Nuclear Research

The European Organization for Nuclear Research, known as CERN, has its offices on the outskirts of Geneva, in an area once devoted to dairy farms and now given over to sprawl. The offices occupy several dozen buildings, some of them in Switzerland and the remainder, a few hundred yards away, in France. The buildings are reachable by roads with names like Route Bohr, Route Schrödinger, and Route Curie. By the entrance to the complex, there is a museum—nearly empty the day I visited—that attempts to make particle physics comprehensible to the general public. Behind that there is a park where bits of old cyclotrons are displayed, like playground equipment from Mars.

If you think of the sciences as a tower, with one field resting on another until you reach, say, botany or physiology, then particle physics represents the bottommost floor. The first key experiment was conducted in 1909, under the direction of Ernest Rutherford. When Rutherford shot alpha particles at a wafer-thin sheet of gold foil, a small proportion of the particles bounced right back, a phenomenon that he described as “almost as incredible as if you fired a fifteen-inch shell at a piece of tissue paper and it came back to hit you.” Rutherford’s work led to the realization that most of an atom’s mass was concentrated in a tiny area, the nucleus. “All science is either physics or stamp-collecting,” he is supposed to have said.

Since Rutherford’s discovery, particle physics has provided one extraordinary—if increasingly implausible-sounding—revelation after another: first protons and neutrons, then antimatter, gluons, neutrinos, and quarks. In 1967, the existence of particles to mediate the weak force, which is responsible for radioactive decay, was theorized; in 1983, at CERN, these particles—the W and the Z—were observed and their properties measured. In 1977, the existence of what became known as the “top” quark was predicted; in 1995, at Fermilab, in Illinois, it, too, was found.

And yet, for all its triumphs, the field has been haunted by failure. The more physicists have learned about the way matter behaves at its most fundamental level, the more acutely they have become aware that something—a big something—is missing from their accounts. Among the many possibilities proposed for what’s often called “new physics” is that the universe actually consists of tiny strands (or strings) of energy; that it contains several dimensions beyond those that we perceive; that it is full of mysterious particles—“sparticles”—that have yet to be detected; that it is not a universe at all but a multiverse; and that it began not with a bang but with a splat.

Sometime in the next few months, physicists at CERN will finish preparations for the most ambitious particle-physics experiment ever, which will be conducted in an apparatus modestly referred to as the Large Hadron Collider, or L.H.C. The L.H.C. fills a circular tunnel seventeen miles in circumference. To get from one side of it to the other, it is necessary to drive through several towns, and then descend three hundred feet in an elevator. Alternatively, it is possible to ride through the tunnel in one of the dozens of bicycles CERN provides for its staff, but in that case a supply of emergency oxygen is required.

The L.H.C. is considered the best—some would say the only—hope for testing the theories of “new physics” against material reality. Once the collider begins operating at full power—in early 2008, if all goes well—nearly half the particle physicists in the world will be involved in analyzing its four-million-megabyte-per-hour stream of data. Few events in the history of science have had a bigger buildup. It’s been suggested that the L.H.C. will unlock the secrets of the universe or, barring that, prove this ambition to be hopeless.

The L.H.C. is a kind of Babel built underground. Dozens of countries have manufactured its components, and dozens more have lent manpower and expertise. (Some contracts went to Russian physicists who previously worked for the Soviet military; in this way, the collider has provided a livelihood for scientists whose employment options might otherwise include selling nuclear secrets.) When I ate in CERN’s lunchroom, I heard people speaking English, French, German, and Italian, as well as several languages that I couldn’t identify. The place was so crowded that it took me five minutes to pay for a cup of coffee, proving the elemental truth that man can build a superconducting collider but not a functional cafeteria.

