This approach to battling the funding of terrorism fits the traditional approach to anti-money laundering efforts which looks for money from illegal activities such as drugs and gambling, typically in the form of cash, and its laundering into clean money invested in legitimate businesses. As long as the effort is “following the money” in the form of cash from its entry and first appearance in the regulated and reporting financial system (what the experts call “placement”) as it winds its way to some ultimate destination, the system works at least moderately well, although most experts will admit it both misses large sums and suffers from over-reporting of perfectly legitimate cash transactions. Much of the modern-day terror financing, however, is conducted through what has been termed “reverse money laundering”.
This stands the classic model on its head where perfectly legitimate funds are wired or transferred to U.S.domestic charities and organizations and then to overseas charities and organizations, or sometimes just directly overseas. These transactions are very difficult to spot unless government regulators already have the specific charities and organizations in question under surveillance. This kind of pro-active or prophylactic surveillance necessarily runs into all kinds of privacy and constitutional thickets. Assuming the federal government does not have sufficient evidence for a probable cause or FISA warrant, targeting Muslim charities would at the very least be roundly protested as racial profiling irrespective of the actual legal or constitutional infirmities of the practice. As a result, while administrative “blocking orders” promulgated under the authority of the IEEPA have been an effective tool in disrupting and shutting down of the largest and most dangerous of Muslim charities funding terrorism, prosecutions of terror-financing operating through charities have met with mixed results.
This problem raises its ugly head with SCF in two ways. One way, although it does not yet appear to be the norm in the U.S., is through a charitable contribution made at source by a SCF financial institution or business. This would occur because faithful Muslims must gift a certain percentage of their income to charity. It appears that in the Middle East and Malaysia, SCF companies, banks, and investment funds might actually calculate the amount the individual Muslim investors owe from profits and distribute those funds automatically to Islamic Shariah-approved charities and only then would the net, after-Shariah-charitable-tax profits be distributed to the individual investor. In the U.S., although many of the reporting companies and mutual funds involved in SCF are unclear about this service, most appear to allow the individual investor to calculate and make his or her own charitable contribution.
Several questions arise for those SCF businesses and investments which net the returns to the investor after this charitable payment: Which charities are Shariah-compliant? Who makes this determination? Do the businesses or financial institutions direct these contributions or are these decisions made by the Shariah authorities? Is there any vetting of the recipients of these charities to determine what they do with these funds? Why is this process not transparent?