Is Senator Sherry naïve or disingenuous?
The case against Shariah finance in Australia.
I was disappointed to see that my old employer, Austrade, has been touting Shariah finance. Austrade’s boss, Trade Minister Simon Crean, launched an Austrade publication earlier this year entitled “Islamic Finance”. Crean’s colleague, Senator Nick Sherry, the Assistant Treasurer, has since been hard at work promoting Shariah finance with three speeches in as many months spruiking its virtues.
According to Sherry, Shariah finance will “increase the depth and sophistication of our financial markets”, “foster social inclusion” and provide “socially responsible investments”.[1] He slams criticism of Shariah finance as “misinformed… …ridiculous... egregious… …misconceptions”.[2]
According to Sherry, Shariah finance will “increase the depth and sophistication of our financial markets”, “foster social inclusion” and provide “socially responsible investments”.[1] He slams criticism of Shariah finance as “misinformed… …ridiculous... egregious… …misconceptions”.[2]
Senator Sherry is wrong on all counts.
One assumes Sherry does not base his judgments on the above-mentioned Austrade paper, which is pretty but slight, a tendentious farrago of pabulum. Mostly, it appears Sherry relies for his information on bankers from the UAE and the Malaysian law firm Zaid Ibrahim & Co (“Zico”), a firm whose partner Hanim Hamzah is mates with Sherry’s Chief of Staff. Zico’s “primary focus … in Australia is to promote Islamic finance and Shariah advisory services”.[3] From Zico, with their open vested interests, we expect unbiased advice? Their publication, which Sherry launched – Demystifying Islamic Finance – is full of half-truths, avoidance of the issues, glaring omissions and out and out falsehoods. In the comments below, I rely on Muslim and non-Muslim commentary, Islamic finance experts and Islamic primary sources.
On the matter of “depth and sophistication”, Muslim professor of Economics Mahboud El-Gamal says Islamic bonds are “poorly designed bonds… grossly inferior and poorly constructed products for profit”.[4] They provide no innovation or economic alternatives, only exclusions. Islamic finance experts say conventional finance can do anything Shariah finance can do, but not the other way around. Sherry's accolades for Islamic Finance are thus incorrect.
A prohibition of interest for “ethical” reasons is nonsense and to accept that “interest” is bad is itself a retrograde, unsophisticated step. But is interest really missing from Shariah finance? All banks have to make profit, so to be Shariah compliant Islamic banks resort to complex structures that have the effect of interest, but at higher cost. Assets are shuffled between buyer, seller and bank, so that the bank makes the same profit as it would do if it charged interest, just that it’s not called “interest”. Thus, the whole process is a charade, a hypocrisy in which the Australian government will be complicit if it is to continue on Sherry’s misguided path.
Neither is risk in Shariah finance reduced as Sherry claims. Professor El-Gamal references defaults on 10 Islamic Sukuk bonds in 2009.[5] In 2008, while the Dow was down 32%, the Dow Islamic index was down 39%.
Shariah finance does not “foster social inclusion”, unless by “inclusion” you mean “divisiveness”. By definition and intent Shariah finance is quite clearly separate, an exception to our principle of “one law for all”. Social inclusion does not occur by promoting a myth that certain people are more “ethical” than others and should conduct their affairs separately.
Shariah finance is not “socially responsible” unless by “responsible” you mean “prejudiced”. A prohibition on investment in any activity associated with a non-Islamic religion is not socially responsible or acceptable by any definition. This includes prohibition on investments in women’s health, western defence industries (but not Muslim ones) and any Jewish business.
Shariah finance is not “socially responsible” unless by “responsible” you mean “prejudiced”. A prohibition on investment in any activity associated with a non-Islamic religion is not socially responsible or acceptable by any definition. This includes prohibition on investments in women’s health, western defence industries (but not Muslim ones) and any Jewish business.
There will be great costs born by the Australian taxpayer to create this false structure. To accommodate Shariah finance in Australia we have to change not only our tax system, but also our property laws, our insolvency laws and our security laws, in a “long journey” of amendments, as even Sherry’s mates at Zaid Ibrahim & Co acknowledge.[6]
But these are mere quibbles compared with the bigger problems with Shariah finance.
