Shari'a Finance: Cordless Bungee Jumping

Despite flashy headlines extolling Shari’a finance (Islamic banking) and Wall Street bankers jumping into the market, don’t follow. It’s like bungee jumping without a cord–or following lemmings over a cliff.

Shari’a is “the path of Allah,” Nizam Yaquby told October conference-goers. But the purportedly “ethical” and “socially responsible” investing supports neither environmentalism nor “renewable” growth.

A 20th century construct, without basis in Islamic history, it often funds destruction. This “invented tradition” empowers Islamic radicals, writes USC King Faisal Professor of Islamic Thought, Timur Kuran, in Islam and Mammon: “Neither classical nor medieval Islamic civilization featured banks in the modern sense, let alone ‘Islamic’ banks…”

Consider its downside risks.

With 19.99% of Nasdaq in hand, Bourse Dubai, the Dubai International Financial Exchange (DIFX) parent–certified for “Islamic ‘purity'” by Bahrain’s Accounting and Auditing Organization for Islamic Financial Institutions (AAIOFI)–now plans to “rebrand” America’s international over-the-counter market as Nasdaq-DIFX.

What does this mean for presumably “unIslamic” Nasdaq companies (like Israeli generic drug giant, Teva)? Supposedly, Bourse Dubai will be “restricted to 5 percent voting rights” in Nasdaq. But in anticipation of Nasdaq-DIFX’s “rebranding,” DIFX named four new board members.

Boards of directors generally call the shots.

Meanwhile, Citgroup is receiving a second-generation, $7.5 billion Islamic-cash-bailout from the ultra-conservative United Arab Emirates (UAE) sheikdom, Abu Dhabi.

Its initial, 1991 Islamic-rescue followed billions in bad loans, single-quarter losses of $855 million, and U.S. Federal Reserve Board concerns about Citibank’s potential failure.

Suddenly, Citi’s then-Middle East business chief, Shaukat Aziz–fresh from seven years in Riyadh hobnobbing with Saudi Prince Alwaleed bin Talal–convinced the latter to trade $600 million for shareholder-rights, Bangladesh’s Depardes reported in June 2004. 1 He now has 3.6%. Aziz later headed Citicorp Islamic Bank, and maybe initiated Citi’s supposedly prospering Shari’a finance business.

But who controls whom? Today, doubling as Pakistan’s Finance and Prime Ministers, Aziz supports “Shariah compliant banking,” which the State Bank of Pakistan (SBP) in 2005 strategically planned to promote “as a parallel system.” He’s discussed its potential with Bahraini Bank Alsalam CEO, Yousif Taqi.

Likewise, bin Talal wants to dominate U.S. businesses. Rather than boycott, “Arabs…stand more to benefit from maintaining trade ties with the US because the trade balance … is in our favor,” he told Saudi Arabia’s Arab News daily on May 1, 2002.

Both men’s ideas fit the 1928 cloth of Muslim Brotherhood founder Hassan al-Banna, whose disciples tailor-made it into shari’a finance–specifically to supersede Western banks, markets and democracies through “parallel economic” and financial institutions. It rests on shari’a–the 7th Century Qur’anic legal code developed by Mohammed’s followers–which clerics consider one, indivisible package, by definition seeking global Islamic supremacy and law.

With wife-beating, stoning women, dismembering thieves, hanging homosexuals, supremacist ideology and an annual head tax (jizya) on non-Muslim subjects–shari’a also commands Muslims to fund jihad (financial jihad—al Jihad bi-al-Mal). As in Qur’an 61:10-11, “strive for the cause of Allah with your wealth and your lives….” and Qur’an 49:15. “Financial Jihad [is]…more important…than self-sacrificing,” says Saudi cleric and Muslim Brother Hamud bin Uqla al-Shuaibi.

The 1982 Muslim Brotherhood document, “Towards a Worldwide Strategy for Islamic Policy”–discovered by Swiss police in November 2001 and known as the Project–maps al-Banna’s plan. His successors, and author MB spiritual leader Yusuf Qaradawi, Swiss authorities say, order Muslims to engage “economic institutions adequate to support the cause financially” in directives covering roughly 14 pages, headlined “departure points.”

Elsewhere, Qaradawi decrees, “holy war…is an Islamic duty… [F]ighting…is the Way of Allah for which zakat must be spent.” His 1999 “Fiqh az-Zakat” describes the “most deserving” zakat and jihad, “…to rebuild Islamic society and state and to implement the Islamic way of life in the political, cultural and economic domains.”

Itself now partly owned by bin Talal, the Wall Street Journal in November 2007 ironically noted the tragedy that bad management and “blundering U.S. monetary policy” had again left Citigroup prey to Arab sheiks. Citi got its cash transfusion by granting “only” a 4.9% “minority stake”–and no board seats–magically for 0.1% under the 5% necessitating U.S. Federal Reserve Board approval.

The Fed should intervene anyway–given the avid and ongoing, apparent UAE observance of zakat and jihad directives from Muslim Brotherhood leaders like Qaradawi:

• The UAE banks wired most of the funds for the 9/11 attacks.
• In 2006, UAE donated $100 million to house Palestinian Authority prisoners and suicide bombers’ families, named for the late father of the current UAE president, who over 30 years donated millions to PLO, Hamas and Islamic Jihad terror.
• Hamas in July 2005, thanked Al-Nahayan’s “sisterly UAE” for its “limitless [financial] support…,” and “aid for our Mujahid,” in other words, Hamas jihadist “charitable societies.”
• The Palestinian Authority in May 2005 itemized millions of additional UAE U.S.-dollar aid, including $3 million paid directly to the Al Aqsa Intifada Fund.
• UAE president Sheikh Khalifa Bin Zayed Bin Sultan Al-Nahayan’s late, terror-financier father also “owned the infamous [global] Bank of Commerce and Credit International” (BCCI)–which bilked depositors of billions before being shuttered in 1991; funded terrorist groups, states and projects like Hezbollah, al Qaeda, Syria, Iran and Pakistani nuclear bomb manufacturing; and was created “to help the world of Islam, and [as] the best way to fight the evil influence of the Zionists,” as noted by Rachel Ehrenfeld in Evil Money (Harper Collins, 1992, pp. 160, 164-5, 169-70).
• In October 2007, Dubai violated World Trade Organization (WTO) rules–banning the Israelis from the Federation of International Freight Forwarders and Customs Clearing Agents world congress. Dubai Ports World and its government holding company prohibit trade with Israel.
• In 2003, the UAE established a federal agency specifically to collect zakat on government tax revenues from “companies listed on the Dubai Financial Market and Abu Dhabi Securities Market… oil-producing companies and branches of foreign banks,” obviously including U.S. oil companies and banks. This year alone, the UAE zakat tax agency collected an estimated $13.5 billion.

In what dark corner are U.S. legislators, Fed and securities market regulators asleep?

Alyssa A. Lappen, a Senior Fellow at the American Center for Democracy, is a former Senior Editor of Institutional Investor, Working Woman and Corporate Finance, and a former Associate Editor of Forbes.

1http://www.despardes.com/FEATURES/jun04/who-is-shaukat-aziz-jun28.htm (viewed 12/5/2007)