Home inFocus Fighting Jihad on Wall Street

Fighting Jihad on Wall Street

Christopher Holton Summer 2008

On June 30, 2006, Sheikh Yusuf al-Qardawi, perhaps best known for his rulings in support of Hamas suicide bombings, appeared on the television show BBC Panorama and announced that he was a proponent of “jihad with money because God has ordered us to fight enemies with our lives and with our money.”

Jihadists have changed tactics. Rather than launching direct terrorist attacks against Wall Street infrastructure, as they did on September 11, 2001, some jihadists now seek to infiltrate the U.S. financial system in order to corrupt it from within. Wall Street, unfortunately, does not appear to understand that threat. Corporate executives are now willingly accepting petrodollars in exchange for cultural sensitivity to investments that adhere to shari’a (Islamic law).

In the opposite direction, American mutual fund dollars are flowing into terror-sponsoring states, notably Iran, via European subsidiaries of multinational corporations. Willful blindness and market exuberance are driving these investment flows. Wall Street has failed to conduct the requisite due diligence to protect investors. Moreover, multinationals have yet to provide the necessary transparency or disclosure.

Jihad’s Trojan Horse

Islamic finance is a modern day Trojan horse. Middle East promoters of shari’a finance are careful to emphasize “finance” on Wall Street, while downplaying the central role of “shari’a.” Across the board, executives, lawyers and accountants are failing to uncover and disclose the anti-West doctrine embedded in shari’a finance.

As analyst Alex Alexiev of The Center for Security Policy explains, “Shari’a is a reactionary-to-the-core medieval Islamic doctrine that claims control over every aspect of every Muslim’s life. Shari’a, its promoters tell us, is a God-given Islamic law that is immutable, indivisible, and mandatory for Muslims to follow in all aspects of life… to talk about shari’a finance as something apart from shari’a law is simply dishonest.”

Four regimes have ruled according to strict shari’a law in our time: Iran, Saudi Arabia, Sudan, and the Taliban of Afghanistan, which fell to allied forces in 2002. These regimes have had the world’s worst human rights records, financed Islamist terrorism, and systematically terrorized their people. Under strict shari’a law, women can be beaten for disobeying men, stoned for suspicion of adultery, or forced into child marriages. Strict Islamic societies often employ social police to patrol the population for infractions of Islamic law, and meting out harsh punishments.

Proponents of shari’a-compliant finance seek to legitimize shari’a in the West as a means to spread the influence of this radical brand of Islam. Indeed, shari’a-compliant finance is an underhanded attempt to brand shari’a as neutral or even culturally acceptable in the U.S.

Shari’a Finance in the U.S.

Islamic Finance in the United States is not just being marketed to Muslims. Rather, it is designed to appeal to all investors. Shari’a-compliant mutual funds are now marketed as “socially responsible” funds, based on their prohibition of un-Islamic investments like gambling and alcohol. Western investors are also drawn to shari’a-compliant bonds known as Sukuk because they have attractive yields, the right maturity dates, or the cash flows that buyers seek.

Investors, meanwhile, are not made aware that their dollars may enrich those who seek the systematic destruction of Western culture. It is highly doubtful that post 9-11 investors would choose to invest in these products if it were disclosed that, at its very core, shari’a calls for the submission of all to Islam. That Wall Street firms are failing to disclose this could be considered securities and consumer fraud.

A good way to discern a shari’a-compliant investment’s intentions is to make note of the scholars that sit on its advisory board. There are currently 25 shari’a scholars paid by Citibank, HSBC, UBS, Morgan Stanley, Deutsche Bank, Goldman Sachs, Dow Jones, Standard & Poors, Barclays, Swiss RE, and Guidance Residential, among others. In return for handsome retainers, these scholars provide shari’a guidance.

Consider the case of shari’a scholar Taqi Usmani, a board member of the Dow Jones Islamic Index (IMANX). After his extremist tendencies were revealed in National Review, Investor’s Business Daily, and other publications, the fund pulled his name from the website, where it had been featured prominently since March 2008. Recently, his name re-appeared on the site, seemingly in response to media investigations. Usmani was an officer of a radical madrassa (Islamic school) in Karachi, Pakistan that teaches a violent brand of Islam. Earlier this year, he publicly endorsed jihad by Muslims in the West, suicide bombing, and even expressed support for the Taliban.

Surprisingly, Usmani remains on the shari’a advisory boards of several other Western financial institutions, including Swiss RE, Arcapita, UBS-Warburg, and HSBC. He also remains chairman of the prestigious Accounting and Auditing Organization of Islamic Financial Institutions, the Bahrain-based equivalent of the Financial Accounting Standards Board (FASB) in the United States.

