Watch Wall Street getting ready to invest in the Saudi stock market in 2009, when institutional investors will be permitted entry - right after the presidential elections in 2008…in fact, let’s look at Shariah finance on both Wall Street and Main Street. It’s not that complicated, really - and we do the long division so you don’t have to.

We’ll start with Wall Street and then move to Main Street where it gets fun…
Wall Street and Shariah Finance:
The Saudi market has now climbed out of the worst of its crash, but in 2006, the Saudi stock market dropped 60%. The Saudi market crash came after a three-year buying frenzy as oil costs had skyrocketed after the Iraq invasion.

One of the many financial weaknesses of shariah finance is this incentive for investors not to diversify across investment types, and therefore to create greater market volatility, according to Gulf Economist:

Following the invasion of Iraq oil prices rocketed after a long period of relative stability, setting Saudi Arabia –which has the biggest proven oil reserves in the world- awash with liquidity. Excess liquidity tends to flow straight to stock markets, especially in a nation whose banks operate by the principles of halal finance and do not give interest payments. This flow inflates prices, without substantial justification in underlying fundamentals such as expected future returns. Even companies with very bleak future prospects saw their stock’s gain strength.

At the peak, Saudi P/E ratios averaged 40, based on a projection of oil prices that assumed a dire situation for the rest of the world (emphasis mine):

An earning multiple of 40 is acceptable for some investors if one expects a company to perform above-average strong (progressive) growth in the near future. But in the case of the Saudi economy, the performances of these companies were almost linearly linked to the oil price and in retrospect it was not particularly wise to expect progressive rise in oil prices. Even in the event that oil prices would peak at 120 USD per barrel, the world economy would be dealt such an enormous blow that it would take the Saudi economy (Saudis are heavily invested in oversees markets, especially in the US) down as well, dealing a blow to the Saudis indirectly, but not less severely.

So, let’s look at the scorecard. The Saudis are already invested heavily in the U.S. markets, and in 2009 new World Trade Organization directives will permit Wall Street to invest similarly in Saudi Arabia:

Morgan Stanley, Merrill Lynch, BNP Paribas and Deutsche Bank have already taken up licences for investment banking. These big guns know that the Saudi stock market presents the biggest potential of all the Gulf countries, and by 2009, and that they could be a serious part of the action.

I’m all for free markets, greater global integration and so on - if the rules of integration favor transparency and actual free markets in free democracies. But will this greater integration of our investment communities be conducted under sharia financial law in Saudi Arabia, resulting in the increasing influence in the U.S. investment community of sharia finance? Is integration just another word for infiltration, and then “accommodation” to Sharia requirements, and finally general enforcement of Shariah compliance?

Well, sure. Here’s how.

Heightened Political Risk at home and abroad: Preparations for U.S. institutional investments in Saudi Arabia’s stock market over the next two years also are happening on Bush’s watch. “Bush’s watch” is now something of an oxymoron, given the increasing appeasement of the Bush administration towards the Muslim Brotherhood and Wahhabi interests in the US.
The bigger context - Shariah Finance: We’ll try to cover more about Sharia finance here in coming articles. For a highly sympathetic view of Sharia finance, see this 2005 piece from Middle East North African Financial networks:

A DECADE ago, a term such as “interest free banking ” would have been an adequate description of the emerging Islamic financial system that has transformed banking systems, economic alignments and capital markets from Morocco to the Levant, from Pakistan and Iran to the AGCC and the Southeast Asian states of Malaysia and Indonesia.

There are now dozens of specialist financial institutions existing across the spectrum of Sharia finance and entire industries from home mortgage finance to project finance in the Middle East now bear the imprimatur of parallel Islamic capital market product supplier.

With $300 billion in assets, 275 institutions in 80 countries worldwide, several hundred funds across all asset classes, a growing venture capital and insurance (takaful) industry, a compound asset growth of 15 per cent and the growing trend of conventional banks in the Middle East to convert to Islamic financial intermediaries, it is far more accurate to speak of a constellation of Islamic financial systems that encompass Sharia compliant banking, capital markets, insurance, leasing, venture capital, consumer finance, real estate, commodities trading and fund management.

Efforts are underway in the UK (pioneering in financial innovation AND dhimmitude) to expand on a January 2007 “memorandum of understanding” between the International Capital Market Association and the International Islamic Financial Market, presented in this June 2007 meeting, the International Islamic Financial Market Conference in Bahrain. The Memorandum committed ICMA and the IIFM to establish joint working groups to develop standardised best market practice for issuing and trading Islamic bonds, or Sukuks, based on the IIFM’s handy background brief on sharia finance.

