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Funds Were Meant to Pay for Students' Education in U.S. : 2 Saudis Indicted in Theft of $35 Million

June 04, 1987|J. MICHAEL KENNEDY | Times Staff Writer

HOUSTON — Two low-level Saudi Arabian officials were indicted Wednesday on charges that they stole at least $35 million from their own country by siphoning off money from a fund established to pay for the education of Saudi students in the United States.

The 25-count indictment, handed down by a federal grand jury in Houston last Friday but unsealed Wednesday, pictured the two men as leading lavish, self-indulgent lives and investing millions of dollars in commercial and real estate ventures while being paid middle-class wages by their government.

According to the indictment, they channeled the stolen money through 10 offshore corporations and 135 separate bank accounts in 11 different banks.

Bank Accounts Frozen

The two were identified by the U.S. Attorney's office in Houston as Sobhi Y. Harthi, the Saudi educational attache from 1979 to 1985, and Abdulaziz I. Salamah, his assistant in charge of finance. Harthi left the Saudi Arabian Educational Mission, which was then based in Houston, in 1985 to return home. He has been instructed by his government not to leave Saudi Arabia and his bank accounts have been frozen. Salamah dropped from sight in 1985.

"He is a fugitive from justice in both countries," said Saleh Rajhy, first secretary of the Saudi Embassy in Washington.

The two Saudis were charged with one count of racketeering. Federal officials said they believed this was the first time an agency of a foreign government had been used in such an illegal scheme. Assistant U.S. Atty. Mitchell Lansden said Wednesday he believed more than $35 million had actually been siphoned from the fund, but that was the amount investigators could account for at the end of a two-year investigation.

"We're looking at about $35 million that was diverted," he said. "That's a minimum. If you look at all the assets, I think there is probably more involved."

Lansden said just the seizable assets of Salamah alone were valued at more than $71 million. Included in that was a $55-million investment in a 300-acre Houston commercial development and another $8 million in a six-story office building. His luxurious condominium, with its 5,900-square-foot living area, was valued at $2.5 million, including the lavish artworks and furnishings. Lansden said Salamah's salary, including expenses, never exceeded $57,000 a year and Harthi's was $77,000 a year.

"They lived fairly well," said Lansden. He also said Harthi transferred millions of dollars from Houston banks to other accounts in Saudi Arabia. He said homes that Harthi owned in Houston, but sold before he left, will not be seized.

Rajhy, the Saudi first secretary, said the missing funds were first noted in a routine internal audit of the Educational Mission, which moved its headquarters to Washington in 1985. The audit turned up discrepancies in accounting procedures and the Saudis turned to the U.S. government to assist them in tracing the missing money. According to the indictment, an estimated $1 billion in Saudi funds passed through the Educational Mission during the time Harthi was in charge of it from 1979 to 1985.

Supported Saudi Students

The Educational Mission was established in the 1950s to oversee payments to Saudi students who were attending American universities. Money from the fund was used to pay not only tuition but also every expense incurred--from rent to medical expenses--while they were in the United States. In the late 1970s, there were an estimated 8,700 Saudi students in the United States, a number that dwindled as more universities were built in Saudi Arabia.

According to the indictment, Harthi and Salamah deposited government funds into their own personal and business accounts and also transferred money into bogus accounts of fictitious Saudi students. Further, the indictment charged, the two took government money and purchased U.S. certificates of deposit, collecting the interest and using the certificates as collateral for personal or business loans.

Another technique, the indictment charged, was intentionally overpaying students, then taking the refunds and diverting them to their own accounts.

Lansden said the elaborate scheme was traced by the Federal Bureau of Investigation and the Internal Revenue Service by plotting the paper trail of bank transfers. He said the investigators found that more than $250 million had been moved through the numerous accounts opened by the two Saudis.

Wire Fraud Charged

Other charges against Harthi and Salamah include wire fraud and illegal transportation of stolen money.

Rajhy said in a telephone interview that his government has pledged to make Harthi available to U.S. authorities but did not rule out first prosecuting him through the Saudi legal system. He said that, for the moment, Harthi is allowed to come and go at will, as long as he remains inside the country.

"We have an eye on him," he said. "He can't travel anyplace."

He also said he believes others were involved in the theft of the education money and that the investigation will not stop with Harthi and Salamah.

If convicted on all counts and given the maximum sentence, Harthi could face 140 years in prison and $112,000 in fines. Salamah's maximum penalties would be 135 years in prison and $101,000 in fines.

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