The Influence of Radical Scholars

Shari’a-compliant funds typically donate 2.5 percent of their profits to charity or zakat, according to Islam’s third pillar. Zakat from a shari’a-compliant business goes to charities selected by its scholars. Given the growing number of illegal, terrorist-funding charities in the United States and around the world, American investors in Shari’a-compliant securities could give unwittingly to unlawful or radical charities that Shari’a scholars choose to support.

Indeed, according to the rulings of noted Islamist scholars, including Abul Ala Muadudi and Rashid Rida, one of the eight categories of shari’a-approved zakat includes that which supports jihad “in the cause of Allah” (fi sabil Allah).

“Purification” is another concern. Since interest income, according to Shari’a, is outlawed as “usury,” scholars create vehicles to convert these cash flows into “rent” or “profits.” But not all interest income can be re-packaged. Tainted revenue is “purified” by giving it away to charity.

Zakat and purification raise serious questions about oversight. Although there are more than $1 trillion of Shari’a-compliant assets in banks around the world, to date, no Shari’a-compliant institution has provided disclosure as to where these funds go. Should it be determined that a fund’s zakat or purification monies ended up in the coffers of an illegal terrorist charity, there could be catastrophic financial or criminal implications.

Legal Pitfalls

There are troubling aspects of shari’a-compliant finance that expose the U.S. financial system to risk. Indeed, there are also a host of disclosure, due diligence, and compliance issues that elevate the risk of civil liability and criminal exposure.

To date, Wall Street has not recognized, analyzed, or taken meaningful precautions against this exposure. The disclosure materials produced by the Shari’a-compliant finance industry on Wall Street read like promotional material, not serious legal analysis of trained professionals with a fiduciary responsibility to their clients.

The long-term threats to national security notwithstanding, failure to carefully examine the inherent dangers associated with these investments could easily result in enormous liabilities. U.S. corporations that fail to discover and disclose the significant downside risks of the Shari’a-compliant finance industry could face civil liability in the realms of tort law, securities law, and antitrust. Moreover, these businesses could face criminal exposure in securities, anti-sedition, racketeering, and money-laundering statutes.

The ‘Terror 400’

Shari’a-compliant finance is not the only danger lurking on Wall Street. There are more than 400 mostly foreign companies that have extensive business ties with terrorist-sponsoring nations, such as Iran and Syria. Our state public pension systems (with a few exceptions), university endowments, mutual funds, hedge funds, and other financial institutions are heavily invested in the “Terror 400,” even though U.S. companies are forbidden from doing business with terror-funding states.

Companies typically help terrorist-sponsoring nations in one of three ways. Most often, they help to develop and exploit terrorist-sponsoring nations’ natural resources, such as oil and natural gas. Alternatively, they might transfer sophisticated technology with military applications. Finally, banks and financial services companies can facilitate financial transactions, such as debt or equity offerings of terrorist-sponsoring state-owned companies.


There are two principal reasons why corporations will not cease doing business with terrorist states. Sometimes, these companies choose to ignore the law, preferring to reap financial gains from working with rogue states. More often, however, these operations are legal, particularly if they are foreign companies not subject to U.S. sanctions laws.

Whatever the reason, American investors need not stand for this. U.S. companies caught doing business with rogue states are subject to heavy fines meted out by the U.S. Treasury’s Office of Foreign Assets Control (OFAC).

Non-U.S. companies, for their part, can be punished through divestment. State officials in Missouri, Florida, Louisiana, Maryland, New Jersey, California, and Georgia have passed legislation or instituted policies prohibiting or restricting investment of state monies in companies active in terrorist-sponsoring nations.

Terror-Free Investing

American investors seek to take their retirement money out of the hands of companies that do business with terrorist states for two reasons. First, they want to be good world citizens, and deprive rogue states of the funds needed to finance terror. Second, and just as important, they seek sound investments that are not at risk of losing value due to the growing divestment movement. Thus, selling stocks with ties to terror becomes a matter of risk management and capital protection for fund and pension managers.

Until recently, there were not many choices for individual investors who wanted to invest terror-free. That is now changing, thanks to the formation of a terror-free international investment index. Currently, Credit Suisse, UMB, and Merrill Lynch all offer new terror-free products. The Tributary Group and Roosevelt Investments offer similar funds.

Security and Securities

From shari’a-compliant finance to companies that work with rogue regimes, it is now a challenge to find investments that don’t invite extremism into the fabric of our society, or pump funds to extremists abroad. Americans, however, are quickly learning that they don’t have to make a choice between making profits and supporting extremism.

Christopher Holton is vice president at the Center for Security Policy, a Washington, D.C. think tank, and a contributor to StopShariahNow.org.