Middle-east Arab News Opinion | Asharq Al-awsat

Administrative Corruption in Islamic Banking | ASHARQ AL-AWSAT English Archive 2005 -2017
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Riyadh, Asharq Al-Awsat-Perhaps many people were shocked at the recent media reports of financial corruption taking place within an Islamic Bank. The reason behind this shock is not due to the existence of financial corruption at a prestigious financial institution – although this is more than a sufficient reason for shock – but rather because this financial corruption took place inside an Islamic financial institution that claims that all of its activities are directed and governed by Islamic Shariaa Law. [If this is the case] then how did this happen?

There is no doubt that what happened is the result of negligence on the part of some Islamic financial institutions with regards to its employment policy, which should ensure the existence of desired qualities such as that of integrity, for those who will go on to have responsibility [within the company] whether as an employee or an executive. This criterion has been referred to a number of times in the Holy Quran. It was revealed in Verse 55 of Sura Al-Yusuf that “He said: Set me over the storehouses of the land. Lo! I am a skilled custodian.” Whilst in Verse 39 of Sura Al-Naml it was revealed that “Said an ‘Ifrit, of the Jinns: “I will bring it to thee before thou rise from thy council: indeed I have full strength for the purpose, and may be trusted.” And in Verse 26 of Sura Al Qasas it was revealed that ” Said one of them: O my father! Employ him; surely the best of those that you can employ is the strong man, the faithful one.”

Given the importance of this criterion with regards to Islamic Shariaa Law and employment, we find it as the least important thing looked for by some Islamic financial institutions when recruiting for employment. These institutions pay no attention to the process of verifying whether or not the applicant [for employment] possess such characteristics, which could be ascertained by researching their behavior and moral conduct within their own personal life as well as previous employment, in addition to investigating the length of time that they have shown commitment to the principles of Islamic Shariaa Law.

All of this is in accordance with the main regulation of these institutions which states that the system governing all of their actions is Islamic Shariaa Law. However some Islamic financial institutions might argue that they have put in effort searching for those who possess these criteria, but have been unable to find them. In truth this argument could only be accepted if there was solid evidence backing it up, and one must bear in mind that this combination of strength and honesty within a single person is difficult to find, especially in the modern world.

Yet if we could consolidate the characteristic of honesty by making up for its shortage in employees by creating a tight regulatory system to govern the [Islamic financial] system internally and externally, along with strengthening the role of Islamic Shariaa oversight to cover acts of fraud, deception, and the misuse of institutional resources, which is something that is conspicuously absent from some Islamic financial institutions. Some of these institutions operate without even possessing any special guidelines as to the policies and procedures that should be followed to ensure a smooth management of their business, making them a fertile ground for corruption and the corrupt.

Caliph Omar Ibn Al-Khattab realized the importance of establishing such a regulatory system, and it has been reported that he said “I would employ him – the corrupt man – to make use of his power, then I would shadow him and keep him under watch without him knowing.” In his time, the existence of a strong and honest man was a rarity, he would pray to Allah saying “Oh God, I protest to you about the hard-heartedness of the corrupt and the lack of trust” and so Omar Ibn Al-Khattab had no choice but to employ corrupt men, but he ensured that they could be trusted by overseeing them.

In truth, the incident [of corruption] which took place at the Dubai Islamic Bank [DIB] is not the first, nor will it be the last, example of an Islamic financial institutions wandering from the path of righteousness and disregarding the standards of Islamic Shariaa Law. I have heard a number of stories from inside some Islamic financial institutions which revolve around this issue, which is employment contracts of unjustifiably large salaries which can only be explained by favoritism or administrative corruption, not to mention unnecessary contracts with consulting firms, as well as granting lines of credit without securing adequate safeguards. When these acts of deliberate mismanagement are discovered upon auditing or closer scrutiny – if this ever happens – the perpetrators are not punished but protected, either as a result of the non-existence of any policies or procedures to criminalize such acts, or as a result of managerial collusion by senior executives.

Therefore I believe that the jurisdiction of Islamic Shariaa bodies should not be limited to regulating [financial] services, their methods, and their complicity with the specification of Islamic Shariaa Law. I believe that the jurisdiction of these bodies should be broader and more comprehensive than this, and include financial and administrative violations, as these fall within their religious duty with regards the promotion of virtue and the prevention of vice. It is also up to regulatory bodies to verse the creation covert means to receive complaints and information from staff of these [Islamic] financial institutions so as to be informed of what is happening within them. This would make it easier to deal with these complains, and will encourage staff at these institutions to adopt this practice, for that would be more efficient than any other regulation. They must also create a regulatory system to establish a mechanism for screening candidates for leadership position within these institutions, with periodical review, in order to maintain a stable banking system.