Counterterrorism Blog

One impact of the collapse of a number of major institutions on Wall Street this year (a trend which will continue into next year) will be to enhance the influence of "Islamic finance" (or "shariah finance") vehicles which have arisen in the past five years. The prime mover of capital into these vehicles has been the high price of crude oil, which has moved hundreds of billions of dollars of capital towards the Islamic world. I posted on the potential risk of the development of these vehicles in a post here on June 30:

"Financial institutions are especially keen on reaching new markets, and others in the audience foresee the opportunity to engage in outreach and peace-building efforts. But they should take a breath and first survey that subject more deeply before diving into it... (I)t is painfully obvious that Wall Street mavens who lust for better connections and expanded markets in the islamic world often have no clue to the backgrounds, connections, ideologies, or ultimate goals of some of the central officials and organizations involved in many "Islamic finance" or "shariah finance" vehicles. Neither does Wall Street, nor K Street in Washington for that matter, realize that shariah finance vehicles are seen by Islamists as perfect indirect mechanisms for funding the implementation of extremist shariah law and/or violent jihad."

The opportunites and risks were also discussed in the report, "Dealing With Today’s Asymmetric Threat to U.S. and Global Security," which resulted from a seminar in which several of us participated in May, co-sponsored by the National Defense University and CACI International.

"In addition, Islamic finance structures are growing, redistributing the world’s wealth and economic power. In order to regain our status and compete with the Islamic world, the U.S. and the Western World must do business in the Middle East. To be able to help these countries build their infrastructures, and also to avoid shutting out U.S. businesses, it is critically important that the U.S. start thinking about entering this non-traditional marketplace. Other industrialized nations, such as Japan, Korea, and Great Britain, are already working in the Middle East and, in some cases, accepting Islamic financing. While this model is different for us, we must look at it as a good move from a trade perspective, with a potential side benefit of creating U.S. jobs... However, there is growing concern within the U.S. Department of Treasury and elsewhere that Islamic financing vehicles are contributing a portion of funds to other groups that are intent on using radical Islamist approaches and enabling the gradual subversion of Western culture. Therefore, the U.S. must be attentive to sources of Islamist financing in order to establish whether they contribute, directly or indirectly, to money laundering, terrorist financing, or the enforcement of strict Sharia law."

I personally wrote the last two sentences above based on information in May from sources, but last week I was told that senior Treasury Department officials seem to have little current concern about "Islamic finance" vehicles. We'll find out whether they are right soon. The permanent demise of Wall Steet as the preeminent center of finance and capital in the world will lead to more reliance on these recently vested centers of capital, with political capital shifting with it.

UPDATE, Sept. 16: For a concurring opinion, see Frank Gaffney's op-ed in today's Washington Times, "Wall Street, what's next?"