Saturday, October 20, 2012

The Miscreants’ Global Bust-Out (Chapter 6): Man Financial and Al Qaeda’s Wash Trades

The Miscreants’ Global Bust-Out (Chapter 6): Man Financial and Al Qaeda’s Wash Trades

Posted on 17 May 2011 by Mark Mitchell 

In 2008, one of Man Financial’s big clients was a key Al Qaeda money launderer and market manipulator.

This will no longer seem surprising once you come to understand that the underworld of illicit finance is a small world, and once you understand that the underworld is becoming the overworld, which is to say that criminality has gone mainstream.

The Mafia has been a player in the financial markets since the 1980s, and we have begun to see how Michael Milken and his closest associates (including the ones who run Man Financial) made that happen. Meanwhile, where there is Mafia, there are jihadis.

At the outset of this story, I quoted former U.S. National Intelligence Chief Admiral Dennis Blair’s warning about the “nexus” between organized crime and terrorism. In addition, not long ago, the U.S.. Department of Justice hired experts who produced a report that was titled, “Exploring Links between Transnational Organized Crime & International Terrorism.”

In this report, the experts (all noted academics and former employees of national security agencies) stated that “criminal and terrorist organizations will integrate and might even form new types of organizations.”

The experts said, “Granted, the motives appear different: organized crime focusing on making money and terrorism aiming to undermine political authority.” But, according to the experts, the evidence is clear that “the goals of crime and terror groups have coalesced in the past.”

The shared goal is not political in the sense of being rooted in a complex ideology, but it has political implications. “Terror groups,” said the Justice Department experts, “sometimes seek and obtain the assistance of organized crime based on the perceived worthiness of the terrorist cause, or because of their common cause against state authorities or other sources of opposition.”

Indeed, according to the experts, the Mafia and the jihadis “have similar profiles, and are often the same individuals….many individuals belong to both terror and organized crime groups, and conduct a variety of tasks for both.”

Among the many examples cited by the experts was that of Dawood Ibrahim, the Indian Mafia boss. Recall that a CIA official said, “If you want to know what Osama bin Laden is up to, you have to understand what Dawood Ibrahim is up to.”

Daniel Pearl, the Wall Street Journal reporter who was murdered by jihadis in 2002, had begun to investigate Mr. Ibrahim, but he never wrote a story about him. After Pearl’s death, The Journal announced that it would henceforth stop sending reporters to dangerous places because doing so did not conform with the paper’s mission to report on the world of business.

Apparently, The Journal had concluded that dangerous people in dangerous places do not conduct business. Since then, the newspaper has given up on investigating anything at all.

Meanwhile, most other newspapers seem equally disinclined to devote resources to serious investigations, or to publish stories that might surprise their readers. So you won’t read much about Dawood Ibrahim in the press, though Forbes Magazine ranks him as one of the 50 most powerful people in the world.

But Mr. Ibrahim is also one of the most dangerous people in the world. He is someone who should be appearing on the front pages of every newspaper in the land.

Mr. Ibrahim, we have seen, used to run his global criminal operation out of Dubai, with the full acquiescence of the local ruler, Sheikh Mo. While in Dubai, Mr. Ibrahim came to be on close terms with everyone from Bollywood actresses and Saudi sheikhs to financial cons and market manipulators (such as Ali Nazerali, formerly of BCCI) who inhabit the network of Michael Milken.

For most of his career, Mr. Ibrahim was nothing more than a secular Mafia boss, involved in the usual trades – narcotics smuggling, money laundering, market manipulation, trafficking of precious metals, prostitution, protection rackets, and the proliferation of nuclear weapons materials.

But in the early 1990s, Mr. Ibrahim and his Mafia outfit, which is called “D-Company”, began to form relationships with jihadis, including Osama bin Laden. And thanks to those relationships, he soon came to the attention of Pakistan’s spy agency, the ISI.

In 1993, the ISI invited some of the top members of Mr. Ibrahim’s crime gang to Pakistan to receive paramilitary training. Also in 1993, Mr. Ibrahim and his henchmen, with cooperation from jihadis and the ISI, orchestrated the most deadly one-day attack in Indian history, simultaneously exploding powerful bombs in thirteen locations throughout Bombay (now called Mumbai).

