In recent months, a growing number of U.S. commercial banks, hedge
funds and other financial institutions have begun promoting products
described as "Shariah-compliant." By so doing, they hope to attract
some of the immense petro-wealth now accumulating in the Islamic Middle
East. Neither the management nor shareholders of the firms engaged in
such Shariah-Compliant Finance (SCF) appear to admit, however, the
civil and criminal exposure to which they are subjecting themselves -
and the serious dangers this practice entails for their country.
The problem lies with "Shariah." This is the term used by the most
powerful - and virulent - Islamic authorities to describe their
theo-political-military doctrine. Its stated purpose is to replace
sovereign, secular nations like the United States
with a transnational Islamic order governed by a ruling authority, the
Sunni's caliph or its Shi'ite counterpart, with Shariah as its
foundational law or constitution. Under Shariah law, violent means are
ordered if necessary to effect the world's submission to Islam.
Shariah is what the Taliban brutally practiced in Afghanistan. It is
the law of the land in Iran, Sudan and Saudi Arabia - three of the most
repressive regimes in the world, all of which have extensive ties to
jihadist terrorism. It is characterized by such barbaric practices as
beheadings of apostates, subjugation of Jews and Christians, stonings
for adulterers, flagellation for women deemed "unchaste," amputations
for petty crimes, female genital mutilation and martyrdom in the
service of jihad.
Why on Earth would Western bankers want to be promoting practices
that comply with, and therefore institutionalize and legitimate, this
repugnant and repressive code?
The answer, of course, is that they perceive in SCF a new way to
make money. The sub-prime fiasco demonstrates that it is perfectly
possible for American financiers to turn a blind eye to practices that
are unwise, even reckless and criminal, when there are profits and
bonuses to be garnered. Unfortunately, Shariah-Compliant Finance has
the potential to create a national sub-prime meltdown on steroids.
The reason? As a legal memorandum prepared for the Center for Security Policy
by experienced securities litigator David Yerushalmi
makes clear, Shariah-Compliant Finance entails considerable civil and
criminal exposure for firms that engage in it.
For starters, the authoritative Shariah law is inherently seditious,
as it explicitly calls for the violent overthrow of governments like
that of the United States and the replacement of democratic,
constitutional government with its theocratic code.
The Shariah advisers - Islamist scholars who adhere to the most
fundamentalist traditions and interpretations of their faith - enable
Shariah-Compliant Finance. They do so in ways that expose their
employers on Wall Street to such liabilities as racketeering, anti-trust violations and securities and consumer fraud.
Worse yet, through practices known as "zakat"(the tithing to charities
required of observant Muslims) and "purification" of funds (the
donation to approved charities of proceeds from investments that are
"tainted" by interest, speculation, pork or other non-Shariah-compliant
activities), SCF's Shariah advisers and their financial industry
employers may be involved in material support for terrorism.
It is unlikely that American investors in the post-Sept. 11
environment would want to support such practices. One would hope that
financial institutions would not want to assume the exposure associated
with them, either. Yet, because the material facts about Shariah, its
authorities and their charities are not being disclosed to investors,
both are at serious risk. So is America to the extent that Shariah law
is being legitimated, its adherents are being empowered and its
so-called "charities" are being enriched (four out of eight
Shariah-approved uses for "zakat"can translate into support of
terrorism - and have).
For these reasons, the Center for Security Policy recently sent the
CEOs of dozens of the nation's leading commercial banks, hedge funds
and other financial institutions copies of Mr. Yerushalmi's analysis.
In an accompanying letter, I warned that they "may be exposed to
personal civil and criminal liability and [their] firm will be exposed
to reputational risk and/or price risk" should they be involved in
Shariah-Compliant Finance. (See www.SecureFreedom.org for more on this
From now on, the leading Wall Street firms will not be able to
profess ignorance of such risks. They will have a responsibility to
disclose them to investors. Call it guilty knowledge.
Unfortunately, it nonetheless may take action by the Securities and
Exchange Commission, the Department of the Treasury, the Justice
Department and/or Capitol Hill to get Wall Street's attention on SCF.
The $800 billion invested in such products to date is expected to grow
by 15-25 percent in the future, powered in part by the dictators' slush
funds known as "Sovereign Wealth" that are recycling petrodollars into
various, strategically ominous investments in the United States.
Alternatively, bringing to light the true nature and dangers
associated with Shariah-Compliant Finance may fall to civil litigants
like those who have brought suit in federal court in connection with
Saudi and other interests' (many of them Shariah-compliant) ties to the
Sept. 11 terrorist attacks. The cost to Wall Street of such litigation
could be in the billions.
Either way, the financial sector will have guilty knowledge about
Shariah-Compliant Finance and be vulnerable to problems that will make
sub-prime look like a day at the beach. Those involved are on notice.