Terrorist money and witch hunt against Islamic banks
By Mushtak Parker, Arab News, 14 October 2001
The campaign by the Bush administration and its Western allies to root out the finances of individuals and organizations suspected of supporting terrorism, in the aftermath of the recent terrorist attacks in New York and Washington, is in danger of disintegrating into a witch hunt against Islamic banks.

A barrage of disinformation, factual errors and innuendo in articles published by the Western media including the Daily Mail in London and Le Monde in Paris relating to terrorist funds especially those linked to Osama Bin Laden, has prompted a number of Gulf Islamic banks to seek legal advice, with a strong possibility of suing for libel.

Le Monde on Tuesday went to the extraordinary length of rewriting an earlier published article, which wrongly included the names of Gulf banks such as Bahrain International Bank, on a list of suspected banks reportedly published and circulated by the French regulatory authorities.

Other wire services have joined the fray. Bloomberg wire services on Tuesday published a report which stated that “the (UK) FSA’s publication of the US Treasury’s list of Islamic and other banks and individuals follows last week’s publication of the US Federal Bureau of Investigation’s list of individuals allegedly involved in the terrorist attacks.”

On Tuesday the Financial Times published a damning feature titled “The Economic Failure of Islam” in which the author, Martin Wolf, asserted that the failures of the Muslim world are due to a lack of economic, social and political freedoms, which in any case are in conflict with ‘Islam’s traditional practice”.

The FSA (Financial Services Authority) has denied that it has published or circulated such a list, and stressed that some of the reporting is merely part of the media hype, and acknowledged that British and other Western financial institutions have long-established relationships with Islamic and conventional banks from the Middle East region. Asked whether the FSA was about to publish such as list, a spokesman replied that he was not aware of such a list and that “the FSA is not in the business of jumping on any bandwagon.”

The FSA did release on Tuesday a list published by the US Office of Foreign Assets Controls (OFAC), following an Order issued on Monday by President George Bush targeting terrorists and blocking the accounts of a number or organizations and individuals.

Not surprisingly, the names on the list are those of Osama Bin Laden and his associates, and organizations either with or suspected to have close links with him and his network. Not a single bank is included in the list.

The UK authorities have already frozen one account — a dormant account held at the Barclays Bank branch in London’s Notting Hill, of an Arab individual suspected with links to Bin Laden.

No one knows the amount of funds allegedly held by these individuals or organizations, with figures ranging from $200 million to over $1.5 billion, reflecting the sheer scale of guesswork involved. Nor do they know how the funds are being laundered or processed. The Hundi system of remitting workers’ money against chits from the Gulf to south Asia has been cited. But bankers are doubtful about the scale of these operations saying that the majority of remittances are still being transferred through the mainstream banking system.

The FSA’s managing director of Regulatory Processes and Risk, Carol Sergeant, stressed that “as with the names of suspected terrorists published recently by the FBI, it is important that all firms should review any dealings with the individuals and entities named by OFAC, if they have not already done so.”

A number of banks in London have confirmed to Arab News that they been holding unscheduled board meetings to ensure that they review their links with individuals, entities and institutions from the Muslim countries, and with the FSA directive.

The moves, they stressed, were purely routine and would not affect their existing client and institutional relationships with Gulf banks. However, a number of Western banks, following the publication of the Le Monde article written by Babette Stern, and the naming of several Islamic banks including Kuwait Finance House, Dubai Islamic Bank, Bahrain Islamic Bank, Al-Shamal Islamic Bank in Sudan, Tadamon Islamic Bank in Sudan, and Faisal Islamic Bank of Sudan, allegedly on the list of suspected banks issued by the French authorities, have confirmed that they are adopting a softly-softly approach in their relationships with Gulf banks, but not severing any links.

Banks such as Kuwait Finance House (KFH) and Dubai Islamic Bank are effectively sovereigns, because governments hold big stakes in them. Both KFH and DIB are pioneers in the sector, and have maliciously been named partly because they may have had very small equity stakes in one or two banks in Sudan.

The irony of course is that KFH, one of the major Islamic banks, recently signed a ground-breaking agreement with a major French bank BNP Paribas to launch a $5 billion Islamic leasing securitization fund. Does this association with KFH qualify BNP Paribas to be included on the French list of suspected banks?

KFH also earlier this year signed an agreement with Airbus Industrie, the European aircraft consortium, to buy four Airbus A320-200s worth $200 million. Once again, does this association put Airbus Industrie on the suspect list?

While Islamic banks in general report “business as usual”, there is no doubt that the sector has been affected. One banker stressed that the deal market is a “dead market” and that the situation will persist for some months to come.

Yet some Western institutions such as Towry Law International, part of the giant Australian financial services group AMP, have given the thumbs up to Islamic finance. This week Towry Law launched the $20m Mutajarah Fund in Bahrain, which it claims is the first Shariah-approved multi-manager alternative investment fund employing various hedge fund managers to trade the fund’s capital. The fund is seen as an alternative to investment in equities, commodities and currencies.

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