Unedited Transcript
Middle East Policy Council

Thirty-fifth in the Capitol Hill Conference Series on U.S. Middle East Policy

Saudi Arabia: Enemy or Friend?

Speakers:

David Aufhauser
Former General Counsel, Department of the Treasury

Frank Anderson
Former Chief, Near East and South Asia Division, CIA

David E. Long Retired U.S. Foreign Service Officer -- Saudi Arabia, Sudan, Morocco and Jordan

Nathaniel Kern
President, Foreign Reports, Inc.

Hussein Shobokshi
President, Shobokshi Development & Trading; Managing Director, Okaz Printing and Publishing

Moderator/Discussant:

Chas. W. Freeman, Jr.
President, Middle East Policy Council

562 Dirksen Senate Office Building
Washington, D.C.
January 23, 2004

Transcript by:
Federal News Service
Washington, D.C.

CHAS. W. FREEMAN: Ladies and gentlemen, I think we should come to order. Good morning. I'm Chas. Freeman, and it is my honor and sometimes pleasure to be president of the Middle East Policy Council. For those of you who may not know us, we are a small, struggling, impecunious NGO about 25 years old. We do three things:

We come up here on Capitol Hill and we raise neglected or politically incorrect questions for discussion. Saudi Arabia has achieved the status of political incorrectness, so it's appropriate to have this discussion today.

Second, as the first item in our quarterly, Middle East Policy, which is, I'm proud to say, the most often cited in the field, we lead off with an edited transcript of these sessions, the quality of which I think has been exceptional, my own remarks notwithstanding over the recent years.

And third, we, throughout the country, conduct workshops -- teacher training workshops -- to help high school teachers learn how to teach about Arab civilization and Islam. We've trained something over 14,000 teachers. We reach 1.2 million kids a year and confuse them with a fact or two that they otherwise would not encounter.

We do these three things and we don't really do much of anything else. So if this moves you to contribute, I'd be very happy, but I'll halt the commercial and proceed to the main topic.

Is Saudi Arabia an enemy or a friend? Or if it is an enemy, will it become once again a friend; or if it is a friend, is it on the way to becoming an enemy? The two governments, for very sound reasons, assert that we are friends. None of the interests that drew up together before 9/11 have been altered in any respect. Saudi Arabia still has a wondrous supply of oil and we are still gluttonous consumers of oil. Saudi Arabia still is the birthplace and location of two of the holiest cities of Islam and the United States is, if anything, even more concerned about the temper of Islam than we were. And Saudi Arabia has not moved. It still sits between Asia and Europe, and you cannot travel between Asia and Europe without flying over or circumnavigating Saudi Arabia.

And to these three interests a fourth has been added, the issue of terrorism, where the same organizations and individuals target the royal family and monarchy in Saudi Arabia, and us. We have a common enemy in al Qaeda. So not surprisingly, the two governments are interested in promoting cooperation, but the two peoples have a different view, and both governments find themselves defending this relationship against widespread popular opposition.

With these few introductory remarks about the theme, let me just take a minute to give some impressions of Saudi Arabia, where I was a week ago. And we're fortunate that, Nat, you were there at the same time; Hussein, you live there. So we have up here some very, very fresh viewpoints. Frankly, what I saw in Saudi Arabia startled me. I think everyone knows that the last five or six years have been dynamic in terms of Saudi foreign policy. Saudi Arabia has now settled all of its borders and has some sort of dispute remaining about mineral rights at the Buraymi Oasis, but aside from that the border with Yemen, the border with Qatar and border with Kuwait -- the sea border with Kuwait -- have all been settled.

The crown prince, of course, took a major and very brave initiative, standing traditional Saudi policy on its head with regard to the Israeli-Palestinian and Israeli-Arab disputes. Instead of confirming previous policy, which was Saudi Arabia would be the last Arab country to normalize with Israel, he proclaimed that Saudi Arabia would be the first and would lead the rest of the Arab League in normalizing with Israel, if a satisfactory peace agreement could be agreed between Israel and its neighbors and its fellow habitats of the former Palestine Mandate.

The crown prince also has led an effort internationally to promote Arab reform, and more interestingly -- and this is where I found my surprise -- that pledge of reform seems to be being implemented. There is a vigorous Islamic debate going on, or a debate among Islamic thinkers in Saudi Arabia, instigated by the crown prince. There is a far freer atmosphere of discussion on public policy issues generally than anyone can recall. The schools, in my view, have been reclaimed from the right wing religious extremists who had, to some extent, gained control of them.

Popular support in the struggle against terror is high, since Saudis observing the May and November bombings of compounds have been able to see that the objective of the terrorists is not just to kill Americans and other Westerners, but to destroy the liberal and cosmopolitan element in Saudi Arabia itself. Middle class Saudis, in other words, are the target as much as anyone in this room.

More startling yet, the economy is booming. The stock market was up 75 percent last year in Riyadh. Construction is everywhere in evidence. Public debt is being retired. A lot of money has been repatriated, much of it from the United States, which is now seen as a politically risky place to invest, and it's come home and it is being used for good purposes.

WTO accession negotiations, which have been in the doldrums, are now in the final sprint, and some predict that as early as February the United States and Saudi Arabia may be able to conclude those discussions with a multilateral session in May, bringing Saudi Arabia finally into conformity with global norms in the area of trade and investment.

So the sense that I had, and some ex-pats, in Saudi Arabia when I was ambassador there from '89 to '92, that the Kingdom's secret motto was progress without change, something only Saudis seem to be able to manage, has been replaced. There is clearly real change going on, and what's more, much of it seems to represent progress.

There are also negative things, of course. Saudi Arabia was the peaceable Kingdom. It is now full of roadblocks, police checkpoints, jersey barriers and barricades, given the high degree of concern - justifiably high degree of concern about domestic terrorism. I think all of these developments, with the possible exception of the latter are, however, essentially invisible to Americans, and the whole relationship is colored by mutual antagonism and antipathy at the popular level that resembles nothing so much as the rage and frustration and anger and bitterness of a divorced spouse or an abandoned lover or a friend who has been betrayed. Unfortunately, neither government seems to have a strategy for changing minds, though it's clear that Saudis are trying harder to change American minds than Americans are to change Saudi minds.

Most Americans, I think, are probably unaware of the shift in attitudes toward us, which I just described, but it's very evident, not just anecdotally but in figures. Applications for visas for the United States are now well below 20 percent of what they were prior to 9/11. Institutions like Saudi Aramco, which were the emblems of Americanization and the American-Saudi connection, now send their trainees elsewhere - almost entirely elsewhere. Saudi Aramco, which used to rebuff European and oriental businesses by saying that we do business the American way and we don't understand your way, so either you conform to American ways or don't do business here, is now visibly learning how to do business European and Japanese style.

So Americans are finding ourselves increasingly displaced, in both the cultural and commercial realms, by our competitors, and the American community in Saudi Arabia has shrunk to a mere fraction of what it was before.

All of this is by way of introduction to the discussion today, where we have an exceptionally well-qualified panel. Those of you who have been to our programs before or who have participated in them know that we try to limit the presentations to about 10 or 12 minutes. In fact, I behave in a thoroughly thuggish and disgusting manner. As the time limit begins I have been known to get up and move menacingly in the direction of those at the podium, and even though some of them are bigger than I am, I assure them I will throw them off the podium if they go on too long.

We're going to proceed in the order of the program, which I hope you have. On the back of the program are the biographies of the speakers, and I'm not going to reiterate those in any detail.

Briefly, I think David Aufhauser, who was until recently, very recently, general counsel at the Treasury Department and who is now at CSIS doing research, both on the financing of terrorism and on economic sanctions more generally, will go first. Frank Anderson, who we welcome back to this podium, former director of CIA on the operational side for the region and now a very distinguished member of Foreign Reports will go second. David Long, retired Foreign Service officer with extensive experience in the Gulf, will talk about charitable giving, religion, and educational matters. And Nat Kern, who is the president of Foreign Reports, and as I said, just back from a visit to Saudi Arabia, will address the economic modernization of the Kingdom, correct everything I said about the economy, and refute my remarks about Saudi Aramco. And finally Hussein Shobokshi, who is the head of Okaz publishing house, and among many other distinctions has been - was it Morgan Stanley financial analyst? -- and done all kinds of other strange things over the course of his life, but who is now a power among the molders of Saudi public opinion, will correct all of us and set us straight with a firsthand Saudi perspective on the issues.

With these rather too-lengthy remarks behind us, let me invite David Aufhauser to the podium.

DAVID AUFHAUSER: Thank you. I don't think anything has more political resonance with the American populace right now in terms of the American-Saudi relationship than the issue of the financing of terror. I say that as an observation of their perception. In many respects my responsibility at Treasury with regard to terrorist financing showed me that we may be too Saudi-centric in some of the vocabulary and focus, and that terrorist focus is a significant global problem. But nevertheless, in the American politic, eyes of the American politic, I don't think anything has a higher profile in terms of needing to be resolved, and also do-able -- and also do-able. So it's a perfect proxy for trying to demonstrate comity rather than animus.

Hussein and I were talking just before the conference. With all due respect, I actually think the title for the conference does a disservice to the purpose of the people on the panel. I understand it's a crowd-pleaser and it draws people in, but it's really not a binary operation that we're talking about, whether it's either a zero or a one in the computer operation of our relationships. There's a great deal of complexity. But to say there's a great deal of complexity doesn't mean there isn't an opportunity for clarity on some of these issues.

I want to talk to you about the financing issue, which is a very sore wound, I think, between the countries, and one -- although I don't think I'm pollyannish about this -- one which has real problems but still one which is quite open to resolution. You had some encouraging news - we all had some encouraging news yesterday. A joint Saudi-U.S. action in the designation of four offices of one of their largest charities, I must say a charity sponsored by the royal family and one in essence overseen by fiduciars of the royal family; these four offices in various places have been designated as essentially fronts for terrorist activity, and they were designated jointly. That's very, very encouraging news, and it's a very important indication of joint resolve to try to attack a common problem, at least vis-à-vis al Qaeda's conduct globally.

It's also one more step in a long litany of very positive developments between both countries. Let me just tick them off so you get a sense of their breadth. First, the establishment of charities oversight, since a great deal of the money that goes unaccounted for and eventually gets diverted in outposts of the world where NGO's are located, is a significant problem in the funding of terror. Second, a bar on cross-border cash giving. Third, the requirement that charities have single disbursement accounts so that there can be tighter controls. Fourth, approval of the signatory over those accounts. Fifth, a relatively new and sophisticated anti-money-laundering regime, legislation and rules. Sixth, opening that regime to international audit recently by the financial action task force. About two months ago a team went out there to scrutinize those rules and to try to make suggestions about how to improve them. Second, prohibiting and closing down unlicensed money exchange houses and more supervision over the informal transfer houses known popularly as halalahs. Sixth, actually no cross-border transfers unless licensed. I guess that's a subset of what five was. Seven, the actual arrest of six, eight, or 10 significant financial facilitators within the peninsula who are identified either to us or to the Saudi government by detainees as significant players in the raising of money. Seventh, the designation of two prominent Jeddah merchants over the last year and a half as having been too casual about what transfers and transpires in their businesses, and therefore freezing their assets. Lastly in this long list is the establishment of a joint task force with federal officials in Riyadh. It was one of my last and most significant official acts to actually pursue, with the benefit of compulsory process, investigations of people within the peninsula for participating in terrorist financing.

