The perils of Shariah-compliant finance

In recent letters to America’s largest banks and hedge funds, Center for Security Policy President Frank Gaffney, Jr. has warned financial executives about the potential regulatory, legal and national security pitfalls of "Shariah-Compliant Finance" (SCF).  These include civil and criminal exposure, as well as serious reputational risk for those engaged in SCF transactions.

The letter (an example of which is attached, as is the list of recipients) was prompted by the recent emergence in Western capital markets of Shariah-Compliant Finance (also marketed as "Islamic finance") and by a lawsuit now before the 2nd Circuit Court of Appeals in Philadelphia.  The litigation was brought by a consortium of insurance firms, including Chubb, Ace and Allstate, and by the investment firm of Cantor Fitzgerald and accuses the Kingdom of Saudi Arabia, Dubai Islamic Bank and others of funding terrorism in the name of Shariah and jihad (holy war).

The Center for Security Policy’s warning was made even more timely and urgent by the revelation on June 16 that a senior Mideast executive at U.S. investment bank J.P. Morgan Chase & Co. is being detained in Dubai as part of a widening fraud investigation of the Dubai Islamic Bank. The Chase executive, Omair Mooraj, is managing director and head of Islamic banking for the entire region.

Mr. Gaffney warned each of the addressee firms that they may be exposed to reputational risk and price risk if they are invested in or have prime broker relationships with banks engaged in Shariah-Compliant Finance.  Such risks became evident in the Philadelphia lawsuit as several of the key defendants are "Shariah-compliant" banks and virtually all are "Shariah-compliant" businesses.

Mr. Gaffney observed that SCF is a device used to legitimize Shariah Law, a brutally oppressive theocratic-political-military doctrine. The Taliban imposed Shariah Law in Afghanistan.  Today, 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.

According to its adherents, Shariah Law requires companies engaged in SCF to donate to Islamic charities using zakat (tithing for charitable purposes) and the "purification" of proceeds of investments that Shariah advisors deem to be "impure."  There are eight categories of Shariah-approved charities, of which half can be interpreted to mean vehicles for funding violent jihad.

The Philadelphia lawsuit alleges that Dubai Islamic Bank and other named Islamic Shariah banks have funneled zakat and "purified" funds to Islamic charities, which then funded al-Qaeda terror.  There is growing concern on the part of the SEC, Treasury and Justice Departments and the Congress about the lack of transparency in the Shariah-Compliant Finance market and its implications for compliance with existing securities laws.

Mr. Gaffney provided each bank and fund with a legal memorandum entitled Civil Liability and Criminal Exposure for U.S. Financial Institutions and Businesses engaged in Shariah-Compliant Finance. It concludes that any U.S. financial institution promoting Shariah-Compliant Finance here or abroad is at risk of violating federal and state securities laws that require due diligence, transparency and disclosure, RICO statutes and other laws that prohibit funding of terror.

The Center’s letters strongly recommended that each firm examine their portfolios for exposure to Dubai Islamic Bank and other named defendants in the Philadelphia lawsuit. Additionally, he warned that their prime brokers may be involved in Shariah-Compliant Finance and urged their brokers to ask if they are disclosing: material facts about Shariah Law; its mandate for jihad; public verbal and written statements calling for jihad made by their paid Shariah advisors; methods of purification of funds; and the beneficiaries of such funds and zakat.

Mr. Gaffney cautioned each firm about broader questions over the United Arab Emirates’ ties to Islamist extremism, terrorism and smuggling prohibited goods into Iran:

Directors and officers of financial institutions often profess no knowledge about Shariah.  They typically claim to have no responsibility or accountability for their actions that explicitly or tacitly support SCF.  On receipt of the legal memorandum, however, they can no longer maintain a willful blindness and ignore their responsibility to disclose the violent theopolitical goals and methods of Shariah.

Specifically, the addressees can no longer claim that they know nothing about Shariah advisors, and therefore have no responsibility or accountability to disclose the statements by those advisors supporting violent jihad, terrorist organizations, warfare against all non-Muslim states and discrimination against, and, in many cases execution of non-Muslims of all faiths, ex-Muslims (apostates), homosexuals, anyone supporting separation of church and state, etc.

For more information about the Center’s efforts to counter Shariah-Compliant Finance and related work on the dangers posed by the seditious agenda SCF is advancing, please visit www.StopShariahNow.org.

