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The Threat of Shariah-Compliant Finance



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News of the financial meltdown of Dubai World — a quasi-sovereign global concern that owns 77 percent of the international port manager DP World and is the single largest real-estate developer in Dubai, which is known for its palm-tree-shaped luxury residential developments — has raced from the business pages to the headlines of the front pages in a matter of days. Since the first reports on Thanksgiving, the Wall Street Journal and just about every other major media outlet are now reporting on the worldwide implications of this latest financial shockwave.

What makes this story more than simply one of a massive real-estate-investment company gone bad is the double-edged sword so prevalent in the chase for oil-based Middle East wealth: sovereign wealth funds and Shariah-compliant finance.

Beginning in the 1970s with the Carter-era oil embargo and accelerating during the post-9/11 oil-price spikes, Persian Gulf countries like Saudi Arabia and the U.A.E.’s wealthiest city-state of Abu Dhabi have been awash in liquidity. These trillion-dollar cash reserves are controlled in every case by the respective royal families, typically in sovereign or quasi-sovereign wealth funds.

Another phenomenon that followed the great Oil Rush of the post-9/11 era was the promotion and aggressive exportation of a Muslim Brotherhood doctrine called Shariah-compliant finance (SCF). SCF or “Islamic finance” was first articulated in the mid-20th century by men like Sayyid Qutb of Egypt and Abul Ala Maududi of Pakistan, both of whom argued for a jihad against Westernization and for the creation of Islamic polities that would ultimately join in a hegemonic global Caliphate, with the goal of establishing Shariah not merely as the supreme law of the land, but as the supreme law of the world.

In the post-9/11 era, Western imams and their infidel advisors in business suits speaking the Queen’s English have understood that, given the global jihad’s reliance on the dictates of Shariah to murder apostates and terrorize the infidels into submission, SCF must be attired in a kind of progressive Western garb to attract the attention of the financial centers in London, Hong Kong, and New York. So it was that SCF became known as “Ethical Investing” and Western and Muslim financiers began lecturing the world that fraud and abuse in the financial markets were driven by the desire for forbidden gain through interest and gambling. They told us that SCF was based not on forbidden interest and speculative paper assets, but on profits acquired through equity participation and sound investing in real assets.

Dubai World, a company wholly owned by the Dubai sovereign, has funded itself through debt to the tune of $60 billion in the form of Shariah-compliant bonds (or “sukuk”). These bonds pay interest just like their forbidden cousins in the Western markets, but the interest is put into the black box of Shariah-created fictions and “special purpose vehicles” to keep the forbidden interest off the books. What we now see as a real-estate-bubble collapse in Dubai is no different and no more or less ethical than any other financial failure. But what makes this collapse so problematic is precisely what makes SCF and sovereign wealth funds so dangerous.

To understand the rather opaque world of Islamic finance, one must understand the players. Since its founding, the modern SCF world has been driven by essentially two groups. The first we can label the Shariah fundamentalists. They come in the form of the fundamentalists in Saudi Arabia and Iran and the Muslim Brotherhood “political Islamists” operating principally in Egypt, Jordan, Pakistan, Indonesia, and Malaysia. These Shariah-inspired financiers understand SCF as “financial jihad” — indeed, as part of a larger stealth campaign to institutionalize Shariah in the West.

What makes this institutionalization a bit tricky is that the financial jihadists must convince the Western financiers and their governmental counterparts that Shariah-inspired finance is somehow distinct from Shariah-inspired global jihad against the infidel West. In other words, how do you export a financial model among infidels when that model is built upon a doctrine that manifestly calls for the death and destruction of the infidels and their political and social systems? The answer to this quandary is found in the second group of SCF advocates: the Western facilitators.

The financial jihadists built their strategy upon both sovereign wealth and the cravenness and fecklessness of the Western facilitators who would sell their own well-being and physical security for a place among the Fortune 500. Led by the Saudis but also joined by the other oil-soaked Persian Gulf regimes, the Shariah-inspired jihadists learned quickly that Western financial institutions and their professional lackeys in the legal and accounting fields would do anything for that next billion-dollar transaction.

Greed, self-indulgence, and even treason are of course not new to the international banking and multinational corporate worlds. But what the Shariah advocates have found even more to their liking is the fact that the Western technocrats and government policymakers have been more than willing to ignore Shariah’s call for global jihad and its resonance as the common doctrine articulated by jihadists around the globe.

The result has been the perfect convergence of (1) Western financial markets in dire need of liquidity, (2) the liquidity available in the sovereign wealth funds of the Shariah faithful, and (3) the willful blindness of Western governments.

– David Yerushalmi is an attorney specializing in litigation and general counsel to the Center for Security Policy, a Washington think tank specializing in national security.



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