Sharia lobbyists target Bermuda

In an extension of the ongoing Caribbean Islamization spanning from Venezuela to South Florida, the North Atlantic island of Bermuda is poised to become a gateway for sharia finance.  From EuroMoney on Jan. 18:

Bermuda looks to pioneer Western Shariah-compliant hub

The favourable tax haven is actively seeking to become the first Western centre to provide a Shariah-compliant platform by reviewing its existing legislation.

Bermuda is set to become the first Western centre for Islamic finance in a favourable tax domicile, as the region looks at existing legislation to accommodate a Shariah-compliant platform for such vehicles and products.

In an exclusive interview with Euromoney, executives at Business Bermuda, a non-profit business lobby group that works with the Bermudan government, revealed it is actively educating and pursuing potential clients in Asia and the Middle East, while also working on reviewing existing laws to eventually launch a Shariah-compliant platform for investors.

“We are looking at the Shariah side of Bermuda’s legislation to become the first Western centre for Islamic finance,” says Peter Hughes, group director of Apex Fund Services who also works with Business Bermuda. “We are looking to launch a Shariah platform that will allow us to have Shariah vehicles and products, which would enable us to become the first one of its kind. We have made a real push into this niche area.”

Islamic finance centres around Shariah compliancy – Islamic law derived mainly from the Koran and Hadith. Shariah-compliant finance has consistently grown during the past 10 years, with Western financial institutions looking to tap into the burgeoning markets.

Shariah-complaint finance has become a trillion-dollar business, with sukuks – commonly seen as an Islamic bond, but are actually certificates representing participation and ownership rights in an underlying asset – being one of the largest product sectors.

According to KFH Research, an Islamic investment research firm that is a direct subsidiary of the Kuwait Finance House, sukuk issuance in 2012 is set to increase by 25% to 30% and break the $200 billion barrier. The note says that despite a raft of challenges faced by industry, much like the rest of the world, sukuk issuance will continue to grow.

In 2011, sukuk market issuance grew by 88% compared to 2010.

Cheryl Packwood, CEO and deputy chairman of Business Bermuda, said that the continual growth of Islamic finance and stronger ties with Bahrain and Malaysia led to a focus on developing existing Bermudan legislation more than 18 months ago.

“We now have strong links in Bahrain and there is a commonality of wanting to create a niche jurisdiction for Shariah compliancy, that is closer to the US timezone,” she says. “We are also focusing on Kuala Lumpur in Malaysia, as it has an enormous sukuk market. The process for getting this off the ground may be slow but we have the Bermuda Monetary Authority and the Bermuda Stock Exchange behind us.”

The burgeoning Bahrain-Bermuda relationship is not encouraging from an anti-money laundering standpoint.  Bahrain still has no legal means of freezing assets that are laundered or fund terrorism.  Bahrain’s Islamic finance sector recently received a major black eye when an audit of one of its major sharia banks revealed 58 potential criminal offenses by its CEO.

Shariah Finance Watch has speculated that the purpose of introducing sharia finance to Bermuda is to spread Islam and sharia law.  That is certainly a factor.  We must also be concerned that an island nation that is a known tax haven is being specifically targeted by sharia advocates.  One might even wonder if the ruling Sunni elites of Bahrain are attempting to off-shore their wealth and protect their long-term self-interests in case Bahrain’s Iranian-backed Shia majority succeeds in an Arab Spring coup.

Bermuda has growing internal problems as well.  Four ex-Guantanamo detainees live in Bermuda.  Bermuda also appears to be facing a rash of street gang violence with possible Muslim involvement.  The introduction of sharia wealth to the island will probably lead to new mosques and Islamic centers.  Given the history of Gulf-funded mosques, such future mosques are unlikely to be “moderate.”