 

Example of letter sent by the Center for Security Policy

10 June 2008

James Dimon
Chief Executive Officer
JP Morgan Chase
20 Park Avenue
New York, NY  100
                                          
Dear Mr. Dimon:

Your firm may be exposed to reputational risk and/or price risk if you are engaged in Shariah-Compliant Finance, or invested in firms that are.  Such risks are evident in a lawsuit filed by a consortium of insurance firms, including Chubb, Ace and Allstate, and by the investment firm of Cantor Fitzgerald, accusing the Kingdom of Saudi Arabia, Dubai Islamic Bank and others of funding the September 11th terror attacks in which nearly 3000 Americans were murdered. (See: https://www.philly.com/inquirer/hot_topics/19374964.html.)

At its heart, this lawsuit is about Shariah-Compliant Finance (SCF, also known as Islamic Finance). SCF is a device used to legitimize Shariah Law, a brutally oppressive theocratic-political-military doctrine. The Taliban imposed Shariah Law in Afghanistan.  Today, it is the law of the land in Iran, Sudan, and Saudi Arabia and Shariah controlled regions around the world.

According to Shariah Law, companies engaged in SCF must donate to Islamic charities via zakat (tithing for charitable purposes) and the "purification" of proceeds of investments that Shariah advisors deem to be "impure."  There are eight categories of Shariah-approved charities, of which half can be interpreted to mean vehicles for funding violent jihad (holy war).

In the lawsuit currently before the 2nd Circuit Court of Appeals, Dubai Islamic Bank and other named Islamic Shariah banks are accused of funneling zakat and "purified" funds to Islamic charities, which then funded Al-Qaeda terror.  There is growing concern on the part of the SEC, Treasury and Justice Departments and the Congress about the lack of transparency in the Shariah-Compliant Finance market and the lack of enforcement of existing securities laws.

We have provided these policymakers – and are now providing you – with a legal memorandum entitled Civil Liability and Criminal Exposure for U.S. Financial Institutions and Businesses engaged in Shariah-Compliant Finance.  It concludes that any U.S. financial institution promoting Shariah-Compliant Finance here or abroad is at risk of violating federal and state securities laws that require due diligence, transparency and disclosure, RICO statutes,and other laws that prohibit funding of terror.  Providers of Islamic indices and rating agencies may also be at such risk.

To minimize your firm’s reputational and price risk, we strongly recommend that you examine your portfolios for exposure to Dubai Islamic Bank and other named defendants.  The extent to which your prime brokers may be involved in Shariah-Compliant Finance should also be reviewed with care.  We urge you to contact them and ask if they are disclosing: material facts about Shariah Law; its mandate for jihad; public verbal and written statements calling for jihad made by their paid Shariah advisors; methods of purification of funds and; the beneficiaries of such funds and zakat.

Connections between the UAE and terrorist organizations and their sponsors are in need of greater transparency. Examples include:

  1. The UAE was one of only three countries worldwide to recognize the Shariah Taliban regime.
  2. The UAE has been a key transfer point for illegal shipments of nuclear components to Iran, North Korea and Libya.
  3. In 2007, the UAE was the foremost exporter of goods to Iran. 
  4. Iranian intelligence and military operatives work freely in and from Dubai.
  5. In 2007, Dubai collected $13.5 billion in zakat taxes from oil-producing companies and branches of foreign banks in the form of a "tax" on banks and companies doing business in the UAE.  Accounting for these funds is opaque.

We would be happy to provide you or your legal counsel a briefing on the results of our research into these subjects.

Sincerely,
 
Frank J. Gaffney, Jr.
President and CEO
Enclosure

 

List of hedge fund and bank recipients

 

 

HEDGE FUNDS

Scott M. Amero
Chief Investment Officer – Fixed Income
BlackRock, Inc.