But there are two other measures which to me speak greater volumes for the promise held here of jointly working on this problem. The first is a bar and a ban on the collection of coin and currency today in their mosques. Now, just take a step back for a second. Probably for more than 1,500 years in every mosque in Saudi Arabia there's been a collection box. It's known as a qaddah (ph), if I'm giving it the right pronunciation. And it's a place where people make their own covenant with their own god, and it's actually a quiet, private, secret act, and it's no business of the government to get involved in it. But they, and we, found that these collection boxes were in the hands of various al Qaeda cells, and therefore they had the potential of significant unaccounted-for funds falling into the hands of terrorists, and they decided that they would ban the collection of these coins and currencies. Now, you may think this is a small matter, but small collections aggregated together pose significant problems, not only in Saudi Arabia but throughout Islamic call centers and schools and mosques throughout the Islamic world, and it's very important to try to get control of unaccounted-for funds. This is a real sea change, to actually make this change. It may be difficult to police, but its symbolism cannot be understated.

The second is a nascent yet very important commitment to begin to vet clerics and imams and what they teach, and what they do with the money that are given to them and entrusted to them by their congregations. That started domestically, and you've seen some recantations recently by some of their clerics, people who previously championed openly terror but who've said they see the error of their ways.

This is all the good news. I don't want to be totally pollyannish about this. I'm still troubled and concerned about the relationship and about the effort on terrorist financing, and let me give you a summary of those because time is short.

The first is the action on Al Haramein simply took too long. It's been part of a dialogue that's been going on a year. It's been part of a dialogue which has been frustrated, actually, by lethargy and inaction. I don't know whether people perished during the year of the dialogue, particularly in these four jurisdictions, but we took these jurisdictions, and indeed other names of the Al Haramein charity, to the Saudi government a long time ago, and we took it because it was our strongest case for demonstrating that people who've used the cover of NGOs and charity are actually underwriting terror in Indonesia, in Tanzania, in Kenya, in Pakistan and elsewhere.

The second rather, to me, troubling statement - a statement that I will say apparently the U.S. Treasury joined in yesterday in the official press release, was that the Saudi government said they had no control over these foreign offices of Al Haramein. Now think for a minute. Al Haramein is established by the royal family. It strikes me that there's too much of an abdication of actual power and responsibility when you say you do not have control and the ability to actually close down these offices abroad, and the best you can do is to freeze what assets they have within the jurisdiction and to prohibit future contributions.

Second observation about the Al Haramein effort. It's the result of U.S. information brought to the Saudis. They need to be incubators of information themselves. They need to be initiators themselves of - in other words, they need to be more pro-active.

Third, all the changes I ticked off for you are largely systemic and structural changes and they are absolutely necessary, but none are sufficient unless you get at the core issue of personal responsibility. And in the two and a half years that I spent on this matter I cannot remember -- I cannot honestly remember a single Saudi who has been held accountable for participating and being a donor in terrorist financing. Until we get to the issue of donors, the exercise is a fool's errand. Now, that's what's promising about the joint task force that has been established between the Saudi government and the U.S. government.

Let me get on somewhat more contentious grounds. I also don't think we get ahead of the curve until it is a principle of our friends abroad that it's a crime to give money to organizations that you know take portions of the money to blow up school buses and to kill families, and who put a premium on civilians. And today, even as I speak, during the Haj and during the pilgrimage, Hamas is collecting significant amounts of money in Saudi Arabia, if the past is prologue. And until we get a declaration that giving money to the Hamas's of the world is just not acceptable and is culturally, morally, and legally in violation of sharia or any other principle of conduct, we're not going to make sufficient headway.

And by the way, prohibiting giving to the Hamas's of the world does not prohibit giving to schools and libraries and the building of default civilian governments in Palestine. It just puts political will and the capabilities of the governments to the test of establishing surrogates or alternatives for that giving. But we must actually have clear rules about prohibitions about giving to organizations which actually openly champion on TV and the radio the underwriting of terrorist conduct.

I actually have a prescription, but I won't share it because I'm getting the hook here. I do want to reemphasize what I said in the beginning. At least in the eyes of Americans and the body politic in America, this issue of whether or not Saudi Arabia is one of the banks for terror needs to be resolved. Otherwise, the relationship will be irreparably breached.

MR. FREEMAN: Thank you very much, both for the excellent summary of what has been done and more particularly for the challenge of what has to be done. I think it's fair to say that on the Saudi side, the popular side, this is equally contentious. Views of Hamas in Saudi Arabia and in the Arab world more generally do not coincide with views in the United States, and while Europeans have recently agreed with us on this, this remains a very contentious political issue. But I'm glad you raised it, and we will look forward to hearing your prescription when we come to the general discussion.

I'd like now to invite Frank Anderson to come up and talk a little bit about the recent history of U.S.-Saudi interaction on these and related matters, with which you have great experience. And he never has any prepared text because he writes it out then force of habit from years in the CIA causes him to eat it so that no one can see it. (Laughter)

FRANK ANDERSON: Chas. spoke of recent history. The thing that struck me is how recent it all is. I've reached an interesting point in my life. I know that those who have as much grey hair as I do, and there are fewer and fewer in the room, have experienced the first time and how upsetting it is when you get a ticket from a cop that's younger than you, and then how upsetting it is when your doctor is younger than you, and for a few of us, how upsetting it is when the president of the United States is younger than you. But I am here to confess that I was born in 1942, which makes me not the oldest guy in the room but one of the oldest.

But nevertheless, those things that took place in my lifetime, as far as I'm concerned, are recent history. And one of the jolts when we, as comparatively an old nation, experience is when we realize how brand-new Saudi Arabia is. The Kingdom was born only a year before my father was born. The rulers of the Kingdom, right now, were around, alive and have memories of the period while it was still being consolidated. And it's a new place, and remarkable things have happened in a very short period of time. One of the things that has taken place over a remarkably short period of time is this American-Saudi relationship that has never, ever been one in which our interests, our cultures, our politics have really meshed. We've really been a little bit on different sides.

The Saudis at least have vacillated in the skill with which they've handled it, and it depends largely upon the personality of the Saudi ruler at any time. The beginnings of this relationship were under the founder of the Kingdom, Abul Aziz ibn Saud. Ibn Saud was a remarkable - I guess intuitive leader, and his intuition about the Americans is best described when he was asked, all right, why did you pick the Americans? They're the ones whom you've selected to be the developers of your oil fields. You gave them concessions. What's the deal? And he said, three things have led me to this, and it wasn't the oil. Saudi Arabia needs a great power partner. It needs to be in a security partnership -- a term used by Parker Hart, one of the early chiefs of mission in Saudi Arabia. We need a security partnership with a great power, and we've watched the Americans in Bahrain, and in Bahrain we found something: they were able to find oil when nobody else could. So the Americans are not just a great power but they're a competent great power. The Bahraini's are our brothers and we note that the Americans really treat them like equals. It's a stunt that the British never pulled off. And we note that. The third thing we note is that you are very far away. Saudi Arabia could have a strategic partnership that they had less fear of conquering them.

Actually, this discussion took place I think about nine years before I was born, but now it's come back to those things - as the time goes roaring through I'll try to get through 62 years of my life and Saudi Arabia's life and look at these differences.

First, real communication between Ibn Saud and President Roosevelt was interestingly - that I could find written about. The president sent a personal emissary, Harold Hoskins, speaker of Arabic, to meet with FDR in 1943, his purpose to see if Ibn Saud would meet with Chaim Weizman to discuss a mutually acceptable solution to this problem between Arabs and Jews. Ibn Saud sent back a letter that was a surprise to FDR: I won't meet with Chaim Weizmann because he tried to bribe me. (Laughter) I don't know if it was true, but what he said to Ibn Saud is that he offered me 20 million pounds, or a message was sent to me that I could have 20 million pounds if I would assist in the solution to the problem, and that moreover, it was said that you, FDR, would guarantee it. FDR sent back another message saying, well, no, I don't have that. And sitting with Hoskins, said, I think the closest thing that I can recall is that I did suggest to Weizman and to the Jewish Agency that they ought to invest in making it possible for the Arabs from whom they were purchasing land in Palestine to go and establish themselves elsewhere.

Now I've got five minutes to get through 49 years. First conflict between Ibn Saud and FDR, a totally different view on Palestine. When they met, FDR nevertheless, when Ibn Saud asked for friendship, said, I'll never do anything that will prove hostile to the Arabs, and I'll make no change in our basic policy on Palestine without full and prior consultation between both Jews and Arabs. In that context, Ibn Saud - and it wasn't just that, but Ibn Saud had earlier authorized overflights of U.S. forces, U.S. air forces, and the establishment of the Dhahran airbase, which became an issue between not just the two countries but Saudi Arabia and the rest of the area.

Roosevelt dies, Truman comes in. Truman calls together the chiefs of mission from Near East missions and says, I know we've made these promises about Palestine. Here's my problem. I have hundreds of thousands of very well financed, very interested constituents who are pushing me in one direction on Palestine, and frankly, gentlemen, I don't have any hundred thousands of Arab constituents. I'm going the other way.

Immediately thereafter - not immediately thereafter. The next Saudi message comes from Ibn Saud in a private audience in Riyadh with the minister, Chief Minister Childs, said, putting aside this painful question of Palestine with which we disagree, I have some problems and I'm looking for this partnership. I've been told that you've agreed with the British that I'm part of their sphere of influence. And how about a few arms to help us protect this trans-Arabian pipeline? The United States comes back and says, no, we're not at all interested in you being part of the British sphere of influence, but in being an independent country. And we'd like to help you with arms but we're a little concerned about any arms in the area because there happens to have been this little dispute going on in Palestine. Saudis stay on our side, are pushed aside.

An interesting thing that went - in this process is that we did commit ourselves to stand by, for serving the territorial integrity and independence of Saudi Arabia, from any threat. Well, the Saudis came to us and -- as Chas. has noted, the Buraymi Oasis is still not quite settled -- and the first issue in which they came to us and asked for defense of their territorial integrity was the Buraymi Oasis, threatened at the time by our partners, the United Kingdom. We worked very hard to explain that, now, we're ready to go to war on your behalf but not against the United Kingdom.

The relations between the two countries continued in this push. Saudis pushed for a U.S. partnership; U.S. reluctance. Low point, 1954. Faisal just called in the Americans and said, we no longer want technical assistance; we've decided not to trouble you any more. High point, after the 1956 Suez crisis the United States and Saudi Arabia quickly became close. The United States became a major supplier of military equipment and expertise to Saudi Arabia. Unfortunately, two things happened as this - no, the most important thing that happened as the two countries grew together in the 1950s was following King Abdul Aziz' death King Saud took over, who was corrupt, incompetent, mismanaged that relationship as well as he did any other, and the relationship went back down again.

The few years that King Faisal, when he was prime minister, before he was king, ran the country, there was an improvement in the relationship. Strained over Yemen, another issue in which the United States had a different agenda, there was a revolution in Yemen in 1962. The Saudis quickly entered into the fray on the side of some royalist forces, attempting a counterrevolution. The United States initially supported the Saudi position, was then forced to back off a little bit because of an attempt to have a balanced relationship with Abdel-Nasser. It cost too much in that we ended up keeping the relationship with Saudi Arabia together, but really having it being a serious issue to us until the 1967 war, which actually pulled the Egyptians out of there rather than ourselves.

Post-1967, a few good years, relatively good years, in which the Saudis in fact exploited the 1967 war to finish their problem with Abdel-Nasser, not just to get him out of Yemen but in fact to buy him off. And Faisal had turned to the United States and said, I have now accomplished the following, and that is, Abdel-Nasser owes me enough, or owes us enough that we can develop Saudi Arabia in a Saudi way without the pressure of Arab socialism or this nationalism. Disappointment on the United States' side; a great desire to use the '67 war as a crux on which to move forward to a solution of the Arab-Israeli issue. Saudi Arabia, frankly, went to the Khartoum conference that yielded, without their help - ah, there goes my numbers. I'm going nowhere on this. (Laughter.)

We've stayed on different sides. Afghanistan was one of our great points of cooperation. It worked on different sides. Both we and the Pakistanis pushed the Saudis to try and control a little more the private contributions to the mujahadeen. The Saudis in fact - I don't know how much they didn't want to; they frankly felt they couldn't. They finally went to the Pakistanis at one point and said, here's your choice: we can either cut it off or we can leave it go. The Pakistanis decided that cutting off wasn't fair.

