More lies (and fool’s gold) revealed

By Alyssa A. Lappen

Family Security Matters | Feb. 11, 2008

In “The Lies of the Nixon Center” (Nov. 15, 2007), I unraveled some tall tales of its former senior fellow Alexis Debat, a purported Muslim Brotherhood “expert.” Agence France Presse had reported in September 2002 that Debat had never been employed in any capacity by the French Defense Ministry (as he claimed)—which terror expert Jean Charles Brisard further corroborated. He had never earned a Sorbonne Ph.D. (as he also claimed), either.

It’s worth noting now that my October 23, 2006 American Thinker piece, “Islam’s Useful Idiots,” also evidently caught New York University Law School’s Center for Law and Security and purported Muslim Brotherhood “expert” Nick Fielding with their pants down.

Debat—then a consultant to ABC News and the U.S. Defense Department (DOD)—appeared at the Center’s October 19, 2006 Muslim Brotherhood seminar, claiming to be an “expert” on the subject. He made many ludicrous remarks. And in September 2007, Debat fled the U.S. to avoid a lawsuit and accusations of fraud in France–for fabricating interviews with several U.S. and global political leaders.

The October 2006 seminar also featured former Sunday Times reporter Nick Fielding as an “expert” on the MB, however; he made equally inane remarks. Center Director Karen J. Greenberg sang the MB’s praises. On visiting with “moderate” Muslim Association of Britain (MAB) founder Kamal Helbawy in London, Greenberg reported finding him a very kindly, grandfatherly type–and she decried U.S. State Department refusal to admit Helbawy to the country for the NYU conference.

Obviously Greenberg didn’t know. But in 2005, after then-U.K. Prime Minister Tony Blair denounced suicide bombings—even in Israel—Helbawy replied, “Well he is wrong…. He is not a Mufti.” In a Jamestown Foundation interview, Helbawy blamed “events in Afghanistan, Iraq and Palestine” as “a factor” behind the July 7, 2005 London bombings–along with U.K. participation in Iraq and its “policy toward the issue of Palestine.”

And in December 1992, Helbawy was taped telling the Muslim Arab Youth Association, the Islamic war on Israel isn’t “a conflict of borders and land only. It is not even a conflict over human ideology and not over peace…. [I]t is an absolute clash of civilizations, between truth and falsehood. Between two conducts–one satanic, headed by Jews and their co-conspirators–and the other … religious, carried by Hamas, and the Islamic movement in particular and the Islamic people….” Muslims should never befriend “Jews and Christians,” he warned, who are only “allies to each other….”

Some grandfather.

Fielding denied the MB’s threat to the West and praised Helbawy as “a wonderful human being.” The 2005 election of 22 Muslim Brothers to Egypt’s parliament, Fielding said—and the January 2006 Hamas victory in the Palestinian Authority vote—were cause for celebration. He turned his ire only on “the silence of the U.S. State Department in the face of [alleged] Egyptian government abuse” of Muslim Brothers—and the U.S. and international boycott of the Hamas-controlled PA. Fielding dubbed the MB “reformist,” and offering “the best possibility in the Middle East of leaders who can make deals and stick to them.”

My expose prompted Fielding to falsely accuse me of misrepresenting his remarks. The same day, a sanitized version of his comments miraculously appeared on Ikhwanweb.

Debat had boasted that before the year was out, “NYU will publish the video of my remarks…” and thereby absolve them. Alas, the Center published no video or audio in December 2006—or in 2007.

When Center archives were finally published in early 2008 (surprise, surprise), the promised tape of the Oct. 19, 2006 event was notably missing from the roster.

I’d first noted on Oct. 26, 2006 that no tape could vindicate Fielding or Debat,

unless it is complete and unedited. But that may not be in the cards. Asked if the Center would post the entire session, including the question and answer period, a spokesman stated, “We are considering editing the content,” a process that could easily also exclude many controversial remarks that I quoted from the respective experts. The excuse is time limitation, although streaming digital MP3 downloads are not limited by time. Who is dishonest now?

In November 2007, I recalled Debat’s false complaint of “misquotes and distortions”—easily refuted—and observed that NYU had not published a recording “which would have been too embarrassing.”

NYU was between a rock and a hard place. Issuing an edited tape of the Oct. 19 2006 event would verify that NYU, indeed, has something to hide. Releasing an unedited tape of the Debat and Fielding remarks and Q&A, on the other hand, would recall the Debat scandal—and confirm the accuracy of my original quotations. If it isn’t already, the Center would be a laughing stock for inviting either of them.

