If you guessed Iran, then you need to try again. Syria? Nice try, but Bashar Assad should have stuck with opthalmology. North Korea? Hah! No, we have to look a little farther south from Damascus and Tehran, right into the capital of our ally, Saudi Arabia. The Bush administration issued a surprising rebuke to Riyadh yesterday, a sign that the Kingdom hasn’t kept pace with its counterterrorism promises:

Saudi Arabia remains the world’s leading source of money for Al Qaeda and other extremist networks and has failed to take key steps requested by U.S. officials to stem the flow, the Bush administration’s top financial counter-terrorism official said Tuesday.

Stuart A. Levey, a Treasury undersecretary, told a Senate committee that the Saudi government had not taken important steps to go after those who finance terrorist organizations or to prevent wealthy donors from bankrolling extremism through charitable contributions, sometimes unwittingly.

“Saudi Arabia today remains the location where more money is going to terrorism, to Sunni terror groups and to the Taliban than any other place in the world,” Levey said under questioning.

U.S. officials have previously identified Saudi Arabia as a major source of funding for extremism. But Levey’s comments were notable because, although reluctant to directly criticize a close U.S. ally, he acknowledged frustration with administration efforts to persuade the Saudis and others to act.

Levey took pains to note Saudi operational cooperation against terrorists. However, they have not provided the kind of assistance they promised in eliminating the funding networks that keep the terrorists afloat. The charity front groups also remain clear of any effective oversight, a problem that the US has had since the days after 9/11.

The Saudis claim that they have taken other measures, but Levey and the Bush administration clearly see them as insufficient. The royal family says they have made it illegal to send money out of Saudi Arabia without going through “government channels”, but that has made little impact on financing. That’s especially true when considering the charity front groups that Riyadh avoids targeting for investigations. These charities often will have some legitimate projects that make government intervention unpopular but route considerable amounts of money to terrorism. Hamas and its front groups are the most obvious examples, but many others exist as well.

Of course, the US used to have a pretty sophisticated system to investigate banking transactions around the world to find connections to terrorists. It even resulted in the capture of a high-ranking al-Qaeda commander in southeast Asia. Unfortunately, the New York Times exposed the SWIFT program in June 2006:

The administration has told us on many occasions that one of the main fronts in the war on terror would be the financial systems. We have seen plenty of coverage on how the US has pressured various banking systems into revealing their records in order for us to freeze terrorist assets. If anyone wondered whether our efforts had any effect, all they needed to read was the stories of Hamas officials having to smuggle cash in valises in order to get spot funding for the Palestinian Authority. Their neighboring Arab nations pledged upwards of $150 million in direct aid, which banks would not transfer lest the US discover the transactions and lock them out of the global banking system.

That led to Canada’s withdrawal of cooperation from the efforts by the US, even though later determinations showed that the US did not violate any laws in its SWIFT program. The Saudis probably wonder when their cooperation will wind up on the front pages of the New York Times, too.

Still, one has to raise an eyebrow when the Bush administration goes out of its way to browbeat the Saudis, even mildly. Has all of DC grown tired of the doubletalk from Riyadh’s ruling clique?