Archive for April, 2012

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Exposing the overpaid, incestuous sharia boards

April 30, 2012

An important article comes our way from the Spears Wealth Management Survey.  A few stunning quotations:

  • “The most in-demand shariah scholars are paid $2,000 a day”
  • “Some scholars charge around $1,000-$1,500 per hour of consultation — in addition to an annual bonus of between $10,000 and $20,000 per board seat”
  • “Remuneration for a fixed shariah board membership can exceed $200,000 a year plus fees”
  • “The top twenty shariah scholars in the world hold between fourteen and 85 board memberships each”
  • ‘The top ten scholars in the world make up 40 per cent of all board memberships”
  • The top five scholars “make up around 25 per cent of the entire boards across the globe”
  • “The top two scholars share 51 per cent of their board memberships”

Read it all.  As Shariah Finance Watch has pointed out for a long time, the sharia advisers are paid quite the pretty penny.  But this piece really puts that in black and white, and points many of the broader flaws of governance in the sharia finance industry.

One cannot read this and still believe mainstream media assertions that sharia finance is somehow more ethical and less risky than conventional finance.  Without even getting into the moral problems of anti-Semitism and jihadist sympathies of the sharia scholars, this sector—from a purely financial standpoint—is hopelessly marred by corruption, shakedowns, conflicts of interest, nepotism, and lack of oversight.  Investors must take note.

I believe this article by Sophie McBain was first published around Apr. 26:

Islamic Finance’s ‘Scholar Problem': Why Are Shariah Scholars Paid So Much?

Dollars for Scholars

IT MAY BE an unusual career move, but becoming a shariah scholar for an Islamic bank is nice work if you can get it. A quick poll of bankers, lawyers and academics working in Islamic finance revealed unanimous agreement that shariah scholars — who approve every new Islamic banking transaction to certify its compliance to Islamic shariah law — are paid ‘a lot’, but few volunteered figures. Welcome to the opaque world of Islamic finance, and the fledgling industry’s ‘scholar problem’.

Among those who did give figures on shariah scholar salaries, there was considerable variation. Professor Rodney Wilson, a member of the Durham Centre for Islamic Economics and Finance, says that the most in-demand shariah scholars are paid $2,000 a day. Reuters has quoted an unnamed banker as saying that some scholars charge around $1,000-$1,500 per hour of consultation — in addition to an annual bonus of between $10,000 and $20,000 per board seat.

Dr Murat Ünal, CEO of Funds@Work, an investment consultancy and Islamic finance specialist, says that remuneration for a fixed shariah board membership can exceed $200,000 a year plus fees, while advising on a large transaction such as a sukuk (Islamic bond) can generate commission running into millions of dollars. If this still doesn’t sound generous enough, consider that Funds@Work’s pioneering research into shariah scholars and their networks has found that the top twenty shariah scholars in the world hold between fourteen and 85 board memberships each.

There’s a reason for the inconsistency of these accounts: shariah scholar payments don’t have to be made public. And while conventional bankers have found themselves the target of a forceful backlash against bonuses, the quieter but equally insistent voices calling for limits to the influence and payment of shariah scholars struggle to find a platform.

The concerns of those campaigning for changes to the current shariah scholar system are critical to a fast-growing industry, which has the potential to bring millions of Muslims into banking for the first time and which offers a thoughtful critique of mainstream finance. The Islamic finance industry is predicted by Deutsche Bank almost to double to $1.8 trillion by 2016, but its economic potential may never be fulfilled because of its serious governance problems, with power concentrated in a small, ageing and reticent elite.

Read the rest of this entry ?

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Leipzig court confirms IHH funded Hamas

April 29, 2012

A federal court has upheld Germany’s ban on the Turkey’s IHH, a major international Islamic charity, on the grounds that it funds Hamas.  It’s just further evidence that IHH complies with Islamic law by taking a portion of the zakat it receives from its donors and funnels it into jihad.

From the Jerusalem Post, h/t Tundra Tabloids:

German court affirms Turkish IHH ban because of Hamas ties

Leipzig’s Federal Administrative Court finds that Frankfurt-based Foundation for Human Rights and Freedoms and Humanitarian Relief donated money to terror group

BERLIN – A federal court in Germany upheld the Interior Ministry’s ban on the Frankfurt-based Foundation for Human Rights and Freedoms and Humanitarian Relief (IHH) because the Turkish NGO contributed funds to Hamas.

Hamas is recognized by the European Union, Israel and the United States as a “terrorist organization” and Leipzig’s Federal Administrative Court found that the IHH donated money to the group.

