Thursday, 29 April 2010

Open letter to Simon Crean on Sharia Compliant Finance

Dear Mr Crean,
I refer to the Austrade Paper “Islamic Finance” of February 2010.
I do not think the Australian government or its arm Austrade should be in the business of promoting any religiously-based financing.  There are a number of seriously problematic areas with Islamic Finance, commonly known as “Shariah-Compliant Finance”.

Shariah Compliant Finance is part of Shariah. 
The report’s implicit assumption is that Shariah Compliant Finance can be ring-fenced from the rest of Shariah.  This is not the case.
All Islamic commentators and SCF authorities attest that SCF is just one aspect of Shariah, which reflects the concept of Islam as a “total way of life”, not just a faith to be adhered to in private.[1]  For example:
Islam is a total way of life. Its system of laws permeates social, economic, political and cultural life. Islamic banks are thus one of the direct consequences of the resurgence of Islam. [2]
The genesis of SCF is on that basis. It was Pakistani Islamist, Sayyid Abul-Ala Mawdudi[3] writing in the 1960’s who created the intellectual basis of Shariah Compliant Finance.  SCF is not part of Islamic history; it is a modern, Islamist, radical, construct.
Thus the significance of SCF lies not on the economic side of it, but as an assertion of Islamic dominance. As Timur Kuran writes,
Mawdudi’s aim … was to reassert Islam’s importance as a source of guidance and inspiration and to reaffirm its relevance to modern life… [to] defy the common separation between economics and religion… [and] invoke Islamic authority in a domain that modern civilization has secularized.[4]
In short, SCF is a radical Islamist construct and continues as a force for the promotion of broader Shariah in the world.  That being the case, a reader of a Paper entitled “Islamic Finance” should expect to see elucidation of Shariah itself.  However, the Paper is silent on the issue.
In failing to explain that SCF is just part of Shariah, Austrade has failed in a duty of care fully to inform the public about the implications of SCF: a significant increase in the role of Shariah law in Australia. 
Information on the Shariah is available widely.[5]  A cursory study will show that it is a body of religious law with many draconian aspects. For example, it denies basic human rights including freedom of speech, freedom of conscience, and the equality of rights of women with men and Muslims with non-Muslims.  While one might quibble with aspects of my characterisation, my point is this: that the issue of SCF’s being a part of broader Sharia should have been raised by Austrade.   Readers could then make their own judgements. 
Failure even to mention the broader Shariah context is a failure of Full Disclosure.
SCF Boards of Scholars (advisers) may be promoters of Islamist views
How will Australia monitor the SCF advisers?  That is, how do we know they will not espouse views advocating violence and terrorism against the west? 
I ask this question because that has been the experience of other bodies using SCF advisers (“scholars” in the paper).  AIG, for example, the largest provider of SCF in the world, includes members of its “Shariah Supervisory Committee” who have said a Western Muslim must engage in violent jihad against his own country or government. [6] 
In the UK, Sheik Yousef Al-Qaradawi is an adviser to several UK Islamic financial institutions.  He heads the European Council for Fatwa and Research, several of whose most prominent members sit on major British Islamic banks’ Shariah boards.  Both Al-Qaradawi and the Council have expressed their hope that “Islam will return to Europe as conqueror” and by way of “preaching and ideology” or “by the sword”.  Al-Qaradawi has said that SCF is “Jihad with money”.[7]
Mufti Muhammad Taqi Usmani sits on Shariah Committees of Dow Jones, Citigroup and HSBC and is chairman of the AAOIFI.[8]  He is founder of a madrasa in Pakistan which “boasts close ties to the Taliban” according to International Crisis Human Rights Group
Another SCF-authorised body is the Shariah Board of the US.  Its head Muhammad Nawal-ur-Rahman, has said:
It is permissible to live and earn a livelihood in a non-Muslim country. One should have the intention of spreading Islam while living there.[9]
Of course all faiths proselytise, so what is wrong with saying “one should have the intention of spreading Islam”?  What’s wrong with it is that Islam is unique among the religions of the world in having a developed doctrine, theology and legal system that mandates warfare against unbelievers, and therefore any promotion of it, the dawah, has rather more troubling implications, than would be the proselytizing of Mormons or Scientologists (or even Christians!).
Given the small pool of people who could form the Shariah Supervisory Committee and the fact that Shariah compliance implies at its core the requirement to expand Islam, how can the government control such calls?  And if it can’t, and it happens, will not the investors have actionable cases? 
Is SCF more “ethical” than conventional financing?  No, of course not.
The Paper has bought into the Islamic narrative that SCF is “ethical” investment.  SCF funds cannot deal in interest-bearing facilities and cannot invest in areas such as gambling and alcohol.  The Paper could have added pork, for that is an oft-quoted forbidden (haram) area. 
Calling these investments “ethical” implies that those that engage in interest-taking, ham-making, brewing or gambling are unethical.  This is, of course, nonsense.  It is a slur on Australia. Try telling the average Australian that it’s “unethical” to go to the races, have a beer and pork pie.   Or the over 1,000 companies with $A 20 billion in revenues in the gaming, spirits and pork industries that they are unethical….).
SCF doesn’t have an “ethical” basis, any more than I would have, as a member of the Church of the Flying Spaghetti Monster, for saying investments in Pasta were unethical. 
SCF is based on Islamic prejudices. Or – to be more neutral – it is based on Islamic prohibitions.
As for the prohibition of interest for “ethical” reasons, this is an even greater nonsense.  The Judeo-Christian religions did prohibit usury, but over time, in the mid 17th century, it was found that adding a time-value to money (interest, not usury) made sense and led to increased productivity and that has been the case until today, financial crises notwithstanding.  To accept that “interest” is bad is a retrograde step.[10]
Moreover, the banks offering SCF do not fail to make a profit, they just do so in a roundabout way, that is a construct, a case of “form over substance” (to use the legal term).  Because of the convoluted way in which this is done (with sales and re-sales of assets to “avoid” interest), there are extra costs to the borrower as well, amounting to several percentage points in the average real estate transaction.[11]
The borrower may well know this and accept it as a price to pay to be pious; but should Austrade and the government be in the business of facilitating this: an Islamist-inspired system that is backward-looking, “form over substance” and costs more?
More troubling is that there are other areas not allowed by SCF, not mentioned in the Paper.  These include products or construction that benefits Christianity, Judaism, Buddhism, Hinduism, Protestantism or any other non-Islamic religion; any project that promotes equal rights fro women and gays; western defence industries (but not Muslim ones); western books, films, TV and radio.  How would the Australian public feel about these discriminatory practices?  How “ethical” are they?
How to stop charity moneys going to fund terrorism?
SCF must give a certain amount of their profits to Zakat, Muslim charity.  Note that it cannot donate to charities that benefit non-Muslims.
According to the Manual of Shariah Law, 1/8th of Zakat must go to Jihad-related activity.
It is difficult to track the destination of Zakat.  Nonetheless, US authorities have found at least 27 Islamic charities with ties to terrorist organisations.
What will the Australian government do to keep track of Zakat funding destination?
Given that SCF is an Islamist-inspired “form over substance”, with dubious legitimacy and higher costs than conventional finance, it is not surprising that many Muslim organisations in the west are against it, including Muslims against Shariah, the American Islamic Centre for Democracy, the Muslim Australian Congress. 
SCF Socially inclusive?  Not.
The Paper claims that promotion of SCF in Australia will promote a “socially inclusive environment”.  It is difficult to see how this can be the case when the whole point of SCF is to structure a system to allow completely different treatment of one class of financial product, made specifically for use by Muslims.  How can something that is separate by design lead to inclusion?
In sum
SCF is a radical Islamic construct that has gained traction in recent years with the resurgence of Islam.  It is a retrograde financing concept, based on dubious “ethical” principles.  It costs more for the borrower.  It promotes the expansion of Sharia which is a baleful religiously-based system of laws.
·       Austrade and the Australian government should not promote SCF
·       Austrade and the Australian government should be clear to the Australian public about the nature of SCF and its connection with the broader Shariah.
·          Austrade and the Australian government should require that any financial institution in Australia engaging in SCF properly disclose what  Shariah is and how it is connected to Shariah finance.   Those engaged in SCF in Australia include, but are not limited to: AIG, HSBC, UBS and Citibank
·          Austrade and the Australian government should ensure that any member of a Shariah board be screened by ASIO.
·          Austrade and the Australian government should require that any recipient of Zakat charity funds be named and approved before the necessary tax waivers are granted.

