The underground banking systems and their impact on control of money laundering: with special reference to Islamic banking
| Date | 01 January 2003 |
| Pages | 42-45 |
| Published date | 01 January 2003 |
| DOI | https://doi.org/10.1108/13685200310809392 |
| Author | Fath El Rahman,Abdalla El Sheikh |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 6 No. 1
The Underground Banking Systems and their Impact
on Control of Money Laundering: With Special
Reference to Islamic Banking
Fath El Rahman Abdalla El Sheikh
INTRODUCTION
The concept of Islamic banking is gaining momen-
tum nowadays. It has been reported that the establish-
ment of Islamic banks and ®nancial institutions has
come as a result of the new challenges posed by the
wave of globalisation which has swept all ®elds of
life worldwide. There are now more than 200 Islamic
®nancial institutions managing huge funds exceeding
US$200bn spreading all over the world, mostly con-
centrated in the member countries of the Organiza-
tion of the Islamic Conference, particularly Kuwait,
Malaysia, United Arab Emirates, the Sudan, Pakistan
and Bahrain. The Islamic banks and ®nancial institu-
tions are growing at an annual rate of 10± 15 per cent
and they are expected very soon to be able to manage
half of the deposits of the Islamic world.
Despite this rapid growth and expansion of Islamic
banking, there are many hurdles and dangers which
could be fatal to their operations. In this paper only
one danger will be examined Ð mo ney laundering,
which has been characterised as the most serious
danger threatening not only the economies of all
countries but also their tranquillity and political stabi-
lity. The main concern here is to show how much
Islamic law contributed to controlling money laun-
dering. No doubt the Islamic underground banking
system according to Islamic law should be investi-
gated thoroughly so as to re¯ect an insightful view
of the practice, which might be dierent from the
theory, and this emanates from the dilemma of the
Islamic system, which permits many dierent
interpretations of its tenets and rules.
THE IMPACT OF ISLAMIC BANKING
LAW
Duty to disclose
To control money laundering under any system there
should be accountability and transparency. This thesis
contradicts the concept of bank secrecy, which is
primarily considered a serious impediment to the
control of money laundering.
Islam, like all modern systems, does not entrench
absolutism. In Islam for every right there is normally
a corresponding duty, which should be carried out as
stipulated.
1
Thus, the right of bank secrecy and con-
®dentiality is not always absolute.
2
This principle
®nds support in the verses of the Holy Quran,
3
the
teachings of the Prophet Mohammed (p.b.u.h.)
4
and his followers (Hadith),
5
and the writings of
Islamic jurists (®gh).
6
Despite the supported prin-
ciple, there are some exceptions to the right of
bank secrecy. In certain instances, secrecy cannot be
upheld and consequently disclosure becomes
mandatory. Such instances are, for example:
(a) When public interest dictates that law and order
should be maintained.
7
This may happen when a
serious crime has been committed or is about to
be committed.
8
Here, the preservation of the
public good overrides the protection of the
right of privacy and secrecy. In such cases there
is a duty on the bank to disclose the required
information if it is ordered to do so by the com-
petent authorities in the particular case.
9
How-
ever, disclosure of the relevant information
should be made in accordance with due process
of law.
10
Situations where disclosure becomes
mandatory in criminal cases are numerous, espe-
cially in economic crimes such as fraud, drug
tracking, and money laundering.
11
Under the traditional Islamic system, the con-
cept of `Hisba',
12
certain economic rights of the
individual may be interfered with or restricted
for the bene®t of the general public. These inter-
ferences or restrictions may extend to several
economic activities conducted by individuals or
legal entities.
13
It is interesting to note that the
concept of Hisba has developed throughout
Islamic history to apply to controlling market
prices and combating monopolies. To the
surprise of many Islamic scholars and jurists the
concept has been unwarrantly applied to cases
where no interest or right is aected. For all
intents and purposes it is a misinterpretation of
Page 42
Journalof Money Laundering Control
Vol.6, No. 1, 2002, pp. 42 ±45
#HenryStewart Publications
ISSN1368-5201
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