The Recommendations in that handy background brief for “Host Countries” include these accommodations to shariah finance (”Desired policy actions by host country,” page 11, and emphasis is mine as usual):

Relevant laws on government borrowings may need to stipulate Islamic capital market instruments explicitly as eligible financing tools for government finance

Public-sector bodies (including the government, state-owned enterprises, etc.), which own the infrastructure assets, need be able to enter into Sharia’ compliant financing contracts (e.g. Ijara’)

Host government should examine if and how it can benefit from various policy actions, both in terms of resource mobilization as well as financial market development

“Political will” of the host country is a prerequisite

At the same time, the host government as the user of funds should bear its fiduciary duties in mind; funding cost matters

So between now and, say, January 2009, look for legislative initiatives compelling our “political will” and “stipulating Islamic capital marketing instruments for government finance,” in a bipartisan push from the White House as well as Congress, in the remainder of this administration and the next one, unless we get some candidates who prefer free markets over the Islamist variety .
Main Street and NAIT - Buying up America one piece of the Dar al-Harb at a time:North American Islamic Trust Here in the U.S. we already have major shariah financial institutions and real estate investments, in the form of the (NAIT), a venture of the Islamic Society of North America, a recent addition to the growing list of unindicted co-conspirators to charges of funding terrorism. Just as the Muslim American Society is associated with the Muslim Brotherhood, the Islamic Society of North America is associated with Wahhabi financial, religious and imperialist interests; nice how that pincer action is handled, and very tidy too.
Judicial Watch recently published a report (“Muslim Charities: Moderate Non-profits or Elaborate Deceptions?“) on Islamic “charities” in the U.S., citing terrorism expert J. Michael Waller’s testimony before the Senate Judiciary Committee :

NAIT owns between 50 and 80 percent of North American mosques and was raided in 2002 by the U.S. Treasury’s “Operation Green Quest” for suspected involvement with terrorist financing.

If you’re looking for a job, by the way, ISNA is advertising for a waqf fund manager for NAIT. Money’s not great - $50,000 - $75,000 - but the ground floor opportunities are terrific. NAIT is also a major supplier of radical Wahhabist books and audio recordings throughout the U.S., through their Audio Visual Center and Islamic Book Service. According to Daniel Pipes’ Middle East Forum:

The North Atlantic Islamic Trust is a Saudi/Wahhabist funding source which finances the majority of Islamic organisations and mosques in the US. NAIT was established in 1971 by the Muslim Student Association of the U.S. and Canada, which bills itself as the precursor to the ISNA, now the largest member of the Wahhabi lobby. According to Newsweek, authorities say that over the years “NAIT money has helped the Saudi Arabian sect of Wahhabism—or Salafism, as the broader, Pan-Islamic movement is called—to seize control of hundreds of mosques in U.S. Muslim communities.”

NAIT describes itself:

The North American Islamic Trust (NAIT) is a waqf, the historical Islamic equivalent of an American trust or endowment, serving Muslims in the United States and their institutions. NAIT facilitates the realization of American Muslims’ desire for a virtuous and happy life in a Shari’ah-compliant way.

NAIT is a not-for-profit entity that qualifies as a tax-exempt organization under Section 501(c) (3) of the Internal Revenue Code. NAIT was established in 1973 in Indiana by the Muslim Students Association of U.S. and Canada (MSA), the predecessor of the Islamic Society of North America (ISNA). NAIT supports and provides services to ISNA, MSA, their affiliates, and other Islamic centers and institutions. The President of ISNA is an ex-officio member of the Board of Trustees of NAIT.

NAIT holds titles to mosques, Islamic centers, schools, and other real estate to safeguard and pool the assets of the American Muslim community, develops financial vehicles and products that are compatible with both the Shari’ah (Islamic law) and the American law, publishes and distributes credible Islamic literature, and facilitates and coordinates community projects.

• Islamic Centers, Mosques and Schools:
1. NAIT offers waqf protection to properties of Islamic centers, safeguards these community assets, and ensures conformity to the Islamic purpose(s) for which their founders established them. NAIT holds titles of approximately 300 properties. NAIT does not administer these institutions or interfere in their daily management, but is available to support and advise them regarding their operation in conformity with the Shari’ah.

