Posts Tagged ‘contracts’

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Benghazi culprits funded by Libyan subcontracts

September 11, 2013

Ansar al-Sharia, the terrorist group that played a leading role in the attack that killed Ambassador Chris Stevens and three other Americans, is profiting from security subcontracts awarded to it by the February 17 Martyrs Brigade, a larger militia that receives direct contracts from the Libyan defense ministry.

This disgrace resembles the ongoing public contract scandals in Afghanistan through which specific UN, U.S., and Afghan security operations have been subcontracted out to Taliban affiliated-fighters over the past several years.

The Weekly Standard reports:

… Ansar al Sharia is far from being on the run. The organization is expanding and is even tasked with providing security inside Benghazi.

On Sunday, Ansar al Sharia Libya posted images and a video of its armed members manning a checkpoint in Benghazi. Incredibly, according to previous reports, the group is providing security at the behest of the Libyan government…

The Weekly Standard cites a Daily Beast article from February which elaborates on the payments to Ansar al-Sharia:

… Since the consulate attack that led to the death of U.S. ambassador Christopher Stevens, Ansar al-Sharia has kept a low profile but recently—and noticeably at celebrations to mark the second anniversary of the revolution earlier this month—the militia was back manning checkpoints and guarding hospitals and other public buildings. Government payments to Ansar al-Sharia militiamen also have been resumed and are made through other Benghazi brigades, including the 17th of February brigade, according to sources in the General National Congress, Libya’s new Parliament.

The sources say the chief of the defense staff, Yousef Mangoush, has been diverting operational funds from the fledgling armed forces to the militia. They worry the move is “playing with fire”…

As for the militia that serves as Ansar al-Sharia’s paymaster, the BBC says, “The Martyrs of 17 February Brigade are considered to be the biggest and best armed militia in eastern Libya. The brigade is financed by the Libyan defence ministry. The brigade consists of at least 12 battalions and possesses a large collection of light and heavy weapons in addition to training facilities.”

The Associated Press reported in March that “The state pays many militias, relying on them to serve as security forces since the police and military remain a shambles.”

More recently, the Global Post reports:

… Frederic Wehrey, the former US military attaché in Tripoli, called the [Libyan] army “a shell of an institution.“ Contracting with the revolutionaries did bring them somewhat under the authority of the state. But it was also a “Faustian bargain” that gave brigade commanders and their political patrons leverage over the government.

This quickly gave rise to the growth of parallel forces that now overshadow the regular army and police…

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Contract mismanagement still benefits Taliban

August 16, 2013

It is only partly an Army failure. It is, more centrally, a strategic and political failure. It’s a strategic failure of counter-insurgency doctrine that says we can peel away enough “moderate” Taliban supporters to reconcile with Karzai by bribing them with U.S., U.N., NATO, and Afghan government contracts and jobs. And it’s a political failure of believing that we can dump taxpayer dollars oversees to conduct nation building in a notoriously corrupt country without aiding the wrong parties.

Thanks to El Grillo for sending this in from this Christian Science Monitor:

US auditor finds taxpayer money flowing to Taliban, Al Qaeda – but Army refuses to act

Warnings from the US government’s internal auditor that an ongoing $20 billion Afghanistan reconstruction program is lining the pockets of the Taliban and Al Qaeda have been ignored.

By Dan Murphy, Staff writer / July 30, 2013

The US military has been ignoring warnings that its spending in Afghanistan is funding Al Qaeda and the Taliban. And John F. Sopko, the Special Inspector General for Afghanistan Reconstruction (SIGAR), appears to have had enough.

He issued a blistering cover letter with SIGAR’s quarterly report to Congress today that called into question what “appears to be a growing gap between the policy objectives of Washington and the reality of achieving them in Afghanistan.”

The US has $20 billion of Afghan reconstruction spending scheduled, and a further $10 billion requested for the 2014 budget. But after 11 years of war, there are “serious shortcomings in US oversight of contracts: poor planning, delayed or inadequate inspections, insufficient documentation, dubious decisions, and – perhaps most troubling – a pervasive lack of accountability,” Mr. Sopko wrote. Good intentions, he added, appear to be running way ahead of commitment to execution.

But Sopko’s greatest degree of scorn is reserved for ongoing contracting with businesses that his office is convinced finance the insurgents trying to topple the US-supported Afghan government and kill US troops.

“In conclusion I would also like to reiterate the concerns I raised in our last report about the Army’s refusal to act on SIGAR’s recommendations to prevent supporters of the insurgency, including supporters of the Taliban, the Haqqani network and al-Qaeda, from receiving government contracts. SIGAR referred 43 such cases to the Army recommending suspension and debarment, based on detailed supporting information demonstrating that these individuals and companies are providing material support to the insurgency in Afghanistan. But the Army rejected all 43 cases. The Army Suspension and Debarment Office appears to believe that suspension or debarment of these individuals and companies would be a violation of their due process rights if based on classified information or if based on findings by the Department of Commerce.

I am deeply troubled that the U.S. military can pursue, attack, and even kill terrorists and their supporters, but that some in the US government believe we cannot prevent these same people from receiving a government contract”…

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Afghan mining deal could fund terror

December 16, 2012

Taliban may tax supply routes

A business deal for copper mining rights at Aynak in Afghanistan by a Chinese consortium poses the risk of inadvertently funding local conflict and increasing the likelihood of extortion by armed groups, according to a November report from the human rights organization, Global Witness.

Excerpts from Witness’s report on the secret Aynak contract follow (with internal citations omitted):

The development of the mine and associated infrastructure brings with it a host of valuable supply and sub-contracts.  The international aid experience over the past ten years has shown that, without appropriate safeguards, the management of such supply and sub-contract can end up inadvertently funding conflict.  Aynak is a high-profile target for attacks which could be aimed at gaining attention or extorting money…

The risk of off-budget gains by, for example, security forces or powerbrokers controlling supply routes also needs to be guarded against.  [In the Democratic Republic of Congo] they do this by imposing illegal taxes at mine sites and along transportation routes, or by confiscating and trading minerals directly.  Companies sourcing minerals from the DRC are now required to carry out due diligence to ensure that their mineral purchases do not contribute to conflict or human rights abuses.

In the Afghan context, where conflict is ongoing and mines have traditionally played a role in providing financing to armed groups, supply chain due diligence by companies is an important step.

Indeed, given the Taliban’s history of profiting from flawed subcontracting measures and by levying taxes dictated by sharia law, including Taliban taxes on the mining sector (see here and here), the importance of forestalling Taliban infiltration in the Afghan-Chinese supply chain cannot be overstated.

Islamic law imposes a zakat tax of 20 percent (also known as khums) on rikaz, which Islamists regard as any source of wealth discovered underground, including oil, minerals, and buried treasure (Sahih Bukhari 2.24.575).

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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: 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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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…