BLOG OF KNOWLEDGE

Available at: http://business.maktoob.com/20090000408562/Credit_Suisse_pays_fine_over_Iran_sanctions/Article.htm

WASHINGTON – US authorities Wednesday hit Credit Suisse with a record fine of 536 million dollars for “egregious” violations of US sanctions on Iran and other countries over a 20-year period. The settlement with the Swiss banking giant represents the largest penalty in the history of the office that monitors violations of US sanctions, officials said.

The US Treasury and other law enforcement agencies concluded that the Swiss bank helped facilitate “hundreds of millions of dollars” funneled in and out of Iran and other countries subject to US sanctions by disguising the transactions, court documents showed. “The criminal misconduct perpetrated by Credit Suisse in this case is simply astounding,” said Attorney General Eric Holder. “This case offers a stark and disturbing example of the lengths to which some corporate wrongdoers are willing to go in seeking ill-gotten financial gains.”

The settlement includes a deferred prosecution agreement that allows the bank to avoid further penalties as long as it steers clear of new violations and cooperates with authorities. “This case arises out of Credit Suisse’s processing of thousands of transactions over a 20-year period that concealed the involvement of sanctioned parties and the routing of wire transfers and securities transactions to and through the United States,” a Treasury statement said. “The great majority of the transactions involved Iran, although there were also transactions that appear to have violated US sanctions on Sudan, Libya, Burma, Cuba, and the former Liberian regime of Charles Taylor.”

Credit Suisse, which indicated on Tuesday that it was preparing the settlement, agreed to pay 268 million dollars each to the United States and to New York state for a total of 536 million dollars, officials said. “The efficacy of our sanctions depends upon vigorous compliance and enforcement,” said Adam Szubin, director of the Treasury Department’s Office of Foreign Assets Control. “Credit Suisse routed transactions through the United States surreptitiously, while knowing that those payments would be blocked or rejected if their true nature had been clear. These practices were not reasonable or authorized under US law.”

Officials said Credit Suisse used elaborate procedures for altering payments to hide their true destination, including stripping out the names of sanctioned parties from payment instructions. Authorities said Credit Suisse’s London affiliate processed trades through the bank’s US branch on behalf of a then-designated Libyan state-owned investment company and a Sudanese bank.

Officials also contended that Credit Suisse sought to take over Iran’s US dollar clearing business when another international bank had stopped its operations in 2003. “As a result, the number of apparently illicit payments involving Iran that passed through the United States dramatically increased from 2002 to 2005,” the Treasury statement said.

“This matter represents an egregious case under OFAC’s enforcement guidelines due to a number of aggravating factors, including the substantial economic benefit to sanctioned parties, the scope and severity of the apparent violations, and the awareness of the conduct within the bank.”

But officials said Credit Suisse cooperated with US investigators and could have faced an even stiffer penalty if it had refused. Other global banks have faced similar probes. British-based Lloyds TSB Bank agreed in January to pay a 350 million dollar penalty to settle a probe that it illegally handled financial transfers for Iran and Sudan in violation of US sanctions.

On Tuesday, Credit Suisse said it had already made policy changes to come into compliance with US sanctions including closing its representative office in Tehran. The settlement was announced by the US Treasury, Department of Justice and Federal Reserve as well as the New York County District Attorney’s office. The Swiss Financial Market Supervisory Authority, the home country supervisor of Credit Suisse, agreed to assist US officials in implementation and supervision of the agreement.

“Justice is the means by which established injustices are sanctioned” Anatole France

Best Regards
ZULKIFLI HASAN
DURHAM, UK

Stadium of Light, Sunderland, UK

World Bank to help Islamic finance evolve binding rules

Reuters/Manama. Available at: http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=332140&version=1&template_id=37&parent_id=17

The World Bank plans to support standard-setting bodies of the Islamic finance industry in turning their voluntary standards into binding banking regulations, a bank official said. The fledgling Islamic finance industry is governed by a patchwork of national banking regulators, its own standard-setting bodies and rulings of scholars interpreting Shariah, or Islamic law.

Bodies such as AAOIFI – the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions – are providing standards to Islamic banks but they have been adopted by only few national regulators. James Adams, World Bank vice president for East Asia and Pacific, told Reuters on the sidelines of an Islamic finance conference that the World Bank was in talks with several standard-setting bodies on how to help them turn their rules into national regulations.

“Clearly, in today’s world standardisation would be an asset both in terms of the ability to regulate with consistent standards, but also for the businesses it’s an enormous asset if they’re able to rely on consistent standards and not be subjected to different standards, “he said on Monday. “What we can provide is access to the governments … particularly through the central banks and ministries of finance, so I think our role is very much to work with the standardisation organisations to facilitate a dialogue (with governments),” Adams said.

