Critics such as Dave Clark, myself and others have had some impact, in that we have been referred to in Sherry's recent speeches -- albeit as being "misinformed", "ridiculous", "egregious", and so forth. The usual ad hominem when one doesn't want to allude to the issue at hand, or to acknowledge that the critic may have a point. I learnt in China in the seventies, when they talked about the "extremely small number of rightists" or, later after the overthrow of the Gang of Four it became the "extremely small number of leftists", that when the powers that be talk of "extremely small number", they've got a worry.
I sent this letter to Crean and Sherry and copied by snail mail to a couple of senior execs in Austrade.
If you have any comment on it, send to my email or to fu.saisee@gmail.com
The Hon Simon Crean, MP
Minister for Trade
PO Box 6022
House of Representatives
Parliament House
Canberra ACT 2600 20th May 10
Dear Mr Crean,
I write as a former Austrader (Executive General Manager of East Asia, 1990-97) and refer to the Austrade Paper “Islamic Finance” of January 2010.
I do not think the Australian government or its arm Austrade should be in the business of promoting any religiously-based financing. In particular, there are a number of seriously problematic areas with Islamic Finance, or “Shariah-Compliant Finance” (SCF).
Shariah Compliant Finance is part of Shariah
The Austrade Paper’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 law, which reflects the concept of Islam as a “total way of life”, not just a faith to be adhered to in private. 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. [1]
SCF is a modern construct specifically to conjoin economics with religion. It was Pakistani Islamist, Sayyid Abul-Ala Mawdudi, founder of the radical Jamaat-e-Islami, who created the intellectual basis of Shariah Compliant Finance in the 1960s:
Mawdudi’s aim … was to reassert Islam’s importance … [to] defy the common separation between economics and religion…, to invoke Islamic authority in a domain that modern civilization has secularized.[2]
In short, SCF is a modern radical Islamist construct to conflate religion, via Shariah Law, with economics and politics. It continues as a force for the promotion of broader Shariah in the world. However, the Austrade Paper is silent on this issue.
The failure of the Austrade paper to touch on this connection between SCF and Shariah law more broadly is even more troubling in the context of recent calls by Australian Muslim leaders for implementation of Shariah law in Australia. For example, in March 2010, Keysar Trad, president of the Islamic Friendship Association of Australia, said that implementation of aspects of Shariah would be “broadly supported…by ordinary Australian Muslims”, a call which echoed the earlier remarks of Dr Zachariah Matthews, president of the Australian Islamic Mission.[3]
Information on the Shariah is available widely.[4] Even cursory study reveals that it is a body of religious law with many draconian aspects anathema to a free, modern, democratic, secular society. For example, it denies basic human rights including freedom of speech, freedom of conscience, the equality of rights of women with men and of non-Muslims with Muslims. While some might quibble with aspects of my characterisation, my point is this: that the issue of SCF’s being a part of broader Shariah should have been raised by Austrade. Readers could then make their own judgments.
Failure even to mention the Shariah Law context of Shariah Compliant Finance is a failure of Full Disclosure.
SCF Supervisory Boards have promoted Islamist views
How will Australia monitor the SCF advisers on SCF Supervisory Boards?[5] That is, how do we know they will not espouse views advocating violence and terrorism against the Australia?
I ask this question because that has been the experience of other SCF providers. AIG, the largest provider of SCF in the world, includes members of its Shariah Supervisory Committee who have said Western Muslims must engage in violent jihad against their 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 committees or boards. Both Al-Qaradawi and the Fatwa Council have expressed their hope that “Islam will return to Europe as conqueror” by way of “preaching and ideology” or “by the sword”. Al-Qaradawi points out that SCF is “Jihad with money”.[7]
Mufti Muhammad Taqi Usmani , a Shariah judge in Pakistan’s Supreme Court for over 20 years, sits on Shariah Committees of Dow Jones, Citigroup and HSBC and is chairman of the AAOIFI.[8] He has said aggressive military jihad should be waged by Muslims “to establish the supremacy of Islam worldwide”.[9]
Given the small pool of people who could form the Shariah Supervisory Board – a constraint pointed out in the Austrade Paper and confirmed by other experts – how can the government monitor, let alone control, supremacist statements by SCF Board members? If it cannot control such calls, would non-Muslim investors – not told about this possibility – have actionable cases? More: would it not put Australia in danger?
SCF is not more “ethical” than conventional finance
The Paper explicitly accepts an Islamic point of view that SCF is “ethical” investment. It mentions that SCF funds cannot deal in interest-bearing facilities and cannot invest in areas such as gambling, alcohol, and pork.
Calling these prohibitions “ethical” implies that those that invest in these areas are unethical. This is, of course, nonsense, and a slur on Australia. Are the over one thousand Australian companies with $A 20 billion in revenues in the gaming, spirits and pork industries, and the millions of Australians who enjoy these activities, 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 Rice & Potatoes were unethical.