A total of 250 people were killed in those attacks, and 700 were injured. Clearly, this was not a typical Mob hit. It was an act of terrorism, coordinated by a man who was not by appellation a “terrorist”, but rather a Mafioso who happened to have found common cause with rogue spies and jihadis.

Mr. Ibrahim, who now lives in Pakistan under the protection of the ISI, is also suspected of involvement in the cataclysm that hit Mumbai in 2008, when Al Qaeda-linked jihadis (most of them members of Laskhar-e-Tayyiba) launched attacks in more than ten locations around the city, occupying several hotels and a synagogue, and killing at least 173 people, including at least five Americans, one a 13-year old girl.

This is why Dawood Ibrahim enjoys the distinction of being the only person labeled by the U.S. government as both a “Foreign Narcotics Kingpin” and a “Specially Designated Global Terrorist”.

But he is not the only person who has deserved those appellations. The Saudi billionaire Sheikh Mahfouz (formerly of BCCI) was, until his death in 2009, another person who was connected to both the drug trade and the Grand Jihad. And many leaders of Al Qaeda are heavily involved in the heroin trade, running their drugs through the Albanian Mafia (which is essentially an Al Qaeda subsidiary) in close cooperation with the Russian Mafia and La Cosa Nostra.

There are purists who would insist that Dawood Ibrahim is not officially part of Al Qaeda because he has never sworn allegiance to Osama bin Laden. This would be to misunderstand the nature of Al Qaeda, which has never had more than a smattering of official members, though far more people have done its bidding.

Most of the hijackers who carried out the September 11 attacks were also not “officially” members of Al Qaeda. In fact, when those attacks were carried out, the 9-11 mastermind, Khalid Sheikh Mohammed, was also not yet “officially” an Al Qaeda member. He swore allegiance to bin Laden and officially joined Al Qaeda in early 2002, months after 9-11.

To defend against Al Qaeda, we must understand that the enemy is not just a few sworn members, but a large, loose network of people who collaborated with Osama bin Laden, and will continue to collaborate with bin Laden’s successor. All of these people are on the same page, though they do not call themselves Al Qaeda.

In Osama bin Laden’s formal declaration of war against the United States, the name “Al Qaeda” was not even used. Instead, the declaration was signed by bin Laden and the leaders of mutiple other outfits – the Jihad Group, the Egyptian Islamic Group, Jamiat-e-Ulema, and the Jihad Movement of Bangladesh.

Mr. Ibrahim’s D-Company is affiliated with Jamiat-e-Ulema, and a number of Mr. Ibrahim’s top henchmen are full-fledged members of the Jihad Movement of Bangledesh. So it is not surprising that D-Company has helped carry out multiple terrorist attacks linked to these and other Al Qaeda affiliates.

In addition to carrying out terrorist attacks, Mr. Ibrahim and D-Company are the single most important dealers of Al Qaeda heroin.

In addition to serving as Al Qaeda’s #1 heroin dealers and carrying out terrorist attacks linked to Al Qaeda affiliates, Mr. Ibrahim and D-Company play a key role in managing Al Qaeda’s finances.

Thus, we think it is fair to say that Dawood Ibrahim and his henchmen are members of a somewhat intangible network of closely affiliated people. And it is correct (indeed, it is essential, if we are to understand the real enemy) to describe all of the people in this network as being “members” of Al Qaeda, regardless of whether they openly declare themselves as such.

Dawood Ibrahim is not only a “member” of Al Qaeda. He is also a notorious market manipulator said to be the most important trader on the Karachi stock exchange. And he is quite active in the U.S. markets.

In 2008, one of Dawood Ibrahim’s top henchmen was Naresh Patel. Mr. Patel presided over an underground Al Qaeda and Mafia banking network with tentacles in the United Arab Emirates, India, Pakistan, China, Nigeria, Italy, Afghanistan, South Africa, the Congo, Nepal, the Cook Islands, Great Britain, and the United States.

The principal function of this network was to manage Al Qaeda drug profits — hundreds of millions of dollars that both Al Qaeda and its subsidiary, the Albanian Mafia, had earned from selling not just heroin, but also cocaine.

