If "cash is king," then Middle East coffers are irresistibly enticing. During a recent tour of Saudi Arabia and the Gulf states, Deputy Treasury Secretary Robert Kimmitt applauded the "growing role" of Arab banks in the U.S. economy. Treasury is seeking buyers for its newly acquired bailout assets because more than $1 trillion in cash is urgently needed to rescue the largest U.S. banks.
However, cash from the Arabian Gulf comes with a vital string attached: Islamic banking, erroneously viewed as an ancient practice. In fact, Islamic banking is a newly invented institution: "Neither classical nor medieval Islamic civilization featured banks in the modern sense, let alone 'Islamic' banks," notes Timur Kuran, professor of economics and law at the University of Southern California. According to the Dinar Standard, "assets managed by Islamic banks are in excess of $700 billion - predominantly concentrated in the Middle East."
Islamic banking took off in the 1970s, but was first concocted by Muslim Brotherhood founder Hassan al-Banna in the 1920s. The stated goal was to penetrate the Western finance system, corrupting it from within in hopes of creating a parallel system to re-establish a global Islamic empire governed by Islamic law (Shariah). Islamic rules of commerce (fiqh al-muamalat) forbid interest (riba) and investing in a prohibited (hara'am) enterprise. They also mandate tithes on wealth (zakat). However, the Koran fails to precisely define these concepts. Imams and ayatollahs differ, for example, on whether riba prohibits all interest or only usurious interest.
While the overhaul of American and Western banking regulations is urgent, Islamic banking cannot be the answer because Muslim clerics - not U.S. laws and regulators - make the rules. In 1969, the Saudis created the Organization of the Islamic Conference (OIC), which is now leading the charge for global expansion of Islamic banking and has established new regulatory, accounting and auditing organizations to govern such banks. Notably, the OIC's charter is to "liberate Jerusalem and Al-Aqsa [mosque] from Zionist occupation."
Not surprisingly, zakat from Islamic banks often funds terrorist groups like the Muslim Brotherhood's Hamas. That organization's agenda was exposed during the Dallas trial of The Holy Land Foundation, a Hamas front group and an American Muslim charity just convicted of terrorism crimes. Evidence of the charity's true purpose included an 18-page "explanatory memorandum" outlining its "strategic goal … that all their work in America is a kind of grand Jihad (holy war) in eliminating and destroying the Western civilization from within."
Sharia financing forbids loans to entities labeled hara'am, such as industries that use alcohol, and to all Israeli businesses The Arab League Council established the boycott against Israel on December 2, 1945, (more than two years before creation of the Jewish state). The boycott prohibits all Arab states, companies and individuals from any financial or trade relations with Israel. Companies worldwide are blacklisted for doing business with Israel, as are companies doing business with boycotted firms. The OIC high commissioner for the boycott of Israel coordinates the efforts of its 57 member states from the Central Boycott Office in Damascus.
In response, the United States made it illegal for individuals or companies to cooperate with the Arab boycott. The law mandates reporting of boycott requests and imposes civil and criminal penalties against boycott participants. Arab boycott requests have risen sharply in tandem with the U.S. financial crisis and the rapid growth of Islamic banking. The Commerce Department's Bureau of Industry and Security reported a 20 percent increase in Arab boycott requests overall from 2005 to 2006, and the Congressional Research Service reported 24 boycott requests to U.S. companies in fiscal 2007 from little Bahrain alone.
On April 5, 2006, Congress unanimously condemned Saudi Arabia for its continued enforcement of the boycott - which violated commitments the Saudis made to the World Trade Organization in 2005. Nonetheless, last August Saudi Arabia and other Gulf states threatened to boycott Nissan, which aired a commercial on Israeli television promoting a fuel-efficient car, and demanded the Japanese carmaker's apology. Not a word from Washington.
Instead, the Treasury Department, hungry for petrodollars, is holding seminars to promote Islamic banking and U.S. taxpayers are footing the bill. This practice must stop. Islamic banking corrupts our financial system, enables the illegal Arab economic boycott of Israel and entangles government with Islam in violation of the First Amendment's Establishment Clause.