This piece by Money Jihad blogger A.D. Kendall has been published today at Terror Finance Blog:
Five detainees at Guantanamo Bay have drawn up a lengthy business plan for an agricultural venture in Yemen as part as an instructional exercise. The document was approved for release last month by military officials. Judicial Watch rightly observes that the level of detail in the plan shows that the detainees “had access to many research tools, likely on the internet.” Although the business proposal appears to be only a classroom activity and not an actual, shovel-ready project, the language in the document indicates that terrorists would be comfortable with crowdfunding as a sharia-compliant platform to raise money.
In their business proposal, the self-described “Board of Directors of Yemen Milk & Honey Farms Ltd” specifically mentions Kickstarter, RocketHub, and other crowdfunding platforms as options for financing their project. They also note that crowdfunding can be equity-based, lending-based, reward-based, or donation-based. After reviewing their alternatives, the board concludes that they would like their financing be “equity based or reward based, as the board has observed [that the] interest-based economy is facing serious problems world wide, specifically in Europe and America.”
Using the recession has been a convenient target for Islamist criticism of the Western financial system since 2009, ignoring the fact that the West still leads the world across any recognized standard of economic development and standard of living, and ignoring the larger context of long-term economic success of the West compared to the economic failures of the interest-shunning Arab world over several centuries. But regardless of current or historical economic conditions, the truth is that the “board members” would still oppose interest on religious grounds. Riba, the word used in Islamic texts for interest, is the same Arabic word that applies to unnatural growth and swelling akin to pond scum and asthma.
Islamic law allows for profit and investments involving co-ownership and profit sharing. One such sharia financial concept that shares similar traits with crowdfunding is mudarabah, which Islamic finance lawyer John Dewar defines as, “An investment fund arrangement under which the financiers act as the capital providers (rab al-mal) and the client acts as the mudareb (akin to an investment agent) to invest the capital provided by the rab al-mal and manage the partnership.” For a sharia crowdfunding project, the donors would serve as the rab al-mal.
Analysts for McKinsey & Co. further note that “Islamic commercial law strongly favors equity over debt financing, which suggests that crowdfund investing platforms are especially well suited to Muslim-majority countries. In our view, crowdfund investing and Islamic financial services are inherently compatible and mutually reinforcing.”
Thus, the business school at Camp 6 of Guantanamo prison is well-aligned with contemporary sharia financial strictures. The “students” also appear to be one step ahead of regulators, who are just now developing anti-money laundering rules for crowdfunded projects which are be vulnerable to financial crime and exploitation. As AML attorney Christine Duhaime summed up crowdfunding risks last fall, “The combined effect of crowdfunded securities being low-priced, placed in offerings that are exempt from [SEC] registration and not subject to the filing review process of a registered offering, makes crowdfunding open to being used as a vehicle for money laundering and other financial crimes.”
In addition to crowdfunding regulations currently under review, stronger terms of service by the crowdfunding companies may be in order to prevent exploitation of their websites by users who promote violence, illicit activities, or otherwise serve the interests of criminals and terrorists.
Worrisome projects include a Kickstarter project in 2012 that billed itself as “your chance to become part of the Arab Spring.” If the two men who proposed the project had received the $20,000 they sought, they pledged to “travel together to Syria and join the rebels on the front line against the dictator Bashar al-Assad.” Late last year, Forbes reported that an anarchist launched a crowdfunded bitcoin-based “assassination market.” Read the rest of this entry ?