I've disappointed everybody by only getting to Afghanistan, a place where they probably want to ask me questions. I'll deal with that in the question and answer period.

MR. FREEMAN: Thank you, Frank. Thank you very much. I think it is very useful to be reminded that on the other side in the Saudi leadership all of this is living memory. I can recall one instance, 1992 or thereabouts, where I had an instruction to persuade the minister of defense, Prince Sultan, of something. I thought it made a lot of sense and I prepared myself quite thoroughly to be as persuasive as I could be. I went in, and frankly I did a hell of a job. I persuaded myself, at least, and some of his staff. And he looked at me at the end of it and said, in effect, you know, Bob McNamara tried that on me in 1964, and I didn't buy it then and I don't buy it now.

I think it is useful to be reminded that what is ancient history to those of us who came late to Saudi Arabia is living memory for this current leadership, and I hope we can go on beyond Afghanistan in the question and answer, but I do thank you for giving us a sense of the texture of this relationship, which is very real.

You raised one question, which I will simply lay out for later discussion, by noting the centrality of the Israeli-Palestinian issue to the very beginning of U.S.-Saudi relations. You remind me that some Saudis now argue that the U.S. relationship has greatly diminished utility to Saudi Arabia because the U.S. demonstrably is no longer either willing or perhaps able to constrain Israel, and that one of the main points that the Saudis looked to in the U.S. relationship was that the U.S. would preclude Israeli aggression or other hostile activity against Saudi Arabia. Now there's a question about whether we can or would do that.

Let's turn now to the realm of religion, culture and education. In the wake of David Aufhauser's very important discussion of mosque collections, I sort of wonder whether the United States government could prohibit passing the collection plate in Irish Catholic churches in Boston in order to cut off the IRA. If you think of it in those terms, you understand the drastic nature of the political decision that has been made in Saudi Arabia. And here to give us background on that and related issues is David Long.

DAVID LONG: When I was doing anti-terrorism stuff back in the '80s, used to have interminable meetings with the FBI, who wanted to stop the flow of illegal monies to terrorists, the biggest source of which was to the PIRA from Irish-Americans. I didn't think it could be done then and I don't think it can be done now, but I do think that as we are doing, we can limit it and make it harder for it to go. I think it's absolute nonsense to think that we can stop it.

I want to make two points about this, and they're inter-related, and they're also inter-related with what Frank said. The first is to just remind people of how far the Saudis have come in managing financial transactions. To start with a show and tell, does anybody other than Saudis and former ambassadors to Saudi Arabia know what this is? It says 10 riyals, and it was issued by SAMA, the Saudi Arabian Monetary Agency. It is not a bank note. Back in the '50s there were no bank notes. They had a gold and silver standard, and gold and silver fluctuated differently, so when gold was high, silver came roaring in, and when gold was low, gold came roaring in and messed up the currency entirely and they realized they had to do something. So they got an American named Arthur Young to come in and help them start a central bank, which they couldn't call bank because they do usury, so they called it the Saudi Arabian Monetary Agency, or SAMA, 1952.

I want to read you a little something about the difficulty they had before that. This is written by - this is Aramco World. It was written about the '50s. It said, "Insistence on hard money had unexpected side effects, particularly for companies like Aramco, which in the 1950s had a payroll running to 500 million riyals a month. With only one denomination of silver coin available for a month's wages for a typical worker, each pay would weigh about 10 pounds. To meet the entire payroll, the company had to transport, store, and guard, and count 60 tons of silver every month." This is 1952. It also had to find extra storage, provide a fleet of trucks, hire dozens of laborers to load this stuff and unload this stuff and a huge staff to sort and count it and give it out.

This was in 1952. And so SAMA, that was not allowed to make bank notes, did a sneaky thing. They created haj receipts. These were for haji's, for the pilgrims. And this thing says, "The Saudi Arabian Monetary Agency holds in its vaults 10 riyals at the disposal of the bearer of this fully negotiable receipt." So you give this to a haji and he can use this and he can go to SAMA and they'll give him 10 real riyals for this piece of paper. And they sent it out and it didn't come back. And then they made a second issue and they had millions of these things running around and they didn't come back, and it became currency. And so finally they printed currency, which this is the first-run riyal note which they printed in 1959, and then they withdrew all these haj receipts and then they had paper currency. And this is in the '60s. And now they don't have any coins any more, so if you want a Saudi coin, you've got to go to an antique store and buy one.

This is all within my memory, too. So when we assume that the Saudis aren't doing enough, I submit that in terms of financial transactions and having oversight and regulation of these transactions, and particularly international, I think it is worth it to look at where they come from.

Now, the second point I want to make is that they've come a long way, and it isn't because the United States has in sort of a patronizing way told them to. It's because they're realists, and in financial transactions that are commercial, and government to government, and government to private sector, they had to pull up their socks if they wanted to live in the real world. And they did. They have over the years created a fairly good international monetary policy system, with oversight; not perfect, but then again you can look at the Wall Street Journal if you want to see how perfect we are.

Okay, now why didn't they do this with charities? Chas. mentioned a little bit about it, about putting money in the plate in - in the First Baptist Church in Providence, I'll say, because that was the first Baptist church. Okay, if you're giving a million dollars, you want to know where it goes, but if you're putting 10 bucks in the plate you don't. Your obligation is discharged when you drop it in the plate, right? And this is the same notion, only stronger, in Arabia because charity is one of the four pillars of Islam, zakat. And the obligation is to give; the obligation is not to trace it.

I was with a Saudi friend of mine one time. He was making a speech and these four guys came up and he was a little intimidated and they said, we want to talk to you. He said, what for? Well, it was at a university and they said, we don't have any place to pray and I wondered if you would give us a little donation, a couple hundred dollars, so we could rent a place where we can pray. So he wrote out a check for $15,000 and gave it to them. He didn't ask who they were, he didn't get any sort of due diligence, nothing. He just gave them a check and walked off.

This is a tradition that has gone back to the 7th century. Now to all of a sudden change from that, to have to do all of the due diligence and all of the regulations and all of the oversight and all of everything else that we are now demanding them to do, is a pretty tough, tall order. I do not mean to say by that that we shouldn't do this. We should. I do suggest, though, that they're not doing it because we're patronizingly telling them how they ought to pull up their socks. I submit that their wake-up call was not 9/11; their wake-up call was last May and was increased by last November when it became forcibly forced on their psyche what needed to be done for their own problem and the world's problem.

Having said that -- and I'm going to leave the rest of this stuff to Q&A, I would make one other comment, and that is, when I was deputy director for counter-terrorism, I used to be in interminable meetings, of the kind that Chas. intimated, with FBI and with Justice and with Treasury about the money leaving our country to go to terrorist activities, particularly in Northern Ireland. But the PLO came in for its share of the blame too -- not Hamas back then. And in the process I have come to the strong conclusion that we will never stop illegal money flows. We have not done it on drug laundering and we're not going to do it on terrorists' dirtying of money.

Moreover, with terrorism it is too cheap, too available, too tempting ever to eradicate, so anybody who thinks that we're going to eradicate terrorism ought to think again. The best we can do, and we should -- and I'm not saying that we should therefore give up and do nothing -- the best we can do is to bring the problem down to manageable proportions, and that includes trying to stop the money flow, and that we have to do. But I think that we are selling the American public and the Saudis both a bill of goods when we give the impression that we can stop this altogether. Anybody who has ever dealt even commercially in the Middle East knows that there are a million ways in a global economy with open borders and electronic transfers that you can get around any group of restrictions to stop it.

So yes, we should, but I'm going to end with my usual pessimistic outlook on life. Don't count on us getting rid of it. We're going to have to manage it, and the hardest part for Americans is, we are problem solvers. We want to get the problems done, forget it, and go kick back and watch the Super Bowl. I think terrorism is going to be with us for the rest of the century and I think the Saudis have now figured that out too, and because we now have a common interest in it I think we can do a great deal, and we are doing a great deal and we should continue to do a great deal, as long as we don't have unreasonable expectations.

Thank you.

MR. FREEMAN: Thank you, David. The religious injunction against putting strings on charitable donations, the feeling that the value of the charity, the charitable act is diminished by second-guessing how the donation is used is a very powerful one, and I agree with you, it is not so much a - I'm sure David did a terrific job of persuading the Saudis. I think it is less that we have been persuasive than that circumstances have driven home to the Saudis the requirement in the Saudi national interest to move to impose audits and standards of accountability for the use of charitable contributions.

In this connection, during my visit to Saudi Arabia last week I sat with a very senior member of the government and asked him whether the president's speech on democracy in the Middle East had been helpful or counterproductive in the context of reforms that are very clearly developing in Saudi Arabia. The man treated the question seriously. He thought for a minute and said, really neither. He said, it's certainly not helpful because nobody wants to follow any of your advice any more, Americans. And he said, it really wasn't counter-productive because nobody's listening to you any more. This is, I think, to go back to something again David said at the outset, the fragility of this relationship in terms of popular attitudes on both sides, despite the strong interests we share in cooperation, needs to be recognized and I think addressed.

The discussion of SAMA's origins and haj certificates and the like leads us directly to the question of how what was once something as poor as Mauritania became the country it is now. And Nat, I invite you to come up.

NATHANIEL KERN: Actually I'm just going to talk about Saudi Arabia and oil because that's the thing that we're most interested in here. And in that context I'd like to offer some observations about whether the Kingdom's oil policies are friendly or hostile to the United States. It's fairly common for American politicians to deplore our dependence on Middle East oil, by which they can only mean Saudi oil. Saudi Arabia is our largest source of crude oil imports, and except for on-and-off supplies from Iraq, Saudi Arabia is our only significant source of crude from the Middle East. Our imports from Saudi Arabia comprise about 15 to 20 percent of our total imports. We get about 2 to 3 percent from Kuwait, almost nothing from Qatar and the UAE, and by law of course we ban imports from Iran and Libya.

Part of this popular aversion to dependence on Saudi oil no doubt harks back to memories of the 1973-74 Arab oil embargo, which was spearheaded by Saudi Arabia. Another part of this aversion may stem from the notion that our ties from Israel might be compromised by our ties with Saudi Arabia. Another more recent myth is that our purchases of Saudi oil somehow funds terrorism.

Over the past half century Saudi oil has played a major role in advancing U.S. interests. The U.S. didn't become a major oil importer until 1970, but from the early days of the Cold war it was U.S. policy that inexpensive oil from the Middle East be used to fuel the post-World War II economic recoveries in Japan and Western Europe in order to avert the kind of economic chaos which it was felt would open the way for communist influence. Even during the heated political atmosphere of the 1973-74 Arab oil embargo, Saudi Arabia never stopped supplying the fuel our military forces needed worldwide, especially in Vietnam, even though the secretary of state at the time made veiled threats that the U.S. would invade and occupy Saudi oil fields.

When oil prices raged out of control during the second oil crisis, spurred by the Iranian revolution of 1978-79, Saudi Arabia consistently moderated oil prices by increasing production and by undercutting official selling prices advocated by others in OPEC. When Iraq invaded Kuwait in 1990, the first Bush administration imposed a blockade to prevent oil from Iraq or occupied Kuwait from being sold to world markets, and that cut off more than 5 million barrels from world oil supplies. Saudi Arabia moved expeditiously to ramp up production to help fill this gap, such that oil prices were lower when the U.S. military campaign to oust Iraq from Kuwait began than they were before Iraq seized Kuwait.

Last year oil markets met their perfect storm. A lengthy strike had paralyzed Venezuela's oil exports beginning in December 2002. Our invasion of Iraq in March terminated Iraqi production, while strikes and ethnic violence in Nigeria at the same time cut that country's production by more than one-third. Despite its misgivings about the wisdom of the U.S. invasion of Iraq, once Saudi Arabia was convinced that the Bush administration was determined to invade, it did everything in its power to minimize the economic costs to the world economy by producing enough oil to make up the shortfalls from that perfect storm in the markets. By a combination of high oil production and skillful market interventions, Saudi Arabia was able to bring down the price of oil by $11 from $37 a week before the invasion to $26 two days after the invasion.

