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Image: David Coleman Headley
Verna Sadock  /  AP file
This Dec. 9, 2009 file courtroom drawing shows David Coleman Headley. He will be in a federal courtroom in Chicago as the star witness for U.S. attorney Patrick Fitzgerald's prosecutors in a terrorism trial that is expected to expose new links between Pakistan's embattled ISI intelligence service and the Mumbai atrocities.
By Michael Isikoff National investigative correspondent
NBC News
updated 5/22/2011 10:07:38 AM ET 2011-05-22T14:07:38

David Coleman Headley is a U.S. law enforcement agency's worst nightmare.

A one-time federal drug informant, the Pakistani American went rogue and, by his own admission, later helped plan one of the world's deadliest terrorist acts — the 2008 commando-style attack in Mumbai, India, that killed 164 people, including six Americans.

This week, the smooth-talking Headley appears poised to create new problems for U.S. foreign policy. Headley will be in a federal courtroom in Chicago as the star witness for U.S. attorney Patrick Fitzgerald's prosecutors in a terrorism trial that is expected to expose new links between Pakistan's embattled ISI intelligence service and the Mumbai atrocities.

Court records and other documents obtained by NBC News show that Headley is prepared to make detailed allegations about how the Pakistani ISI funded his efforts to conduct surveillance for the Mumbai attacks on behalf of one of the world's most dangerous terrorist groups, Lashkar e Taiba or LET, which is now aligned with al-Qaida.

If he sticks to the account he has already told government investigators, Headley will name names and give dates as he recounts how the Pakistani intelligence agency assisted his terror activities over the course of three years. The ISI even assigned a "case officer" for the Mumbai operation — a mysterious figure named "Major Iqbal" — and provided him with a Sony Ericson mobile/camera phone to videotape the targets, according to the accounts Headley has given investigators, the documents show.

More investigations by Michael Isikoff in the Isikoff Files

"They listened to my entire plan to attack India in our first meeting," Headley said about his meeting with ISI officials. (Headley gave the account during 34 hours of interrogations by Indian investigators in June 2010 in sessions attended by FBI agents, according to a report by India's National Investigation Agency.) 

The Mumbai attacks "were possible only due to the complete support of ISI," states the Indian report of Headley's debriefing.

"According to Headley, every big action of LET is done in close coordination with ISI. The money which was used by Headley for his surveillance activities in Mumbai was provided by Major Iqbal of ISI."

Coming as U.S. and Pakistani relations are already strained over suspicions that ISI officers may have helped hide Osama bin Laden, the widely anticipated testimony of Headley is causing nervousness among senior officials in Washington, Islamabad, and New Delhi.

"This will be explosive," said one senior Obama administration official, who confirmed that White House officials are well aware and closely watching what is likely to unfold in Chicago.

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"I can't think of a case in recent years that can have as big a geopolitical impact as this one," said Juan Zarate, the White House counterterrorism adviser under President George W. Bush, about the upcoming Chicago trial. Not only will Headley's anticipated testimony likely stir anti-Pakistani sentiments on Capitol Hill, it also has the potential to inflame tensions between India and Pakistan, both of them nuclear-armed states, Zarate said.

Pakistani officials have repeatedly denied the ISI had any advance knowledge of the Mumbai attacks and insisted they have no idea who "Major Iqbal" might actually be. "The worst part of it all was that we had no idea, no prior intelligence" about the Mumbai operation, a senior Pakistani intelligence official told NBC in a November 2009 briefing shortly after Headley's arrest by the FBI.

But as one lawyer close to the case noted, Headley's account — including his claims about ISI and Major Iqbal — was closely vetted as part of a plea agreement personally approved last year by Fitzgerald, one of the Justice Department's most feared and respected prosecutors. As part of the agreement, Headley pleaded guilty to a dozen terrorism counts, including assisting in the Mumbai attacks as well as another planned attack to blow up a Danish newspaper.

"They couldn't put him on (the witness stand) if they thought he was lying," said the lawyer, who asked for anonymity.