Sherry says dismissively: "Some of the issues of concern include open claims that Islamic finance is used to spread terrorism, that it is a vehicle to promote the world domination of Islam over other faiths…." [7]
The evidence of connection with terrorism is clear, prolific and substantial. Shariah finance institutions must contribute a portion of their profits to Zakat, Islamic charity, which cannot, by Shariah law, benefit non-Muslims. In turn 12% of Zakat must go to Jihad-related activity.[8]
Once in the hands of the Islamic charities these funds are out of the control of the “strict rules and regulations” of the Australian regulatory system.
The Holy Land Foundation Case in 2009 clearly established the links between Zakat and funds to at least 27 terrorist related organisations.[9]
The 9/11 Commission Report states that “Donations [to al Qaeda] flowed through charities or other nongovernmental organizations.”[10] It even provides a helpful flow chart the Senator could refer to.[11]
Stanford University scholars say: “…terrorist groups such as al Qaeda have traditionally relied on Islamic charities for much of their funding.”[12]
The Center on Contemporary Conflict of the U.S. Naval Postgraduate School notes: “The crux of the matter in combating the exploitation of Islamic charities by terrorist organizations comes down to the fact that the act of charity forms a very important part of Muslim law and tradition. There is a recognized religious duty in the Muslim world to donate a set portion of one's earnings or assets to religious or charitable purposes (Zakat).”[13]
The same report notes that money is very fungible: money donated for peaceable purposes can be easily diverted to terrorist or Islamist ends and oversight of funds donated to Islamic charities is virtually impossible to track.
The book Alms for Jihad provides the best and most detailed information on the link between Zakat charity – to which Shariah compliant finance must contribute – and terrorist organisations.[14]
Thus the dots are easy to connect. The trail is clear.
Despite all this, Sherry wishes to assure us that the integrity of the Australian financial system will ensure that there is no misuse of Shariah finance’s contribution to Zakat. Is he naïve? Or disingenuous? Is he a knave, or a fool? Either way, there is clear danger that promoting Shariah finance in Australia – with its requirement to donate to Islamic charity – will increase the funding of terrorism.
Has Sherry sought advice from ONA or made any unbiased, objective risk assessment? If not, why not?
As for concerns about the aims of Islam, I leave Islamic finance experts to speak for themselves:
As for concerns about the aims of Islam, I leave Islamic finance experts to speak for themselves:
Mufti Muhammad Taqi Usmani is Chairman of the Accounting and Auditing Organisation for Islamic Financial Institutions, the regulator of Shariah finance worldwide; he sits on Shariah Committees of Dow Jones, Citigroup and HSBC. He says “aggressive military jihad” should be waged by Muslims “to establish the supremacy of Islam worldwide”.[15]
Qatari based Sheik Yousef Al-Qaradawi is an adviser to several British and Qatari Islamic financial institutions and is Chairman of the European Council for Fatwa and Research. He hopes “Islam will return to Europe as conqueror” by way of “preaching and ideology” or “by the sword” and believes Shariah finance is “Jihad with money”.[16] In 2008, Qaradawi called for Islamic finance and economics to replace capitalism.
Sherry claims – naively or disingenuously– that only a “tiny minority of Muslim extremists” holds these views. When this “tiny minority” includes those in charge of regulating and approving Shariah finance, well, “Houston, we have a problem.” But more: independent polling in 2008 reveals that 53% of British Muslims believe Islamic values are “not compatible with British values” and 43% believe that the Islamic faith “is not compatible with western democracy”.[17] What evidence is there that the Australian Muslim community holds significantly different views?
At the very least these issues need to be investigated. But for Sherry the Shariah finance link to terrorist-funding charities and the views of Shariah finance scholars on Islamic supremacism are simply dismissed or ignored, as if to ignore them will make them disappear. Meantime, those that point them out are smeared as “egregious”. We know from whom Sherry gets his advice. His arrogant dismissal of critical but well-substantiated views is naïve or disingenuous. Either way it is negligent and a disservice to the Australian people.