Those are a few of the historical high points, but what of the future? Saudi Arabia holds one-quarter of the world's oil reserves, and alone among producers has a policy of maintaining the cushion of spare capacity, some 2 million barrels per day of spare capacity now for the explicit purpose of providing extra oil to the market when there is an interruption in global supplies. Without that cushion of spare capacity, the only way the oil market can adjust to a significant global supply disruption, like an Iraq or Venezuela last year, is to let prices arbitrate between supply and demand. Price arbitration can be a fairly unpleasant way to lower demand to match a reduction in supply. Very few of us are willing to take the - to abandon our cars and take the bus just because gasoline prices are high. Unfortunately, the only way Americans really curtail their use of gasoline is when they are thrown out of work and are taking the bus to the unemployment office.

The Saudis do, of course, have a business purpose in maintaining that cushion of spare capacity. Overly volatile prices give their main export product a bad reputation among consumers, but it's a costly process for the Saudis to maintain that cushion, and at the end of their day their leadership justifies the cost because they believe they do have a responsibility that comes from a stewardship over one-quarter of the world's oil reserves, a responsibility for the security and stability of worldwide supplies, from which we in the U.S. benefit as consumers of one-quarter of the world's daily supplies.

As we look to the future and think of the role of Saudi Arabia in it, I'd ask you to ponder a couple of things that have occurred over the past 20 years, and some of the new realities we face. Twenty years ago we consumed 15 million barrels in the U.S.; today we consume 20. Twenty years ago we produced 8.9 million barrels domestically; today we produce 5.6. Our imports of crude have gone from 3.2 million barrels a day in 1984 to 10 million barrels today. The United Kingdom, which became an exporter of crude thanks to the discovery of prolific North Sea fields in the 1970s, last year became a net importer of crude. One of OPEC's leading members, Indonesia, which has been producing oil since 1983, last year also became a net importer of petroleum. China overtook Japan last year as the number-two oil consumer in the world, and its oil use has been growing at double-digit rates. It still has 200 million under-employed workers whom it wishes to bring into the global economy. That's a workforce larger than in all of North America or larger than the EU's.

The historical record shows that Saudi Arabia's actions and interests in the oil market have been aligned with those of the U.S. and last year the case was proved again. Saudi's stated intentions are to maintain that alignment of interest in the future. Our need to maintain the same alignment over the next 20 years is probably greater than it was 20 years ago. We've had occasion to, since 9/11, to address and air complaints to Saudi Arabia about a host of different things, and some of them have been measured and constructed, and some of them have been shrill and bordering on hate. Over time the Saudis have responded and are responding, sometimes too slowly for us, to these complaints, whether it's terror financing, education reform, you name it.

But we also, I think, should look at how some of the measures we have enacted since 9/11 are losing us friends in that part of the world. One-half of the students nominated last year for Fulbright scholarships from Muslim countries were denied U.S. visas. I just came back from Saudi Arabia and Kuwait, and everywhere you go, as Chas. points out, middle and senior officials of those countries are U.S. educated and they have a very strong affinity for America. Their kids can't get visas to come to college here. Their parents can't get medical visas. They no longer want to come here for vacations because they're being told they're unwelcome. At best they're reluctant to make business visits here. This is going to create a problem for us sooner rather than later.

I think the conference has a valid purpose in examining whether Saudi Arabia's hostile or friendly to the United States, but we also have to bear in mind that friendship and hostility are two-way streets, and it may be worth asking whether our policies are friendly or hostile to Saudi Arabia. I fear that if our policies are perceived as hostile, the Saudis are going to be successful in finding new friends. Thank you.

MR. FREEMAN: Thank you, Nat. Very succinct and very sobering analysis, which I think underscores the point that I made at the outset. The interests haven't changed. The emotional climate in which they are addressed, however, has.

And we come now to Hussein Shobokshi. Hussein, I feel sorry for you. Having sat in Saudi Arabia, or, as you know, in groups of Saudis, and heard my own country discussed in terms that cause my hair to rise and my skin to crawl, I sympathize with you, having sat through four excellent but undoubtedly not terribly pleasant presentations from your point of view. And I invite you to come up and to give us your view of what is happening now in Saudi Arabia and your view of the present and future of the U.S.-Saudi relationship.

HUSSEIN SHOBOKSHI: Thank you, Chas. Being the fifth speaker here, I feel like Elizabeth Taylor's sixth husband: I know exactly what I'm supposed to do and also keep it interesting, but I'll give it a try anyway. (Laughter)

I'm just going to answer the question raised here. Saudi Arabia is not a foe; Saudi Arabia is a friend. There are some Saudis who dislike America and its policies, of course. I don't think it's a secret. But I think there is the same number of people of Americans who hate Saudi Arabia and its policies who are very confused about it.

But I simply cannot address this question without addressing the issue of hypocrisy here. All these issues have existed for the longest time between both countries. For the longest times - the issues of curriculums, sermons in the mosques, political reform. They have always been there, but they were neglected. Nobody has ever discussed them openly like they do today. We should ask ourselves frankly, Americans and Saudis, why were these issues never raised? Why weren't there any frank discussions? Why was it always taboo to discuss reform in Saudi Arabia, educational reform, social reform?

When we reach the answer to that question, we will begin to realize the heart of the issue. It was simply a win-win situation. People have had a cordial relationship, you know, at a very distant arm's length, but it was a very fake relationship. I think it was - I've heard the word "secret marriage" being referred to describing the Saudi-American relationship. Probably that is true. Now it should be out in the open. Do we want to maintain this marriage, do we want to seek a marriage counselor, or do we want a divorce? I think there is tremendous interest in maintaining this relationship, but we have to address these issues, and there are a lot of them.

In today's Washington Post article we saw the news item about Al Haramein, the infamous charitable organization, but when I read this piece of news I don't see any reference to the discussions that took place in Saudi Arabia about Al Haramein. I personally have in today's edition of al-Sharq al-Awsat, the leading paper in Saudi Arabia, an article addressing the issue of managerial changes in Al Haramein, because they've just fired the guy and replaced him with his deputy. That's not a change, but nobody refers to these discussions which have been taking place. I wrote seven articles about these issues - myself, alone, seven articles - and believe me, I got a lot of very fantastic and odd e-mails. It made me sympathetic with Sean Penn and the Dixie Chicks, but there are people who simply don't want to discuss these issues at the moment over there. But now it's being discussed, it's being reformed.

Unfortunately, I don't see that referred to in the Washington Post. This is a very odd way of dealing with an important subject because it is not only a political decision. I think it is also a social decision as well on behalf of a lot of Saudis, who want to know where the money goes.

Before his status as a famous best-seller, we had a meeting with Mr. Paul O'Neil in his previous visit to Saudi Arabia. I think it was in November, right after the events of September the 11th, and we had the opportunity to sit with him, seven businessmen in Jeddah, and we blessed his and agreed with his policies of seeking and tracking down questionable finance techniques, be it through banks or through charitable organizations in Saudi Arabia. But we begged him, we begged him to have a universal policy against terror. I think white supremacist groups and neo-Nazis in America, Tim McVeigh's, there were traces of these monies coming from Central Europe, mainly from Germany, Switzerland and Austria, and from companies that were dealing with neo-Nazi organizations in America. Nothing has happened to these people.

We know that tobacco companies were involved with the Sandinistas in Central America to secure the routes of tobacco. Nothing happened. The IRA example has been discussed already. And please, since Hamas was brought on the table - and I fully agree. I take this position clearly. I fully agree suicide operations are illegal. They are not right. They are not even Islamic. But guess what? So are kibbutzes in occupied territories. Financing these kibbutzes on Palestinian land is also illegal, and that's also financing terror. So we should have an equal policy on both sides of the game.

Saudi Arabia, by the way, is not yet a nation. It's a country, and there's a big difference between the two entities. We saw that clearly as Saudis when the discussions took place in what is now called the second round of the national dialogue. On that table alone we had more flavors than Baskin Robbins, believe me. There were seculars, there were Shiites, there were Sufis, there were Selafis representing the mosaic that exists in Saudi Arabia today. To a large number of people around the world Saudi Arabia is black and white: women wearing black and men wearing white. The issue is much bigger than that. Saudi Arabia is like any other country. It's the largest country in the Middle East in terms of size. It's also made up of many, many ethnic and religious sects. These were never discussed. Again, it was part of the hypocrisy that existed for the longest time. The government has decided to address these issues head-on, and it's doing a good job and we are trying to support it, but again, these good stories are never told about Saudi Arabia, are never discussed about Saudi Arabia.

Sermons of hate must never be allowed in Saudi Arabia, and there are a lot of them. I do agree. There is reform in mosques around Saudi Arabia. They have had a lot of firings of imams in different mosques. But you know, they do these sermons under the name of protecting religion. That should not be allowed. By the same token, I don't think a military officer nor the son of a famous preacher should be granted that right under the name of freedom of speech to insult another religion. Equality, a fine and important element of democracy in America, is absent in issues like that. We as Saudis do look forward to America to exercise that option and that right on events like that.

Saudis are reforming their lives. There is still a great deal to be done -- believe me, a great deal to be done. There is social reform, economic reform, religious reform, political reform. Don't worry, I will not do a Howard Dean on you, but there are a lot of areas that are being addressed today in Saudi Arabia. We need more exchanges.

I think the interest between America and Saudi Arabia has been extremely, extremely focused on the economic side of things. I'll give you a part of myself. Why am I wasting my time and my money in coming - this is my fourth visit to America. Because I have a seven-year-old daughter that I would like to attend an American university. I brought my brother-in-law, who is sitting here in the front row with me. My sister is still going to school here. I have been involved in the first private college for women in Saudi Arabia, and we have seven - seven - associations with Berkeley, Columbia, Nebraska and other universities, all in America. We are unable to recruit anybody because Saudi Arabia is perceived as, you know, the devil's headquarters, unfortunately.

I would like that to be changed, but I think, you know, I would like to see the same interest from America as well. There is a very dangerous message being sent from members of the American administration, and it's nothing short but from a lie. It's simply not true. You read Perle's book and I can see seven lawsuits in it, really, addressed against -- some factual and dangerous messages are being sent here. There are more important messages that I would like to address, believe me, and I would save it more for the Q&A, and I thank you for your attention.

Thank you again, Chas.

MR. FREEMAN: Thank you very much, Hussein. I think one of the key points you made - we now come, by the way, to the comment, question and answer period, and I'll make a few remarks. Those who want to say something, please try to do it briefly and clearly, and those who have questions, better yet try to phrase them so we can understand them and tell us who you are. If you raise your hand - I'm not firing the starting gun yet. Raise your hand, I will make a note of who you are and I'll indicate that I've taken note of you and I'll try to call you in order. We have about, thanks to Hussein's brevity, we have about an hour and seven minutes. So we will go on.

I think Hussein just made a very important point, which is one that there is a lot of selective listening going on on both sides, and - but at the same time, what we say internally, in Saudi Arabia what you say internally perhaps we're not paying enough attention to what you're saying. Maybe you're paying too much attention to some of the stuff on Fox TV, which unfortunately is seen in Saudi Arabia. Think about it next time you watch redneck TV here. (Laughter) That message is received directly by the people who are being denigrated, and their reactions are not happy ones. I sometimes think that if Radio Sawa were to accomplish its purpose of softening Arab attitudes toward the United States, that it could all be undone in 10 minutes of - well, you know the shows. I won't leave myself open to slander and libel suits.

All right, starting gun. Sir, you're first. Please use the microphone, if you would. We try to tape this and we want to do justice to your questions.