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The allegations in the Chicago trial are relatively narrow: They involve charges that a local businessman, another Pakistani-American named Tahawwur Hussain Rana, provided his friend Headley with crucial assistance for the Mumbai attacks. Specifically, prosecutors allege that Rana arranged for Headley to set up a Mumbai office of his immigration company, called First World, thereby providing Headley with a phony cover for his repeated trips to the Indian city to conduct surveillance for the terror attacks. 

Rana denies the charges of knowingly assisting terrorism. As far as he knew, says his lawyer Charles Swift, Rana's assistance for Headley was for the purpose of helping him for "an espionage operation" by the ISI.

But while Rana is the defendant in the case, all eyes in the courtroom are expected to be focused most intently on Headley when he takes the witness stand. Headley is already widely viewed as an international man of mystery — a master terrorist with a strange and curious pedigree. He was born with the name Daood Gilani in Washington D.C., the son of a well known Pakistani broadcaster and an American mother who hailed from a wealthy family from Philadelphia's Main Line.

At a young age, his family moved to Pakistan and he later attended a well-known Pakistani military school. But in the mid-1980's, he returned to Philadelphia and lived with his mother (who by this time had divorced his father and married a Philadelphia Inquirer reporter). Back in Philadelphia, he helped his mother run a popular local bar named the Khyber Pass.

In 1988, Headley was convicted of heroin dealing charges and, as part of a deal with federal prosecutors, agreed to become an informant for the Drug Enforcement Administration. Precisely what he did for the DEA remains unclear (the agency last week declined to talk about it).

But a source familiar with his agency records say he made repeated trips to Pakistan on DEA's behalf. After the Sept. 11 terror attacks, he was also used to spy on local mosques in New Jersey to identify potential militants, an operation that was being run by a local Joint Terrorism Task Force overseen by the FBI, according to the source familiar with government records about the matter.

But Headley was fast becoming an Islamic radical himself — and may have already been one. "On and around 2001, I firmly decided to join LET and fight for the cause of Jihad," Headley told Indian investigators.

The DEA official said Headley was dropped as an informant the following year, but declined to say why. According to the Indian report, however, Headley by that time had returned to Pakistan and was attending LET training classes headed by terror group leaders "who prepared the operatives for combat duties and suicide attacks."

Headley himself didn't meet the age requirements for combat operations, but he was eventually selected to conduct surveillance operations for attacks in India. AT one point in July, 2004, according to the Indian report, he attended a two-week LET "leadership seminar" in Abbotabad, the same Pakistani city where bin Laden was hiding.

Around this time, he formally changed his name from the Pakistani Gilani to Headley (his mother's maiden name) in order to more easily fly back and forth from the United States to India. He also began meeting with ISI officials, who sponsored and funded his trips to India to identify targets for terror attacks. In addition to Major Iqbal, Headley said he also met his boss, a "Lt. Col. Hamza."

"The Lt. Col. assured me of the financial help and directed me to follow the directions of Major Iqbal from time to time," the Indian report quotes Headley as saying.

In a federal terrorism indictment unsealed last month, Fitzgerald's prosecutors charged Major Iqbal — identified as Mazhar Iqbal — as a co-conspirator in the Mumbai terror attacks, alleging that he provided Headley with $25,000 to pay for his scouting trips to Mumbai and reviewed his selection of targets for the attack along with an LET operative named Sajid Mir. Iq

The indictment doesn't identify Iqbal as an ISI officer. But a ruling unsealed last month by the federal judge in the case quoted from Headley's grand jury testimony about what he said to his alleged co-conspirator Rana about why he needed to set up an immigration office in Mumbai.

"I ... told him about my meetings with Major Iqbal, and told him how I had been asked to perform espionage work for ISI," Headley testified to the grand jury, according to the ruling. "I even told him some of the espionage stories that Major Iqbal had told me...I told him that Major Iqbal would be providing money to pay for the expenses associated with setup and operating the office."

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