Justice Probes Deals With China by FBI
Wednesday, October 1, 2003

By JOHN SOLOMON
Associated Press Writer

WASHINGTON (AP) - The Justice Department inspector general is investigating whether FBI agents involved in espionage and terrorism cases improperly used informants and subjects of investigation to benefit private businesses they were running on the side, according to officials and documents.

The allegations, according to court documents reviewed by The Associated Press, include that agents' and intelligence assets' private companies were involved in business deals in China and the Middle East about the same time the FBI was investigating Chinese efforts to acquire sensitive technology.

The FBI says it is cooperating with the investigation. ``Any time there is a request by an inspector general, the FBI fully cooperates,'' the FBI said in a statement.

The investigation is focusing on the same Arizona FBI office that produced the now-famous warning that went unheeded before Sept. 11, 2001, that Arab pilots were suspiciously training at U.S. flight schools. The FBI's Phoenix office was a hotbed of investigations into terror and espionage during the 1990s.

The Justice inspector general's office, which investigates wrongdoing by federal law enforcers, has interviewed several times a Phoenix businessman named Harry Ellen, who worked undercover for U.S. intelligence and the FBI for three decades in the Middle East, Mexico and China.

``I was interviewed about events concerning various companies and corporations with whom I came in contact and-or had financial dealings with while I was assisting the FBI,'' Ellen said in an interview. ``One or more of the companies were operated by FBI agents.''

FBI agents generally are prohibited from moonlighting in second jobs without special permission, and they undergo regular background checks for irregularities. One of the questions the inspector general is examining is whether private companies originally were fronts used by the FBI in undercover investigations and then were taken over by agents as they neared retirement, officials said.

While working on sensitive Chinese and Palestinian cases, Ellen had a falling out with the FBI in 1999 after he had an affair with a Chinese woman named Joanna Xie. The bureau had asked Ellen to monitor the woman as a possible Chinese intelligence agent.

Ellen alleges FBI agents intentionally divulged his identity as an asset, jeopardizing his life. The FBI denies blowing his cover and says he was severed for violating rules for paid assets. ``We decided to break off this relationship,'' the FBI said in a statement. The FBI has been aware of Ellen's allegations for several years but has concluded there is no wrongdoing, officials said.

The new investigation focuses in part on allegations from Ellen and Xie in a closed immigration case, which were further researched by a freelance reporter who has become a witness in the case.

Xie testified that in 1995 a prominent Chinese-American professor who introduced her to FBI agents visited her in Shanghai with some U.S. businessmen and tried to enlist her help on a project to sell ``black box'' satellite technology to a Chinese military aerospace company.

An agent introduced by the professor contacted Xie in 1996 from his Phoenix company ``requesting that I assist his company with Amway,'' Xie testified. She said the agent's contact set up an Amway bank account for her for sales. She did not explain further the reference to Amway, the sales distributorship company.

By 1997, Xie alleged, the professor introduced her to some business partners, including another FBI agent who was described as an investor in a Chinese trading company in Chicago. That agent, she alleged, also had business interests in a Phoenix trading company, sought her help on business and introduced her to Chinese business executives.

``So you had learned that some FBI agents were business partners?'' her lawyer asked.

``Yes,'' Xie testified.

Xie said she has turned over to investigators the personal business cards that agents gave her listing at least three of their private companies.

Ellen testified that while working with the FBI on a sensitive Middle East terrorism investigation, he was asked by the bureau to get close to Xie to monitor her activities. Ellen said around that time, one of the agents cited by Xie provided him free T-shirts to be used for his Muslim foundation, which was cooperating with the FBI.

Ellen testified he also had been working on a foundation project to establish a communications system for the Palestinians, but the FBI asked him to stop. A few years later, he said, he learned his plan was put back in motion by a different company he believes was connected with FBI players.

The Justice inspector general also has interviewed an Arizona freelance journalist named Don Devereux, who researched Ellen's case and provided the government and AP copies of corporation records showing FBI counterterrorism agents had created companies with family members and suspected FBI assets.

The company names, in many cases, match those Xie testified about. Officials of one company that involved communications technology, Devereux said, went on a government trade mission to the Middle East.

