An Eichmann Moment?

"The once-booming market for Islamic-friendly bonds, having suffered a contraction amid the credit crisis, now faces a new challenge: default. The fledgling market in recent months experienced its first two defaults, and they aren't expected to be the last as issuers like Saad Group hit financial difficulties. This is taking investors and courts into uncharted territory as they seek to apply Western laws to bonds that were designed to comply with Islamic law, or Shariah. ... Sukuk bonds get around the Islamic ban on speculation and paying interest by using devices such as sale-repurchase deals. Although based on centuries-old religious law, the sukuk market has become a 21st-century phenonemon. ... In 2007, respected Pakistani scholar Muhammad Taqi Usmani [TU] delivered a bombshell, suggesting that the most popular type of sukuk structures, responsible for up to 85% of issues were unlawful according to Islam. The problem: They offered partial or total guarantees of repayments or of annual distributions, which ran counter to the Islamic principle that parties to a financial transaction must share in the risks and rewards attached to it. Last year, the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions formally ruled such structures weren't Shariah-compliant. ... [TU] 'didn't realize how much his views mattered,' says Dawood Ahmedji, director of Islamic Finance at Deloitte LLP. ... The structure of sukuk bonds can invite challenges and delay as Western bankruptcy judges accustomed to traditional bonds try to figure out where sukuk holders belong in the line of creditors, and even whether they are creditors or owners", my emphasis, Stephen Fidler at the WSJ, 16 June 2009, link: http://online.wsj.com/article/SB124510859262816907.html.

Investment bankers, lawyers and CPAs associated with these sukuks have more guts than brains. They're lucky Israel's Mossad doesn't try to make some friends in: Saudi Arabia, Kuwait, the UAE and other Arab states by giving us another "Eichmann Moment", i.e., kidnapping all associated with these sukuks and giving them to the Saudis to deal with. If lucky, each will only lose one hand. If unlucky, a hand and foot on opposite sides. Go Mossad! That lawyers and CPAs pronounced the sukuks "halal", like those in the East Cameron (EC) case, shows "Goldman Sachism" pervades the Islamic world too. The EC sukuks were issued through a "special purpose vehicle". Uh, oh. I say balderdash, agreeing with London Judge Robert Summerhays. EC should be estopped from claiming sukuks were "halal" at issuance and now sukuk holders are creditors as opposed to royalty stream part owners. Having studied sukuks, I agree with TU. Ahmedji, at Deloitte's in London, have you no integrity? Or do I know more about Shariah Finance than you? Did you not see these instruments were "haram"? TU knew exactly what he was doing. I presume the changed circumstance will mean fewer fees to Deloitte.

War story time. About six or seven years ago, I was approached to write a special report on some sukuks. After studying the CPA rules I concluded I could write the requested report. I next studied Shariah and concluded the proposed sukuks were "haram". I never heard from the investment banker trying to peddle these things again. This ain't that tough.