Bankers have said that the lack of universal standards in Shariah interpretation and product regulation is a key obstacle for the industry to realise its growth potential. Acceptance of products can differ substantially between its main regions, the Gulf Arab region, South East Asia and Europe.

“Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement”. Dan Quayle

Best Regards
ZULKIFLI HASAN
DURHAM, UK

With Dr. Azzam Tamimi, the director of Institute of Islamic Political Thought at Trafalgar Square, London

Winners Of Islamic Business & Finance 2009 Awards Revealed.

Available at: http://www.zawya.com/story.cfm/sidZAWYA20091215110534

Amid great anticipation among Islamic bankers, financiers and Islamic banking and finance institutions, the 27 winners of the 4th Annual Islamic Business and Finance Awards 2009 were revealed yesterday at a prestigious ceremony in Dubai that brought together some 300 distinguished regional and global industry professionals from around the world.

The Awards ceremony celebrated corporate and individual distinction amongst top performers in the industry. Once again this year, Gulf-based institutions and individuals were able to compete head-to-head with their international peers, scooping more than two thirds of the trophies or 19 awards. Other winners were drawn from Malaysia, Pakistan, United Kingdom, USA, Australia and Luxembourg.

The Islamic Business & Finance Awards were designed to encourage, inspire and reward excellence within the global Islamic Business and Finance community, and they have indeed become the yardstick by which Islamic finance institutions and practitioners across the globe measure themselves.

The top prize of ‘Best Islamic Bank’ went to Dubai Islamic Bank for the second time. The bank had previously won this award in 2007. In addition, individual prizes were awarded to finance professionals whose outstanding contributions have led to the phenomenal growth of this sector, even during one of the most challenging periods in the history of banking and finance. Tan Sri Dato’ Azman Hashim, Chairman of AmBank Group, was honored with the ‘Lifetime Achievement Award,’ while the ‘Outstanding Contribution Award’ was given to Dr. Abdulaziz Bin Naif Al Orayer, Chairman of t’azur. Mohammed Sulaiman Al-Omar, Chief Executive Officer of Kuwait Finance House was named the ‘Islamic Banker of the Year.’

Unlike the corporate categories, where voters were given a short-list of institutions on which to vote, the individual categories were ‘write-ins’ in which members of the global Islamic financial services industry recognized the contributions to Islamic finance by the individual winners.

Thousands of readers of Islamic Business & Finance and registered users of the Islamic finance section of www.cpifinancial.net cast their votes to select the winners from more than 200 nominated institutions, a 75 per cent increase in the number of nominations over 2008!

Nigel Rodrigues, CEO of CPI Financial, publisher of Islamic Business & Finance, commented: “The astonishing growth of the global Islamic finance industry is mirrored by the increasingly stiff competition for these awards. We are proud to recognize and reward the growth and achievements of Islamic financial institutions around the world.”

Robin Amlôt, Managing Editor of CPI Financial said, “It has been another challenging year for the financial sector. Islamic financial institutions have continued to weather the storm, emerging in better shape than their conventional counterparts. Our Awards recognize this and our Award winners – voted for by their peers – can be justly proud of their achievements.”

An independent panel of judges has vigilantly analyzed the overwhelming nominations for the individual and corporate categories and ultimately selected those who projected Islamic finance best practices.

The globally recognized awards were launched in 2005 in response to the phenomenal growth of the Islamic finance industry, currently estimated at around $840 billion in value and expected to pass $1 trillion in 2010. A carefully selected panel of judges, including past Awards winners and industry observers and analysts from the Middle East, South Asia, Europe and the USA, created a shortlist of Islamic institutions from around the world.

Following is the full list of the winners:
Lifetime Achievement Award Tan Sri Dato’ Azman Hashim – Malaysia
Outstanding Contribution to Islamic Finance Dr. Abdulaziz Bin Naif Al Orayer- Bahrain
Islamic Banker of the Year Mohammed Sulaiman Al-Omar – Kuwait
Best Islamic Bank Dubai Islamic Bank- UAE
Best Domestic Islamic Bank Doha Islamic – Qatar
Best International Islamic Bank HSBC Amanah – UK
Best Islamic Private Bank Citi Islamic Investment Bank – Bahrain
Best Islamic Commercial Bank Khaleeji Commercial Bank – Bahrain
Best Islamic Fund Manager Global Investment House – Kuwait
Best Islamic Globalisation Effort Al Baraka Banking Group – Bahrain
Best Islamic Index Provider Dow Jones Islamic Market Indexes – USA
Best Islamic Training Institution Centre for Islamic Finance, BIBF – Bahrain
Best Use of Technology Pak-Qatar Family & General Takaful -Pakistan
Best Technology Provider International Turnkey Systems – Kuwait
Best Islamic Corporate Finance House Abu Dhabi Islamic Bank- UAE
Best Law Firm Clifford Chance – UAE office of UK firm
Best BancaTakaful Operator FWU Group – Luxembourg
Best Islamic Home Finance Provider Kuwait Finance House – Kuwait
Best Islamic Investment Bank CIMB Islamic – Malaysia
Best Islamic Retail Bank CIMB Islamic – Malaysia
Best Islamic Investment House Unicorn Investment Bank – Bahrain
Best Islamic Advisory Firm Islamic Financial Services Group, Ernst & Young -Bahrain
Best ReTakaful Operator Hannover ReTakaful – Bahrain
Best Islamic Wealth Management Institution KFH-Bahrain – Bahrain
Best Takaful Operator Noor Takaful- UAE
Best New Islamic Product LM Investment Management – Australia
Best Islamic Advertising/Marketing Campaign Dubai Bank- UAE