CERN’s chief scientific officer, Jos Engelen, is from the Netherlands. He serves under the director general, who is from France, and alongside the chief financial officer, who is from Germany. I went to speak to Engelen in his office; behind his desk a chart indicated when the various parts of the collider are supposed to be completed. It was a crazy quilt of multicolored blocks, with lines radiating in all directions. Engelen greeted me with a half-ironic cheerfulness that struck me as very Dutch. Among his responsibilities is dealing with the frequent calls and letters CERN receives about the possibility that the Large Hadron Collider will destroy the world. When I asked about this, Engelen picked up a Bic pen and placed it in front of me.

“In quantum mechanics, there is a probability that this pen will fall through the table,” he said. “All of a sudden, it will be on the floor. Because it can behave as a wave, it can go through; we call that the ‘tunnel effect.’ If you calculate the probability that this happens, it is not identical to zero. It is a very small probability. But it never happens. I’ve never seen it happen. You have never seen it happen. But to the general public you make a casual remark, ‘It is not identical to zero, it is very small,’ and . . . ” He shrugged.

Worries about the end of the planet have shadowed nearly every high-energy experiment. Such concerns were given a boost by Scientific American—presumably inadvertently—in 1999. That summer, the magazine ran a letter to the editor about Brookhaven’s Relativistic Heavy Ion Collider, then nearing completion. The letter suggested that the Brookhaven collider might produce a “mini black hole” that would be drawn toward the center of the earth, thus “devouring the entire planet within minutes.” Frank Wilczek, a physicist who would later win a Nobel Prize, wrote a response for the magazine. Wilczek dismissed the idea of mini black holes devouring the earth, but went on to raise a new possibility: the collider could produce strangelets, a form of matter that some think might exist at the center of neutron stars. In that case, he observed, “one might be concerned about an ‘ice-9’-type transition,” wherein all surrounding matter could be converted into strangelets and the world as we know it would vanish. Wilczek labelled his own suggestion “not plausible,” but the damage had been done. “BIG BANG MACHINE COULD DESTROY EARTH” ran the headline in the London Times. Brookhaven was forced to appoint a committee to look into this and other disaster scenarios. (The committee concluded that “we are safe from a strangelet initiated catastrophe.”)

“I know Frank Wilczek,” Engelen told me. “He is an order of magnitude smarter than I am. But he was perhaps a bit naïve.” Engelen said that CERN officials are now instructed, with respect to the L.H.C.’s world-destroying potential, “not to say that the probability is very small but that the probability is zero.”

I asked Engelen how he would explain the project of particle physics to a non-physicist, or if he thought such an explanation was even advisable. “We simply want to know what the world is made of, and how,” he said. “What is in here”—he rapped on his desk with his knuckles—“and how these particles in here constitute a table.”

“Let us start with Ernest Rutherford in the beginning of the last century,” he went on. “Rutherford understood what an atom looks like. It is a fat, heavy nucleus, with very light electrons orbiting around. The next step is we discovered objects inside the nucleus, one called the proton, the other the neutron. That is the pattern. As a next step, people started to wonder about these protons and neutrons, whether there is structure in there. And they started probing that. And they found that there is structure in there. There are quarks in there. And what we want is to reduce the world to objects that have no structure, that are points, that are as simple as we can imagine. And then build it up from there again.”

So far, physicists have succeeded in observing sixteen pointlike, or fundamental, particles, a number that increases if you count antimatter particles, or if you differentiate among, say, the eight types of gluons. Particles in the largest group, called fermions, in honor of Enrico Fermi, are the stuff of matter. Fermions include electrons and quarks, which come in the whimsical-sounding varieties up, down, charm, strange, top, and bottom. (A hadron is a collection of quarks, or quarks and antiquarks. A proton is a hadron composed of two up quarks and one down; a neutron consists of two downs and one up.) Fermions also include neutrinos, which, somewhat unnervingly, stream through our bodies at the rate of trillions per second. “Neutrinos, they are very small,” John Updike’s poem “Cosmic Gall” observes. “And do not interact at all.”