But I’m not laughing.

It’s tragic that a Law School claiming to study law and security gave a platform to the hokum pokum of two Muslim Brotherhood apologists, or false notions of a “moderate” MB. As the known parent of every Islamic terror group now operating, the Muslim Brotherhood is today also an unindicted terror funding co-conspirator.

Still more tragic is the apparent acceptance by mainstream media—and U.S. leaders and presidential candidates—of Nixon Center fellow Robert Leiken’s lethal notion that the MB is moderate and reformist—not least, since Leiken’s training is in Latin American politics. Patrick Poole elaborately detailed Leiken’s falsehoods in a 4-part April 2007 series.

The MB unconditionally states, in Arabic and English, its plans to Islamize the globe and impose shari’a (Islamic law) worldwide–largely through “flexibility” (muruna in Arabic). Muslim Brotherhood General Guide Mohammad Mahdi Akef calls on all MB “member organizations to serve” the global agenda to defeat the West, and on “individual members” worldwide to join the “resistance” to the U.S.—both financially and “through active participation.” Even some Arab Muslims describe the MB as one of the world’s most malevolent forces.

The present danger stems mostly from the massive Islamic assault on Western economies and markets, however—both through the global push to institutionalize so-called shari’a finance, and a barrage of Middle Eastern securities markets, corporate, strategic infrastructure, bank and other acquisitions.

Skeptics should simply compare current economic events to an MB strategic plan—“Towards a worldwide strategy for Islamic policy”—written in 1977 and 1982 and discovered in the late 2001 Swiss raid on the home of MB financier Yousef Nada. Written by MB spiritual leader Yousef Qaradawi and known as The Project, the plan instructs members to “establish the Islamic state and gradual, parallel work to control local power centers….” It also requires “special Islamic economic, social and other institutions,” and “the necessary economic institutions to provide financial support” to spread Islam.

Documents unearthed also prove the MB has long operated as a central terror funding command, wiring funds for terror attacks through banks like the now-shuttered Al Taqwa, Saudi Arabia’s Dallah Al-Baraka Group, al-Rajhi Banking & Investment Corporation and Kuwait Finance House–as well as the Islamic Development Bank, a.k.a. the Intifada Bank for funding families of suicide bombers and Bank Meli of Iran.

Now, sovereign Saudi and Dubai interests are buying up Wall Street, too. And their structured Islamic finance is not nearly as benign as they’d like the world to believe.

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U.S. AID for Terror

By Dr. Rachel Ehrenfeld and Alyssa A. Lappen
FrontPageMagazine.com | 2/8/2008

The Bush Administration’s search for partners to promote “peace” and “democracy” within the Palestinian Authority (PA) resembles Lord Charles Bowen‘s “blind man in a dark room looking for a black hat — which isn’t there.”

For the first time, the Bush Administration plans to give $150 million in cash directly to the Palestinian Authority (PA) Treasury, as part of a $496.5 million “aid” package, including $410 million for development programs. This added to the $86.5 million for CIA “security training,” which Congress authorized in April 2007.

The CIA has apparently assumed the Palestinian terrorist-training role previously held by the former Soviet Union. Since 1994, the CIA armed and trained thousands of Palestinian “security forces,” who subsequently joined every Palestinian terrorist organization.

CIA Palestinian training success is best described by a member of the PA’s Chairman own security unit, — Force 17, officer Abu Yusef: “The operations of the Palestinian resistance would [not] have been so successful and “would not have killed more than 1,000 Israelis since 2000, and defeated the Israelis in Gaza without [American military] trainings,” he boasted in August 2007.

Since the Oslo Accords, the PA received some $14 billion to $20 billion in international aid, according to a 2007 Funding for Peace Coalition (FPC) report to the British Parliament. Each Palestinian received $4,000 to $8,000 per year. In comparison, the U.S. Agency for International Development (USAID), provided $1 billion in humanitarian aid for 2.5 million Darfur refugees from 2003 to 2006 –only $100 per person annually. Moreover, of the $7 billion pledged international aid, only $5 billion were spent to assist more than 5 million Tsunami victims in more than 15 countries on two continents.

