By Kim Da-ye
The scale of the sukuk market and regulations in place mean profit from issuing Islamic bonds wouldn’t end up in terrorists’ hands, a Switzerland-based expert said Thursday.
“Terrorist financing has gone very small scale. The bad guys send small amounts of cash through couriers or otherwise through the hawala system. They do not use international banking systems. That should be clear to anyone,” John Sandwick, an expert in Islamic finance, elaborated after his first e-mail interview, which was published Thursday.
Hawala is an informal remittance system, which, evidence shows, is used for money laundering.
Nearly all sukuk are purchased by institutional investors, mostly central banks, banks and Islamic insurance companies, and almost none goes to private portfolios, the creator of the first sukuk fund said.
Sandwick says that all those entities have strict anti-money laundering procedures in place and are fully compliant with the Financial Action Task Force (FATF) regulations.
The FATF is part of the OECD with the global anti-terrorism financing regulatory power.
“Every bank in Arabia, just like just about every bank in Asia and Europe, is overseen by FATF regulations,” Sandwick said.
He rebutted in more detail against claims that 2.5 percent of proceeds from sukuk issuance or profits from sukuk could be collected as zakat, the religious tax for the poor, and go to Islamic charities, which might support extremists.
When sukuk is issued, it is managed by a lead manager that hires a lead arranger that sells Islamic bonds to investors, Sandwick explained. Any transfer of cash to purchase sukuk must be done under the FATF regulations.
“I have personally seen Islamic charities in Saudi Arabia go from a Wild West show to a tightly regulated industry. Ten years ago I can understand how charities may have been the source of terrorist financing ― but that still has nothing to do with sukuk,” Sandwick who lived in the Middle East said.
“Today they have deep, penetrating audits and are overseen by government regulators.”