America for Sale

Dr. Rachel Ehrenfeld and Alyssa A. Lappen
Human Events | April 1, 2008

As the U.S. and Western markets plummet and the U.S. dollar continues its free fall, sovereign wealth funds (SWF) gobble up prime financial institutions, industries and real estate in the U.S. and the West. Given concerns regarding the political influence of such wealth, the U.S. Treasury, together with Abu Dhabi and Singapore, on March 20 signed an “Agreement on Principles for Sovereign Wealth Fund Investment.”

“SWF investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government,” according to the joint statement and accompanying policy principles. Feebly attempting to enforce this standard, it declared: “SWFs should make this statement formally as part of their basic investment management policies.”

Meanwhile, the International Monetary Fund (IMF) Board of Directors on March 21 endorsed an SWF work agenda to develop—in coordination with them and the Organization for Economic Cooperation and Development (OECD)—“a set of voluntary best practices.”

The pretense surrounding most international agreements matches the deceitful promotion of Middle Eastern SWF investments and Islamic banking as “ethical and socially responsible.”

In fact, “Islamic banking defies the separation between economics and religion,” according to USC King Faisal professor of Islamic Thought Timur Kuran.

Globally, SWFs now hold some $2 to $3 trillion and are expected to reach $6 to $10 trillion “within five years.” Incredibly, IMF Monetary and Capital Markets director Jaime Caruana expects the planned “best practices” to “cover issues of public governance, transparency, and accountability principles” and “help ease concerns about SWFs in recipient countries and contribute to an open global monetary and financial system.”

High oil prices are responsible for the enormous growth of most SWFs, including those in the Middle East. According to a new the Asian Banker research group, “the world’s 100 largest Islamic banks have outpaced conventional banks with an annual asset growth rate of 26.7 per cent—nearly $350 billion—in assets.”

In addition to huge political and economic influence such wealth carries, and in contrast with IMF wishful thinking, Middle Eastern SWFs also seek to impose the strangulating governance and eventual bondage of Islamic laws—not “ethics” or “social responsibility” as they advertise.

Middle East sovereign funds include bans on trade with Israel, despite U.S. laws prohibiting such boycotts and World Trade Organization (WTO) regulations requiring all member nations to allow free trade with each other. Yet, Middle East wealth so dazzles Western governments, including the U.S, that they readily ignore the Islamic nations’ illegal boycott. While these funds for now only target Israeli products, ultimately Western industries and economies will also endure dire effects.

The U.K. Trade and Investment (UKTI) website openly notes, “Saudi Arabia imposes no foreign exchange controls and no other restrictions on the repatriation of profits or capital by foreign investors,” except a strict ban “against transactions with Israel.”

The UKTI website also warns British businessmen of similar prohibitions in the United Arab Emirates (UAE), Bahrain, Kuwait, Qatar and Oman, among others, against goods “manufactured in Israel.”

The growing U.S. and European financial crisis gives Islamic banking and shari’a finance proponents increasing leverage over Western markets and economics. In reality, their acquisitions of ever-larger stakes in U.S. and Western strategic financial and other assets, amounts to economic warfare against the West.

They lure U.S. and Western investors into high-rate sukuk or al-ijara Islamic bonds, which they claim are “alternative” Islamic finance instruments that supposedly avoid usury, but use Western structured finance tools— “some of the most complex ever created.”

Shari’a instruments transform liquid, traceable cash flows from interest-bearing debt into illiquid assets. They resemble “portfolio insurance” that caused the 1987 crash, and the mortgage-backed bonds behind the 1994 bond-market bust that eviscerated $1 trillion in value—then some 10% of the U.S. bond market. Those collapses damaged many huge pension funds, municipalities and institutional investors, and killed off several hedge funds.

Shari’a economics’ dubious ethical and financial values nevertheless continue attracting Western bankers and academics. In a March 5, 2008 missive to international business leaders, for example, Caux Round Table (CRT) global executive director Stephen B. Young even suggests that Islam Hadhari (“civilizational Islam” based on shari’a law, as promoted by the Muslim Brotherhood) can resolve America’s conflicts with the “Muslim ummah” (nation).

Young believes “Islamic Banking would … bring modern forms of private sector led economic development into Muslims societies,” ushering them into the “industrial and post-industrial revolutions,” by constructively blending “rational economic considerations with Qur’anic piety.” Yet he relies on a 2006 script by Malaysia’s Prime Minister Dato’ Seri Abdullah bin Haji Ahmad Badawi.

