September 21, 2006 | World Defense Review

Financing Somalia’s Islamist Warlords

Since the fall of the sometime Somali capital of Mogadishu to the armed radicals of the Islamic Courts Union (ICU) in early June, United States policymakers and analysts have debated not only the appropriate response to the event, but also how it came about.

While, as I have previously documented in this column, ICU council chairman Sheikh Hassan Dahir 'Aweys and his minions have received moral and material support – including an endorsement from Osama bin Laden and funding from various Islamic “charities” – as well as Arab, Afghan, Kashmiri, Pakistani, Palestinian, and Syrian fighters, it might come as a shock to many Americans that a not insignificant contribution to the Islamists' victory came from a massive fraud involving a money transfer business that operated until a few months ago with licenses in several U.S. states, including Minnesota, North Carolina, Ohio, Oregon, and Wisconsin.

The company in question, Dalsan, was, depending on the account, usually described as either the largest or the second-largest Somali money-wiring company (its competition was Al-Barakaat, whose assets were frozen by Executive Order 13224 almost immediately after 9/11).

In addition to its U.S. offices, Dalsan had offices in Great Britain, Kenya, and the United Arab Emirates (one of the few countries to still accept passports from the non-state of Somalia, just as it was one of only three countries to recognize the Taliban regime in Afghanistan) as well as representatives in various other countries.

A report by the European Commission's Nairobi-based Somali Unit estimates that at its height in the aftermath of the U.S. actions against Al-Barakaat, Dalsan, which was, rather interestingly, formed in August 2001, was moving at least $100 million a year.

According to internal estimates by the United Nations Development Programme in Somalia, by charging between $1 and $4 per remittance transaction, the company was bringing in between $400,000 and $500,000 per month.

In any event, the chronological coincidence of Dalsan's establishment just one month before the Bush administration moved against the high profiled Al-Barakaat is not the only cause for suspicion. Rather, there is a whole string of disturbing data associated with the company:

The Dalsan firm's co-founder and chairman was none other than Mohamed Sheikh Osman, onetime spokesman of Al-Itihaad al-Islamiyya (“Islamic Union”), the radical Somali Islamist group from which today's ICU directly descends.

From mid-2004 until April 2006, the directors of Dalsan began selling tens of thousands shares in the company to hundreds of outside investors, mainly drawn from the Somali diaspora. The effort, including Somali-language prospectuses promising divinely-assured “risk free” investments (“Haddii at dhacdo inaad la kulanto wax aan ku raali galin waxaan ka siinaynaa mag dhow. Laakin ma dhacayso Alle Idamki!”) raised somewhere between $10 million and $30 million in capital from investors, many of them hardworking Somali exiles.

During the same period, the company rapidly expanded its operations. It established some sixteen branches in Mogadishu as well as operations in the northeastern Somali region of Puntland. Dalsan also aggressively marketed its services to Somalis working in the U.S., Great Britain, Australia, and other Western countries who wanted to send money to families and other relatives in Somalia, promising internet transfers payable “within 5-10 minutes anywhere in the world.”

In 2005, Dalsan chairman Mohamed Sheikh Osman, who had been operating out of an East London mosque, was arrested by Kenyan counterterrorism officials, reportedly acting at the behest of Britain's Security Service (MI5), while he transited through that African country. He was later released and disappeared back into Somalia where he linked up with his old Al-Itihaad companion, Sheikh 'Aweys. Meanwhile his place at Dalsan was taken over by his London-based younger brother, Muktaar Sheikh Osman.

The younger Sheikh Osman brother then helped engineered the removal of Dalsan's chief executive officer and his replacement with one Abdilkadir Hashi 'Ayro. Abdilkadir is the younger brother of none other than Adan Hashi 'Ayro, who trained in Afghanistan with al-Qaeda before returning to his country after 9/11 and who, as I reported in this column earlier this month, has founded within the ICU an even more radical cadre, Al-Shabaab (“The Youth”), consisting of young men, aged between 20 and 30 years who fought on the frontlines of the Islamists' recent successful military operations. One of the new CEO Abdilkadir's first acts was to move the company's operational headquarters out of Sharjah in the United Arab Emirates – where it would still be within the reach of international law enforcement – and into ungoverned Mogadishu.

In early May 2006, Dalsan folded its operations without warning, taking with it not only the $10 million to $30 million in capital invested by individual shareholders, but an estimated $9 million to $12 million in unconsummated money transfers from ordinary customers. Company officials – at least those who can be tracked down – have thus far refused to explain the causes of the shutdown, much less elaborate on the fate of the funds entrusted to them.

