Posts Tagged ‘glossary’

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Term of the week: Afghan Trade Transit

August 28, 2013

In their 2010 book, Cassara and Jorisch defined the Afghan Trade Transit (ATT) as:

A regional agreement between landlocked Afghanistan and its neighbors that allows goods to be imported into the country with preferential duties.  The trade has resulted in massive smuggling and trade fraud, and it continues to facilitate the laundering of narcotics proceeds that help finance the Taliban.

The ATT agreement has since been modified, and merchandise that passes from Afghanistan through Pakistan has diminished by 50 percent according to a recent report from the major Pakistani newspaper Dawn.  Nevertheless, Dawn’s sources say that the renegotiated treaty really only hurts normal trade, but that smuggling continues unabated:

… A customs official familiar with these developments told Dawn that including stringent clauses in the treaty were unlikely to help curb smuggling.

“Now containers imported through Iranian ports are smuggled to Pakistan through the same routes,” he said.

The only difference, the official added, was that earlier a huge number of Pakistanis were getting jobs directly or indirectly, and now they were transferred to Iran. He said: “The smuggling can only be discouraged through reducing duties on smuggling-prone items and effective surveillance of the border”…

Guess the Taliban can breathe easy again.

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Term of the week: trade-based money laundering

July 10, 2013

Julie Myers, the former assistant secretary of the Immigration and Customs Enforcement agency, once defined trade-based money laundering as:

The use of trade to legitimize, conceal, transfer, and convert large quantities of illicit cash into less conspicuous assets or commodities. In turn, the tangible assets or value are transferred worldwide in an effort to avoid financial transparency laws and regulations.*

Common methods of laundering money through trade are over-invoicing and under-invoicing.  If you want to transfer money to somebody, you could transfer goods to them and under-bill them.  If somebody is trying to transfer money to you, you could transfer goods to them and over-bill them.  From the outside, it appears to be a legitimate transaction.  But the parties involved know it’s a sham to transfer extra money without drawing attention to themselves from financial authorities.

 

*U.S. House of Representatives Subcommittee on Trade, 109th Congress, 2nd Session, “Customs Budget Authorizations and Other Customs Issues” (Washington:  U.S. Government Printing Office, 2007).

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Word of the week: BSA

May 29, 2013

The Bank Secrecy Act (BSA) is the primary law in the U.S. against money laundering.  Cassara and Jorisch* explain the BSA as follows:

Officially known as the “Currency and Foreign Transactions Reporting Act,” it requires financial institutions to help various government agencies detect and prevent money laundering.  Specifically, the BSA requires banks and other financial institutions to file reports of currency transactions exceeding $10,000, to keep records of cash purchases of negotiable instruments, and to report suspicious activity.

The IRS notes that BSA requirements serve to “detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity.”

*Cassara, John and Jorisch, Avi.  On the Trail of Terror Finance (Washington, D.C.:  Red Cell Intelligence Group, 2010).

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Word of the week: soft loan

April 17, 2013

Among the hundreds of requests for zakat or other financial assistance that Money Jihad has received from overseas spammers, a couple have involved requests for a “soft loan.”

In June 2011 through our “Contact us” page, Wisnu Wibowo wrote, “Asalamualaikum… I hope someone can help with soft loan” purportedly to keep him out of jail for a $2,000 debt.  Borrowing from Peter to pay Paul, it would seem.

In January of this year, somebody named Krisna Busana Karya also contacted Money Jihad demanding “grants or soft loan” with a five year term to help with an oyster cultivation business with an eye toward a growing market in Jakarta.  Tempting offer, Krisna, but no thanks.

What is a “soft loan”?

A soft loan is defined as “A loan made on terms lower than or more favourable to the borrower than regular commercial terms”.*

Soft loans are repaid with interest, but it may be at a smaller interest rate or payable over a longer term than conventional loans.  Since interest is involved, soft loans are not sharia-compliant.

Nevertheless, extending a soft loan to a borrower who cannot meet conventional terms suggests that the lender is taking on risk in excess of what the capital markets normally bear.  Therefore, soft loans are somewhat similar to sharia finance in that both deviate from fair market interest rates.  Soft loans, like sharia loans, come with strings attached, such as concessions made by the borrower.

People do not lend for free.  Reduce or eliminate interest rates, and lenders will come up with ways of recouping the costs through fees or other methods.  Is “ethical finance” truly ethical when the actual cost of borrowing is obscured by fees and special conditions, rather than a transparent, market-based interest rate that is known to both parties?

