Two men deny plotting to launder missile money
Defense: 'This case smells like a rat'
 |  Yassin Aref walks out of the Federal Building in Albany on Thursday. |
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 The FBI sting led to the arrests of two Muslim leaders.
 New York Gov. George Pataki says the probe took months.
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ALBANY, New York (CNN) -- A Muslim cleric and a founder of his mosque pleaded not guilty at a detention hearing Tuesday to charges of conspiring to launder money and promote terrorism.
Federal magistrate David Homer denied bail for Yassin Aref, 34, and Mohammed Hossain, 49, and remanded them to custody, saying the government had proved the two were flight risks.
Aref is an imam, or prayer leader, at the As-Salam mosque in the New York capital. Both men were arrested last Thursday during raids on their homes and the mosque.
Law enforcement sources said the men are believed to be connected to Ansar al-Islam, a terrorist organization previously based in northern Iraq with links to Jordanian terrorism suspect Abu Musab al-Zarqawi, who U.S. officials believe has links to al Qaeda.
According to the criminal complaint, an FBI informant posing as an arms dealer asked the two suspects to launder money from the sale of a shoulder-fired missile that would be used to kill Pakistan's ambassador to the United Nations in retaliation for Pakistan's support of the U.S.-led war on terrorism.
Prosecutors argued the men actively sought out the government informant to do money laundering and that the ambassador was never in any danger.
"Hossain approached a corroborating witness and started this little adventure," Glenn Suddaby, the U.S. attorney for New York's Northern District, told reporters after the hearing.
Hossain's attorney, Kevin Luibrand, said his client has been unfairly targeted.
"This guy's an American citizen who worked like a dog," Luibrand said. "He couldn't give a damn about terror. He couldn't give a damn about what happens overseas. But he's got a Muslim last name, and that's the only reason why we're here."
Defense attorney Terry Kindlon said his client, Aref, "never heard about a missile."
"Everybody I talk to says this case smells like a rat," Kindlon said in court. "This is a fictitious story in an effort to entrap my client."
Munir Akram, the Pakistani ambassador to the United Nations, told CNN he was a "bit surprised" upon learning of the plot "especially since [Pakistan and the U.S.] are close allies in the war on terrorism."
"I have no idea why my name or, in fact, any Pakistani name should have been pulled up. There are plenty of targets around, even for a fake plot. So, that was a bit surprising, to put it mildly," Akram said.
Family of both men and several members of the local Muslim community packed the courtroom. Hossain is a U.S. citizen and native of Bangladesh. Aref is an Iraqi citizen with asylum status.
A teacher at the mosque, Faisal Ahmad, said Aref is a refugee from the Kurdish section of northern Iraq. Aref studied for a time in Syria before coming to the United States, Ahmad said.
Hossain has five children, Ahmad said.
"He is someone we all believe is a righteous and good Muslim."
Aref "has nothing to do with violence and terrorism," Ahmad added.
A federal law enforcement source said investigators set up the string operation because they suspected Aref of shipping money from the United States to Islamist radicals overseas.
The probe began a year ago, and was conducted by the Joint Terrorism Task Force, which includes federal, state, and local authorities.
The informant had previously pleaded guilty to document fraud, a felony, and agreed to work with authorities, the complaint said.
Deputy Attorney General James Comey said last week that the undercover informant struck up a relationship with the two men, and Hossain asked the informant's help in fraudulently securing a New York driver's permit for his brother.
Hossain told the informant that he believed now is not the time for "violent jihad," Comey said.
But when the informant proposed the laundering scheme, Hossain agreed, and suggested that Aref assist, Comey said.
The FBI has audio and video recordings of various conversations, he said. The informant told the two men he wanted to provide arms to his "brother mujahedeen," according to the complaint.
The men received about $40,000 in cash and returned $25,000 in cash, Comey said. Under the scheme they were allowed to keep some of the money.
Another detention hearing is scheduled for August 24.
CNN's George Lerner and Liz Neisloss contributed to this report.
