Tag: Dubai

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.


All Articles, Poems & Commentaries Copyright © 1971-2021 Alyssa A. Lappen
All Rights Reserved.
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Shari’a Finance: Cordless Bungee Jumping

by Alyssa A. Lappen
Pajamas Media | Dec. 18, 2007

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.

[12/18/2007 update: The banking industry has a short memory. In 1955, Citibank established the Saudi American Bank in Jeddah and added a Riyadh branch in 1966. But on February 12, 1980, Saudi Arabia confiscated Citibank’s business by royal decree, changed its name to Samba, and forced America’s premier bank to accept a subservient role, staffing its old bank–with a promise not to take any profits. That was shari’a law in action.]

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, Citigroup 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. 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.


    All Articles, Poems & Commentaries Copyright © 1971-2021 Alyssa A. Lappen
    All Rights Reserved.
    Printing is allowed for personal use only | Commercial usage (For Profit) is a copyright violation and written permission must be granted first.