* Food and Agricultural Organization of the United Nations, Glossary of Terms for Agricultural Insurance and Rural Finance (Rome:  FAO, 1992).

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Wednesday word: bitcoin

April 3, 2013

Bitcoin is an online medium of exchange.  Rather than being regulated by monetary authorities, bitcoin digital currency was devised by unelected, anonymous Internet users.  Investopedia defines bitcoin as:

A decentralized digital currency that enables low-cost payments without the need for central authorities and issuers. Bitcoin is a peer-to-peer (P2P) currency system created in open source C++ programming code. Bitcoins can be accessed from anywhere in the world with an internet connection. Once a user has Bitcoins, they are stored in a digital wallet. Bitcoins can then be sent to anyone else who has a Bitcoin address. Bitcoin was developed in 2009 and based on the works of an individual or group of individuals known as Satoshi Nakamoto.

Like earlier forms of digital cash, bitcoin operates outside the conventional currency system.  It may allow for greater individual freedom in transactions, but it is difficult to trace and can be used for criminal activity such as sanctions evasion or buying contraband.

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Wednesday word: digital cash

March 13, 2013

Before there was bitcoin, there's the larger concept of digital cash

Julian Gaspar defines digital cash as “an electronic payment system that represents currency in an electronic format that moves outside the normal network of money”.*

Because it operates outside the conventional currency system, digital cash may allow for greater freedom in transactions.  Critics point out that transactions in such systems are anonymous, difficult to trace, and can be used for criminal activity.

* Gaspar, Julian, Introduction to Business (Boston:  Houghton Mifflin Company, 2006).

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Wednesday word: revolutionary tax

February 27, 2013

The “revolutionary tax” is a fundraising method normally associated with Marxist movements and ideology-based terrorism.  One dictionary defines a revolutionary tax, or impuesto revolucionario, as an “amount of money demanded by a terrorist group demands from a business or wealthy person under threat of death.”*

W. A. Tupman has noted that revolutionary taxes are most often imposed by urban guerrillas to finance terrorist operations.

The inspiration for the revolutionary tax seems to trace back to Karl Marx and Friederich Engels, who once wrote that “In a revolution, taxation, swollen to colossal proportions, can be used as a form of attack against private property,” in a review of the Emile de Girardin’s book Le socialisme et l’impôt (“Socialism and Taxes”).

Money Jihad doesn’t normally link to Wikipedia, but this particular entry describes the phenomenon of revolutionary taxation so succinctly and clearly that it’s a must read:

Revolutionary tax

From Wikipedia, the free encyclopedia

Revolutionary tax is a major form of funding for violent non-state actors such as guerrilla and terrorist organizations. Those outside the organization may consider it to be a euphemism for “protection money.”[1] Proponents of such groups maintain however that there is no difference between the revolutionary taxes “extorted” by given groups and corporate taxes raised by governments.

Revolutionary taxes are typically extorted from businesses, and they also “play a secondary role as one other means of intimidating the target population.”[1]

Examples

The Irish Provisional IRA and Corsican FLNC have extorted revolutionary taxes[2] as well as the following organizations.

ETA

The Basque nationalist organization ETA depended on revolutionary taxes.[3][4][5] Small to medium-sized businesses were extorted between the amounts of 35,000 to 400,000 euros each, which comprised most of ETA’s 10 million euro budget in 2001.[6]

The Philippines

In the Philippines most local and foreign companies pay revolutionary taxes to the Maoist New People’s Army. According to the army, the tax is a major obstacle for the country’s development while the New People’s Army justified it as a tax to be paid upon entering territories controlled by the rebels being a belligerent force.[7][8]

Colombia

The revolutionary taxes of Colombian guerrilla movements have become more common in the 1980s and 1990s.[9]

Nepal

The maoist guerillas of Nepal have also widely extorted revolutionary taxes.[10]

Argentina

The national socialist Argentine Movimiento Nacionalista Tacuara (MNT) demanded a “revolutionary tax” from many Jewish shops in Buenos Aires.[citation needed]

Soviet Russia

In the Soviet Russia, the Bolshevik government decreed a revolutionary tax on November 2, 1918.[11] Although the Bolshevik government already controlled the country, its opponents were still internationally recognized as the lawful rulers.