Devereux wrote the FBI in August 2002 about evidence that ``several Phoenix FBI agents became personally involved in the mid-1990s in various international trading companies, some evidently doing business with China.''

``As I understand it, those same agents had counterintelligence responsibilities at the same time, duties which specifically included the monitoring of illegal technology transfer to China,'' he wrote the FBI.

The FBI did not investigate.

Ellen's allegations that the FBI blew his cover as an undercover asset have been reported in the past year by AP, The Washington Post and the East Valley Tribune in Arizona. Several prominent Arizona politicians, including Sen. John McCain, former U.S. attorney Melvin McDonald and former Senate Intelligence Committee chairman Dennis DeConcini have sought investigations.

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FBI Sent Hamas Money in Late 1990's
Monday, October 6, 2003

JOHN SOLOMON
Associated Press

WASHINGTON - While President Clinton was trying to broker an elusive peace between Israelis and Palestinians, the FBI was secretly funneling money to suspected Hamas figures to see if the militant group would use it for terrorist attacks, according to interviews and court documents.

The counterterrorism operation in 1998 and 1999 was run out of the FBI's Phoenix office in cooperation with Israeli intelligence and was approved by Attorney General Janet Reno, FBI officials told The Associated Press.

Several thousand dollars in U.S. money was sent to suspected terror supporters during the operation as the FBI tried to track the flow of cash through terror organizations, the FBI said in a rare acknowledgment of an undercover sting that never resulted in prosecutions.

"This was done in conjunction with permission from the attorney general for an ongoing operation, and Israeli authorities were aware of it," the bureau said.

One of the FBI's key operatives, who has had a falling out with the bureau, provided an account of the operation at a friend's closed immigration court proceeding. AP obtained and reviewed the court documents.

Arizona businessman Harry Ellen testified he permitted the FBI to bug his home, car and office, allowed his Muslim foundation's activities in the Gaza Strip to be monitored by agents, arranged a peace meeting between major Palestinian activists and gained personal access to Yasser Arafat during more than four years of cooperation with the FBI.

Ellen's FBI handler in the late 1990s was Kenneth Williams, an agent who later became famous for writing a pre-Sept. 11 memo to FBI headquarters warning there were Arab pilots training at U.S. flight schools. The warning went unheeded.

Ellen, a Muslim convert, testified he was taking a trip to the Gaza Strip to bring doctors to the region in summer 1998 when Williams asked him to provide money to a Hamas figure.

Williams wanted "the transfer of American funds to some of the terrorist groups for violent purposes," Ellen testified to the immigration court in a closed June 2001 session.

At the same time, Clinton and his negotiators were trying to reinvigorate stalled Mideast peace talks, an effort that culminated in the Wye Accords in October 1998.

Clinton's national security adviser, Sandy Berger, said in an interview that the White House wasn't informed of the FBI activities. "We were not aware of any such operation," Berger said.

Ellen testified the operation ended abruptly in early 1999 when he and Williams had a series of disagreements over the operation, disputes that began when Ellen angered the FBI by having an affair with a Chinese woman suspected of espionage.

FBI officials said they tried to get Ellen to end the relationship and his work was terminated for failing to follow rules.

Melvin McDonald, the former U.S. attorney in Phoenix who has championed Ellen's cause, said the FBI's abrupt end to the investigation squandered an important intelligence opportunity.

"Harry had been a tremendous resource to the bureau," McDonald said. "We did not have that many people like him with connections like that to the Middle East."

Former Senate Intelligence Committee chairman Dennis DeConcini, another Ellen supporter, said Ellen's work could have greatly assisted the FBI.

"I know some of the wonderful cases and sheer positives the FBI has done. But when it comes to spying and espionage they really screwed up, and I think Harry is one of those cases," the former Arizona senator said.

The Justice Department inspector general is investigating some allegations that came to light in Ellen's case, including that FBI agents in sensitive probes moonlighted at private companies that were using FBI assets or investigative subjects to assist their personal interests.

Ellen, stepson of an Air Force intelligence officer, had worked for U.S. intelligence since the 1970s as an "asset," a private citizen paid to provide information or conduct specific tasks. His work started in Latin America and also involved China and the Middle East.