Q: Mustafa Sharif (sp). I want to first of all thank you, Dr. Freeman, Ambassador Freeman and panelists, for discussing issues that are verboten in the American media. I have been in this great country for 30 years. I've been a citizen of this great country 23 years. I have been a registered Republican since 1988, and what I see is very disturbing. I am an advocate and supporter of democracy movements, human rights movements, and women's movements in all of the Arab countries. But Saudi Arabia is wronged. The Accountability Act is full of lies and fabrications.

I would like to mention some things that are compatible between Muslims and the United States. I'll start with World War II. Muslims were there with the allies in the liberation from the Nazis. In the battle of Monte Cassino, you had a contingent of Moroccans, Algerians, Senegalese who fought at Monte Cassino. Without them historians are saying that it would have been almost impossible to save that mount. The Americans tried but they destroyed the monastery. But it was the Muslims who took that. You go on to - so that the fight against Nazis, Muslims were there. The fight against communism, Muslims were there. In Korea there were 9,500 Muslim Turks alongside General MacArthur.

MR. FREEMAN: I have to ask you to -

Q: Yeah, I'm going to be brief.

MR. FREEMAN: -- come to the end of the comment.

Q: Yes. They died against communism. The war between - in the Cold War, without Muslims would not have been won; the global war for humanity's hearts and minds between the free enterprise system and the - (unintelligible) - of America and the Soviet Union would not have been won. On the battlefield, if the Warsaw Pact countries had to cross across - (unintelligible) - we were on the line. Right now the fight against communism, without Saudi Arabia and the Muslims, cannot be won.

MR. FREEMAN: Do you mean terrorism or communism?

Q: The fight against terrorism.

MR. FREEMAN: Right.

Q: Without them, it cannot be won. They provide the bases, they provide the intelligence, they provide the support, okay? That's why I find it outrageous to hear all these lies every day and would that all American were like this panel here. I believe it would be 50 percent defending terrorism.

MR. FREEMAN: Thank you.

Q: So that I'm here to - these are truth, you know, and I challenge anyone to challenge them, that Muslims are fighting communism - are fighting terrorism. Saudi Arabia and Egypt are on the forefront. In terms of spreading America's values you have the university - the American University in Beirut, you have Cairo, okay? In 1978, in order to fight communism in Africa, they took Moroccans down there.

MR. FREEMAN: I think we have to ask you, sir, to end. I take your point. It's a serious one. Clearly the joint struggle in Afghanistan played a major role in bringing down the Soviet Union. You are absolutely correct; without Muslim cooperation there can be no successful addressing of the problem of terrorism. But if you have a question, please direct it to the panel.

Q: I just have a conclusion. My perspectives as a U.S. citizen, nothing can be accomplished until those of us who are U.S. citizens stand up and defeat Israel's lobbies right here in Washington in America. And that's my conclusion.

MR. FREEMAN: Thank you.

(Audio break.)

Q: For those who don't know what the - (unintelligible) - is, it's a Pan-Arab, Saudi-owned, London-based newspaper. My question is for Mr. Shobokshi, another one for the panelists.

Sir, my impression about the relationship between Saudi Arabia and the United States versus this relationship between Israel and the United States is that Saudi Arabia very much supports the U.S. economy in many ways, unlike the relationship with Israel; it's the other way around. Yet Saudi Arabia has not been able to show any teeth, basically, some muscle in its relationship with the United States. You have 1.2 billion Muslims backing, you have the holy sights, you are part of the Arab world, so you still come to the podium and politely ask for understanding. Why do not the Saudis be a little bit tougher in dealing with the Americans?

And for the rest of the panelists here, I've been here three years and I've never seen so much - like my previous colleague here - a misunderstanding of the Arab and the Muslim world. So what's the responsibility of the U.S. establishments in creating this anti-American sentiment back there, and who should we talk to to take that responsibility in trying to correct it?

Thank you.

MR. FREEMAN: All right, I think various members of the panel may want to comment on it. Hussein, you should lead off. Young lady, you're next.

Please, your comment.

MR. SHOBOKSHI: I will not address the Israeli issue, please, at all. I would like to concentrate only on the Saudi-U.S. angle. The Saudis should fix what they need to fix for their own sake, for their own national sake. If that, as a result, comes about a better relationship with America, great; if a better relationship with Japan, fantastic, you know. That's the fruits of the seeds of today. We do have a lot of fixing to do. I think socially, economically, politically, culturally the Saudis need to reform, and we're doing that.

Your question is why haven't we had a better relationship with America. Because there is, again, the hypocrisy issue. We did not seek a complete relationship; we sought just a fractional relationship between both of our countries.

MR. FREEMAN: I don't know who wants to comment on the broader issue of changing attitudes. I will just say one thing, and that is I think the two questions are in fact directly related. And while in the end it may be that there is a need for a grand bargain at the right time between the leaderships of the two countries, that each will try to help his people - or her people if we ever have a female president - to develop a more correct and understanding view of the other, at the moment I would say that a large part of the reason for very negative American attitudes is that Saudis, until recently, didn't make much effort to reach out to the American public, and we're content to manage the relationship in a very narrow band.

Therefore there was no mass understanding or support to call upon when a crisis occurred after 9/11 and large groups antipathetic to Saudi Arabia were able to impose their view on the body politic here. But the answer to this is less to ask Americans what we're going to do but for Saudis to think about what you're going to do, and that I'm pleased to see that some things are in fact being done but a lot more needs to be done.

Yes, ma'am?

MR. LONG: Before you do -

MR. FREEMAN: I'm sorry. Yeah, David.

MR. LONG: I just want to make a quick comment here. A number of years ago, for my sins I was the first executive director of the Center for Contemporary Arab Studies at Georgetown, and I found academic politics so Byzantine, if I can mix the metaphors, that I scurried back into the State Department. But I went around with the dean -

MR. FREEMAN: That's a very sad comment. (Laughter.)

MR. LONG: I went around with the dean of the School of Foreign Service at Georgetown at the time, Peter Krogh, and we went around trying to raise money for this center, which was an academic center, not a polemic center. And we went to all the Arab-American groups in the United States, and we did not get one thin dime. Now, that sounds mercenary and I'm not really talking about the money here, but one of the things that is lacking in this country is not the noise level of the Arab-American groups complaining and polemicizing, but simply supporting an educational effort to educate the American public about the Middle East and what it is really like and what our stakes are there.

So I would add one caveat, Chas., to what you said, that sometime I really do hope that Arab-Americans, not as polemicists but just educationists, would help the effort to explain to Americans just what it's like over there.

MR. FREEMAN: As the president of an organization that depends on donations, and doesn't get a lot, all I can say is that the atmosphere is actually deteriorating in this regard. People are intimidated from giving. People in the region don't want to wire money because of concerns that David's successors might investigate them, and the atmosphere in the Arab-American and Muslim-American communities is not terribly charitable toward non-Muslim groups who are not advocates but educationalists, like us.

And Frank and David, you had a comment also? Frank first.

MR. ANDERSON: Just one, and that is as much as there might be reason for despair, the one point in my hastily conceived remarks I wanted to make was to put this stuff in political context - I mean, in historical context. It's not the first time that it's been very bad in our relationships between our two people, and there are some significant reasons to be optimistic about at least the mid-term and longer-term future. This issue of Saudi Arabia adequately describing itself to the United States and reaching out, in fact until very recently there were some very fundamental differences that neither side wanted to address: the issue of political reform and cleaning up anti-corruption issues. Economic reform in Saudi Arabia has been one that's been with the Kingdom since its inception: what kind of a society are we going to be? And there has been improvements - periods of improvement and periods of regression on this issue. Saudi Arabia is now advanced on both political reform and cleanup that I think is unprecedented in its history.

The issue between us of -- the basic Arab-Israeli issue. The president's roadmap, not implemented, not supported, and certainly not yet accepted by everyone in the administration or the population, is a lot closer to crown prince Abdullah's peace plan than anyone else's around. And on these fundamental differences - well, our energy policies are less in conflict now than they have ever been. There is a political dynamic going on in both places that is very bad right now, but things - but it's also a unnatural and unsustainable in its current state. It's got to be an improvement.

MR. FREEMAN: The president has been very careful to make distinctions that not everyone in his Cabinet, unfortunately, seems to be able to make, between Islam and terrorism and between one Arab and another, and I think it would be nice if more people in his Cabinet listened to him.

Sir.

MR. AUFHAUSER: I just had a fairly parochial comment, speaking as a guy on terrorist financing. And notwithstanding David Long's suggestion that this is all quixotic, I actually disagree with him because frankly I've seen lives saved by the effort.

I look at the money issue as a very convenient proxy for dealing with a great many more difficult issues, and I also think, as I said earlier, it's doable. And it's a way at getting at perceptions and it's a way at getting at trying to get shared common ground. And it crosses all borders of everything we've talked about here in terms of theological teachings, in terms of what the outposts of the NGOs are doing, and in terms of taking responsibility for what happens in your own shop in terms of being a businessman or a banker or a lawyer or an accountant.

So I view it as a very convenient vehicle to reach what we're all trying to reach here, which is a demonstrated commitment to a civilized world, and one where no one supports acts of terror.

MR. FREEMAN: Don Quixote, would you like to respond?

MR. LONG: Just quickly about quixotic, David. It was not my intention to say it was quixotic at all. The focus of my remarks was that it is a mistake to raise the bar too high of what can be done and what are expectations of what should be done will be accomplished. That's not to say that we can't make real progress, but I think that when we have expectations beyond what are realistic that we create more disappointment in the long run than if we make them more realistic.

MR. AUFHAUSER: Let me give one last comment to that.

MR. FREEMAN: Sure.

MR. AUFHAUSER: It reminds me of - President Truman was urged during his second term to move more towards the center, and he made the comment: "The one thing I know is that if you match a Republican against a Republican, a Republican will win every time." (Laughter.) You need to set bars high; it's the definition of leadership. And you'll never accomplish anything ambitious, particularly in the area of finance -- by the way, no one knows better than me in this room - you have to take this as an article of faith - of the infinite number of ways the international financial system can be gamed to get value across borders. I'll define success for you. If they can no longer hit a keystroke to transfer money that kills, and we push them to the old ways of value transfer and commodities on camels across borders, you are safer, and that is real victory.

MR. FREEMAN: Thank you for that. I think that the - it's interesting to have this back and forth because, actually, several of the speakers, in speaking of the history of Saudi Arabia - inadvertently perhaps, or maybe intentionally - made the case that very rapid change in fact is possible and has occurred and may occur again. So I take David's caution as a caution not a refutation of your determination that we should press forward.

You have been standing here - probably your legs are about to go to sleep and you may have lost your seat. I apologize. (Laughter.) Please identify yourself and ask your question.

Q: My name is Leila Dane. I run a tiny nonprofit called the Institute for Victims of Trauma. It is nonpolitical. I've enjoyed hearing the distinctions between those who talk the us-them talk and those who try to talk the more unity-oriented talk.

I just want to raise a point that hasn't yet been raised, that I consider, from my perspective, an issue that does need more addressing than it is getting addressed these days, and that is the money laundering on the Internet and what's being done about it. It's a nightmare for me; I can hardly keep my nonprofit open because of that. I have done work teaching traumatologists how to be traumatologists in other countries, and I have been invited by money that comes from Saudi money more than by money that comes from U.S. money. I don't know whether we're talking government or whatever. I am always working through mental health professionals myself.

But I was in Algiers helping therapists there learn how to treat victims of terrorism, and I had been working for years with a psychologist who runs an orphanage there. And so when I got an Internet request for wanting to give money to Muslim children, orphans - I am an aging widow with no money - I said, I am not a Muslim organization but I know a woman who runs such an organization and I would happily make the contact for you. I can't tell you what kinds of repercussions this has led to. And, Mr. Aufhauser, if you want to consult with me, I would very happily take on the consultation of someone who knows the ins and outs of money.

