Stealth jihadists

What could be sinister about investing your money according to your values? The legendary investor Sir John Templeton famously avoided tobacco and other "sin" stocks. This kind of "socially responsible investing" (SRI) traces its roots to a Quaker meeting in 1758, when church leaders told members not to do business with or invest in any company involved in the slave trade. Today, SRI accounts for at least $3 trillion, more than 12 percent of all assets under management in the United States. Some Christians take it a step further with "biblically responsible investing," avoiding stocks with ties to abortion, homosexuality, and other anti-Christian activities.

So why shouldn't Muslims do the same? Because Sharia law goes well beyond avoiding sin stocks, says Kevin Freeman, who used to work for Templeton. Freeman wrote a 2009 study on economic terrorism for the Department of Defense. A key conclusion of the study: "One of the requirements of Sharia law is to fund jihad. So these funds are helping to kill American soldiers."

But proving that, or determining exactly how much money is in Sharia compliant finance (SCF), is difficult due to a lack of transparency. Freeman's study estimated SCF funds at about $800 billion in 2008. More recent estimates put the total at $1.2 trillion—50 percent growth in less than four years. In addition, several Muslim countries invest government funds in compliance with Sharia law—in part to pacify radical jihadists. Freeman estimates this "sovereign wealth" investment in SCF could top $4 trillion. "That's 25 percent of the U.S. gross domestic product," he said. "All invested at the whim of jihadist Sharia scholars."

All this money—despite its questionable sources and uses—has been too much for mainstream financial institutions to pass up. Some now offer Sharia compliant services. In 2000 financial giant Dow Jones created the Dow Jones Islamic Fund, a Sharia compliant mutual fund. Retail brokerage firms including Schwab, TD Waterhouse, and AmeriTrade offer the fund to their customers.

Rachel Ehrenfeld of the Economic Warfare Institute warns that this concentrated wealth has the power to disrupt global markets, in part because of its lack of transparency. She believes Sharia funds could be the source of the so-called "flash crashes" that occasionally afflict the markets. A joint report by the Securities and Exchange Commission and the Commodity Futures Trading Commission could not rule out terrorism as a cause for a May 6, 2010, crash that caused the Dow to drop 1,000 points.

SCF funds also channel at least $10 billion a year to Muslim charities as part of zakat, charitable contributions required by Islamic law. Additional funds go to Muslim charities via "purification" payments, payments made if Muslim clerics who sit on the boards of these funds discover that portfolio companies engage in non-Sharia compliant activities.

Some of these charities engage in legitimate work, but Christopher Holton, editor of the website "Shariah Finance Watch," has published a list of 27 Muslim charities with ties to terrorism. In addition, an umbrella group called Union of Good funds an additional 53 charities.

Holton cannot prove a straight line between SCF funds and terrorism, but consider this: The head of Union of Good is Sheikh Yusuf al-Qaradawi, who has been banned from entering the United States since 1999 because of his ties to terror groups. At a 2003 conference in Stockholm, he condoned suicide attacks against Israeli citizens, calling the fight against Israel a "necessary jihad." Al-Qaradawi is also chairman of the Sharia Advisory Board of Qatar Islamic Bank (QIB), which owns the largest Sharia compliant banking network in the world.

Even those sounding the warnings against Sharia finance admit that this evidence is circumstantial and requires some careful "connecting the dots." But by connecting these dots, a picture starts to emerge, according to Frank Gaffney, president of the Center for Security Policy. That picture, Gaffney said, is this: "Sharia is not just about religion. It is a totalitarian doctrine, and Sharia Compliant Finance is an instrument to insinuate it stealthily into Western capital markets and societies."