Hypothetically at least, there is also a seventeenth particle, known as the Higgs. The Higgs particle was first postulated more than forty years ago by the Scottish physicist Peter Higgs, and has been sought—fruitlessly—at every major collider built since then. Its discovery would have many fantastic implications, one of which is that the void of space is not really void but is permeated by an invisible field that acts a bit like cosmic molasses. This Higgs field, if it exists, exerts a drag on matter passing through it, lending mass to particles that otherwise wouldn’t have any. Without the Higgs, physicists have no way to explain why fundamental particles weigh anything at all, since, according to theory, they should be massless. The fact that the Higgs is central to modern physics even though it has never been found has prompted one Nobel laureate to label it the rug under which the discipline sweeps its ignorance and a second to dismiss it as the “toilet” into which physics flushes its inconsistencies. A third Nobel winner has labelled it the “God particle.”

“We are going to make that particle,” Engelen told me. “Or we are going to show that it doesn’t exist.”

The day that I met with Engelen, I also spoke with the deputy head of CERN’s physics department, Michael Doser. Doser is tall and lanky, with fuzzy blondish hair and a narrow stripe of beard that runs down the middle of his chin. His primary interest is antimatter.

“If you think about what matter is, you end up with a very Zen-like answer,” he told me. “If you look at what a quark is, or an electron, the primary constituents of matter, they’re pointlike particles. They have no spatial extent. They have a number of properties, like mass and charge, and that’s it. In a way, they’re mathematical figments, and they’re separated by vacuum—mathematical figments in nothing. And antimatter is the opposite—mathematical figments with the opposite charge.” When matter and antimatter meet, they annihilate each other in a burst of energy. It is believed that in the Big Bang equal quantities of matter and antimatter were produced. But this theory makes it difficult to explain certain basic facts, like you and me and countless galaxies. How to account for the abundance of matter in the universe, and the shortage of antimatter, Doser told me, “is one of the most embarrassing questions in particle physics.”

Doser began his career at CERN in 1991, at which point most of the physicists at the organization were working on a project known as the Large Electron-Positron Collider, or LEP. Basically, LEP was a high-precision matter/antimatter demolition-derby track. Billions of electrons looping around in one direction were, at discrete intervals, made to cross paths with billions of antielectrons—or positrons—moving the opposite way. Where the beams crossed, huge detectors were set up to record the smashups.

The L.H.C., Doser explained, relies on much the same design, and, in fact, makes use of the tunnel originally dug for LEP. Instead of electrons and positrons, however, the L.H.C. will send two beams of protons circling in opposite directions. Protons are a good deal more massive than electrons—roughly eighteen hundred times more—which means they can carry more energy. For this reason, they are also much harder to manage.

“Basically, what you must have to accelerate any charged particles is a very strong electric field,” Doser said. “And the longer you apply it the more energy you can give them. In principle, what you’d want is an infinitely long linear structure, in which particles just keep getting pushed faster and faster. Now, because you can’t build an infinitely long accelerator, you build a circular accelerator.” Every time a proton makes a circuit around the L.H.C. tunnel, it will receive electromagnetic nudges to make it go faster until, eventually, it is travelling at 99.9999991 per cent of the speed of light. “It gets to a hair below the speed of light very rapidly, and the rest of the time is just trying to sliver down this hair.” At this pace, a proton completes eleven thousand two hundred and forty-five circuits in a single second.

“The more energetic the particles are, the more force you need to keep them on orbit,” Doser went on. “They want to go straight. And so you need very strong magnetic fields.” In the L.H.C., such strong fields are required that they cannot be produced by conventional, or so-called “warm,” magnets. Instead, the L.H.C. beam pipe has been encased in superconducting magnets, cooled with superfluid helium. These magnets are supposed to operate at minus 271.25 degrees Celsius—minus 456.25 degrees Fahrenheit—a temperature colder than that of deep space. Doser noted that there are many hazards involved in working with such powerful magnets; for example, if a bolt or a screw is left lying around when they are turned on, it can fly through the apparatus like a bullet. He recalled that as a graduate student he had once lost a wrench in a machine this way: “It cost me a year.” Meanwhile, if any of the magnets fail, the beams, each of which is supposed to contain something like three hundred trillion protons, could veer off course and, in short order, burn a hole through the collider. “That’s why people are so nervous about starting up,” Doser said. (In fact, a few weeks after my visit to CERN, during a test of a set of magnets known as an “inner triplet,” a support failed, bursting a pipe and spewing helium into the tunnel. The failure of the support, which was produced in the United States, was attributed to a simple engineering error.)

