Taking From the Poor.(financing terrorism)(Brief Article)(Statistical Data Included)

The Muslim orphanage in the southern Philippine town of Cotabato is an unprepossessing place. The building is decrepit, its doors rusted halfway open. Inside, three times a day, its 34 orphans sit in a tight circle reciting the Quran for an hour. Afterward they are let out to play soccer. Then, after evening prayers, they are allowed to watch television for half an hour.

The problem is that there's only one orphanage. The man who founded it 10 years ago--Mohammad Jamal Khalifa, 45, the Saudi-born brother-in-law of Osama bin Laden--told his Saudi sponsors that he had built 33 such institutions across the southern Philippines with the funds they had sent him. Filipino military sources now say the rest of the money was used to help create the Abu Sayyaf, the bloodthirsty Islamic rebel group that has terrorized the southern Philippines in recent years with a series of high-profile kidnappings and beheadings.

As U.S. officials threaten to expand the war on terrorism to cover extremist groups outside Afghanistan, attention is increasingly being focused on the Philippines, where the Abu Sayyaf and other rebel groups have longstanding ties to bin Laden. Khalifa's role is especially intriguing--a case study of the myriad and often amateurish ways in which terrorist financing operates. From 1986 to 1994, when he headed the Philippine office of the International Islamic Relief Organization, a Saudi-based charity, Khalifa is believed to have swindled thousands of dollars from the IIRO budget, or channeled funds through its bank accounts to groups like the Abu Sayyaf. "Muslim militants work through legitimate organizations," says Gen. Alfredo Filler, former intelligence chief for the Philippine military. "The assistance is not intended for insurgents, but it can be skimmed off."

Khalifa found a variety of ways in which to hoodwink his sponsors, who fund clinics, schools and disaster relief across the Muslim world. During his stay in the Philippines, he operated a furniture business in Manila and forced the IIRO to buy its products. In 1989 he opened a bakery in the southern Philippines, whose proceeds were diverted to the Abu Sayyaf. (Authorities suspect some of the organizations may have been money-laundering fronts--and have ...