Yours Sincerely,

Peter Forsythe
Executive General Manager
Austrade East Asia (1990 – 1997)
9 Siena One
Discovery Bay, Hong Kong

REF to Australian Islamist Monitor article on Crean:  Here.

[1] Shariah’s “Black Box”: Civil Liability and Criminal Exposure surrounding Shariah-Compliant Finance.  David Yerushalmi. Utah Law Review, No. 3, 2008, p. 1020 – 1106.
[3] Mawdudi was the founder of the radical Jamaat-e-Islami, a strong Taliban supporter
[4] Timur Kuran, “Islam and Mammon; the economic predicaments of Islamism”.  Princeton University Press, p. 52.
[5]  Umdat Al-Salik (“Reliance of the Traveller”), Amanda Publications, 1994.  This is the “Classic Manual of Islamic Jurisprudence”, authorised by Islam’s most authoritative University, the Al-Azhar University in Cairo.  It covers the four Sunni schools, but Shi’a Islam’s jurisprudence also follows it closely.
[6] “Trouble brewing for AIG and Federal Government”, Thomas More Law Center, May 27 2009.
[7] BBC Radio, May 2006.  The Arabic term for SCF is Al-Jihad bi-al-Mal, which means “Jihad with money”, or “Financial Jihad”
[8] Accounting and Auditing Organisation for Islamic Financial Institutions.  See Austrade Paper.
[9], Fatwa no. 16312
[10] The Koran has no prohibition against “interest”, only against “usury” (as in the Bible and Torah).  This should have provided the needed loophole for Muslims to accept interest-bearing facilities.  But is was the radical Islamists that conflated “interest” with “usury” in the 1960s so that now the distinction is moot.  By rights, it ought not be.
[11] Devon Bank FAQ,  “Our [SCF] products have a higher documentation fee due to the extra work in product design and assembling documents…”.  See also:  Tarik El Diwany, The Great Islamic Mortgage Caper, April 2003, at  El Diwany notes there are also extra costs, because “… Basel capital adequacy standards in which a higher capital asset weighting is given to property assets than to property loans secured by mortgages. This requires a bank to devote more of its risk capital to Islamic mortgages than to interest based mortgage loans…”