But “Islamic economics is an invented tradition,” writes USC’s Timur Kuran. “Neither classical nor medieval Islamic civilization featured modern style, much less Islamic banks.”

Far from developing Islamic and economies, shari’a law has overall retarded them. “To one degree or another, most of today’s 56 predominantly Muslim countries are economically underdeveloped,” Kuran writes.

Islamic finance deliberately promotes fundamentalism and anti-Western behavior throughout the Muslim world, rather than suppressing it, he argues. Neither have shari’a finance proponents in the West considered its economic effects—promotion of gender discrimination, replacement of secular law and schools with Islamic law and schools, and its institutional suppression of scientific investigation.

In December 2007, Bourse Dubai, the world’s first and largest Islamic equity exchange, bought 20% of NASDAQ, the biggest U.S. electronic stock market, and “rebrandedâ€ it as part of Dubai’s company. The Bourse also got NASDAQ’s 28% of the London Stock Exchange (LSE). In addition, Qatar acquired a 24% LSE stake, giving the two Gulf nations control over nearly 52% of the London exchange. On March 15, Iran, which now dominates the leading 100 Islamic banks — followed by Saudi Arabia, Malaysia and the UAE –announced plans to list $90 billion energy holding company on Dubai International Financial Exchange, (DIFX), which is wholly owned by Bourse Dubai.

To counter the Shari’a financing takeover of America, the FTSE CSAG Terror-Free Index Series and Conflict Securities Advisory Group, yesterday launched a new index that screens out some 600 companies doing business with Iran, Sudan, Syria and North Korea. The U.S. government designates these states as sponsors of terrorism. However, the major Shari’a finance institutions are in Saudi Arabia, the UAE and other Gulf states—all funders of radical Islamist and terrorist groups worldwide, and none designated by the U.S. or screened by the new index.

The one who pays the piper calls the tune, goes the saying. Considering the strategic purchases of Middle Eastern sovereign wealth funds and the traps built into shari’a financing, the U.S. and the West may soon be dancing to an unfamiliar—and strategically damaging—Islamic tune.

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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

by Alyssa A. Lappen
FrontPage Magazine | Nov. 14, 2007

In October, Abu Dhabi Prince Nahayan Mabarak al-Nahayan advertised his ultra-conservative sheikdom’s openness “in this age of globalization,” and having had world trade “from ancient times” by welcoming 100 world-class Jewish intellectuals to the United Arab Emirates (UAE) second biennial “Festival of Thinkers.” The UAE higher education minister controls 90%-plus of UAE crude and natural gas reserves–and wants good press for planned UAE cultural, science, technology and education institutions.

Also in October, shari’a finance gurus lobbied U.S. bankers at two Islamic finance conferences “to access more Islamic investment opportunities” and create more shari’a compliant products and new Islamic banks. Shari’a is “the path of Allah” explained “scholar” Nizam Yaquby obliquely at first, the Oct. 24 and 25 “Islamic Finance in North America” meeting, thus convincing many U.S. bankers that Islamic economics dates to Muhammad.

However, accepting “shari’a finance” is like swallowing double-edged swords. U.S. politicians, businessmen and regulators should scrutinize–and disclose–the diplomatic and economic weapons that costly oil bestows on erstwhile allies. Muslim clerics consider shari’a–the 7th century Qur’an-based legal code developed by Muslim jurists after Muhammad–one indivisible package, including wife-beating, stoning women, hanging homosexuals, dismembering thieves, supremacist ideology–and funding terror. And shari’a clashes with secular, Constitution-based U.S. laws.

Moreover, Islamic finance is an “invented tradition” empowering Islamic radicals, writes University of Southern California 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’.” Muslim Brotherhood founder Hassan al-Banna concocted the idea in the 1920s to unite Muslims in one global Islamic nation (umma).

Finally, Federal Reserve Board officials admit to not understanding shari’a finance. For example, “[W]e are certainly in no position to take a stance on issues of shari’a interpretation,” said New York Federal Reserve executive vice president William Rutledge on April 19, 2005 to the Arab Bankers Association of North America (ABANA).