According to the U.S. Department of Justice, much of that money was transferred through banks in Dubai, and onwards to at least fifteen accounts that Patel held at Man Financial, the outfit that was (as we have seen) tied to Michael Milken, Bernie Madoff, Tuco Trading, and BKS in Moscow.

Patel traded huge volumes through these Man Financial accounts in 2008, but the DOJ didn’t catch him until 2009, at which point he was charged with transacting, through Man Financial, massive volumes of “wash trades” –simultaneously selling and buying commodities. He was doing the same thing with securities.

The DOJ described this activity as “money laundering” because money laundering was part of it, and money laundering is a concept that is fairly well understood by counterterrorism officials. Market manipulation, by contrast, is less well understood, judging from the fact that few people are ever prosecuted for it, though it happens constantly and, sometimes, on massive scales.

There is no sign that the DOJ understands that people (like Naresh Patel) who deploy “wash trades” are not just laundering money – they are manipulating markets. They use “wash trades” (simultaneously buying and selling the same securities) to create a tremendous amount of trading noise as cover under which they can manipulate prices down.

In other words, wash trades create static and drown out genuine market signals. Most often, as the information in the marketplace gets attenuated, wash trades are deployed simultaneously with naked short selling to create the appearance of panic selling. This induces the very sell-off on which the trader is betting.

Having pushed equilibrium through a tipping point, the manipulators can sit back and watch the sell-off carry the securities lower, at which point they cover their short. But because the manipulative trades were submerged in a river of identical buy-sell-buy-sell-buy-sell orders, it is difficult to tease them out and see the manipulation in action.

A price is a piece of information about value and scarcity. Wash trades such as Naresh Patel’s do serious damage to the markets in themselves, just by washing out that market information about value and scarcity.

But it would be a good idea for the SEC to check Naresh Patel’s and Man Financial’s trading records (not to mention those of Madoff’s brokerage and others that transacted trades for Man Financial) to see if this Al Qaeda man’s wash trades were, like most wash trades, part of an even bigger short-side market manipulation scheme.

It would also be helpful to know exactly which Man Financial executives were responsible for transacting the jihadi’s manipulative trades. Certainly, the Milken cronies who own Man Financial had some responsibility. It also seems likely, for one, that Man Financial’s vice president of trading control, Neda Nabavi, would have had oversight of the trading.

This might or might not be relevant, but I will nonetheless point out that Ms. Nabavi is also the executive director of an Iranian social club called Shabeh Jomeh. This social club appears to be innocent enough–it organizes parties and other social gatherings. But it is an instructive guide to Iranian business networks.

The co-founder of Shabeh Jomeh (along with Man Financial’s Nabavi, and one other fellow) was Babak Talebi, who was also a board member of the National Iranian American Council (NIAC).

The NIAC was set up in the wake of the 9-11 attacks, ostensibly to serve as a voice for “moderate” Iranian-Americans who object to terrorism. In a remarkably short period of time, the organization gained access to high-level officials at the State Department and the Central Intelligence Agency.

But, as it turned out, the National Iranian American Council’s principal mission was not to serve as a voice against terrorism. In fact, it said little at all about terrorism. Instead, it devoted most of its energies to advocating on behalf of the Iranian government.

In 2007, an Iranian American journalist named Hassan Daioleslam began publicly asserting that the NIAC should be officially registered as an agent working for the Iranian regime. The director of the NIAC, Trita Parsi, responded by suing Daioleslam for defamation.

This turned out to be a mistake, because it allowed Daioleslam to request “discovery” of the NIAC’s internal documents, which proved that the NIAC had, from its inception, been in regular contact with Iran’s ambassador to the United Nations, who was (recall) also directing the operations of Palestinian Islamic Jihad, the Assa Corporation, and the Alavi Foundation.

It emerged from the court battle that the NIAC was coordinating its lobbying and advocacy with a man named Siamak Namaz. Some years earlier, Namaz had founded an outfit in Europe called Iranians for International Cooperation, the stated mission of which was to “safeguard Iran’s interests”. The NIAC, it appeared, was founded to fulfill that same mission in the United States.

As to the credibility of NIAC’s claims that it advocates on behalf of “Iranian-Americans”, as opposed to the Iranian regime, it has been noted that the group has very few Iranian-Americans as members, while its leaders, Namaz and Parsi, are Iranian nationals who, by all accounts, are loyal to the regime of the Islamic Republic, and have no intentions of becoming American citizens.