When protons crash into each other at 99.9999991 per cent the speed of light, the resultant mess is usually just that—the subatomic equivalent of shattered glass and twisted metal. But stranger things can happen. Just as it is possible to convert mass into energy—as in a nuclear explosion—the reverse is also true: energy can be transformed into mass according to the Einsteinian equation E=mc2 (c being the speed of light). In this way, new particles can be produced that are more massive than those that entered the collision in the first place. The process might be compared to smashing two high-speed Priuses into each other and finding that they have rematerialized as a tank.

By now, the Higgs has been sought for so long that physicists have a pretty clear idea of how much it must weigh. The lower bound is around 120 times more than a proton—or roughly 2 × 10¯²² grams. The upper bound is about 210 times as much as a proton. The most powerful collider currently in operation is Fermilab’s Tevatron, outside Chicago. The Tevatron, which smashes protons into antiprotons, can accelerate particles to an energy of just under a trillion electron volts, or one TeV. (An electron volt is the amount of energy acquired by a single electron falling through a potential difference of one volt.) So far, the Tevatron has failed to reveal the Higgs, though physicists there are actively looking for it. The L.H.C. will accelerate particles to seven TeV, which means that it will be seven times as powerful as the Tevatron. This should be more than enough energy to produce the Higgs, if there is a Higgs to produce. It may also be enough to uncover much more than the Higgs. Depending on how the universe is constructed, extra dimensions, mini black holes, and the source of so-called “dark matter” may all be revealed at CERN. Any black holes created, Doser was quick to assure me, would be entirely benign.

On my second day at CERN, I drove out to the detector farthest from Geneva—the Compact Muon Solenoid—which is to operate in, or really underneath, the town of Cessy, France. Robert Cousins, a physicist visiting CERN from the University of California at Los Angeles, had agreed to show me around. When we met in the C.M.S. parking lot, Cousins was wearing a bright-yellow hard hat. He handed me one to put on.

The L.H.C. will have four main detectors, spaced at intervals around the tunnel like beads on a bracelet. Each is being constructed by a different team according to a different design, the theory being that any interesting phenomena missed by one should be captured by the others. The teams share information, but there is a certain amount of cheerful rivalry among them. C.M.S., in particular, has been plagued by difficulties—during excavations, the soil in Cessy proved so soupy that the ground had to be frozen with liquid nitrogen—and before I went to look at it a physicist who is not affiliated with the project told me that C.M.S. was sometimes referred to as “See a Mess.”

Cousins led me into a vast, hangarlike building where the detector was being assembled. There was a loud clanging coming from all directions. Iron rings several stories high were sitting on hydraulic lifts. At the far end of the hangar, a huge shaft dropped down several hundred feet. Cousins said that the shaft would be used to lower the detector, piece by piece, to the level of the L.H.C. tunnel. We boarded an elevator, and got out near the bottom. A section of the detector that had already been lowered into place loomed up in front of us. It looked like the underside of a rocket ship.

It is one of the paradoxes of particle physics that fundamental particles, though pointlike and indivisible, are also generally unstable. In fact, the heavier particles are so short-lived that even to speak of their having an existence seems faintly ludicrous; a top quark, for example, is estimated to last no more than 1 × 10¯²⁴ seconds. (For comparison’s sake, 1 × 10¯²⁴ centuries comes to three millionths of a billionth of a second.) When unstable particles break down, new, lighter particles are produced. Some of these are likely to be unstable as well, and to break down further. The outcome of this process is a distinctive scattering of “decay products,” which physicists refer to as a particle’s “signature.”