As Assistant Treasurer, Sherry is obliged to treat very seriously the potential downsides of promoting Shariah finance in Australia including its effect on the integrity of the Australian financial system he correctly lauds. I suggest he take a leaf from the book of Britain’s financial regulator the Financial Services Authority (FSA):
“The FSA’s attitude towards Shariah finance is that they will not provide any hindrances for it, nor will they provide any encouragement. This is because the FSA is secular in nature and not a religious regulator.”[18]
Hear, hear! That would be a reasonable stance from a truly ethical and secular Australian government.
PF
Hong Kong, June 2010
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PF is a Hong Kong based investor. He was in the Australian Federal government for 14 years, in DFAT, ONA and most recently as Executive General Manager for Austrade East Asia. He has established companies in Hong Kong and is currently Director of Excel Associates Ltd, a private investment company.
[3] Zaidibrahim.com, Overseas offices/Australia
[5] Mahmoud El-Gamal, ibid.
[6] Demystifying Islamic Finance, Zaid Ibrahim & Co, (Zico) May 2010, p 21. “… laws to be amended include tax laws, property laws, insolvency laws and securities laws…. Hence, it is incorrect to say that Islamic finance requires only minimal changes to the financial laws and regulations…. as indeed this is only the first step in what should be a long journey…. only feasible if alignment with and support from the rest of the legal system are also stitched together”. [emphasis added]
[8] Umdat al-Salik, The Classic Manual of Islamic Jurisprudence. h8.1-26. This is the key source for Shariah law.
[9] United States Attorney’s Office, Northern District of Texas, May 27, 2009
[10] The 9/11 Commission Report, p 55
[11] See end of this article, at “references”
[12] Victor Comras, “Al Qaeda Finances and Funding to Affiliated Groups,” in Jeanne K. Giraldo and Harold A. Trinkunas, eds., The Political Economy of Terrorism Finance and State Responses: A Comparative Perspective (Stanford University Press, 2006).
[14] Burr, J.M. and R.O. Collins (2006) Alms for Jihad: Charity and Terrorism in the Islamic
World, New York: Cambridge University Press.
[16] BBC Radio, May 2006. The Arabic term for SCF is al-Jihad bi-al-Mal, which means “Jihad with money”, or “Financial Jihad”.
[17] ICM Research, 22-28 May 2008 Pdf here. Postscript (29/9/10): the link is no longer valid. I have searched the ICM site and it appears to have been removed. Why? The ICM site is here, if you would like to do your own search, but meantime I confirm that the figures above were taken direct from the Poll as it existed when I accessed it in May 10. There are many other polls from May 10 and well before that date still on the ICM site. Too uncomfortable for ICM, or their clients, Channel 4 and The Guardian? I suspect so.
[18] Islamic Law: An Introduction to Shariah in the UK, In Brief, June 2009. Here. [emphasis added]
References:
Burr, J.M. and R.O. Collins (2006) Alms for Jihad: Charity and Terrorism in the Islamic
World, New York: Cambridge University Press.
Comras, Victor “Al Qaeda Finances and Funding to Affiliated Groups,” in Jeanne K. Giraldo and Harold A. Trinkunas, eds., The Political Economy of Terrorism Finance and State Responses: A Comparative Perspective (Stanford: Stanford University Press, 2006).
El-Hawary, D., W. Grais, and Z. Igbal (2004) ―”Regulating Islamic Financial
Institutions”. World Bank. 1 March 2004.
El Rahman, F. and El Sheikh, A. (2002) ―”The Underground Banking Systems and Their Impact on the Control of Money Laundering With Special Reference to Islamic
Banking”. Journal of Money Laundering Control, 6(1): 42-45.
Looney, R.E. (2006) ―”The Mirage of Terrorist Financing: The Case of Islamic Charities”, Strategic Insights, Volume V, issue 3.
Usmani, Muhammad Taqi, Islam and Modernism, 2008. Here.
The 9/11 Commission Report.
Flow chart of Islamic finance >> charity >> terrorist organisations