The PA received “the highest per capita aid transfer in the history of foreign aid anywhere,” according to former World Bank country director for Gaza and the West Bank, Nigel Roberts. Not surprisingly, hundreds of thousands of Gazans spent more than $300 million in less than two week shopping spree, after Hamas blew up the border with Egypt. Yet, the Palestinian economy is in ruins, Why?

In March 2007, PA Prime Minister and former World Bank official Salam Fayyad, told London’s Daily Telegraph: “No one can give donors that assurance” that funds reach their designated destinations. “Where is all of the transparency in all of this? It’s gone.” Controlling Palestinian finances, Fayyad concluded, is “virtually impossible.”

Palestinian violence has escalated since the 1994 PA establishment and PA officials have produced an unbroken record of unfulfilled promises and outright deception. Yet President George W. Bush in his January 28 State of the Union Address, reassured the Palestinians that “America will do, and I will do, everything we can to help them achieve…a Palestinian state by the end of this year.”

Nevertheless, U.S.-favored PA President Mahmoud Abbas, who in 1957 with Yasser Arafat co-founded the al Fattah terrorist group, assumed the role of his predecessor. Like Muslim Brotherhood, Marxist-trained jihadist Arafat, neither does Abbas “recognize that confronting terror is essential to achieving a state where his people can live in dignity and at peace with Israel,” as President Bush declared.

Abbas remains committed to the organization’s reason d’etre–destroying Israel and expelling the Jewish people from the region. Despite public Fattah-Hamas leadership disagreements, branding one another “murderers and thieves,” Abbas arranged on Jan. 30 to give Hamas $3.1 billion of $7.7 billion that international donor community pledged last December in Paris.

Abbas’ support for Hamas is not new. In Feb. 2007, He announced, “We must unite the Hamas and Fattah blood in the struggle against Israel as we did at the beginning of the intifada.” He stated this en route to Mecca to meet with the Saudi King, and Hamas terror chiefs Khaled Mashaal and Ismail Haniyeh. The Saudis pledged hundreds of millions of dollars in “humanitarian aid”–which, like previous pledges, they failed to deliver.

Rather than $660 million in annual aid the Saudis promised in 2002, the kingdom donated only $84 million since then, according to World Bank reports. Other Arab League members, who in 2002 promised $55 million monthly to foster PA economic development, gave even less.

Meanwhile, however, the Saudis and the Gulf states funneled hundreds of millions of petrodollars–some raised in government-sponsored telethons–to reward Al Aqsa Martyrs Brigades, Hamas and Palestinian Jihad suicide bombers and fuel the anti-Israel Jihad. Indeed, “Saudi Arabia remains a source of recruits and finances for …Levant-based militants,” said National Intelligence Director J. Michael McConnell, before the Senate Select Committee on Intelligence, on 5 February 2008.

McConnell should have included USAID on his terror-funding list. A Dec. 2007 USAID audit reported that the mission administering its funds gave money to groups and institutions affiliated with U.S. designated terrorist organizations, including Hamas and Islamic Jihad. It warned: “Without additional controls, the mission could inadvertently provide support to entities or individuals associated with terrorism.”

USAID “failure” to prevent funds from reaching Palestinian terrorist is not surprising given U.S. previous Administrations support for Arafat, and now for Abbas, who repeatedly claims: “We have a legitimate right to direct our guns against Israeli occupation,” while reiterating his desire for “a political partnership with Hamas.”

It is time for President Bush to remove his blinders and stop donating U.S.-taxpayer funds to this murderous partnership. It is also time for Congress to demand a proper monitoring program to oversee the legitimate use of U.S. aid to the Palestinians.

_____________________________________________________________
Dr. Rachel Ehrenfeld is author of Funding Evil; How Terrorism is Financed and How to Stop It. She is director of the American Center for Democracy and member of the Committee on the Present Danger. Alyssa A. Lappen, Senior Fellow at the ACD, is a former editor for Forbes, Corporate Finance, Working Woman and Institutional Investor.

Shari’a finance invading the West

Michael Savage Interviews Alyssa A. Lappen
Radio appearance | Jan. 23, 2008

Did Citigroup understand Shari’a law when it jumped into Islamic banking in the 1950s? Alyssa A. Lappen explains the enormous downside risks of importing medieval Islamic religious laws, via Muslim Brotherhood mechanisms, into secular Western banking. Since Islam claims ownership of everything, in trust for Allah, Muslims can confiscated assets from non-Muslims indiscriminately—and did so from Citi, which nevertheless later expanded Islamic banking operations.

shariafinancelappenjan232008

The Securities Bazaar: Destabilizing the U.S. Markets?

by Dr. Rachel Ehrenfeld and Alyssa A. Lappen
Human Events | Jan. 23, 2008

All presidential candidates promise to fix our economy, but no one discusses the need to better safeguard our financial markets. The Committee on Foreign Investment in the U.S. (CFIUS), approved Bourse Dubai’s purchase of 20% of the America’s largest electronic exchange, New York-based Nasdaq, on Dec. 31, 2007.