In order to “read” such a signature, a detector has to capture all the decay products that come flying out after a collision and measure their properties. This requires layer after layer of detecting elements; at C.M.S., these are arranged in the shape of an enormous jelly roll. The innermost layer, known as the tracker, consists of some seventy-five million silicon sensors. The next layer, which measures the energies of photons and electrons, contains eighty thousand crystals of lead tungstate. Surrounding this are brass-and-plastic scintillators for tracking hadrons and a tube-shaped magnet—a superconducting solenoid—twenty feet in diameter. Finally, there are several iron rings of increasing circumference. These hold sensors to detect muons, which are essentially heavy electrons. (Neutrinos can’t be measured directly, and are therefore factored in as an absence.) All told, the Compact Muon Solenoid will weigh twenty-eight million pounds. It will hold enough iron to reconstruct the Eiffel Tower. Apparently, “compact” is a relative term.

Cousins explained that the information gathered by each layer of C.M.S. would be analyzed virtually instantaneously, and a decision made by the detector’s computers whether to ignore the collision or to save the results for further study by recording them on tape. “There are famous high-energy-physics experiments that missed discoveries because they weren’t writing them to tape,” he told me. We were walking back through the hangar, past the giant iron rings, which were painted fire-truck red. “This is why we try not to be too specific about which theoretical speculations we care about. We add up all the energy, and if it’s a huge number we write that event to tape. If on one side of the detector it’s a not-so-huge number, but there is nothing on the other side, so it’s a huge imbalance, we get excited about that, and we write that to tape, too.”

Only a small fraction of the protons zipping through C.M.S. at any given moment will actually crash into one another. Still, this fraction represents an enormous number. When the L.H.C. is operating at full “luminosity,” it is expected that the beams will cross forty million times a second and that each crossing will produce twenty collisions. C.M.S. will write fewer than .001 per cent of the crossings to tape; even so, it will be recording six thousand per minute, or three hundred and sixty thousand per hour, or some six million per week. The three other main detectors at CERN will generate similar amounts of data. There are many ways to represent a data stream of this magnitude; one that stuck with me was in terms of CDs. If all the L.H.C. data were burned onto disks, the stack would rise at the rate of a mile a month.

Lodged somewhere in this tower of information should be the signature of the Higgs, or, really, signatures, since the particle is expected to decay in a variety of ways. These signatures will look an awful lot like the signatures of other unstable particles. One physicist I spoke to compared the computational challenge of distinguishing a Higgs to finding a needle not in one haystack but in ten. I thought it sounded more like finding a needle in a needle factory.

Particle physicists come in two distinct varieties, which, rather like matter and antimatter, are very much intertwined and, at the same time, agonistic. Experimentalists build machines. Theorists sit around and think. “I am happy to eat Chinese dinners with theorists,” the Nobel Prize-winning experimentalist Samuel C. C. Ting once reportedly said. “But to spend your life doing what they tell you is a waste of time.”

“If I occasionally neglect to cite a theorist, it’s not because I’ve forgotten,” Leon Lederman, another Nobel-winning experimentalist, writes in his chronicle of the search for the Higgs. “It’s probably because I hate him.”

A few weeks after I returned from talking to the experimentalists at CERN, I went to speak to Nima Arkani-Hamed, a theorist at Harvard. Arkani-Hamed, who is thirty-five, has an oval face, deep-set eyes, and dark, shoulder-length hair. The day I visited, he was dressed entirely in black. He immediately offered me an espresso, which he made at a little machine that spit out one cupful at a time. “I’ve been trying to understand something about the fact that the universe is accelerating,” he explained, erasing a double-wide blackboard covered with equations.