References

  1. ^ a b Detection of Terrorist Financing, U.S. National Credit Union Administration (NCUA), 2002
  2. ^ MONEY LAUNDERING AND TERRORISM FINANCING: AN OVERVIEW, Jean-François Thony, IMF.org, Seminar on Current Developments in Monetary and Financial Law Washington, D.C., May 7–17, 2002. “Money laundering and the financing of terrorism may be seen as distinct activities. … sometimes discreetly called a “revolutionary tax” (ETA, FLNC, IRA)”
  3. ^ Terrorism versus democracy: the liberal state response, Paul Wilkinson, Frank Cass Publishers, 2001, p. 70
  4. ^ Suspected ETA supporters arrested in cross-border swoop Euronews 20/06/06
  5. ^ Terror, Fires, Hail: Holiday Time in Europe, ABC News
  6. ^ Counterterrorism: An Example of Co-operation, Juan Miguel Lian Macias, Ministry of Defence of Spain, 2002-2-22: “ETA is funded mainly from one source: the money it collects through extortion of small and medium businessmen, charging them the so-called “revolutionary tax”. At present the amounts required are between 35,000 and 400,000 euros. The annual budget the terrorist organisation needs for the maintenance of its structures is estimated at around 10 million euros. Beyond the Spanish borders, ETA seeks links with similar groups and causes. Hence, it intends to gain the support of ideologically akin groups. It has or has had contacts with the Breton Revolutionary Army, with Corsican and Irish terrorist groups, with revolutionary groups from Latin America, etc.”
  7. ^ Rebels’ ‘revolutionary tax’ adds to cost of business in Philippines, N.Y.Times, October 20, 2004
  8. ^ Chapter 6 — Terrorist Organizations, Country Reports on Terrorism 2007, U.S. Department of State
  9. ^ Negotiating with Terrorists – A Reassessment of Colombia’s Peace Policy, NICOLAS URRUTIA, Stanford Journal of International Relations, vol. 3, issue 2, 2002
  10. ^ Trekking in the time of terrorism – The east is red with rhododendron and revolution, DAMBAR KRISHNA SHRESTHA, GUPHA POKHARI #243, 15.4.2005
  11. ^ Socialism: Still Impossible After All These Years, Peter J. Boettke & Peter T. Leeson, George Mason University, s. 13; Critical Review, Vol. 17, Autumn 2005

The un-cited imposition of the revolutionary tax against Jews in Buenos Aires mentioned above is documented in The War of All the People by Jon B. Perdue.

Having explained the term, the academic concept of a revolutionary tax really needs to be broadened to include religious-based revolutionary movements, especially Islamist movements.  The Islamic fundamentalist imposition of the twin sharia taxes—zakat on Muslims and jizya on non-Muslims—is an attempt to revive aspects of Caliphate-era tax law and combine them with contemporary terrorist financing tactics.  This has been most clearly illustrated in the 1990s and 2000s in Afghanistan by the Taliban, but also by jihadist groups in Pakistan and Somalia.  And such extortion has not been limited to urban centers; it has been carried out in the countryside too.

Finally, it is important to note that ETA’s longstanding and profitable revolutionary tax mentioned above has reportedly been abandoned.  If the tax on Basque and Navarran businessmen that ETA benefited from for so many years has come to an end, perhaps there is hope that one day, the Islamic terrorists can be forced to abandon their jihad tax.

VOX Media, Diccionario Escolar, 2nd Edition (London:  McGraw Hill Professional, 2011).

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Wednesday word: sovereign wealth funds. Your security at risk?

January 23, 2013

Time for a reprise of Money Jihad’s occasional series, the “Wednesday word.”  Let’s take a look at sovereign wealth funds, which Philip Romero defines as:

Investment funds maintained by the governments of countries that run budget surpluses, usually because the nation exports more than it imports (e.g., oil-exporting countries).  These funds act much like other institutional investors, except that their client is, directly or indirectly, a national government.*

In the 1950s, the big oil producing countries, mostly in the Persian Gulf, wanted some way of investing extra capital.  They said this would help protect them from the volatility of the oil markets.  Since then, they have acquired more and more assets around the world.  Critics have pointed out several concerns about these sovereign wealth funds:

  • SWFs can acquire important stakes in sensitive industries and sectors, ie “assets with strategic value,” as illustrated most famously by the Dubai Ports World fiasco in 2006.
  • SWFs distort markets by investing capital in pursuit of foreign policy goals rather than financial goals.
  • The funds lack transparency and accountability.
  • SWFs can carry out corporate espionage and extract technology they previously could not access.
  • Due to their massive size, SFWs have the potential to disrupt financial markets.

