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.

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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.

America’s First Amendment Lifeline

by Alyssa A. Lappen
Human Events | Jan. 25, 2008

World War II began long before the outbreak of military hostilities, with the Nazi campaign to silence its critics. Yet 63 years after the end of World War II, the U.S. today faces new threats to free speech.

Islamic terrorists and their advocates have increasingly succeeded in silencing critics of hatred and inhumanity, much as the Nazis silenced theirs, through intimidation — but also now, through the courts.

The presidential candidates should all speak up, but unfortunately, none have yet addressed the issue.

Hillary Clinton has a gigantic $10 million “conflict of interest,” in the form of Saudi donations to the Clinton Library and Foundation, according to former Clinton political consultant Dick Morris and Eileen McGann. But Democrats Barak Obama and John Edwards and Republicans Mitt Romney, John McCain, and Mike Huckabee have also been eerily silent.

The battle lines are particularly sharp in New York State. There, the Court of Appeals ruled on Dec. 20, 2007 that under current “long-arm” statutes governing business transactions, New York lacks jurisdiction to protect author Rachel Ehrenfeld, whom Saudi billionaire Khalid Bin Mahfouz sued for “libel” in London’s High Court of Justice. Mahfouz sued Ehrenfeld after the 2003, U.S. publication of her book Funding Evil: How Terrorism is Financed–and How to Stop It, which noted that Mahfouz and his family financially supported al-Qaeda and other “Islamist terror groups.”

Only 23 copies of Ehrenfeld’s book sold in England–over over the Internet–but Mahfouz won in the U.K. by default. On learning that former CIA director R. James Woolsey wrote the book’s foreword, U.K. Justice David Eady stated, “Say no more. I award you a judgment by default, and if you want, an injunction, too.” He ordered Ehrenfeld to apologize, retract, pay $225,913.37 in damages and destroy remaining copies. In a case still pending before the Second Circuit Court of Appeals, Ehrenfeld asked the Southern District Court of New York to protect the First Amendment and rule the U.K. judgment unenforceable here.

To protect authors, journalists and First Amendment freedoms, Sen. Dean G. Skelos and Assemblyman Rory I. Lancman on January 13 introduced bi-partisan legislation to establish local jurisdiction. This would deter foreigners from suing and imperiling New York writers and the First Amendment, with the obvious intent of changing U.S. libel laws via overseas courts.

Authors in many states, indeed, nationwide, hope New York will swiftly pass the legislation, and that other states and the U.S. Congress will follow the New York lead. The life blood of Democracy could hang in the balance.

No country has free speech protections as strong as those in the U.S., noted First Amendment attorney Floyd Abrams, who was present Jan. 13 and supports the New York state bill. Moreover, many U.S. federal documents and Congressional testimonies have implicated Mahfouz for terror financing.

Yet in the last decade, the Saudi billionaire has threatened or successfully sued over 40 authors and publishers in the United Kingdom–including numerous Americans–for reports on terror funding that mentioned him. Without trying a single case on its merits, Mahfouz extracted settlements, default judgments, apologies, retractions and fines in all his British “libel” cases–except in the case of Ehrenfeld. Mahfouz’ suits, and others like them, have created an enormous “chilling effect” on free speech, says Ehrenfeld’s New York-based attorney, Daniel Kornstein.

The threat of lawsuits has so the publishing community that many authors are censoring themselves, and many publishers simply refuse to address terror funding at all.

To safeguard America’s publishing capital, New York legislators of all stripes should rush to co-sponsor and pass the new bill. As Senate deputy majority leader Skelos from Rockville Center and Queens Democrat Lancman noted in a Jan. 13 news conference outside the New York Public Library, the London ruling against Ehrenfeld opened the door to “assault by foreign nationals seeking to silence public debate in America” despite the U.S. Constitutional guarantee of protected free-speech.

The Skelos and Lancman bill would amend New York law to give state courts jurisdiction in cases like Ehrenfeld’s. Local courts could declare foreign judgments unenforceable unless the foreign country provides free-speech protections equivalent to those of the First Amendment. This would be especially helpful in cases concerning reporting on terrorism–but also in other frivolous libel cases filed to intimidate American writers and publishers.

The legislation will “protect American authors and journalists from being dragged into kangaroo courts over phony baloney libel charges in jurisdictions that don’t respect freedom of speech and of the press as we do here in the United States,” Lancman said.

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.

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?
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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.