“Often, this kind of physics is referred to as particle physics, which I don’t like,” Arkani-Hamed told me. “People get the mistaken impression that what we care about is the particles. The science is characterized like: What are things made of? What are the ultimate building blocks of matter? I hate that. That sounds a lot like chemistry, and it’s not like that at all. There are many, many more exciting things in nature than some random elementary particles.

“The reason we go to short distances isn’t to probe the building blocks of matter,” he went on. “It’s because for four hundred years fundamental physics has been on this trajectory of unifying seemingly disparate things. We’ve found that, as we understand more, apparently incredibly disparate phenomena turn out to be different aspects of a more surprising, more beautiful answer than we could have anticipated—and often even hoped for. This started with Newton, who realized that the force dragging the apple down was the same force holding the moon around the earth. It continued with the realization that electricity and magnetism are different aspects of the same thing. Relativity told us that space and time are different aspects of the same thing. There’s more and more unity in our understanding of nature. And we’ve seen, especially over the last hundred years, that the essential unity and the essential simplicity best reveal themselves at short-distance scales. So it’s not that we care about the particles. We care about the laws.”

Taped to the wall of Arkani-Hamed’s office is a graph labelled “LHC Luminosity Profile.” It shows when various phenomena—including the Higgs—should, if they exist, be revealed. Arkani-Hamed is a frequent visitor to CERN, and every time he goes, he told me, “it’s like a religious experience.” To prepare for the start-up of the collider, he has helped organize a series of dress rehearsals, called the L.H.C. Olympics. In these exercises, one team, playing God, chooses, out of the many models of the universe proposed by theorists, one to be true. The team then generates the sort of data that, according to this model, should be produced at the L.H.C. The other teams have to analyze the data to try to arrive back at the theoretical model the numbers are supposed to reflect. There are no winners or losers, Arkani-Hamed explained. “But afterward some people are high-fiving each other and other people are being consoled.” He added, “It’s an amazing blast.”

One source of tension between experimentalists and theorists is the awkward matter of credit. Who should get the glory when a discovery is made: the theorist who proposed the idea, or the experimentalist who found the evidence for it? In this context, even access to L.H.C. data is a vexed subject; in the United States, the groups that have worked on building the detectors will receive the raw data, but they’re not likely to share it. Arkani-Hamed joked that in order to get at the information theorists might have to find a “Deep Throat” who will pass them the data in secret.

“There is a sense among many experimentalists that theorists are a bunch of irresponsible little spoiled brats who get to sit around all day, having all these fun ideas, drinking espresso and goofing off, with next to no accountability,” he said. “Meanwhile, they’re out there, nose to the grindstone, for ten years; they’ve built this damn detector, and damn it if they’re not going to be the ones to figure it out! And so this stuff that we’re doing, there’s some Johnny-come-lately feeling like ‘Oh, now that it’s all done the theorists finally want to think about how they’re going to solve this’; it’s like there are theorists swooping in to try to take it from them. I’m exaggerating slightly, but not much.

“It’s a general fact about physics that the people you tend to remember are the theorists,” he went on. “At least in the mythology, experiment plays a less central role. And there’s a natural reason for that, because the ultimate goal isn’t to observe things about nature; the ultimate goal is to understand and explain things about nature. So, for that reason, it’s a chicken-and-egg problem. But definitely you want to be the chicken.”

Arkani-Hamed is often called a string theorist, although he is more closely associated with ideas like large extra dimensions—large being on the scale of a tenth of a millimetre—and a hybrid theory known as “split supersymmetry.” String theory posits that the universe is composed of tiny strands of energy, which vibrate at different frequencies, creating what appear to be different particles. In its most popular form, string theory demands the existence of seven dimensions beyond the usual four—three in space and one in time—that we’re familiar with. Supersymmetry, meanwhile, which is often referred to by the acronym SUSY (pronounced soo-see), holds that every particle has a “superpartner” with a different spin, spin here being understood not as it is in everyday life but as a fixed property of a particle that determines some of its basic characteristics. Under the naming system that’s been devised for these hypothetical superpartners, the counterpart of a quark would be a squark, and that of a photon a photino. (The superpartner of the as yet undiscovered Higgs would be a Higgsino.) It has been proposed that these “superparticles” could account for the dark matter that physicists estimate makes up nearly a quarter of the universe.

