October 21, 2001, Newsweek International, c/o The Daily Beast, Taking From The Poor,

October 21, 2001, Newsweek International, c/o The Daily Beast, Taking From The Poor,

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 been told by the FBI that most of Khalifa's funds came from bin Laden.) No scam was too small: on his regular visits to the Muslim-majority south, Khalifa placed slotted coin boxes in classrooms and offices. "He would ask teachers and students and office workers to give one peso a week, which was a lot for them," says a Middle Eastern charity worker in Cotabato. "He said it was for relief of the poor--which was a lie."

Officials suspect Khalifa may have raised as much as several hundred thousand dollars during his eight years in the Philippines. Most of the money--as much as 70 percent, according to Wahab Akbar, governor of the Basilan region where the Abu Sayyaf is based--was spent funding Islamic extremists. According to Philippine authorities, Abdurajak Abubakar Janjalani--founder of the Abu Sayyaf--was recruited by Khalifa for training in Syria and Libya and then combat in the badlands of Afghanistan. Janjalani was killed in a shoot-out with Filipino troops in 1998. But the group's current leader admitted in an interview with a local newspaper that "the primary purpose of the IIRO is to help groups like us." For his part, Khalifa has denied funding terrorist groups and insisted he had "only wanted to improve the lives of Filipino Muslims."

The Saudi does not fit the profile of the ascetic Muslim rebel. According to acquaintances, he turned down pleas to fund medical programs in Cotabato but spent thousands of dollars on cars and office space for his business. "He was a real joker," says one acquaintance. "He liked women, too." (Khalifa has two Filipina wives.) "Khalifa exemplified decadence, corruption and extremism all in one," says a Filipino official familiar with him.

One thing Khalifa does share with his brother-in-law is an appreciation for propaganda: he would reportedly send his superiors videos of the kids at the Cotabato orphanage to prove his good deeds in the Philippines. Yet by 1994, he had been nudged out of his IIRO post, and after the Sept. 11 attacks, he was arrested by Saudi authorities. Khalifa may soon regret not having built more than one place of shelter.