I just want to say, the world of the Internet is taking us through changes that are so incredible, it's hard to tell the difference between a real humanitarian and a hypocritical humanitarian, and I think we do need to know that one because politics are just games, and we need to save people's lives. There are so many orphans I can't begin to tell you. I stop there.

MR. FREEMAN: Thank you. David, would you like to comment on the Internet, which fortunately is not very advanced in Saudi Arabia to date.

MR. AUFHAUSER: Just some context. You raise a very significant issue for which no one's found the panacea yet, and that is to whom do you give, and are they the legitimate people that they say there are, whether they represent themselves by mail or by Internet?

Shortly after the president signed his executive orders and took actions of a muscular nature against three charities here in the U.S., a large group of representatives of charities - Muslim, Christian, Jewish, and non-sectarian -- came to Treasury and said, we need some help, we need some guidance, we need to know how much liberty and license we had. The product was a joint product of some guidelines that went out under my name issued by the Treasury Department, not the IRS -- that's an important distinction to lawyers -- and guidelines not rules; you need not follow these - that if you did all of this you'd be in the best possible position to rebut any accusation that you acted too casually and in doing so you underwrote terror.

Now, the list is exhaustive, and no institution could do it all, and it's expensive. And if you witness the Ford Foundation's debacle about three weeks ago, publicly, of having unknowingly given, as reported by the Wall Street Journal, significant amounts of money to organizations in Palestine, which turned out to be diverting the money for a wrongful purpose. You can see how even the largest organizations can be fooled. So there is a move afoot right now to try to create something akin to a trade association or a clearinghouse, and to get some funding for it so that there can be at least a vetting organization available to charitable giving, which will give people more assurance, not insurance - there is no such thing as insurance, but more assurance that they've done the right thing in their due diligence about who they give the money to.

But it's a very significant issue, and we're very concerned about it. And it's not just a U.S. issue. Frankly, I've had personal contacts from people abroad in the Gulf who've said, I want to make sure - I want to contribute a lot of money to libraries and schools, so to speak - my euphemism - in Palestine. I want to fill the void of the civilian default government in Palestine, and I want to make sure none of it gets anywhere else. How do I do that? How do I do that?

So it's a significant issue and dynamic that's happening out there, and it deserves a lot of attention from all of us because charities are more important than governments.

MR. FREEMAN: Sir.

Q: Mustafa Malik. I'm a journalist and researcher. I don't know who will take the question.

When Charles Freeman was ambassador, I was in the Middle East going about the research for the Gulf War, and one of the most perspicacious statesmen I met was Abdul Karim Al-Iryani. He's fourth-time prime minister. And he told me that the United States will help Islamize the Middle East governments, and it will start with Iraq. He is now still in power. So it is better for them to try to be prepared to deal with Islamists in power because everything they will be doing they will be - (unintelligible). Now, it has started in Iraq. We have to go to deal with Islamists now, getting rid of secular government.

So my general question is I don't know that in Saudi Arabia whatever is happening with talk about democracy, Islamists are going to come to power anywhere in the Middle East -- this is what I see - that to change the tone and attitude.

Second thing is definitional problem. Fighting terror - I mean, is there still opportunity to talk about who the terrorists are, why are the terrorist? I was born in India. We had the statues of people, our terrorists who went on suicide bombing and killed the British. What is Hamas doing different now? I think it is something noble they are doing. Educated people go there and sacrifice their life to free their countries. That is what we did. And now we have picked up the fight of Sharon - to Hamas is a terrorist, Hezbollah.

So my question is, is it time now to, number one, to have a study somewhere - I would love to do it - that who are the terrorists, how to define it, and who is freedom fighters? And number two, why are these people against us? And the other question is, Islamists: are we going to hasten Islamization of the Middle East and is it not - I mean, should rather get rid of - we dealt with communists - to Islamic governments in the Middle East, like Iraq, that is coming? Thank you.

MR. FREEMAN: Two very interesting questions. I don't know who would like to start. David?

MR. LONG: On the question of who is a terrorist, I've said it many times, and I'm called a cynic for it, and I'll still say it again: the basic difference between a terrorist and a freedom fighter is what side you're on, period. There is no legal definition of what a terrorist is because no country will allow a legal definition to dictate their response to what is basically a political question. And in the absence of that you have to go for things like murder and kidnapping and hijacking if you want to take it to court. We have laws in our country, the Patriot law being the main one now, about terrorism. And we mention terrorist acts but we don't define it. So I don't know what it is, but I'll know it when I see it, is the order of the day.

Now, on the other problem I just want to say very briefly, we talk a lot about - we're looking at Saudi Arabia and we're talking a lot about reform, and we assume in this country that a reform means after the doctrine of Thomas Jefferson. And we talk about moderates, and we talk about liberals, and we talk about a lot of stuff in Saudi Arabia that really conforms more to a paradigm that is better understood in looking at a Western, and particularly American society, than it does in Saudi Arabia.

I have never seen a Saudi who is a liberal. Saudi society is conservative, period. And so the difference is between those conservatives who want to conserve tradition and have no change, or go back to the Salafis. And those conservatives - and I'm using that in a cultural sense, not a political sense - of people who are very - it is a very devout country - who believe that Islamic law can be compatible with modernity and change.

So the reforms that I think will ultimately take place in Saudi Arabia will be those that have to accommodate change and tradition. And what we're seeing now I think is a struggle between those who do not want to change and those who do, but those who do are still products of that same very basic conservative Islamic society, not the teachings of Thomas Jefferson. And when we get beyond that to realizing that a secular, Western, democratic reform movement is just not going to happen there - and I think we'll all be better off for it. You may want to counter that.

MR. FREEMAN: Hussein, you need to comment on all of that.

MR. SHOBOKSHI: That's one of the big misconceptions about who's where on which side in Saudi Arabia. We don't have statistics to measure opinions or public opinions.

When I wrote an article in June -- which I was later banned for for six months. The article basically predicted a new Saudi Arabia taking place: women driving, people voting, new ulama in the Grand Council of the religious authority, transparency of the financial institutions. There were 37 different points that were all in the heart of the reform issue. I got 3,769 emails. Sixty-five percent of these emails were positive; 35 percent were negative. But as Mr. Chas. Freeman just pointed out, Internet is not necessarily widely available in the country. Nevertheless it's an important measure. There is a voice out there. Yes, Thomas Jefferson is not related, is not copied, but we have small "t" Thomas Jeffersons in the Islamic world.

A very important, significant thing took place last Ramadan, the holy month of the Muslims on Saudi TV. A satellite station, NBC, owned by Saudis, which is widely available, 30 episodes daily - 30 daily episodes of a dialogue between a Muslim cleric - mind you, an American Muslim cleric with four Saudis - every day. That was an eye-opener for many Saudis, an American. It was like watching a dubbed movie, you know, an American, shaved, talking about Islam to Saudis? That's the Islam I'm talking about. Saudis do not have an exclusive franchise on Islam. Islam is a global religion. There is Malaysian Islam, Indonesian Islam, Turkish Islam, Moroccan Islam, Egyptian Islam, and Saudi Islam. I believe there is enough voices in Saudi Arabia now asking for a wider range. We have been, for the longest time, told that your plate of the day is only one plate; it's just this soup. But guess what? Islam is also a grand buffet that you can have many opinions from, many schools of thoughts that we need to open up too, and that is happening today.

MR. FREEMAN: Frank, did you want to make a comment or not?

MR. ANDERSON: No, I don't.

MR. FREEMAN: Okay.

MR. SHOBOKSHI: By the way, as far as terror, it's pretty straightforward: somebody occupies your land needs to get out.

MR. FREEMAN: Okay.

Q: I'm Les Janka, Middle East business consultant. First I want to welcome Hussein back. We need your voice, and come back often and bring some of your colleagues. We need to hear Saudi voices here more frequently. My question, though, I think is to Ambassador Freeman.

In the run-up to the U.S. military invasion of Iraq, there were a lot of questions about how much the Saudis were being helpful, and were we able to use facilities there, and was the cooperation what we expected from a friend? People have said since then, yes. In fact, the Saudis did give the United States much of what we needed. Could you sort of go through a checklist for us, Ambassador Freeman, as to - I know the Saudis are very reluctant to talk about it themselves, but I think we Americans should know how much really did happen in terms of Saudi support during that critical period for us.

MR. FREEMAN: Not to go on in great detail on that, but basically the Saudi leadership confronted the same dilemmas that the Turkish leadership confronted; 97 percent of the population adamantly opposed to any form of cooperation with the American invasion of Iraq, notwithstanding the fact that probably an equal percentage of Saudis despised Saddam Hussein and were happy to see him overthrown. They did not agree that an invasion by Americans was the appropriate way to do that.

So given this popular animus, in the case of Turkey there was a vote in the Parliament which ultimately withdrew support and cooperation. In the case of Saudi Arabia, Saudis rather typically finessed the issue. Without saying very much at all publicly, they allowed a gradual expansion of the Air Force presence at Al Kharj at Prince Sultan Airbase. They in fact opened some additional facilities in the north to Special Forces operations in support of the invasion. They did not put restrictions on the use of the original Southern Watch operation conducted out of Al Kharj in support of bombing runs in Iraq, and they allowed tankers and refueling and other logistical support to go forward. And they did all of this without saying a word. And I think we should respect the fact that they found a way to stand with the United States despite the fact that this was politically very risky in the Kingdom.

I don't know if that answers your question.

Sir, you have been waiting and I invite you to come to the podium.

Q: I am Jamil Sherme (ph). I am the founding chairman of Arab-American Republicans, who are in the D.C. area, thus proactive friend of the administration. I'm also a friend of Saudi Arabia, and I have been a student of Saudi-American relations for the last 30 years, and I helped place more than 20,000 Saudi students at more than 2,000 colleges and universities. I wish to assert an optimistic assertion, and invite your reaction.

The very topic, Saudi Arabia, a friend or enemy, to the best of my knowledge started about two years ago by a French researcher whose claim to knowing the Middle East was his two-and-a-half engagement to a Tunisian girl, and that was all his qualification. But he connected with the unholy alliance of the proactive groups within our administration to be differentiated from the administration as a whole and the country as a whole, the neoconservatives and the Christian right. I claim that there is not cause and effect relationship in the claim: friend or foe? There are those who have decided in advance that Saudi Arabia is not a friend.

My second thought is that 9/11 could have been should have been an alarm and a need for more alliance and cooperation between the United States and Saudi Arabia on the one hand and the enemy, the terrorists, on the other.

I invite your comments. Thank you.

MR. FREEMAN: Who would like to comment? I will simply say then that I believe in fact Saudi Arabia and the United States at the governmental level have been driven closer by these events. And second, with regard to the French researcher, I think Tunisian women are formidable, and this no doubt explains much. (Laughter.) But I note that the French also invented rock 'n roll, so they may have invented this. Sir?

Q: Yeah, my name's Rick Jackson. I lived in Saudi for a few years, and I've traveled back and forth many times. I was in Saudi Arabia on 9/11 when that happened and had a lot of support from the Saudis that I interacted with there. But then almost the next day, it was proposed to me that the reason there were so many Saudis on their airplane was because al-Qaeda wanted to break the relationship between the United States and America (sic).

And since then, as I've traveled back and forth to Saudi Arabia, I notice that my reception in Saudi Arabia went downhill significantly until last May. In fact, with the time I was in Saudi Arabia before May, I was driving down the street, and some young guys drove by and pointed at me and shook their fists and said, "Allah akbar!" trying to tell me that I was not a Muslim and so I shouldn't be in their country.

I was in Saudi Arabia two weeks ago, and I was out in the desert climbing up a hill there, and when I was coming back down, some local Saudi guy came by and with my limited Arabic and his limited English, we were able to talk to each other. And one of the things that he said to me was the relationship with America started out very close, and then it's drifted away, but now it's coming back together. And I noticed that when I was in Saudi Arabia, the reception that I had on this last trip was the most positive that I've had for a long time.