This may soon give Dubai access to the troubled Boston Stock Exchange (BSE), through Nasdaq’s proposed BSE acquisition, which is now pending before the Securities and Exchange Commission (SEC).

“Foreign ownership of our capital markets may make it more difficult for shareholders to obtain information about the inner workings of the stock market,” notes Brent Baker, a former SEC Special Counsel. Nasdaq, like most U.S. exchanges, 5,100 brokerage houses and registered securities representatives, is regulated by the Washington, D.C.-based Financial Industry Regulatory Authority (FINRA). The Philadelphia Stock Exchange (PHLX), however, and the problematic BSE with its rather murky track record of non-compliance, retained their independent self-regulatory organization (SRO) status. Now, Nasdaq plans to purchase both.

“What do the regulators currently do to monitor the BSE, which up until now had been sanctioned several times for failure to regulate itself?” Baker wonders. Indeed, the SEC sanctioned the BSE in 1999 and 2007 for illegal practices. The September 5, 2007 sanction was for the BSE failure to enforce its own rules or comply with a 1999 SEC directive, and for illegal trading activities – including forward trading, from 1999 through 2004. On the same day, the U.S. District Court for the District of Massachusetts ordered former BSE President James Crofwell, to pay a $75,000 penalty “for aiding and abetting the Exchange’s failure to enforce its rules.”

The BSE history raises especially thorny questions about market manipulation and the possibility that unsupervised foreigner investors and securities firms may borrow or manipulate U.S. company stocks, adversely affecting domestic markets and further eroding investor confidence.

Since Bourse Dubai promotes its status as the world’s first and leading Islamic securities exchange, its influence could affect the listings on Nasdaq. Dubai might leverage the “sovereign immunity” of both the BSE and PHLX to list and delist companies on Nasdaq. SEC rules in that case could be irrelevant, and the effects on the U.S. capital markets and economy could be enormous. For example, pharmaceutical companies producing Viagra and contraceptives could be delisted, as could companies based in or doing business with Israel.

“This is a slippery slope,” says Baker, “if the SEC approves the Nasdaq’s purchase of the BSE and PHLX, and they both keep their SRO licenses.”

American regulators “believe in honest and complete disclosure and people invest with the understanding that they will make or loose money depending on their judgment, the markets and the economy,” says John W. Moscow, former Assistant District Attorney and Deputy Chief of Investigations under New York District Attorney Robert Morgenthau.

“In England,” where Dubai will shortly acquire Nasdaq’s 28% stake in the London Stock Exchange, he says, “the governing philosophy is that if God did not want [investors] shorn, he would not have made them sheep.”

The integrity of regulations in Dubai is a more important problem. To attract business, “they are willing to omit the costs of regulation and compliance that exist elsewhere.” Dubai traders deal in arms, women, drugs, and money laundering. “As long as [traders] deliver the money, and so long as the market does what it is supposed to do, it is sufficient,” says Moscow.

The U.S. markets are already in big trouble, says Moscow, given the high trading volume between U.S. and foreign exchanges through shadow accounts to the Federal Reserve Board’s Depository Trust Corporation (DTC), Euroclear and other clearing systems. Nasdaq’s acquisition of the BSE only worsens the problem.

The same owner, through many different foreign corporate entities, can buy majority stakes in many companies and manipulate the market. With no regulation of these trades, no one would be the wiser. “The bad guys are going to eat us alive,” Moscow says.

Indeed, SEC chairman Christopher Cox has now proposed allowing foreign exchanges to sell directly to U.S. investors through U.S.-based brokerage firms. Exchanges with “comparable” regulatory oversight would no longer need to register with the SEC, under the new proposal. But of course, having comparable regulations alone in no way ensures that foreign exchanges enforce their regulations with the same rigor as the SEC.

The U.S. markets remain the most highly and efficiently regulated in the world, according to Moscow. Clearly, that is still not good enough.