2. NAIT facilitates the establishment of Islamic centers, mosques and schools by extending limited interest-free loans from its Islamic Centers Cooperative Fund (ICCF) to needy communities.

• Financial Services
NAIT develops Islamic financial products that address the investment and financial needs of Muslim organizations, individuals and their businesses, within the boundaries of the Shari’ah. Over the last two decades, NAIT has established and sponsored mutual funds that invest in companies which meet the universal ethical principles of Islam. The Dow Jones Islamic Fund (IMANX) is a no-load mutual fund offered by Allied Asset Advisors, a subsidiary of NAIT. It invests in Shari’ah-compliant companies. It includes, among others, shares of stocks from the Dow Jones Islamic Market Indexes, which consist solely of common stocks that meet universal Islamic principles, as advised by a Shari’ah Supervisory Board of six prominent Islamic scholars from six countries. Investment objectives, risks, charges, expenses, etc. of the Dow Jones Islamic Fund (IMANX) are described in a prospectus that can be obtained by calling, or visiting www.investaaa.com

Main Street Sharia Finance, California: CAIR’S investments with NAIT: As NAIT says, hundreds of Islamic organizations either invest with NAIT or place their real estate titles in the NAIT trust, possibly into perpetuity. For example, the California branch of CAIR lists investments with NAIT in their 2002 990 filing (p. 3, line 56 for $325,000, also described in attachment, p. 16).

Main Street Sharia Finance, Virginia: Once NAIT has a U.S. property, it keeps it - once part of Dar al-Islam, always part of Dar al-Islam. And it isn’t just holding the title - it’s enforcing the “Basic Law.”

For example, see the “Constitution and Bylaws of the Islamic Center of Blacksburg, ICB,” a new mosque raising funds and starting construction in Blacksburg, Virginia (home of Virginia Tech University):

The following items constitute the BASIC LAW which is unchangeable partially or completely.

SECTION 1. CRITERIA FOR THE ORGANIZATION MEMBERS

a. Their belief should be based on Qur’an and Sunnah according to the methodology of the people of Sunnah and Jama’ah, i.e. the four main Matha’hib; Hanafy, Maliky, Shafi’iy, and Hanbaly, and other Muslims who base their understanding exclusively on Qur’an and Sunnah of the prophet Muhammad (SAW) and the Sunnah of the four rightly guided Caliphs (Abu-Bakr, Omar, Othman and Ali (may Allah (SWT) be pleased with all of them).

b. They should be of good Islamic conduct.

c. The membership shall be immediately revoked if a member does not comply with the criteria mentioned in 1.a and 1.b.

SECTION 2

Any Islamic Law, Shar’i, issue or matter in the ICB is not a subject to be voted upon. It is to be referred exclusively to the Imam of ICB for a verdict, see Art. XVI. If the Imam is absent, it is to be referred for a verdict to the ICB Fiqh council formed of three Fiqh scholars who fit the criteria mentioned in 1.a and 1.b above. The choice of the three fiqh scholars is to decided by the Shurah Council as detailed in Art. VIII, Sec. 3.

SECTION 4

The North American Islamic Trust (NAIT) Inc. has the authority to intervene to ensure/enforce compliance with the Basic Law.

ARTICLE IV: NATURE & AFFILIATION

SECTION 2

The Islamic Center building estate is the property of the North American Islamic Trust, NAIT. All the assets of Islamic Center are to be transferred to NAIT (or other Islamic Waqfs as seen by the ICB Shurah Council) in case the ICB is to be dissolved (may Allah (SWT) forbid).

So, that means NAIT has a lot of revenue or assets or at least a little walking around money, right? Gosh, no. Poor as church mice - er, mosque mice…

NAIT is a 501c3 but does not report a 990 tax form to the IRS, at least according to Guidestar reporting service, because “This organization is not required to file an annual return with the IRS because its income is less than $25,000.” See the report at Guidestar for yourself.

But …NAIT holds the title to 300 properties (low estimate) or 80% (high estimate) of all Islamic properties in the U.S., and presumably Canada as well on top of those;

But…NAIT manages investments of numerous well-funded (petroWahhabi-funded) organizations such as CAIR;

But…NAIT keeps trying to hire managers at $50,000 - $75,000/year;

But….NAIT manages the Dow Jones Islamic Fund, which according to their annual report for 2006 has net assets of $26,799,847. The boards of directors of NAIT and of the fund overlap with several members (p. 23 of the Annual report). According to the Annual Report notes (emphasis mine) (p. 18):

6. Beneficial Ownership
The beneficial ownership, either directly or indirectly, of
more than 25% of the voting securities of a fund creates a
presumption of control of the fund, under Section 2(a)(9) of
the Investment Company Act of 1940. As of May 31, 2006,
the North American Islamic Trust (NAIT) held 71.55% of the
Fund. NAIT is the parent company of the Advisor.