Some of my Saudi friends, one of them, his brother works in their Secret Service or whatever they call it, and just some of the things that they have done that have not made much press here but are really significant. The Saudi government started off with a marriage between the Wahhabi Muslims, who basically say that you have live according to the way the Mohammed lived, and therefore every - we need to sort of live back in the sixth or seventh century, and the royal family. Most of my Saudi friends, when they watch TV, they say, we want to have the same freedoms that you have in America and that Islam can adapt to the 21st century.

And so you have this - what I see is a - on one hand, the people saying we need to have the country follow strict Wahhabi Islam, and on the other hand, people saying Islam can adapt to the 21st century. And so I'd just like to invite your comments. What do you, the panel, think about this? The relationship between America and Saudi Arabia - America's based on freedoms, and Wahhabi Islam is based on people being forced to follow the same rules. How can we overcome this so that we can continue to have a good relationship between the two countries?

MR. FREEMAN: Who would like to comment? Hussein?

MR. SHOBOKSHI: As you noticed from my brief bio in the background, I went to school in the University of Tulsa in Oklahoma. And I tried to get into a lecture in Oral Roberts University, and I was not allowed in because I had facial hair. Funny thing that I'm not allowed in some places in my country because I don't have enough facial hair on my - (laughter).

I saw a very important transformation taking place in the southwest of America, from the Reagan Democrats to the Bible Belt, and to see it playing a very important political role in the administration and in other parts of America. Is that America? I don't think so. Nor are the people that you have - that raised their fists and screamed at you. There are voices here and there. Saudis are trying to find a more tolerant - it's out there. They're just trying to put it in the mainstream, a more tolerant version of Islam.

Obviously, that has political consequences because of the tradition that has took place for such a long time, but it's going to come. It's going to come because frankly, some of the practices that are being voiced are very troubling, specifically towards women and towards youth. And they are based on tradition, not on the religion. And that is being talked about, it's being criticized, and I think it will be solved as well.

MR. FREEMAN: Anyone else?

MR. LONG: Yeah, I want -

MR. FREEMAN: Yeah, David?

MR. LONG: There are two - two parts of my answer to you. One is on religion, particularly Islam, but on all world religions, because there's been a lot of debate in the United States about what religion makes people do. And there is a psychologist out at George Mason out in the 'burbs here where I live, names Rubenstein, who has written a very insightful piece on the political and psychological causes of terrorism. And in there he makes the assertion that all world religions and probably those who aren't world religions have in - within their theologies enough alternatives for peacemaking and warmaking that anyone who wants to be a peacemaker can find something in their religion to justify it and anyone wants to be a warmaker can find something in their religion to justify it, and therefore that it is a futile effort to go searching through the texts of the Talmud and the Qu'ran and the Adagadim (ph) and all of these things to try to prove that your adversary is a warmaker and that you're a peacemaker.

I say that because I think a lot of this argue - this kind of discussion is pretty futile. And when you want to go look underneath all of that stuff and ask yourself why do people do what they do - when I first go to Saudi Arabia, I used to go around to listen to the hutbas (ph), the sermons, in the mosque. I couldn't go inside, but I could listen to them outside because they had loud speakers. This was back when I could still speak Arabic. And they would say pretty much the same stuff back then that they're saying now, and this was in 1966, '67. But nobody was listening very much, because if you really had a bellyful of rage, you became a Nasserist or a Ba'athi or somebody like that.

And I submitted if Osama were born 40 years earlier, he would probably be a Nazarite (ph), because the thing that was bothering him was not something that he read in a text, rather something that was going on which is incredibly stressful modernity hitting a country that has gone in the memory, as Frank said, of human memory from being roughly around the 11th century to being in the 21st century in seven decades. And this is stressful. And in this stress, you can find something in any religion you want to justify if you want to either use violence or if you want to use peace.

And as I see it -- not just in Saudi Arabia but around the world, including in the United States -- there are those who cling to the authority of tradition because they're afraid of this new world in which there are no absolutes, in which you have situational morality and in which you have relativity, and they want an authority. The same thing is happening in the Episcopal Church in this country. There - I saw a recent article where Episcopalians are leaving the church because they don't - they think authority's been undermined and they're going to the Catholic church, and people in the Catholic church think there's too much authority, and they're going to the Episcopal Church.

Now, in Saudi Arabia, you have this dichotomy between people who cling to tradition and people who want change. And I submit that both are necessary, and that the real question is how can we have policies which don't get so far behind the people that you get overthrown, or so far ahead of the people that you have a revolution? And that to me is the challenge for Saudi Arabia.

MR. FREEMAN: It was exactly that concern, of course, after the fall of the shah, that led the kingdom to move too far in the direction of accommodating religious extremism, so you're right to point that out. Sir, you've been waiting patiently, and Frank was not insulting us. We just outbladdered him -- (laughs).

Q: I was going to tell him that as an attorney, I'm facing a lot of judges who are quite young. My name is Martin McMahon (sp). I'm an attorney. I have some clients in the kingdom. I've visited the Gulf four times in the last year, three to the kingdom.

I don't claim, you know, expertise in this matter, but it's my personal opinion that the kingdom has done an awful lot in a very difficult context, in terms of cooperating on the international terrorism financing front. I'm sorry. And I have two questions in that context for Mr. Aufhauser, who I respect and incredible credentials. And by the way, I've just - I've got to commend the choice of selections here for this panel. It has been nothing short of remarkable.

In the context of the - I think it's the Egmont Group, how would you rate the kingdom's FIU, the financial intelligence unit vis a vis other countries? Is the - is their FIU doing its job? And then I have a follow-up question concerning yesterday's action.

MR. AUFHAUSER: By the way, the Egmont Group, for those of you who don't know, is an informal gathering of financial intelligence units from around the world. It now numbers close to 69 or 70 countries.

I'm going to answer it by going through the back door. The Egmont Group thus far is a grave disappointment in terms of its utility in the war on terrorism or criminal misconduct. That's changing. There are active and affirmative dialogues.

In terms of Saudi Arabia's FIU -- maybe I'm going to show my ignorance - until very recently, there weren't none. So there's no need to rate it. One of the things I failed to mention, which was very productive, is a group of the Mabarrat (ph) was over here in Washington within the last 60 days and went through extensive financial forensic training by Treasury, IRS, CID and FBI officials. So, we're beefing up, if you will -- or assisting them in beefing up -- themselves beefing up their capabilities to mine financial data, which is one other thing I'll say about the war on terror's financing. It's not really about asset seizures, it's about, it's an IBITDA analysis to try and deal with cash flows. One of the things we discovered, however, was that the financial information, once you got your hands on it, had integrity that far exceeded any other integrity that you learned in the intelligence field in the area of terror.

Stating that differently, all the intelligence that we get here is really suspect. It's treachery, it's the result of treachery or deceit, or bribery or interrogation, or in some places, torture. But the financial records are remarkably revealing. And so when Sheikh Khalid Shaikh Mohammed was seized, referred to by President Bush on Tuesday night, what was equally important were the financial records that were seized. And equally important in terms of revelations about how his part of the organization was banked and who had complicity.

MR. FREEMAN: If I may -

MR. AUFHAUSER: Sorry.

MR. FREEMAN: -- I think one of the deficiencies or results of the speed with which Saudi Arabia has emerged into the modern world is that there are not a great number of functioning institutions in the kingdom. There are, instead, leaders with entourages, who are able to muddle through. The exceptions tend to be in the financial area -- SAMA, Ministry of Finance, of course Saudi Amoco (sp), a privately - a corporation that is run on private standards -- and a few others.

But generally speaking, my impression of the ministries in Saudi Arabia is that there are not institutions, and if the Minister leaves, there's very little that he leaves behind him. His successor would have to begin, if not from scratch, pretty close to it. So I think the progress that maybe -- the question about FIU, in Saudi Arabia really relates to this, the Saudis are being challenged to create institutions where they have had none. And so far their performance is somewhat uneven, I think.

MR. AUFHAUSER: Yeah, and to be fair, the FIU -- asking a question about an FIU doesn't appreciate the fact that there are other agencies that do similar things, even within our own government, although the financial crimes enforcement network at the Treasury Department is - (audio break, tape change) --

Q: -- whether there would be similar action on some other charities; for example, the Muslim World League or the International Islamic Relief Organization.

Thank you very much.

MR. : Thank you.

MR. AUFHAUSER: No, I will not offer an opinion. (Laughter.)

MR. FREEMAN: Wise man.

Q: I'm Brooks Wrampelmeier, I'm a retired Foreign Service officer with a number of years experience in Saudi Arabia, or dealing with U.S.-Saudi relations. And my question really goes to, sort of, looking more towards the future and focusing more on the sense of friend rather than foe. Several speakers have noted that we are seeing a decline in the American presence in Saudi Arabia. At the same time, we are seeing a -- or at least we are hearing about progress in the negotiations between the U.S. and the Saudi's over financial and commercial issues that would lead to the Saudi's joining the World Trade Organization. Certainly increased American business presence in Saudi Arabia would probably assist in strengthening the relations between our two countries. Yet there are a number of problems that are still there. We know that there are reforms under way, there is a new investment law, there is talking about preventing American or foreign companies to purchase land in Saudi Arabia, and so on.

My question is, though, there are still a number of things that we will have to reconcile Sharia Law with international commercial, and banking practices. You will have to deal with what people have called Ossibia (ph) capitalism, or crony capitalism, in Saudi Arabia where you have particularly members of the royal family and certain business groups who have sort of sewn-up virtual parts of the economy. So perhaps Mr. Shobokshi -- putting on his business man hat, as opposed to his media hat -- and others may want to talk about what prospects do you see for really opening up the economy in a way that would encourage American businessmen, particularly those who are not the Fortune 500 company, to want to come and invest and do business in the kingdom. Thank you.

MR. FREEMAN: Nat- would you like to comment also? After - (off mike).

MR. : You know, there is a lot of progress towards opening up and I think Hussein is probably better able to address that. But I still would go back to one of the central issues in the relationship is the visa policy that we have of excluding Saudis and that's going to be the one that will put an increasing chill on the relationship unless and until it's fixed.

MR. SHOBOKSHI: I second that fully because a lot of Saudi business men, Saudi employees and Saudi students that want to learn more about how to develop their organizations and businesses, are deprived of that from doing that at least with the states. As far as the WTO issue, I think that it's the best thing that could have ever happened to the business community in Saudi Arabia. The process itself -- even if we don't join the WTO, the process itself has been very healthy in addressing a lot of the troubling issues that relate to the business community.

I mean, banks, insurance companies and other organizations are still very limited. I mean, Saudi Arabia is probably one of the most -- I will even say it is probably the most under-banked economy in the world because the banks in Saudi Arabia have been an exclusive club for certain business groups. That has to change because with -- Saudi Arabia is a free business and economic system but it's not an open economic system, and there is a difference between the two. We need to verbalize that, we need to address small and medium businesses with fervor and seriousness. We have not been doing that; this will change. Saudis need to be employed. We have one of the largest unemployment figures in the Middle East. The only way to do that is to open the economy. It's not a matter of job replacement by the Saudization (sp) process, it's about job creation, and that can only be down with more liberal economic laws and regulations.

MR. LONG: (Whispers.) Just a quick one.

Just a quick note here, and I'd like Hussein -- if you want to blast me for it -- I don't like the word Ossibia (ph) capitalism, and the reason I don't is there is a common perception in this country that there's this royal family that's corrupt and then there's all of these individual people underneath it are being penalized, except a few cronies. All right? Everybody in Saudi Arabia is a member of an extended family. If you're not a member of an extended family, you're not a Saudi. And because of that -- and it's a relatively closed society -- if you go to Riyad and you go to a wedding of an Otaybi (ph) or an Annasi (ph), 90 percent of the people are going to be Otaybis' (ph) and Annasis (ph) and the other are going to be business associates and classmates and stuff like that, all right?