— Rachel Ehrenfeld, author of Funding Evil, is director of the American Center of Democracy, and a member of the board of the Committee for the Present Danger. Alyssa A. Lappen, a senior fellow at ACD, is a former editor of Institutional Investor, Working Woman , Corporate Finance and Forbes.

Beware Fool’s Gold — and Shari’a Finance

By Alyssa A. Lappen
FrontPageMagazine | Jan 21, 2008

The very expectations of glittering shari’a finance (Islamic banking) profits hypnotize financial institutions, securities exchanges, and banks–and there are few regulatory or monitoring protections against abuses. So why did United Arab Emirates (UAE) government IP address 92.97.131.110 send some 30,000 to 40,0000 spam messages on December 8, 2007, soliciting Islamic finance clients among U.S. citizens and small businesses?

“Need assistance,” the spam asks, soliciting inquiries to , registered to Emirates Telecommunications Corporation at UAE’s federal domain authority.

Maybe gorging on U.S. strategic assets increases UAE appetite–even though, the lower stocks go, the more prime U.S. investment companies Middle East investors scoop up. Maybe UAE spammers may want to lasso U.S. credit crunch victims desperate for cheaper home or small business loans.

Let’s hope U.S. consumers and U.S. presidential candidates–unlike those U.S. financiers falling like flies before UAE sheiks–will carefully scrutinize the entire Islamic banking scam.

The UAE email solicitation purports that Islamic finance provides four “attractions:”

* Good alternative source of funds

* Risk perceptions of Islamic financiers

* Off-balance sheet financing

* Preferred mode of financing for certain corporate (sic) and individuals

Many grave secular risks accompany shari’a‘s growing foothold in Western markets.

With wife-beating, stoning women, dismembering thieves, hanging homosexuals, supremacist ideology and an annual head tax (jizya) on non-Muslim subjects–shari’a also orders 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.

Consider the four purported advantages.

First, the Saudi-favored shari’a finance “alternative,” as noted in FrontPageMagazine earlier, is a 20th century construct without basis in Islamic history–and often funds destruction. It’s an “invented tradition” empowering 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’.”

Muslims expect “humanitarian” Islamic finance to buy their “reward in the Hereafter.”

Conversely, Americans expect alternative “ethical” and “socially responsible” investing to build human rights in southern Sudan, common shareholder rights, and good corporate governance and transparency–terms not in the shari’a finance lexicon.

Then take “risk perceptions of Islamic financiers.”

Evidently bankers have forgotten to whom the advantage of this second bogus UAE-invoked “attraction” accrues: Citibank’s Islamic financiers in 1955 launched its Saudi American Bank subsidiary in Jeddah and in 1966 opened a Riyadh branch–without presenting due diligence on the risks of operating under shari’a law, which include sudden confiscation. So Citibank discovered in 1980, when the Saudis seized SAB by royal decree, denied Citi any future profits, and ordered the bank to train Saudis staffers.

Likewise, the “risk perceptions of Islamic financiers” apparently aided criminals at the Bank of Credit and Commerce International (BCCI), which was founded as an Islamic bank. BCCI perpetrated the largest fraud in banking history, costing depositors and investors at least $21 billion before U.S. prosecutors closed it in 1991. BCCI was also established “to help the world of Islam, and [as] the best way to fight the evil influence of the Zionists,” as Rachel Ehrenfeld noted in Evil Money (Harper Collins, 1992, pp. 160, 164-5, 169-70). Thus under UAE president Sheikh Khalifa Bin Zayed Bin Sultan Al-Nahayan’s late, terror-financier father, BCCI funded such “alternative” organizations, states and projects as Hezbollah, al Qaeda, Syria, Iran and Pakistan’s nuclear bomb manufacturing.

And Islamic banking’s third “advantage”–its off-balance sheet financing–most readily explains its fourth: the domain’s preference by “certain corporate (sic) and individuals.”

But even the Finance and Accounting Standards Board (FASB), which sets standards for the self-regulated accounting industry, would agree with a Government Accountability Office (GAO) report released in December 2007, calling for more and better market and banking oversight–not less.

And that includes leashing the downside risks in off-the-books financing. Hundreds of billions of dollars in subprime mortgages caused the current global credit crisis, which is ravaging global equities and bond markets, and could slice $6 trillion from U.S. home values and take years to resolve.