It is, moreover, the case that while Namaz was lobbying on behalf of the Iranian regime, he was also working as a managing director of a company called Atieh Bahar, which is the international consulting arm of the Atieh Group, a holding company that has contracts with Iranian government ministries and the Iranian banks that were financing the Islamic Republic’s nuclear program.

Shortly after this information became public, the head of the Atieh Group, Bijan Khajehpour, was arrested in Iran and supposedly imprisoned by the regime. Meanwhile, Namaz and Parsi suddenly began claiming to support the democracy movement in Iran.

In light of these developments, I feel confident in floating a hypothesis – namely that the Iranian government instructs its agents to speak out in favor of democracy in order to provide cover for their activities on behalf of the regime.

It is quite possible that the Islamic Republic even stages the imprisonment of its best agents to provide them with a pro-democracy veneer that will enable them to operate more effectively in the West.

Certainly, it seems unlikely that Namaz and Parsi are genuine democrats given that internal NIAC documents show that the organization aspired to snuff out the so-called “Democracy Fund” and other pro-democracy movements led by Iranians living in the U.S.

In a document titled “Campaign for a New American Policy on Iran,” the NIAC vowed to “end the Democracy Fund as we know it”. Along these lines, the NIAC document lists several important goals. At the top of the list is the goal of convincing liberal Iranians and their supporters to “abandon the pursuit of regime change.”

As for Mr. Khajehpour, perhaps he really was a threat to the regime in Iran. Perhaps he really did go to prison. But he didn’t stay in prison long, and he is now in London, from where he operates a business empire that has much reach into the United States.

I do not mean to suggest that Americans should view the NIAC as something mysterious or scary. To the contrary, Americans should engage the NIAC, just as the U.S. government should engage the Iranian regime.

Trita Parsi, NIAC’s founder, has written an excellent book that is a must-read for anyone wishing to understand the Iranian party line. Perhaps, one day, Parsi can convince his associates in Iran that there is little to be gained by threatening to exterminate Israel and waging what the Ayathollah calls “economic jihad” (with “jihad” understood to mean “war against the infidels”).

However, as long as Iran demonstrates by its actions that it is an enemy of the United States, it might be best to treat its agents with a degree of suspicion. Another book worth reading is “Shariah: The Threat to America,” by former CIA director James Woolsey, who implicates Iran in everything from the September 11 attacks to the development of shariah “compliant” finance that poses a threat to the global financial system.

As we know, the Alavi Foundation, the other front for the Iranian regime that was dealing with Iran’s UN ambassador, was indicted in 2009 for espionage and funding Iran’s nuclear weapons program. A report in the New York Daily News even suggested that the Alavi Foundation was conspiring to import nuclear materials into the United States for use in a terrorist attack on a major American city.

As for Shabeh Jomeh, the Iranian social club co-founded by Man Financial’s vice president of trading controls, it might well be nothing more than opportunity for Iranians to get to know each other. But it might also be worth noting that in addition to being tied to the NIAC, Shabeh Jomeh’s third co-founder is Tamilla Ghodsi, a managing director of Goldman Sachs.

Ghodsi sits on the board of the Razi Health Foundation, an outfit that transferred large sums of money to the above-mentioned Alavi Foundation. Meanwhile, The Alavi Foundation delivered money back to the Razi Health Foundation, raising the possibility that these organizations were essentially one and the same thing.

But the SEC has not investigated Man Financial at all. In fact, it has almost never prosecuted a major case of market manipulation, much less checked the trading records of a key Al Qaeda money manager who was manipulating the markets through a brokerage that also does business with the Mafia.

So nobody is prosecuting Man Financial, despite the fact that it was clearly complicit in Al Qaeda man Naresh Patel’s illegal trading, and despite the fact that the Milken cronies who run that operation must have known precisely who Naresh Patel was.

Indeed, it is the law – as prescribed by the Patriot Act — that brokers and hedge fund managers must know whether their customers are Mafiosi, jihadis, or both.

This is especially true when the customers are members of Al Qaeda and appear to be conducting massive volumes of manipulative short trades at the height of a financial crisis.

To be continued…

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