawyers can exploit,” one said.

Boyd, Holy Land’s lawyer, said the Resnick inquiry could be “profoundly important” in challenging the shutdown of the charity and any future indictments. “Why does the government rely on documents it knows are misleading?”

But Boyd would have to find a judge willing to give him access to the classified Resnick affidavit -- still a legal rarity, according to national security law experts. “Judges get nervous when terrorism is mentioned,” said Tim Edgar, legal counsel for the American Civil Liberties Union. Still, a strong challenge “could change some minds.”

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If Holy Land officers are indicted, a senior federal official said, prosecutors would likely use conspiracy and anti-racketeering laws as their legal framework, which would enable them to build a broad “historic case” that could make use of the cache of intelligence gathered against Holy Land.

Federal prosecutors in Dallas are already plying a similar strategy against four Palestinian brothers accused of using InfoCom, a Texas computer and Web-hosting firm, as a Hamas front. The brothers were indicted in December on charges that they conspired to export contraband equipment and transfer funds to Marzouk, who was also indicted.

New Holy Land revelations may come, officials said, when the InfoCom defendants go on trial. The company rented space to the charity. And an InfoCom official, Ghassan Elashi, is Holy Land’s chairman and a friend of Baker’s.

The unfolding Justice Department investigation and the Treasury Department freeze have left Baker in a delicate predicament. While his lawyers argue that federal officials and judges have deprived him of his right to challenge the secret evidence cited by Treasury officials, Baker may well only win that opportunity if he is indicted.

If the grand jury investigation of Holy Land does not lead to criminal charges, Baker will still be left without a charity to run. Federal judges have repeatedly ruled that the government wields the authority to impound a charity’s assets and block its bank accounts for as long as it deems necessary.

That, Baker said, “would be like a life sentence.”

Times researcher John Beckham in Chicago contributed to this report.

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Chronology of the Holy Land Foundation for Relief and Development

Jan. 11, 1989: The Occupied Land Fund incorporates in Culver City with Shukri Abu Baker as its director. In its first year, the charity collects $210,275 in donations.

March and August 1992: Mousa Abu Marzouk, an alleged Hamas organizer in the United States, makes two $100,000 donations. He is later deported from New York on suspicion of terrorist activities. Marzouk now reportedly lives in Syria.

Nov. 18, 1992: The charity moves its headquarters to Richardson, Texas, after changing its name to the Holy Land Foundation for Relief and Development.

Oct. 1-3, 1993: FBI surveillance of a Palestinian activist meeting in Philadelphia monitors Baker and suspected Hamas operatives.

May 6, 1997: Israel shuts down the charity’s offices in the West Bank and Gaza Strip for alleged Hamas ties. Israel seizes documents and arrests Holy Land’s Jerusalem director on suspicion of providing stipends to families of suicide bombers.

Oct. 8, 1997: President Clinton designates Hamas a foreign terrorist organization, making it a crime to aid the group with any “funds or material support.”

Dec. 4, 2001: President Bush announces a freeze on Holy Land Foundation assets; FBI and Treasury Department agents cordon off the charity’s headquarters in Richardson and offices in San Diego, Paterson, N.J., and Illinois, seizing all assets.

March 22, 2002: Holy Land Foundation sues the Treasury, Justice and State departments, claiming its constitutional and religious rights were violated. The charity demands the return of seized accounts, which total $5 million.

Dec. 18, 2002: Ghassan Elashi, a computer executive and Holy Land’s chairman, is charged by U.S. authorities with conspiring with Marzouk to hide financial dealings in InfoCom, a Dallas computer and Web firm.

April 22: A U.S. district judge in Washington rejects Holy Land’s lawsuit.

June 20: A three-judge panel of the U.S. Court of Appeals in Washington upholds the Treasury Department’s authority and finds “ample evidence” of terrorist activities. That decision was reaffirmed last month. Holy Land is planning an appeal to the U.S. Supreme Court.

Los Angeles Times