Ellen, whose step-grandfather was Jewish, converted to Islam in the 1980s and began helping poor Palestinians.

In 1994, he began assisting the FBI Phoenix office, which had become a hotbed of cases involving terrorism and intelligence because of a large, active Muslim population, the proximity to the U.S. southern border and a large concentration of aerospace companies.

Ellen testified that by 1996 his humanitarian work, monitored by the FBI, had won him unprecedented access to Muslim militants from groups fighting for Palestinian independence, including Hamas.

In a rare meeting Ellen organized, he testified, the major groups created an informal alliance to ensure safe passage to any foreigner providing humanitarian assistance. Ellen was named a spokesman and met several times with Arafat.

Ellen also created a foundation named al-Sadaqa to further his work by bringing sewing machines, eyeglasses and other assistance to Palestinians.

Impressed by the extraordinary access, Williams insisted the new foundation be funded in part by the FBI, Ellen testified.

In an interview, he said he agreed to help the FBI "not as a snitch but as a good American."

"I agreed to cooperate with the FBI in the facilitation of the peace process that would lead to an independent Palestinian state, stopping the half-century of violent and oppressive occupation," Ellen said.

"During that period of time I never did anything nor would I cooperate in any way to harm the Palestinian or Israeli people."

He testified that Williams provided him between $3,000 and $5,000 in the summer of 1998 and instructed him to give it to a Hamas figure named Ismail Abu Shanab, who was killed earlier this year by Israeli forces in retaliation for a Hamas terrorist strike.

"He (Williams) said they (the dollars) would be for terrorist activities," Ellen testified. Abu Shanab distributed the money to Palestinian orphanages and health care facilities, he said.

Ellen testified that Williams told him he hoped the transfer would lead to more money exchanges through terror groups but Ellen refused to earmark money for terrorism. He testified he later learned another FBI operative had offered Hamas and Palestinian figures larger amounts for terrorist attacks.

The court testimony shows Ellen allowed his home, office and car in Arizona to be bugged so the FBI could listen, without a warrant, to visiting Palestinians or Americans if they discussed illegal activity.

The FBI said it commonly uses such recordings. "Consensual monitoring does not require a warrant. In cases where the FBI conducts consensual monitoring, the one party is aware he is being recorded," it said.

One of those to visit Ellen in Arizona was Palestinian Gen. Mahmoud Abu Marzouq, an Arafat ally who oversaw Palestinian civil defense. Marzouq became involved with Ellen's foundation and later wrote a letter praising him.

"The United States will, in my opinion, lose a valuable opportunity for communication in the Middle East if Abu Yusef (Ellen's Muslim name) is further restricted from his honorable efforts for the part of the widows, orphans and handicapped and the elderly in Palestine," Marzouq wrote.

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FBI Operative Paid Charities as Part of Palestinian Probe
Tuesday, October 7, 2003

By Dan Eggen and Richard Leiby

The FBI used an operative as an intermediary in 1998 to contribute as much as $5,000 to Palestinian charities with the aim of tracking whether the money would end up in the hands of terrorist groups, according to the bureau and the former operative.

FBI officials would not disclose yesterday whether any of the money was traced to suspected terrorists. But the operation raises the possibility that a small amount of U.S. money could have made its way to Palestinian militants at around the same time the Clinton administration was pursuing Middle East peace talks.

The operative, Harry Ellen, is an Arizona businessman who converted to Islam. He received financial assistance from the FBI in exchange for help in identifying and monitoring suspected Palestinian militants.

The Justice Department's inspector general is investigating a number of complaints from Ellen, who in 1999 had a falling-out with the FBI. His dispute with the bureau has been documented by The Washington Post and other news organizations, but the operation involving charitable contributions was first reported yesterday by the Associated Press.

Ellen said in an interview yesterday that his FBI handler, Kenneth Williams, suspected that some of the Gaza charities were buying arms or were corrupt. He said Williams proposed giving Ismail Abu Shanab -- a prominent figure in the Islamic Resistance Movement, or Hamas, who recently was killed by Israeli forces -- a sum of money to see where it ended up. Ellen said that on a trip to Gaza in July 1998, Williams gave him between $3,000 and $5,000 in $100 bills.