“Would that there were an award for people who come to understand the concept of enough. Good enough. Successful enough. Thin enough. Rich enough. Socially responsible enough. When you have self-respect, you have enough.” Gail Sheehy

Best Regards
ZULKIFLI HASAN
DURHAM, UK

Muscat, Oman.

Abu Dhabi Bails Out Dubai World With $10 Billion

By Haris Anwar. Available at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aqHghOxWdO00&pos=1

Abu Dhabi provided $10 billion to help Dubai World, the state-owned holding company, avoid defaulting on a $4.1 billion bond payment that roiled global financial markets during the past month. Dubai World will use the money to cover debt of real-estate unit Nakheel PJSC that comes due today. The rest of the money will cover Dubai World’s interest and operating costs until the company reaches a standstill agreement with its creditors, Dubai’s government said in an e-mailed statement.

After the emirate and its state-controlled companies borrowed $80 billion to diversify away from dwindling oil supplies, Dubai’s ruler, Sheikh Mohammed Bin Rashid Al Maktoum, has been forced to seek Abu Dhabi’s help three times this year as the global financial crisis dried up credit and triggered a property crash in the city state. “It comes as a relief for the market, underpinning hopes that the implicit government support for Dubai corporate issuance is intact,” said Jason Watts, head of credit trading at National Australia Bank Ltd. in Sydney. “Whilst we are not out of the woods yet, it is definitely a step in the right direction.”

The Dubai Financial Market General Index climbed 10 percent, the most in 14 months, leading a worldwide rally in equities that drove the MSCI World Index up 0.4 percent. Dubai’s Nov. 25 announcement that state-owned Dubai World would seek to delay debt repayments spurred the emirate’s steepest stock- market selloff in 13 months and Europe’s worst rout since April. Nakheel’s $3.52 billion sukuk tumbled as much as 62 percent in three days, according to Citigroup Inc.

Leeway to Dubai World

“The fund injection gives some leeway to Dubai World to put together an orderly debt restructuring plan as it tries to alter its debt profile,” said Abdul Kadir Hussain, chief executive officer of fund manager Mashreq Capital DIFC Ltd. Nakheel’s Islamic bonds due 2011 surged to 67.5 cents on the dollar after halving in value to as low as 37.5 cents, according to Citigroup prices. Dubai’s benchmark share index jumped to 1,871.2. The measure had lost 19 percent since Dubai World on Nov. 25 sought a “standstill” agreement on its debt. The cost of protecting investors against Dubai defaulting on its debt tumbled the most since February. Five-year credit- default swaps on Dubai’s debt fell 135.5 basis points to 405, according to CMA DataVision prices.

Internal Transfer

Abu Dhabi’s support “provides funding and a stable basis for the restructuring process, which continues,” Dubai World said in a separate e-mailed statement. The terms of today’s transaction won’t be disclosed it was an internal transfer between the two governments, a source close to the Dubai government told reporters in a conference call today.

Abu Dhabi is the largest of the seven emirates that formed the United Arab Emirates in 1971 and owns more than 90 percent of its oil reserves, the world’s sixth largest. Dubai, the second-largest emirate, has traditionally guarded its autonomy, maintaining a separate army until 1996 and keeping full control of economic affairs. The latest $10 billion bailout followed the sale of $10 billion in Dubai bonds to the national central bank based in Abu Dhabi in February and a $5 billion loan by two Abu Dhabi-owned commercial banks on Nov. 25.

European Bank

Dubai’s bailout announcement sent European banking stocks higher, led by Standard Chartered Plc and HSBC Holdings Plc. Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World, while HSBC has the most at risk in the U.A.E., according to JPMorgan Chase & Co. RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in a report on Nov. 27, citing Dealogic data.

HSBC on Nov. 27 said it had $15.9 billion in loans to customers in the U.A.E. at the end of June. Standard Chartered has $18 billion of loans to the Middle East and South Asia, of which two thirds relates to the U.A.E., the bank said last week.