In the 30 years since Bank of America technology and an 8.5% BOA mortgage-backed “pass-through” spawned a landmark market innovation–securitization–underwriters transformed trillions of dollars in claimed cash flows on illiquid assets into increasingly liquid, traceable securities. Collateralized debt obligations (CDOs) made mortgage-backed and other complex lending securities so liquid that in the 1980s, U.S. brokerage firms practically sold them on street corners.

During that 1980s securitization boom, the Muslim Brotherhood heavily used the new Western financial technology to develop MB founder Hassan al-Banna’s shari’a banking invention. Today, Islamic financial institutions also manufacture “special purpose entities” (SPEs)–the same kind that coincidentally helped destroy Enron. Naturally, Islamic financial engineers renamed the prickly SPEs “special-purpose vehicles (SPVs)”–legal devices to “restructure interest-bearing debt, collecting interest [as] rent or [a] price mark-up.”

So-called sukuk al-ijara (shari’a bond) issuers sell real estate or assets to SPVs, which capitalize their investment by selling share certificates. In turn, the SPVs then lease back the assets they purchased to the sukuk issuers, collecting principal plus interest, which they pass on to sukuk investors as “rent.” When the sukuk matures, the SPVs sell or return the property to the sukuk issuers.

In short, the supposed “alternative” Islamic finance instruments, which claim to avoid usury, use Western structured finance tools–“some of the most complex ever created.” You got it. Shari’a bankers transform liquid, traceable cash flows from interest-bearing debt into illiquid assets.

How is that more secure for the financial markets?

Actually, financial innovation has sometimes caused market dislocations. Often, the bigger the innovation, the greater the unforeseen consequences–and market declines. Take the role of “portfolio insurance” in the 1987 crash. Or the 1994 bust of mortgage-backed bonds, which wiped out $1 trillion in value–then roughly 10% of the U.S. bond market. That free-fall took down (by several notches) many huge pension funds, municipalities and institutional investors–and also beached a few hedge funds like dead whales.

So how does the complex purported shari’a finance alternative create more security for Western financial markets?

It doesn’t. Under “complexities,” the December UAE solicitation for Islamic finance clients admitted, “Shari’a regulations can override commercial decisions.”

The email also noted two other major shari’a finance problems:

* Documentation is not standardized

* Inter-creditor agreements can be complex (emphasis added)

Taking monumental risks does not even eliminate usury. All “Islamic finance today is interest based,” complains Rice University Islamic economics, finance and management chairman, Mahmoud el-Gamal, in the Financial Times. Disparaging Islamic banking as “shari’a arbitrage,” el-Gamal calls it “first and foremost about religious identity.” And the “forefathers” of so-called “political Islam” intended precisely that in their conception of this 20th century financial concoction.

In reality, “innovative” Islamic financial securities involve enormous risks, which may be an intended prong of the Muslim Brotherhood’s strategic financial jihad.

Sukuk issues entice investors with yields much higher than Western bonds. While central Western banks orchestrate historic, simultaneous rate reductions to contain losses feared to equal those of the 1986 to 1995 savings and loan crisis, a sukuk index with a mere 3.8 year duration sported 6.2% “coupon” on Nov. 30, 2007. Meanwhile, in mid January, yields were only 2.89% on intermediate Treasuries–and just 5.25% on the Lehman Brothers intermediate U.S. corporate bond index. Only long term U.S. corporate debt yielded more than 6.5%. No wonder sukuk issues have been fully subscribed.

But two key determinants of bond quality remain–the surety of payments for the scheduled life of the loan, and the certainty that, on maturity, investors will recover 100% of their principal.

Simply believing Islamic sukuk to be inherently safer than Western bonds doesn’t improve their quality of their higher interest rates–oops–“rent.” Islamic or not, buying a sukuk makes its purchaser a creditor. And for the same reasons “junk” is synonymous with high-yield bonds, larger returns carry greater risks.

Which says nothing of the dubious underlying “profit and loss sharing” Islamic finance philosophy. Investors should look doubly hard at whether to expect profit or loss when a sukuk matures–that is, whether recouping the loan’s entire “face value” is even in the cards. That might depend on the values of underlying properties or assets at maturity. But then, “Shari’a regulations can override commercial decisions,” and so on.

In 1983, my esteemed colleague, former Forbes senior editor Howard Rudnitsky, warned in a booming real estate tax-shelter market, “heavy leverage involves risks, and if the market turns bad, the top-heavy financing could wipe out the equity. The creditors would get the property back, the syndicator would keep his fees and the investor would get the shaft.” Not to mention the back taxes, interest and penalties if the Internal Revenue Service ruled the enterprise “uneconomic.”