String theory and supersymmetry are enormously compelling to theorists, so much so that their proponents dominate the theory groups at most élite universities. (As of 2000, at least ten thousand scientific papers on supersymmetry, and several thousand more on string theory, had been written.) Both aim at further unification, and both—to varying degrees—resolve problems that have frustrated physicists for decades. Arkani-Hamed spent nearly two hours trying to take me through the details of just one of these—the so-called “hierarchy problem.” In the process, he consumed four or five or six cups of espresso—even this I lost track of. Broadly speaking, the hierarchy problem has to do with mathematical contortions, known to physicists as “fine-tuning,” that must be performed in order to account for the fact that gravity is so weak compared to the other forces.

“This is not just a little weird,” Arkani-Hamed told me. “It’s incredibly weird. The big question that we don’t have an answer to, or that we have an answer to but it seems absurd, is: Why do we have a macroscopic universe at all?”

The trouble with string theory and supersymmetry is that, at this point, they remain entirely theoretical. The last confirmed breakthrough in particle physics was a set of equations known as the Standard Model. Developed in the early nineteen-seventies, the equations describe the behavior of all known forms of matter and all known forces, with the notable exception of gravity. Despite the model’s limitations as a fundamental theory of nature—the hierarchy problem is just one of its many shortcomings—the predictions it has generated have been borne out, with astonishing precision, at one collider after another. (The Higgs would represent the last element of the model to be confirmed.) String theory, by contrast, has yet to provide a single prediction that could be definitively tested. As for supersymmetry, which is generally considered a precondition for string theory, all efforts to confirm its predictions have so far failed: at the energy levels achieved by colliders to date, not a trace of a squark or a photino has turned up. As Lee Smolin, a physicist at Canada’s Perimeter Institute, observed in a recent critique of contemporary theory, eventually “you begin to feel like Sbozo the clown. Or Bozo the clownino. Or swhatever.”

To theorists, the tantalizing promise of the L.H.C. is that it will, finally, supply the evidence of “new physics” that they’ve been waiting for. Certain patterns of missing energy, for example, would suggest the existence of extra dimensions, as would the creation of mini black holes. Different results—also in the form of missing energy—would indicate the existence of squarks or other superparticles. There are good theoretical reasons to expect these phenomena to begin to appear at the energy level of the L.H.C., or so at least Arkani-Hamed tried to explain to me over several more espressos. He told me that he was completely confident the Higgs would be found at the collider: “I would bet many, many months’ salary.” He also said that if the Higgs was the only result, the L.H.C. would be a disappointment. “We theorists, we’re a hard lot to please. We’ve taken things for granted for so long we say, ‘Oh, yeah, for sure you’ll discover the Higgs.’ But the things we’re really interested in are all these major puzzles.”

Eventually, some of Arkani-Hamed’s graduate students wandered into his office. They had brought with them a Diet Coke, which Arkani-Hamed began to drink out of his espresso cup, and a hundred-page paper that they—and he—were planning to release that day. The opening sentence of the paper declared, “With the upcoming turn-on of the Large Hadron Collider (LHC), high energy physics is on the verge of entering its most exciting period in a generation.” (A later sentence noted, “As the reader might find intuitive, we can tremendously improve our scheme over the constant approximation by including the leading order near-threshold behavior of matrix elements.”)

In 1969, the Congressional Joint Committee on Atomic Energy held a hearing at which the physicist Robert Wilson was called to testify. Wilson, who had served as the chief of experimental nuclear physics for the Manhattan Project, was at that point the head of CERN’s main rival, Fermilab, and in charge of $250 million that Congress had recently allocated for the lab to build a new collider. Senator John Pastore, of Rhode Island, wanted to know the rationale behind a government expenditure of that size. Did the collider have anything to do with promoting “the security of the country”?