The Muslim Brotherhood designed dogma and Islamic finance to spread shari’a–seeking ultimate global supremacy over daily life, individual, political and religious freedom. Shari’a mandates that Muslims fund jihad (financial jihad–al Jihad bi-al-Mal). Qur’an 61:10-11, “strive for the cause of Allah with your wealth and your lives….” And Qur’an 49:15, “(true) believers are only those who…strive with their wealth and their lives for the cause of Allah.”

“Financial Jihad [is]…more important…than self-sacrificing,” says Saudi Islamic cleric and Muslim Brother Hamud bin Uqla al-Shuaibi. Muslim Brotherhood spiritual chief Yusuf Qaradawi decrees, “Declaring holy war…is an Islamic duty… [F]ighting…is the Way of Allah for which zakat [charity] must be spent.”

In 2006, UAE donated $100 million to house Palestinian Authority prisoners and families of suicide bombers–and honor UAE president Sheikh Khalifa Bin Zayed Bin Sultan Al-Nahayan, whose late father, over 30 years contributed millions for PLO, Hamas and Islamic Jihad terror. On July 27, 2005, Hamas thanked Al-Nahayan’s “sisterly UAE… for its ‘limitless [financial] support’,” and “aid for our Mujahid,” in other words, Hamas jihadist “charitable societies.”

UAE’s Bourse Dubai stock exchange recently requested approval to buy control of NASDAQ, 52% of London’s Stock Exchange (LSE) and 47.6% of OMX (Nordic exchange)–ten months after Bahrain’s Accounting and Auditing Organization for Islamic Financial Institutions (AAIOFI) certified its “Islamic ‘purity’,” designating it the world’s first “shari’a compliant” market.

AAOIFI’s members and shari’a board include Saudi Arabia’s Dallah Al-Baraka Group, al-Rajhi Banking & Investment Corporation and Kuwait Finance House–all implicated in al Qaeda and other terror funding, according to former national counter-terror coordinator Richard Clarke. Other board members are the Islamic Development Bank, also known as the Bank of the Intifada for funding families of suicide bombers, whose principal owners are Saudi Arabia, Iran, Lybia and Egypt, and not one, but two U.S.-sanctioned terror states, Sudan and Iran. Islamic finance experts consider AAOIFI fatwas standards to which all shari’a banks and products, even in the U.S., must adhere. But UAE’s showcase Bourse on Oct. 22, 2007 denied its Islamic “purity” to the Partnership for New York City.

Dubai banned Israel’s delegation from the October Federation of International Freight Forwarders and Customs Clearing Agents world congress. Dubai Ports World and its government holding company prohibit trade with Israel. UAE banks wired most funding for the 9/11 attacks. Saudi Arabia boycotts Israel, despite promising in 2005 to stop, before joining the World Trade Organization (WTO).

Shari’a designates lying “one of the ugliest and most disgusting of sins.” Alas, lying is “permissible”–even encouraged–in innumerable circumstances. Sufi Imam Abu Hamid Mohammed ibn Mohammed al-Ghazzali (1058-1111) instructed followers, if one could achieve a praiseworthy “aim by lying but not by telling the truth, … [it is] obligatory to lie if the goal is obligatory,” according to Nuh Ha Mim Keller’s Reliance of the Traveller.

Imposing shari’a–by proselytizing (da’wa) or jihad war–is obligatory.

U.S. banking and investment laws guarantee individual property rights, require full disclosure, and prohibit criminal or terrorist activities. Western bankers and businessmen, however, oblivious to shari’a and financial jihad history, clamor for Muslim petrodollars (supposed surpluses from overextended Middle Eastern exchanges) pouring into U.S. markets.

Former Goldman Sachs trader and Birthright Israel supporter Daniel Och, for example, plans to sell 9.9% of Och-Ziff Capital Management to Dubai International Capital, which on Nov. 6 also acquired Europe’s biggest diagnostic imaging company from Britain’s Bridgepoint private equity fund.

But DIC chief executive Sameer alAnsari sits on the board of Palestine Children Relief Fund, a U.S.-based Palestinian “charity” reportedly tired to the shuttered Holy Land Foundation, Global Relief Foundation, and the International Islamic Relief Organization (IIRO)–which have all been federally investigated for funding Muslim Brotherhood terror groups al Qaeda, Egyptian Islamic Jihad and Hamas.

Buyers and sellers, beware.

Alyssa A. Lappen, a former senior editor of Institutional Investor, Working Woman and Corporate Finance, is a senior fellow at the American Center for Democracy. Her website is https://www.alyssaalappen.org.