In addition to those concerns, Bryan Balin of John Hopkins points out:

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Wednesday word: Istisna’a

June 6, 2012

Like salam, istisna’a is an Islamic contract that allows two parties to agree on a price now for a product delivered later (although Islam generally prohibits deferred payment sales or sales of objects that do not yet exist).

Specifically, istisna’a is defined by Islamic finance specialist Brian Kettell as “a sale contract whereby the purchaser asks the seller to manufacture a specifically defined product, using the seller’s raw materials, at a given price.”*

One difference between istisna’a and salam is that is that istisna’a is used for major manufactured products, facilities, or equipment such as an oil rig, while salam is often used for agricultural or other objects.

However, while there is a marginal justification for salam in Islamic law, there is virtually none, if any, for istisna’a.  Kettell writes:

Similarly to Murabaha and Ijara, no direct support for the principle of Istisna’a can be found by studying the major sources of Sharia’a law.  In fact, the majority of religious schools argue that Istisna’a is inconsistent with Sharia’a law.  Only the Hanafi School accepts the Istisa’a contract and then merely because there is a need within society and customary practice (urf) to have an Islamically acceptable form of project finance.  Nothwithstanding the lack of juristic support for Istisna’a, it is still a widely employed method among Islamic banks.

In a 10 page document describing and justifying salam and istisna’a, Mufti Taqi Usmani (one of the two most notorious sharia finance proponents in the world) cites only one Hadith to justify salam, and none to justify istisn’a.  Usmani makes one vague reference to the Ottoman Empire as having utilized istisna’a.  Although Mr. Usmani supports jihad, sharia, and Islamic supremacy, his apparent support for istisna’a contracts may be based upon something other than Islam.

*Kettell, Brian B., Introduction to Islamic Banking and Finance (Chippenham: John Wiley and Sons, 2011).

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Wednesday word: maysir

May 9, 2012

Maysir means “gambling,” and it is prohibited by Islamic law.  Muslims throughout the centuries have regarded maysir as any type of game of chance with money at stake.

In the time of Muhammad, however, it is possible that maysir simply referred to one particular game of dice, as described in Franz Rosenthal’s book Gambling in Islam.  Nonetheless, Rosenthal says that no proof is available either way, and Muslims have been consistent in outlawing virtually any type of gambling.

The Koran, Sura 5, Verse 90 says, “O ye who believe!  Strong drink and games of chance [maysir] and idols and divining arrows are only an infamy of Satan’s handiwork. Leave it aside in order that ye may succeed.”

The advocates of sharia law are so adamant on this point that they’re willing inflict severe injuries on those who gamble.  See this recent news (h/t Atlas Shrugs) out of Aceh, Indonesia, where 11 were caned for gambling.

Would you look forward to living under Islamic law where a private bet over a sporting event or a game of cards subjects you to a public caning?  Do you, like some in Washington, D.C., Paris, and London eagerly anticipate the ascension of “democratically” elected Muslim Brotherhood partisans in the wake of the Arab Spring who will impose penalties such as the ones Acehnese authorities have meted out against low-stakes gamblers?

The prohibition on maysir is based on irrational superstitions, petty whims, and ill-conceived utterances of a violent man 14 centuries ago.

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Wednesday word: Salam

May 2, 2012

Salam is a type of forward contract in sharia finance that allows a buyer to pay now for goods to be delivered later.  In general, Islam bans the purchase of any object that the seller does not currently possess, and salam is presented by sharia finance advocates as a narrow, clearly defined exception to the general rule.

Kettell defines salam as “a sale whereby the seller undertakes to supply some specific goods to the buyer at a future date, in exchange for an advanced price fully paid at spot.”*

Kettell also says that the exact price, quality, quantity, and delivery date should be included in a salam contract, and references an unspecified passage from the Hadith that says “He who sells on Salam must sell a specific volume and a weight to a specific due date.”

Yet selling on salam appears to contradict the Islamic reliance on possession before a valid sale can be made.

The fact is that “business” by any normal measure is impractical without a forward contract.  The business elites of the ummah have realized this and have simply determined that in this instance, the exception is the rule.

*Kettell, Brian B., Introduction to Islamic Banking and Finance (Chippenham: John Wiley and Sons, 2011).

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