The NGO challenged the decision of Germany’s former interior minister Thomas de Maizieres, who outlawed the IHH in July 2010. He said at the time that the IHH “fights against Israel’s right to exist.” Maizieres added that “organizations that operate from German soil, directly or indirectly, with the aim of fighting Israel’s right to exist, have forfeited their right to freedom of association.”

The IHH helped sponsor the 2010 flotilla, a convey that sought to break Israel’s naval blockade on the Hamas-controlled Gaza Strip. The Turkish vessel Mavi Marmara was intercepted by Israeli naval commandos, which resulted in the deaths of eight Turkish and one Turkish-American activists, and injuries to Israeli sailors.

According to the Federal Administrative Court ruling, “the IHH sent a significant amount of collected money over a long period of time to the Islamic Society and the Salam Society for Relief and Development. These social organizations, which are active in the Gaza Strip, are, according to the Federal Interior Ministry, part of the overall structure of Hamas.”  The court concluded that Hamas engages in “terroristic actions and violence” against both Israelis and Palestinians.

Reinhard Marx, the attorney representing IHH, told the daily Tagesspiegel on Thursday that the “decision sends a catastrophic decision signal to the Muslim community” because it denounces charity as support for terrorism. Marx, a Frankfurt- based attorney who specializes in international law affecting foreigners, claimed that the IHH has provided support for 3,200 Palestinian orphans in 2009 since Israel’s Cast Lead offensive in Gaza sought to stop Hamas rocket attacks.

The German court viewed IHH’s “social engagement” as a way to enable Hamas to recruit activists, who would function as terrorists, and strengthen its organizational and political legitimacy in Gaza.

While the ruling focused on IHH’s ties to Hamas, IHH has also begun working with al-Shabaab in East Africa, and IHH claims to have spread its operations throughout 95 countries.  The court decision should serve as a wake-up call to civilized nations that IHH is not an organization to be partnered with.

Islamic charities in the U.S. and Europe should immediately cease any cooperation or joint projects that they may have ongoing with IHH.  The Illinois-based Zakat Foundation has reportedly passed funds through another foundation to IHH in the past.  If the Zakat Foundation or any other Western charity continues working with IHH despite the evidence presented in the German case, that means they are knowingly working with an entity that funds Hamas—-a terrorist group dedicated to the destruction of Israel.

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Cocaine profits made Beirut banks boom

April 27, 2012

You’ll hear a lot more in the coming months about how U.S. law enforcement exposed Hezbollah’s international narco-trafficking money laundering scheme.  But lost in the back slapping, attaboys, and high fives among prosecutors and politicians is just how much the scheme enriched the banking system of Lebanon and its Iranian partners.

New American Security senior fellow and money laundering expert David Asher discusses the details during an interesting presentation at the Washington Institute last month.  We’ll start the tape as Mr. Asher explains how used cars sold from the Americas  made their way to West Africa where the profits were mingled with illegal drug proceeds:

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Turkish brides wear cash sewn on veils

April 26, 2012

Can anybody explain this photograph recently taken by Daniele Pellegrini?

Muslim woman turned into financial sex object

The caption reads, “A bride wears bank notes on her veil as part of an Islamic wedding in central Turkey,” but I suspect a creative reader could come up with a better caption than that.

A separate website offers some background that sheds some light on Turkish weddings:

…Weddings in Turkey are a lavish affair with celebrations that may last for several days before and after the actual marriage ceremony. The traditional gifts for the bride and groom are money and gold. There are no European or American style wedding lists. Prior to the wedding, the respective families buy furniture and household goods for the young couple. Guests do not give the newlyweds towels, toasters or pots. Instead, they shower the bride, literally, with banknotes and coins. Every jeweler in Turkey sells coins for the occasion. Red is the color of good luck and fortune; therefore, the gold coins, which serve as wedding gifts, come with a tiny red silk bow and a pin attached. On the evening of the marriage ceremony, bride and groom make their formal entrance…

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The Hadith’s ban on forward contracts

April 25, 2012

Agreeing upon a price now for merchandize to be produced or delivered later, which is a pretty common, uncontroversial, and healthy tradition in free market economics, is banned by the Hadith, the collection of sayings and actions of Muhammad.

The following comes from one of the most important and widely accepted Hadith among Muslims, the Sahih Al-Bukhari, Book 34 (The Book of Sales [Bargains]):

Chap. 33.  Al-Gharar (the sale of what is not present) and Habal-il-Habala (i.e. the sale of what is in the womb of an animal.)

1022.  Narrated ‘Abdullah bin’Umar:  Allah’s Messenger forbade the sale called ‘Habal-il-Habala which was a kind of sale practiced in the Pre-Islamic Period of Ignorance.  One would pay the price of a she-camel which was not born yet and would be born by the immediate offspring of an extant she-camel.