Nakheel, which is building palm tree-shaped islands off the emirate’s coast, posted a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property. The firm’s repayment of the $3.52 billion bond was the biggest debt obligation for a Dubai entity since global credit markets froze after the September 2008 collapse of Lehman Brothers Holdings Inc.

Losing Money

“The vast majority of investors have lost money here,” said Luis Costa, an emerging markets debt strategist at Commerzbank AG in London. “Imagine the number of investors who actually had to get rid of this paper under the default pressure. This outcome will raise red flags on Dubai’s ability to make independent decisions.”

Rating firms have downgraded some of Dubai-owned firms to junk levels since Dubai World entered into negotiations with lenders to renegotiate debt terms. “We don’t anticipate any knock-on effects on the other government related entities’ ratings” from Dubai’s announcement that it received cash from Abu Dhabi, Standard & Poor’s credit analyst Farouk Soussa said in an interview.

While Dubai’s government owns 100 percent of Dubai World, it hasn’t guaranteed the company’s debt and creditors must help it restructure, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, said Nov. 30.

Dubai also said today it will announce a new bankruptcy law based on international standards that state-owned Dubai World may use to restructure debt. The new law will be available “should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations,” the government of Dubai said.

Dubai’s government issued a decree setting up a special tribunal to complete Dubai World’s restructuring and to settle disputes between the company and its creditors. The court will be headed by Anthony Evans and will use insolvency laws of the Dubai International Financial Centre, a business park for financial services companies. Evans is chief justice of DIFC Courts.

“If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”John Maynard Keynes

Best Regards
ZULKIFLI HASAN
DURHAM, UK

Angel of the North, Newcastle, United Kingdom

Islamic Finance Still Profitable (Oxford Analytica), Available at: http://www.forbes.com/2009/12/10/islamic-finance-after-dubai-business-oxford-analytica-islamic-finance.html

Prior to the current financial crisis in Dubai, sukuk issuance had started to revive following two difficult years since the August 2007 peak. New issuance for the year to November 2009 exceeded $17.5 billion with 69 separate offerings. Confidence was demonstrated by the announcement on November 19 by General Electric that it was to raise $500 million through a five-year sukuk–the first Western industrial company to raise such financing.

Liquidity.
There are many varieties of sukuk, some–such as the short-term sukuk issued by the Government of Bahrain–being a substitute for treasury bills with a three-month maturity. Such sukuk are attractive for Islamic banks to hold, as they cannot hold conventional treasury bills paying interest, and the alternative of holding cash means they receive no return. Bahrain’s regular sukuk bill issuance continued throughout the credit crisis, but the amounts raised are modest–$40 million on average.

Still profitable.

Although Islamic capital market activity was negatively affected by the global financial crisis, the impact on Islamic banks has been limited, largely because most are focused on retail business: Dubai Islamic Bank, for example, has reported a decline in third quarter earnings for 2009 of 33% compared to the same quarter of 2008, but this was 8% above market expectations. Trade financing through murabaha in which a bank buys a good on behalf of a buyer, and sells it on to them in instalments at a marked-up cost–has remained buoyant, as has personal financing for vehicles and household goods.

Real estate has been the most troublesome, with mortgage lending reduced. In many instances, the value of property has fallen below the amount of credit outstanding. This only becomes an issue in the case of defaults and the bank acquiring the property, which has rarely arisen in the case of Dubai Islamic Bank, or indeed Al Rajhi Bank in Saudi Arabia or Kuwait Finance House. As Islamic banks in the GCC had more conservative housing finance policies than their conventional competitors, they have been less affected by the fall in real estate prices.

Takaful insurance.
One sector which has continued to expand throughout the crisis is takaful insurance based on the principle of mutual risk sharing rather than risk transfer: Dubai Islamic Bank has developed Al Islami Takaful products, which it has cross-sold to its clients since May. Savings plans are offered with either regular or lump sum contributions made to an endowment fund from which family members can receive compensation in the event of the death of the policyholder. If the policyholder lives to the maturity of the policy, they receive a substantial lump sum plus a terminal bonus.

Outlook.
Most sukuk issuance is concentrated in Malaysia, which is not likely to be directly affected by the Dubai crisis. Moreover, if the Dubai case is tested in the courts, this could clarify the legal position of sukuk investors with regard to their rights to the underlying assets backing the issuance. Although this may be painful for Dubai World subsidiary Nakheel in the short run, a court ruling in favor of investors would increase confidence in sukuk in the longer term. Overall, the global Islamic finance industry seems well positioned for recovery in the longer term with further sukuk issuance, a widening of products to include takaful and the continuing buoyancy of Islamic retail banking.

To get profit without risk, experience without danger, and reward without work, is as impossible as it is to live without being born.” A. P. Gouthev

Best Regards
ZULKIFLI HASAN
DURHAM, UK

With Dr. Suhaimi and Dato’ Dr. Nik Norzrul Thani in Dubai, UAE