Now, the reason for the alleged cover may be surfacing.
Headley is under investigation by India's counterpart to the FBI in connection with a plot to attack Israeli tourists, according to a report Friday in the Times of India newspaper.
The National Investigation Agency (NIA) is said to be looking at newly obtained leads that the Chicago businessman had conducted surveillance on a popular Israeli tourist site in the city of Pushkar. The Times report states that Headley scouted "the Bed-chabad -- the prayer hall of the Jews -- where hundreds of them gather every evening for routine prayers."
More than 200 NIA agents have spread out across the south Asian country attempting to track Headley's travels the past few years.
Headley and another Chicago businessman, Tahawwur Hussain Rana, are currently facing federal charges in Chicago alleging they were planning to attack a Danish newspaper that employed a controversial cartoonist.
Since Headley and Rana's arrests by the FBI and U.S. Homeland Security agents in October, they have also been linked to a wave of terror attacks on targets in Mumbai, India. The fiery November 2008 siege by a Pakistani terror cell, resulted in 175 deaths.
The apparent targeting of a Jewish prayer site is the third plot to which Headley has been publicly connected.
Calls and e-mails sent by Headley from Pushkar cyber-cafes are being investigated by the special NIA team, who reportedly searched log-books of almost all the cyber cafes in Pushkar and even questioned a barber Headley had visited.
''So far, we have confirmed inputs that Headley stayed in Pushkar and was monitoring his operations from here,'' an NIA team member told the Times. The team said Headley stayed at the Hotel Oasis on March 11 and 12, 2009.
According to an investigator quoted in the newspaper report: ''The hotel staff has confirmed that he had taken a room facing the road where the Jewish prayer hall is located.
We're going to suggest that the security around the Jewish prayer hall be beefed up. There is a strong possibility that Headley oversaw the place to execute a terror attack in the future."
Indian authorities have obtained copies of Headley's passport and Visa records that were kept by hotels where he allegedly stayed. Hotel managers are said to have identified Headley, 49, from sketches.
The first details of Headley's purported Pakistani terror connections emerged when the FBI arrested him in Chicago on October 3 and filed an affidavit in a federal court.
Headley is the son of a Pakistani diplomat and an American woman. He went to cadet college in Pakistan before moving to Chicago when he was 16. In 1997, he was jailed for more than a year after trying to smuggle heroin into the US, according to court documents.
Despite his drug conviction, by simply changing his name in 2006 Headley he stayed under the radar on at least nine visits to India during the last three years.
It was only after a pattern developed that the FBI appears to have placed him under surveillance, charting Headley's frequent movements between India, Pakistan, Gulf nations and the European continent.
American authorities notified Indian law enforcement after intercepting an e-mail in which Mr. Headley's alleged terror cell handler appears to give him a coded message suggesting an attack on India.
"I need to see you for some new investment plans," the FBI affidavit quotes the handler as saying.
Federal prosecutors in Chicago say that Headley worked with Harkat ul-Jihad al-Islami, a Pakistan militant group, and Lashkar e-Taiba , the Pakistan group blamed for last year's Mumbai attacks. The document also outlines claims that he was involved in the "Mickey Mouse Project" -- a plan to attack Jyllands-Posten, the Danish newspaper whose cartoons depicting the Prophet Muhammad in 2005 infuriated Muslims across the world.
Federal court records here also state that Headley and an apparent accomplice visited India several times between 2006 and 2009, and appear to have discussed attacking Indian targets as recently as September this year.
Indian investigators quoted overseas say they are now examining whether Mr. Headley may be the "missing link" in the Mumbai attacks between November 26 and 29 last year. They are also investigating claims that he may have planned attacks this year on targets including the National Defence College in Delhi, the private Doon School in Dehradun, northern India, or even a nuclear facility.
The oddest aspect of the Headley case is that unlike other militant suspects, he is middle-aged, speaks fluent English, and lives in Chicago.
FBI agents say that Headley began working with Tahawwur Rana, a Canadian citizen of Pakistani origin who studied at the same cadet college, and who was also arrested in the US last month.
The connection? Mr. Rana's Chicago immigration agency in Chicago helped to arrange Headley's trips and provide his cover story, according to the FBI.
Rana, 48, is being held at the MCC in Chicago pending a decision on whether bond should be set in the case. He has a court date in mid-December.
Headley's latest court appearance in Chicago was cancelled and no new date has been set. That has lead to speculation that he may be cooperating with federal authorities in their Chicago to Denmark to India terrorism investigation.