Hmm, ok, NAIT is the parent company of the Advisor, and it holds 71.55% of a fund with a net worth of $26,799,847 (so that’s around $19,175,291 in the kitty) . So if NAIT is the daddy of the Advisor, who’s the Advisor? Pages 16 and 17 of that provocative and well-written 2006 Annual Report tell us:

(p. 16): Allied Asset Advisors Funds (the “Trust”), an open-end
management investment company, was organized as a
Delaware business trust on January 14, 2000. The Trust
currently offers one series of shares to investors, the Dow
JonesSM Islamic Fund (f/k/a Dow Jones Islamic Index Fund)
(the “Fund”), a diversified series of the Trust. Allied Asset
Advisors, Inc. (“AAA”or the “Advisor”), a Delaware
corporation, serves as an investment advisor to the Fund….

(p. 17): The Trust has an Investment Advisory Agreement (the
“Agreement”) with the Advisor, with whom certain officers
and Trustees of the Trust are affiliated, to furnish investment
advisory services to the Fund. Under the terms of the
Agreement, the Trust, on behalf of the Fund, compensates the
Advisor for its management services at the annual rate of
0.75% of the Fund’s daily average net assets.

The Advisor (affiliated with NAIT officers and trustees) is paid fees - $405,381 - for managing the fund, no surprise there. So pick just about any SEC document you want, to check out that (really generically named) “Allied Assets Advisors Funds” and guess what?

The address of the “principal executive office for Allied Assets Advisors Funds is: 745 McClintock Drive, Suite 314, Burr Ridge IL 60527, and Bassam Osman is the registered agent. Dr. Osman is also on the board of the Dow Jones Islamic Fund, and on the board of NAIT. The other name listed is Mohammad Basheeruddin, who is also on the board of the Dow Jones Islamic Fund, same street address (745 McClintock Drive) but Suite 114. And what makes this come full-circle, literally, are the various listings of the address for the North American Islamist Trust ALSO at the same street address, Suite 314 (that would be the same as the Allied Assets Advisors Funds “principle executive office”) - see here and here . It’s very convenient, everyone sharing office space this way, for NAIT to oversee the Dow Jones Fund trustees who oversee the Allied Assets Advisors Funds who are in the office (and seem to be many of the same people) as the NAIT and Dow Jones Fund.

You can look forward to this same approach to oversight in our U.S. financial institutions, as similar sharia financial standards are applied - what was that wording? Right - “Relevant laws on government borrowings may need to stipulate Islamic capital market instruments explicitly as eligible financing tools for government finance.”

This has been fun. Let’s review just the bit on Dr. Bassam Osman, whose time management skills are a model for us all:

He is the registered agent for the Allied Assets Advisors Funds which manages the Dow Jones Islamic Trust where he is both Chairperson and President, of which 71.55% (around $19,175,291) is owned by the North American Islamic Trust, where he is also a trustee.

NAIT owns titles of between 300 and 80% of roughly 1200 properties in the U.S. At a very low estimated value of $300,000 each (totally a SWAG I admit, but surely conservative), those are real assets valued from $90 million to $288 million.

But they report - for IRS purposes, at least according to Guidestar - that their income is below $25,000, and therefore they file nothing with the IRS. I welcome information that they ARE filing documents, and also copies of those documents so we can post them here for public review. Please send them to Guidestar as well, so they can include them in their extremely up-to-date and well-maintained database.

Dr. Osman has a long history leading interesting Islamist non-profit organizations. According to the testimony of Senator Charles Schumer (D-NY) for the Senate Judiciary Subcommittee Hearing on Terrorism, Technology and Homeland Security:

Bassam Osman, was previously the director of the Quranic Literary Institute, an Oak Lawn, Illinois organization that had $1.4 million in assets seized by the Justice Department in June 1998 on the grounds that it was used to support Hamas terrorist activities.

Welcome to shariah finance, coming soon to a mosque, fund or local bank in your neighborhood, if the Republican candidates for 2008 don’t put a stop to it. Bush won’t; Hillary won’t; Obama won’t.

Who will?

” ‘Political will’ of the host country is a prerequisite….”