Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited
Pure prejudice and purification 18 April 2011
Article Type: Editorial From: Journal of Money Laundering Control, Volume 14, Issue 3
The extent to which Islamic financial institutions and in particular Shari’ah compliant financial transactions are conducive to money laundering is an issue that was raised before 9/11, but subsequently acquired an urgency and assumed significance out of all proportion to reality. Spurred on by a series of ill informed, biased and often misleading publications the perception that Islamic financial institutions were both especially vulnerable to becoming inveigled into laundering type operations and that traditional Islamic financial products and services lent themselves as useful devices grew and festered in the minds of many. Of course, the truth is that there is no evidence that Shari’ah compliant financial activity is any more or less susceptible to abuse and manipulation. While it is true that various aspects of such business and in particular problems associated with valuation and transparency, do not contribute to confidence there are compensating factors. Not least is the very strong condemnation in Shari’ah of anyone taking advantage of illicit or tainted property. This condemnation extends not only to property associated with criminal activity, but also the proceeds of any dishonest act and in particular activities that are prohibited by Islam.
While almost all jurisdictions within which Islamic financial transactions occur have much the same anti-money laundering laws as we do in Britain, albeit there may be differences in their actual application, particular interest has recently been focused on the issue of purification. Controversy has arisen among Islamic scholars in regard to the scope and legitimacy of purifying, for example, an investment – part of the income from which is derived from a prohibited activity or wrongful course of conduct. This is in practice a very important issue and one upon which there are strong and often differing views. In some jurisdictions the proceeds from investments that are later discovered not to be acceptable (halal), have been contributed by Sadaqah and Zakat as charity. Indeed, many scholars in, for example, Malaysia take the view that overseeing this is an important role for a Shari’ah board. It is argued that this serves to “purify” the relevant property and exonerate those responsible for the “mistake”. Those who are perhaps rather more enthusiastic in seeing the promotion of Islamic markets and more complex products in those markets have fully accepted the expedient of purification. However, many other scholars have serious doubts about this.
Where what has been done is forbidden (harim) it is highly questionable whether such a process of purification is acceptable. For example, the Hadith, “whosoever gathered unlawful riches and then gave out in charity, he will have no reward: on the contrary he will have to bear the burden of his evil deed” and the Prophet said:
[…] when a servant of Allah earns property in an unlawful manner and then gives it in charity, it will not be accepted of him. There will be no blessing […] but it becomes a provision for the fire of hell. In reality, Allah does not wipe out evil with evil, but erases evil with good action. Undoubtedly, dirt does not clean dirt.
It would seem, with respect that the better view is that the process of purification is only acceptable if the haram proceeds are incidental and innocently obtained. Except where it is possible to employ the doctrine of necessity, the scope of which is subject to much discussion by scholars, then it would seem that purification cannot take place in regard to haram proceeds that have been deliberately obtained. Of course, some advocate a de minimus approach, but others and probably the majority of scholars see no justification for this expedient.
In a recent report prepared for the Islamic Financial Services Board and the Asian Development Bank (Development of Prudential and Supervision Standards for Islamic Financial Markets, June 2011) considering the legal and regulatory provisions that are necessary for the better development of Islamic financial institutions and markets, the practical necessity of some mechanism that can legitimize inadvertently or unavoidably tainted property is recognized. However, it remains to be seen to what extent more conservative scholars are prepared to find authority for this proposition. Consequently, it is misconceived to think that Islamic finance is any way a soft option for those who wish to hide illicit property and the proceeds of crime.
Barry A.K. Rider