Dwight Anderson
Co-Founder and Principal
Ospraie Management LLC

Cliff Asness
Chief Executive Officer
AQR Capital

Paul Terrence Batemen
Chief Executive Officer
JP Morgan Asset Management

Ottavio Francis Biondi
Founder
King Street Capital

Lloyd Blankfein
Chief Executive Officer
Goldman Sachs Global

Kevin Cannon
Chief Executive Officer
Zweig-DiMenna International Managers

Steve Cohen
Chief Executive Officer
S.A.C. Capital Advisors, LLC

William Crowley
President and Chief Operating Officer
ESL Investments

Anthony da Costa
Chief Executive Officer
KBC Multi-Strategy Arbitrage

Stephen Daffron
Chief Executive Officer and Managing Director
Renaissance Technologies LLC
 
Raymond Thomas Dalio
Chief Investment Officer and President
Bridgewater Associates

Max Darnell
Chief Information Officer
First Quadrant Tactical Currency

Robert E. Diamond, Jr.
Chief Executive Officer
Barclays Capital

Joseph A. DiMenna
Managing Director
Zweig-DiMenna International Managers

Mr. Robert C. Doll
Chief Investment Officer – Equities
BlackRock, Inc.

Steve Feinberg
Chief Executive Officer
Cerberus Capital Management

Lawrence D. Fink
Chairman and Chief Executive
BlackRock, Inc.

Joshua S. Friedman
Managing Partner
Canyon Value Realization

Blake Grossman
Chief Executive Officer
Barclays Global Investors
 
Edward Kelly
Chief Executive Officer
Sagamore Hill Capital Management

Mark E. Kingdon
Founder, President
M. Kingdon Offshore

Seth Klarman
Chief Executive Officer
BAUpost

Robert Kleinschmidt
President, Chief Executive and Chief Investment Officer
Tocqueville Asset Management

Edward Lampert
Chief Executive Officer
ESL Investments

Robert Lourie
Head of Futures Research
Renaissance Technologies LLC

George Lucas
Principal
Lucas Capital Management

Russell J. Lucas
Principal
Lucas Capital Management

Michael Mackey
Principal
Kingdon Capital Management

Howard Marks
Chairman
Oaktree Capital Management L.P.
 
Robert Matza
President
Goldentree Asset Management

Ravinder Mehra
Chief Information Officer
Vega Relative Value

Jason Mraz
Co-Founder, Principal and Head of Trading
Ospraie Management LLC

Daniel Saul Och
President
Och-Ziff Capital Management

Robert L. Padgette
Managing Director and Founder
K4

Clifford Press
Principal
Oliver Press Partners, LLC

Quintin Price
Chief Investment Officer – International Equities
BlackRock, Inc.

Allan Reed
Chief Executive Officer
Goldman Sachs Asset Management

Bruce Richards
Chief Executive Officer
Marathon Asset Management, LLC

David Sachs
Chief Executive Officer
Hockey Capital
 
David Elliot Shaw
Chief Executive Officer
D.E. Shaw Group

Francois Sicart
Chairman and Founder
Tocqueville Asset Management

Nathaniel Simmons
Principal
Renaissance Technologies LLC

James Harris Simons
Chief Executive Officer
Renaissance Technologies LLC

Paul E. Singer
Founder and Principal
Elliot International

Thomas Steyer
Senior Manager
Farallon Capital Management

Henry Alexander Swieca
Managing Partner
Highbridge Capital

Steve Tananbaum
Chief Executive Officer
Goldentree Asset Management

John R. Taylor Jr.
Chairman, and Chief Executive Officer
FX Concepts

K. Robert Turner
Managing Partner
Canyon Value Realization

Eric Vincent
President and Chief Operating Officer
Ospraie Management LLC
 
Leon Wagner
Chairman
Goldentree Asset Management

Susan L. Wagner
Chief Operating Officer
BlackRock, Inc.

Alan Winters
Chief Operating Officer
Kingdon Capital Management
 
 
 

BANKS
 
Josef Ackerman
Chief Executive Officer
Deutsche Bank

Christopher Augustin
Chief Investment Officer
Merrill Lynch & Co., Inc.

Paul Terrence Batemen
Chief Executive Officer
JP Morgan Asset Management

Lloyd Blankfein
Chief Executive Officer
Goldman Sachs

James Dimon
Chief Executive Officer
JP Morgan Chase

Phillip Freeburn
Chief Investment Officer
UBS.

Richard S. Fuld, Jr.
Chief Executive Officer
Lehman Brothers

John Mack
Chief Executive Officer
Morgan Stanley

Mr. Jim Nish
JP Morgan Chase

Bridget O’Connor.
Chief Investment Officer
Lehman Brothers

Vikram Pandit
Chief Executive Officer
Citigroup

Marcel Rohner
Chief Executive Officer
UBS.

Jim Rosenthal
Head, Firm Technology and Operations
Morgan Stanley

   

Center for Security Policy

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