The same principles apply here. With or without spam, better, safer and fairer for government and IRS regulators, banks, markets–and investors–to take all finance, unIslamic.

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.

Terror’s financiers

U.S. oversight needs to improve

By Rachel Ehrenfeld and Alyssa A. Lappen
Washington Times | Jan. 17, 2008

The antiquated Securities and Exchange Commission’s computer system prevents investigators from safeguarding U.S. market integrity. “It’s like working with one hand tied behind their backs,” Republican Sen. Chuck Grassley commented about the Dec. 17 release of the Government Accountability Office (GAO) report he’d initiated — “SEC: Opportunities Exist to Improve Oversight of Self-Regulatory Organizations.” Why can’t the government with the world’s most advanced computer technology and capabilities equip its agencies with state-of-the-art systems allowing them to better monitor markets and transactions, including illegal activities?

In response to the GAO criticism, SEC Chairman Christopher Cox acknowledged, “additional information-technology changes such as these may help the [SEC] enforcement staff to effectively analyze trends, manage current caseloads and focus areas of investigation.” But all federal officials — not just at the SEC — should worry about much more than insider trading.

Take terror financing. So far, no U.S. official at any level, including presidential candidates from both parties, has publicly addressed how radical Muslim groups and Islamic terror organizations raise major sums to facilitate the murder of Americans in Afghanistan, Iraq and elsewhere, among other things.

Two years ago, President Bush denounced “the murderous ideology of the Islamic radicals [which] is the great challenge of our century.” But U.S. dependency on Middle East oil made the Saudis and their Gulf neighbors rich beyond their wildest dreams. Saudi funding propagates global Islamist extremism that former CIA Director James Woolsey describes as “the soil in which al Qaeda and its sister terrorist organizations are flourishing.” The September 11 commission awarded the government an A- for its “vigorous efforts against terror financing,” both in 2003, and again in its October 2005 progress report.

In fact, government efforts thus far have apparently targeted the wrong funding sources. The vast Middle East sums feeding the global spread of radical Islam and jihad have not diminished. Yet, our government tells us, the Saudis and their neighbors are U.S. allies.

Such disinformation, combined with outdated monitoring technologies and systems, contributes to continuing government failure to secure U.S. financial institutions, economic stability and national security.

Government agencies have long warned of the federal failure to properly monitor and impede funds flowing to terrorist organizations. These include several GAO reports and a May 21 IRS report criticizing government ability to identify charities favored by radical Muslims to fund terrorism.

“The IRS provides only minimal assurance that tax-exempt organizations potentially involved in terrorist activities are being identified,” it says. Furthermore, the report recommends that the IRS and other agencies “develop and implement a long-term strategy to automate the process… to identify potential terrorist activities related to tax-exempt organizations.” Another major issue slipping under the radar concerns the growing influence of petrodollars on U.S. economic institutions, banks, markets and government agencies.

Due diligence currently available identifies the routine and obvious risks associated with Western market participants. However, growing Islamic banking and Shariah-compliant industries promote themselves as hot new financial markets in which to invest. The attraction for U.S. and Western banks and investors is the $1 trillion and rising annual Saudi and Gulf state oil revenues.

Then again, like many other “innovative” products, the “ethical” and “socially responsible” Middle East and Islamic banking and investment market present many new risks not currently addressed either by their proponents or by regulatory agencies, much less due diligence services now available.

These markets and products lack transparency and Western accounting. Frequently, their documentation and offering statements do not disclose information required by federal laws and banking regulations. Furthermore, this market is increasingly governed by radical Islamic clerics whose provenance is unknown to the Federal Reserve Board, U.S. and international equities and bond ratings agencies, index providers and other insufficiently educated market participants and facilitators.

Data-mining software is available in the market today. But it lacks the ability to also analyze social and political networks and identify terrorist links. An important new program will shortly be available to fill that gap. It will also aid collection, processing, investigation, discovery, data-sharing and reporting intelligence.

The government needs this technology to stop terror financing. And businesses need objective consultants with regional expertise, language skills and access to the latest software to fully meet their “know you customer” and disclosure regulations.

Businesses that fail to take these extra precautions are liable to suffer major losses, market dislocations and possible prosecution for material support of terrorism.