While the closure of Dalsan has been widely covered in the Somali-language press, most of the reports have been understandably focused on the white collar aspects of the collapse which most directly affected the readers: the fraud itself and the subsequent efforts of investors and remitters to secure their “divinely guaranteed” refunds.

A little more detachment, however, raises even greater concerns. Is it yet another coincidence that Dalsan was closely linked with the likes of the Sheikh Osman and Hashi 'Ayro brothers, all of whom were leading figures in the Al-Itihaad precursor of the Islamic Courts militia? And is it still another mere coincidence that the extremist forces within the ICU received a massive infusion of arms and men in the same month that Dalsan collapsed – reinforcements that tipped the scales in the Islamists' battle with U.S.-backed factions for control of Mogadishu?

In short, despite the progress made in the five years since 9/11 to understand and shut down the financial networks exploited by international terrorists, the “collapse” of Dalsan shows how much still needs to be done. Part of the task is the responsibility of those involved in the international counterterrorism efforts. A report last year by the International Crisis Group summarized the nexus between business and Islamist radicalism in Somalia as follows:

The emergence of private enterprises in Somalia with an explicitly Islamic character has given rise to fears in some quarters that extremists enjoy inordinate control over what one analyst has termed the “black economy”. Numerous Somalis in Mogadishu told Crisis Group that Islamists (“wadaado”) controlled as much as 80 per cent of the economy.

Such allegations typically rely upon the influence of key individuals or businesses in the post-war private sector. Members of al-Itihaad were especially well placed to take advantage of opportunities for self-enrichment, given the organization's early role as both recipient and conduit for funding from overseas Islamic charities. A number of prominent al-Itihaad figures later emerged as leading merchants and entrepreneurs. In Bosaaso, for example, a wealthy militant survived the 1992 battle between al-Itihaad and the SSDF to establish one of Somalia's largest money transfer companies; as his representative in Nairobi, he appointed al-Itihaad's former spokesman in London, Mohamed Sheikh Osman.

Other important Islamists have also acquired leadership roles in business. Abukar Omar Adaani, a central figure of the consortium that controls Mogadishu's 'Eel Ma'aan port, is known for his radical views, support for militant causes and affinity with al-Itihaad's Sheikh Hassan Dahir Aweys. The former chairman of the al-Barakaat Group of Companies (see below), Sheikh Ahmed Nur Jim'aale, has denied alleged links with al-Qaeda, but is widely perceived as a patron of local Islamist groups.

Against this backdrop, one would have expected that international and federal authorities would have subjected to greater scrutiny the start-up and operation of a multimillion dollar enterprise whose named principals were already well-known in open source intelligence – to say nothing of classified material – as either being directly connected to radical groups or the immediate family members of extremists. Mohamed Sheikh Osman, for example, gave numerous interviews to the BBC in which he espoused jihadi violence. Shouldn't his presence on any corporate board, much less at the helm of a money transfer outfit, have elicited more than a little concern?

In addition, state and local regulatory and law enforcement agencies within the United States also could have played a more pro-active role in stopping what ultimately proved to be a highly effective financing scheme for terrorists.

Dalsan, for example, purchased real estate in Minneapolis worth about $1 million and, according to a confidential source, repeatedly used the property to meet guarantee requirements requisite for licensing in a number of states without any of the state regulators ever conducting the due diligence to determine whether the same property might be encumbered elsewhere (at least this property existed – other assets listed, including alleged holdings in the U.A.E., were pure fantasy).

Regulators likewise never closely examined the rather extraordinary financial claims publicly made by Dalsan, including the wildly exaggerated earning reports formerly posted on the company's website, much less inquired into the rather questionable backgrounds of the firm's principals. Although it is perhaps too late recovery anything for Dalsan's investors and clients, officials still need to look more closely at this case (as forthcoming columns in this series intend to do).

In the global war on terror, tracking down the financing of terrorists and other radical extremists may not be as “glamorous” as hunting down jihadi leaders or thwarting planned attacks, but it is no less crucial in preventing those deadly networks from doing harm. It is an effort that will require of our government officials at all levels the same ingenuity and resolve that our foes have already demonstrated.

J. Peter Pham is Director of the Nelson Institute for International and Public Affairs and a Research Fellow of the Institute for Infrastructure and Information Assurance at James Madison University in Harrisonburg, Virginia. He is also an adjunct fellow at the Foundation for the Defense of Democracies in Washington, D.C.