Ellen, also known as Abu Yusef, was well-regarded in Gaza because he had made previous trips to distribute charitable relief and encourage the peace process. Ellen said Shanab did not want the money for himself. So Ellen went with a Shanab deputy and "watched it being distributed to at least four charitable groups," Ellen recalled. "I assume they used it for charitable purposes. . . .These people were hungry; they were nearly out of food."

The FBI, while declining to discuss details, said the operation was a genuine effort to determine whether some groups were funneling money to militants.

"Any money that was provided by the FBI was not being given to known terrorist organizations but rather was being provided to an intermediary, who was going to give it to alleged charities so that a terrorist-financing investigation could be conducted to determine if the money was in fact going to limited purposes," an FBI official said.

© 2003 The Washington Post Company

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F.B.I. Agents Are Examined for Tactics With Hamas
By TIMOTHY L. O'BRIEN

The Justice Department is examining the conduct of F.B.I. agents in Phoenix for possible
improprieties related to their use of front companies to gather intelligence on China, the Middle East and the activities of the Palestinian militant group Hamas, an F.B.I.
spokesman said Tuesday.

The spokesman said the investigation was prompted by allegations about the front companies
made by a former operative of the Federal Bureau of Investigation, Harry Ellen.

Mr. Ellen said in a telephone interview that the Justice Department's inspector general's
office had interviewed him about front companies he dealt with while providing investigative
assistance to the Phoenix agents from 1994 to 1999.

Mr. Ellen declined to provide further details but said he believed that the officials who
spoke to him were on a straightforward fact-finding mission, not "a witch hunt or on a
cover-up investigation."

The Justice Department inquiry, first reported by The Associated Press, is apparently
examining whether F.B.I. agents in Phoenix enriched themselves through the front companies
that the field office was using to gather intelligence.

The Phoenix office has earned some notoriety since the Sept. 11 terrorist attacks because an
agent there, Kenneth Williams, had warned his superiors before the attacks about a
suspiciously large number of Arabs attending flight schools in the United States. Mr.
Williams was also Mr. Ellen's handler but could not be reached for comment.

According to a transcript of an immigration court proceeding in June 2002, Mr. Ellen
testified that Mr. Williams had asked him to transfer money to Hamas and other Palestinian
organizations for "violent purposes" so the F.B.I. could monitor the money trail.

"He said they would be terrorist activities," Mr. Ellen testified. "I refused to do that. I
did take some funds and they ended up helping two, three orphanages. I made sure where the
money went. But I refused to do the firearm thing."

The proceeding involved an acquaintance of Mr. Ellen, Joanne Xie, a Chinese citizen seeking
asylum in the United States. The F.B.I. was monitoring her as a possible Chinese spy. After
Mr. Ellen became romantically involved with her, he and Mr. Williams ended their
relationship.

Mr. Ellen said he and Ms. Xie filed a complaint with the F.B.I. in 1999, accusing the
Phoenix office of leaking his identity to the news media, improperly investigating Ms. Xie
and allowing Chinese operatives to penetrate the Phoenix office's counterintelligence unit.

Mr. Ellen operated in the Palestinian territories under the alias Abu Yusef and set up a
charity in the territories called Al Sadaqua Foundation, according to a 1999 letter written
on Mr. Ellen's behalf by Gen. Mahmoud Abu Marzoug, head of civil defense for the Palestinian
Authority. General Marzoug noted in his letter that Mr. Ellen had tried to help Chinese
business executives establish a concern called the Red Phoenix Trading Company in the
Palestinian territories, but that the plan was derailed when Mr. Ellen had his falling-out
with the F.B.I.

Mr. Ellen's lawyer, Melvin McDonald said he had spoken to members of the Senate and the
American intelligence community who attested to Mr. Ellen's value.

"We probably have a million people in Israel who provide us with intelligence on the
Israelis," Mr. McDonald said, "but we can probably count on two hands the number of people
we have in Palestine who can provide us with intelligence about the Palestinians."

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