Similar language appears in Book 10 (The Book of Transactions), Chap. 8, of the Sahih Muslim, another widely agreed upon Hadith, which states that “it is invalid to sell the commodity before taking possession of it” in reference to grain.

It is unfortunate for the world’s Muslims and their economic development that Muhammad made this choice that forever limited the types of transactions available to willing buyers and sellers operating in a free market.

One Western source describes the benefits of production contracts which Muhammad seemed unable to understand:

There are several potential advantages for producers who may consider a production contract. Such contracts may provide for a more stable income for the producer by reducing traditional marketing risks. Such contracts may allow a producer to benefit from technical advice, managerial expertise and access to technological advances provided by the contractor. An agricultural production contract may provide the producer with a guaranteed market, provided that the commodities are produced in accordance with the contract. Finally, such contracts may allow a producer to increase the volume of his business with limited capital since the contractor may often supply the necessary production inputs…

From the contractor’s perspective, production contracts may provide an orderly flow of uniform commodities so as to allow the contractor to control production costs. And such contracts may allow contractors to better respond to changing market conditions. The use of such contracts may allow a contractor to protect its investment in genetics and other intellectual property associated with a particular commodity.

Contemporary sharia financiers have tried to distinguish a forward contract from a futures contract, saying that a forward contract is clear enough to satisfy the requirements of sharia law.  However, that interpretation still seems at odds with the plain language of the text above.  More on the contract loopholes of sharia finance (salam and istisna’a) later…

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Tora Bora officials pay the Taliban

April 24, 2012

But first, some semi-related analysis…  Organizations like Al Qaeda can operate on a shoestring budget because they don’t have a ground force militia.  They have individual operatives in Asia and Africa sleeper cells in the West.  Many of their members, especially in the U.S. and Europe, are able to fund their own daily lives, pay their own rent, buy their groceries, etc.  Their operatives aren’t living hand-to-mouth with a band of fellow wasteland jihadists.

Groups like the Taliban and al-Shabaab, on the other hand, have paramilitary forces with a very physical presence in their communities.  They keep young men on the payroll who need to be fed, transported, clothed, and armed by the organization itself.  That is partly why the Taliban and al-Shabaab have even larger budgets than terrorist groups that have international reach.

The physical presence of the Taliban also gives them a distinct fundraising advantage.  They can intimidate the local population and shake them down for money.  They can even get money from local leaders who are theoretically on the same side as the Afghan central government and ISAF.

We overlooked this great article from Afghanistan Today (h/t @douglaswissing) last fall.  It describes how Afghan law enforcement, local politicians, and even members of the national parliament pay zakat as protection money to the Taliban.  The U.S. and UN have flawed contracting procedures that help fund the Taliban, but this article is a must-read for understanding how our ally is keeping the Taliban’s ground game alive too:

Currencies of protection

In eastern areas of high insurgent activity and low levels of conflict, there are growing signs of secretive payment systems for keeping state officials and security forces safe from attack. 

by Abdul Rahim Mohmand , Jalalabad , 28.9.2011

For some Afghan government officials in the eastern Nangarhar and Kunar provinces, paying off the Taliban on a regular basis with money or weapons and ammunition is the most reliable way of staying alive.

“We pay so they don’t kill us, that’s how we save ourselves. And the Taliban are happy with the sum and leave us alone.”

“My older brother works as a senior law-enforcement official in Jalalabad, and I pay local Taliban every month on his behalf from 100,000 to 200,000 afghanis (2,000 to 4,000 US dollars),” said Abdul R, whose full name and his brother’s post are withheld for security reasons.

“We pay so they don’t kill us, that’s how we save ourselves. And the Taliban are happy with the sum and leave us alone,” he added.

Read the rest of this entry ?

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Persian Gulf oil imports down to 16%

April 23, 2012

The United States imports only 40 percent of its oil from OPEC with only 16 percent of gross imports coming from the Persian Gulf OPEC nations of Saudi Arabia, Kuwait, United Arab Emirates, Iraq, and Qatar, according to data from the U.S. Energy Information Administration.

The Congressional Research Service graphically portrayed the data in a chart included in an Apr. 4 report on oil imports and exports:

American global energy dependence graph

The U.S. has enjoyed seven consecutive years of reduced oil purchases from foreign sources.  The U.S. can continue reducing energy dependence by tapping oil resources on private lands from Texas to North Dakota.

But the U.S. could attain 100 percent replacement of Persian Gulf oil if political leaders commit to expanded energy production offshore, on federal lands, and eased the permit process for pipelines and refineries.  That would be an essential step in reducing American reliance on Persian Gulf oil and reducing the profits that Saudis and their neighbors have available to funnel to terrorists.

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