Because of the structure of the society, very often what we castigate as cronyism is familyism, and you owe respect to your family elders, regardless of who you are. So to the degree that Hussein is talking about opening up the economy, regulating business and so forth, I totally agree, and I think that the progress is positive and going the right way. But the society itself will change very slowly over time and in effect is one of the major causes of stability, and I therefore think that when we talk about what is basically an extended-family-based society that this has to be taken into consideration when you're talking about commerce or economics or even politics.

MR. FREEMAN: The WTO accession process to which I referred at the outset will require Saudi Arabia to enact about three dozen laws. Two-thirds of those laws have already been enacted. So the progress in terms of conforming the economy to the requirements of openness that are now the global norm is, I think, much farther advanced than many people realize, and should come to a head really within the next several months, at which point there will be some fairly wrenching changes to be experienced by capitalists whether they are Ossibia capitalists or other capitalists in Saudi Arabia.

Sir?

Q: Thank you very much. My name is Nabid al-Duhurm (ph) from the Embassy of Kuwait here in Washington. Mr. Long and Mr. Kern have briefly mentioned two very interesting points. First, Mr. Long said, do not count on U.S. getting rid of terrorism; rather, we have to manage it. Second, Mr. Kern, as well as yourself, Ambassador Freeman, have said that these applications by Saudis and many, I'd add here, like other Arab citizens, as well, have declined.

Mr. Kern has gone further by saying that this will create problems in the future for the United States. Could Mr. Long and Mr. Kern elaborate a little more on these points that they brought up? Thank you very much.

MR. FREEMAN: That -- I think the -- on the visa point I'll just clarify. Visa applications are down to well below twenty percent of what they were. The approval and refusal rates have not changed within that smaller number of applications. So when you ask the Department of State Bureau of Consular Affairs, are you -- have you changed the standards, they will say no, actually we are issuing roughly the same percentage of visas. What they don't say is that the workload is more than eighty percent less than it used to be because people don't want to come to the United States or are intimidated by the prospect of humiliation if they do come.

MR. KERN: Yeah, you may be more privy to statistics and me more privy to anecdotes. The typical story would be student applies or is admitted to university in April for September arrival, visa is not issued until November or December, student elects to go elsewhere. So they may be approving visas, but it would be better if they'd do it on time. I mean, the other thing is just the chilling effect; that someone is denied a visa or given a visa, lands at Kennedy Airport, is looked at with great suspicion, says to an immigration officer, I've got a connecting flight in three hours, and the immigration officer says, cuff him. It may be rules, it may be attitudes, but there's obviously a pervasive problem. And, I imagine that we can accomplish all of our security things without being gratuitously insulting and humiliating to people who want to come here.

MR. FREEMAN: It would help if two things were done. These are policy suggestions. One, the U.S. and the GCC perhaps, or the Arab League, agreed on a standard English transliteration of Arab names so that in the passport, whatever you want to put on your business card, it always is transliterated the same way. That would help. Second, typically in Saudi Arabia, I think, passports have four or five names, meaning the given name, the father's name, the grandfather's name, maybe the great-grandfather's name and the tribal or place name. And this is very typical in the GCC. I don't know about elsewhere in the Arab world. American records have three names. Since the number of Arab names is very limited, the possibility of -- when you have three names, of misidentifying someone is extremely high. Someone comes in, there are probably thirty-thousand people from the same country with the same name if you have only three names. If you take it to five, there might be three. Therefore, part of this has technical fixes, but the political effects of it are not technical, they're emotional.

Sir.

Q: Saud Riham (ph) from PFT Energy, and as people observe, you know, kind of reforms that are going on, it seems that there is definitely some change going on, but that there's still a ways to go. And I wanted to know if there's a sense that there's maybe some resistance or, you know, given the perception of perhaps this change is coming due to external pressures, the timing of this, you know, that these are problems that have existed in the kingdom pretty much since its inception, and that only after 9/11 has it become an issue, and it's become a problem. Is there a sense of that in the kingdom and elsewhere?

MR. FREEMAN: Thank you, that's a good sort-of broad question on which to conclude because we -- I'm very sorry, we have about ten people who have asked to raise questions or make points and we have come to pretty much the end of the time.

I'd like to ask the panelists, if you would, perhaps in the order in which you spoke, to give us your prescription, David, that you failed to give us because there was not enough time. And Frank, you can take us up a little bit after '67, if you want. And so forth. But focus on this very, very good question about whether these problems are novel or embedded in the past and in the relationship.

MR. AUFHAUSER: A prescription at this juncture might be too much to bite off, but in direct answer to the question, my own judgment is the two bombings -- May and November bombings in Riyadh -- had dramatic effect on the focus on al Qaeda as a common enemy, and I think all stops have been pulled on the joint effort to combat al Qaeda. Before that time, as I stated in my opening statement, if I faulted the government of Saudi Arabia on the issue for which I was responsible, I found them to be reactive rather than proactive. And I found the pace to be disappointing. But they certainly have zeal on al Qaeda for understandable and indisputable reasons. The point I was trying to make, and did make, I think, in my opening, was this is not just al Qaeda, that there are lots of terrorisms writ large and that no country should countenance banking it.

So my first prescription remains rather unremarkable, but still absolutely necessary statement of principle, which is that it's against the law in our country, whatever country you're talking about, to give money with the intent to kill children. Now, someone may say that sounds sentimental and foolish, but going back to the little dialogue that I had with David, if you only set modest goals, you're only going to accomplish modest things. And the whole concept of terrorism changes the DNA of war, and there's now a premium placed on the death of civilians, and we have to change that ideology and brave statesmen have to say they're going to change it.

MR. FREEMAN: Thank you.

Frank?

MR. ANDERSON: I don't have a prescription other than to say that the intent of my remarks was to state that this is a relationship that has gotten better and worse over time. But in fact, the trend line for a century has been a positive one. For my Arab friends in the audience, my prescription comes in the la homa sabri (ph). For those who don't speak Arabic, it's God is truly with the patient. I believe that there have been some real distortions in the relationship in the previous few years. You cannot dismiss that a political faction in the United States, which has always been opposed to the relationship and has sought to diminish it, is now in the ascendancy. The political balances in the United States are never static, so they're likely to go back. There are political factions in Saudi Arabia who have always been opposed to a quality relationship with anyone outside Saudi Arabia, or certainly anyone outside the world of Islam. They were briefly in the ascendancy in Saudi Arabia. I believe they certainly -- that trend has been turned around. I don't take a lot of -- no, I think that the positive trend will continue overall, but there will be periods where those who are opponents of the relationship in Saudi Arabia will also gain the ascendancy.

This is a relationship that has waxed and waned; it will continue to do so. My prescription would be continue to do the sensible thing and count on it improving.

MR. FREEMAN: Thank you, Frank.

David?

MR. LONG: I think the basis of any longstanding relationship is mutuality of mutual perceived interests, and I think that the United States and Saudi Arabia have a mutuality of mutually perceived interests over a long period of time. That said, as Frank just said, there are going to be ups and downs, or have been ups and downs. There have been downs that at the time seemed worse than the down we're in now.

I differ with Frank about those who want to ruin the relationship. When I first went to Saudi Arabia, I got my orders in 1966 and fooled around in Beirut until January of '67, and I met an Israeli friend of mine before I got there who assured me that Israel had no quarrel with Saudi Arabia, it was great that we had good relations with Saudi Arabia and, you know, go and do good things.

The change came after the oil embargo, and at that time, I really did believe that there was a fear that the United States might sell out Israel for a barrel of oil. I don't think we would have, but that was the fear. And that sentiment has also waxed and waned since then. But it wasn't there before that. And it will probably wax and wane in the future. But because of the mutuality of our interests, and because I think they are so strong, I think we're going to weather this, and I think we're going to continue in a strong relationship because it is mutually advantageous to both countries.

MR. FREEMAN: Nat, what should we do for a barrel of oil?

MR. KERN: You've got to buy them, that's all. (Laughter.) Nothing special.

No, I think just keep our eye on the eight ball so far as the difference we're looking for, you know, over the next ten, fifteen years, versus what we've had. Those numbers are striking when you go back to 1984. I think we're at a point where increasingly the barrels the world will need will come out of the Gulf. And -

MR. FREEMAN: Are you anticipating, some people say, twenty million barrels a day production required in 2020?

MR KERN: From where?

MR. FREEMAN: From Saudi Arabia alone? Instead of ten (million) -- production today?

MR. KERN: I think as far as the minister was willing to go was fifteen (million).

MR. FREEMAN: Yeah.

MR. LONG: We told them they had to do twenty back in 1973.

MR. KERN: Yeah, it's been perennial. But again, I think things have changed and it's becoming increasingly critical. The other thing -- and I'm sure you noticed it, too -- in Saudi Arabia and in Kuwait, the incredible difference we've seen over the past couple of years in the openness of discussion, the kind of debate that Hussein is talking about. It's a big change and I think it's all for the better.

MR. FREEMAN: Hussein, we're glad you're not banned any more. Thank you for coming. Would you wind us up?

MR. SHOBOKSHI: Sure, I just would like to address the question that was raised. Twenty years ago, Saudis were talking about the importance of curriculum reform, education curriculum reform. And obviously there was a lot of voice about economic reform and social reform. These issues were discussed before September the eleventh. Yes, they are discussed more openly now, of course, but these were Saudi concerns discussed without the blessing of the government but they were discussed. They were Saudi issues and they need to be discussed further until they are done.

Saudis are going to be coming at a very important -- I think the next two years, if not less, are going to be crucial in the U.S.-Saudi relations. Economic factors are good. The boycott has eroded, American products are selling at an all-time high over there. People are still wanting to come study in the states. They are denied visas; that's another issue. But the desire to come and study is still there. These are important factors to build on and we need not neglect them.

However, I was very heartbroken that that I didn't hear a mention of the Israeli-Palestinian issue in the State of the Union address. We are not -- Saudis, I think, and probably Arabs -- we don't think the man of peace will sign a treaty anytime soon. (Laughter.) Maybe with a bribal (ph) scandal, or a change of leadership in Israel will bring that issue more on the table because that issue needs to be settled before a complete harmony of the relationship between Arabs and the Americans will take place, as you probably heard this a zillion times.

MR. FREEMAN: Hussein, thank you again for reminding us that the heart of the poison is the Israel-Palestinian conundrum. When I was in Saudi Arabia -- I didn't actually see it, but I was told by Saudi friends who did, that on Saudi TV there were three of the terrorists who came out and spoke, and essentially the story they told was that they had been recruited to fight for the Palestinians against the Israelis, but once in the training camp, their trainers gradually shifted their focus away from the Israelis to the monarchy in Saudi Arabia and to the United States. So the recruitment of terrorists has a great deal to do with the animus that arises from that continuing and worsening situation.

I'd like to thank all of you for coming today. I think this was a good discussion. I note that we could have had this discussion -- hypocrisy permitting -- at any point in the last several years. The expertise has existed among those at this table. What is different is the interest in the United States, which is high. That is encouraging.

And someone asked what should Saudi Arabia do, or what should American's do to address the low level of understanding in the United States of Saudi Arabia. I would say one thing that Saudis should do is continue the process which you have begun of opening the kingdom to foreign scrutiny by the press, by experts, by others. The more people you let in, the less you will be accused of imaginary faults and the more criticism will be realistic and focused on things that are helpful to you as Saudis, as you need to adjust your society.

With these words, I bring this to a close. I would simply tell everyone that the Middle East Policy Council website will shortly carry the transcript of this session in its raw -- very raw, unedited form, and within a week you will be able to see the whole ugly scene replayed with video streaming on the website. I encourage those of you who were asleep and missed key moments - (laughter) -- to use the Internet for this constructive purpose other than shuffling money around, as was mentioned earlier --although all donations gratefully received. (Laughter.) Thank you. (Applause.)

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