Thus, SCF is based not on “ethics” but 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 and traditions did prohibit usury, but eventually found that adding a time-value to money (interest, not usury) made sense. This led to modern commerce, and increased productivity up to the present day, 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”. For example:
A commodity Murabaha is the preferred structure for general corporate purpose loans. The financier purchases a quantity of metal from a broker costing the amount of the loan, sells it to the borrower for an increased price on deferred repayment terms and the borrower then sells it to another broker at the financier’s original purchase price. This all happens instantaneously. What has happened here? The borrower ends up with a loan to use as it pleases, a random selection of metal has basically gone nowhere and we are expected to believe that this is ethical lending.[11]
Real estate deals such as the Ijara finance are equally convoluted. Because of this there are extra costs to the borrower, amounting to several percentage points in, for example, an average real estate transaction.[12]
The borrower may well know and accept the increased costs as the price to pay to be a pious Muslim. But should Austrade and the government be in the business of facilitating this? Facilitating, that is, an Islamist-inspired system that is (i) backward-looking, (ii) “form over substance”, (iii) a part of broader Shariah and (iv) costs more than conventional finance?
Other areas prohibited in SCF, on allegedly “ethical” grounds:
More troubling is that there are other areas not allowed by SCF, not mentioned in the Austrade Paper. These include Sukuk Bonds, prohibited from investing in products or construction that benefit Christianity, Judaism, Buddhism, Hinduism, Protestantism or any other non-Islamic religion; any project that promotes equal rights for women and gays; western defence industries (but not Muslim ones); western books, films, TV and radio.
Given the strict prohibition of any SCF to deal with Israel, promotion of SCF amounts to promotion to boycott that state. How would the Australian public feel about these discriminatory practices? How “ethical” are they?
SCF may help fund terrorism through charities it is obliged to support
SCF must give a certain amount of their profits to Zakat, Muslim charity. (Zakat, by the way, cannot be donated to charities that benefit non-Muslims).
According to the Manual of Shariah Law, 1/8th of Zakat must go to Jihad-related activity.[13]
In Australia, the NAB and Westpac have SCF products. While they may claim that no money goes to Zakat, in practice it is almost inevitable that they it does. Under provisions in the contracts they will likely be required to pay late payment penalties and “structure non-compliance penalties”, which can amount to 2% daily on principal sums. These need to be “purified”, according to Shariah Law and go the Muslim Zakat charities.[14]
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?
SCF is not “Socially inclusive”
The Paper claims that promotion of SCF in Australia will promote a “socially inclusive environment”. In his recent Doha speech, Assistant Treasurer Nick Sherry hewed to this theme:
I would like to be clear, this is not about special treatment or concessions for Islamic finance or its providers…[15]
But that’s exactly what it is. It is exactly: (i) “special treatment” (tax amendments) and (ii) “concessions” (to allow form over substance arrangements) for (iii) “Islamic finance” and (iv) “Islamic finance providers”. How is it anything else? How is it “not” special treatment and concession?
Structuring of a system to allow completely different treatment of one class of financial product, made specifically for use by Muslims, must by definition be discriminatory, for something that is separate by design cannot lead to inclusion.
There are other compliance problems
There are a number of other areas of concern with SCF. They include global security risks, antitrust issues, racketeering, materiality and scienter. These are covered in detail in an exhaustive paper of 2008 in the Utah Law Review, which repays careful study.[16]
In sum
Shariah Compliant Finance is a radical Islamic construct that has gained traction in recent years with the resurgence of Islam. It promotes the expansion of Shariah, a draconian and discriminatory system of religiously based laws. SCF “scholars” on Supervisory Boards – drawn of necessity from a small pool -- have in the past made violently supremacist statements. SCF is a retrograde financing concept, based on dubious “ethical” principles. It costs more for the borrower. It funds Muslim charities which are non-transparent and in the past have had proven links with terrorist organisations. The requirement for the government to amend tax and related laws makes SCF discriminatory, the opposite of the “socially inclusive” environment promoted by the Austrade Paper.
Given these concerns about SCF, it is not surprising that Muslim organisations in the west are against it as well, including the American Islamic Centre for Democracy and the Australian Muslims Against Shariah.
· 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: NAB, Westpac, 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 F
Hong Kong
[1] Islamic-banking.com
[2] Timur Kuran, “Islam and Mammon; the economic predicaments of Islamism”. Princeton University Press, p. 52.
[3] “’Broad support’ for Australian Shariah Law”, news.com.au, March 08, 2010.
[4] Perhaps the best reference on Shariah law is the Umdat Al-Salik (“Reliance of the Traveller”), Amana Publications, 1994. This is the “Classic Manual of Islamic Jurisprudence”.
[5] All SCF providers must appoint an SCF Supervisory Board or Committee, made up of Shariah Law experts, called “scholars” in the Austrade Paper.
[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] AAOIFI: Accounting and Auditing Organisation for Islamic Financial Institutions. Austrade Paper, p19.
[10] Incidentally, 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] This description is courtesy of a Doha-based Islamic finance expert, who has worked with Islamic Banks, and Islamic finance with the World Bank, Islamic Development Bank and the African Development Bank. May 2010.
[12] Devon Bank FAQ, devonbank.com/Islamic/faq.html. “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 Islamic-finance.com. 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…”
[15] assisant.treasurer.gov.au. Nick Sherry speech in Doha on 27th April 2010.
[16] Shariah’s “Black Box”: Civil Liability and Criminal Exposure surrounding Shariah-Compliant Finance. David Yerushalmi. Utah Law Review, No. 3, 2008