WILSON: No sir, I don’t believe so.
PASTORE: Nothing at all?
WILSON: Nothing at all.
PASTORE: It has no value in that respect?
WILSON: It only has to do with the respect with which we regard one another, the dignity of men, our love of culture. . . . It has to do with are we good painters, good sculptors, great poets? I mean all the things we really venerate in our country and are patriotic about. . . . It has nothing to do directly with defending our country except to make it worth defending.

Asked to explain how their work, supported by public funds, contributes to the public good, particle physicists often cite Wilson, or offer some variation on his non-answer answer: the search for knowledge cannot be justified on other grounds; its value, like the particles under study, is irreducible.

The cost of the L.H.C. is expected to run to more than $8 billion, and this doesn’t include the price of the tunnel, which was originally dug for LEP. Most of the funding is being provided by European taxpayers; Germany has contributed the most—around twenty per cent of the total—and Britain and France have each contributed slightly less than that. (The United States is contributing a little more than $500 million.) Meanwhile, physicists are already lobbying for the next generation of machines. The plan for the International Linear Collider, which, as its name suggests, would be built in a straight line rather than a ring, calls for smashing electrons and positrons together at the midpoint of a tunnel twenty miles long. According to the Web site that has been set up for the I.L.C., the hypothetical collider’s design would allow for “an upgrade” to a thirty-mile-long machine “during the second stage of the project.” The even more ambitious Very Large Hadron Collider would occupy a tunnel a hundred and forty miles in circumference.

In principle, colliders could just keep on getting bigger—the Incredibly Large Hadron Collider!—and commensurately more expensive. As a practical matter, of course, there’s a limit, and it’s quite possible that limit has already been reached. At CERN, nearly every physicist I spoke to recalled the sad—very sad—story of the Superconducting Super Collider. Announced with much fanfare by President Ronald Reagan in 1987, the Superconducting Super Collider was supposed to occupy a tunnel fifty-four miles in circumference under Waxahachie, Texas. It was designed to generate beam energies of 20 TeV, roughly three times as high as those that will be achieved at CERN. Fourteen miles of the tunnel had been excavated—and $2 billion spent—when, in 1993, Congress pulled the plug. “If we find more basic building blocks of the universe, it’s not going to change the way people live” is how Representative Martin R. Hoke, of Ohio, shrugged off his vote. As the historian of science Peter Galison pointed out to me, it is probably no coincidence that funding for the supercollider was cancelled almost immediately after the fall of the Soviet Union. The “dignity of men” defense of particle physics worked best at the height of the Cold War, when no one, except maybe the scientists involved, entirely believed it.

Unless funding for another collider materializes, a lot of experimentalists will soon find themselves out of work. “Half of those guys already have résumés in at hedge funds,” one theorist joked to me. Arguably, the theorists’ situation is not all that much more secure; at a certain point, speculations about the nature of the universe that can’t be put to the test cease to be physics. The promise of the Large Hadron Collider is thus also its great burden. A truly astonishing discovery there—proof, say, of extra dimensions, or of something even weirder than that, which theorists have yet to conceive of—would provide a powerful impetus to keep particle physics going for another generation. Barring a breakthrough, it’s hard to imagine how the project can continue. Such an outcome would not mean that the fundamental order of the universe is unknowable. But it might well mean that we will never know it. ♦

Photograph: COURTESY CERN

Posted by lmurx at 12:42 PM 0 comments

Saturday, May 5, 2007
Was Parliament Attack an Inside Job




Was Parliament Attack an Inside Job?
The bombing of the Iraqi Parliament in Baghdad’s most-fortified compound was intended to send a chilling message from the insurgents. Was it an inside job?
WEB EXCLUSIVE
By Babak Dehghanpisheh
Newsweek
Updated: 11:57 a.m. PT April 12, 2007

April 12, 2007 - Ali Mayali was having lunch with two fellow Iraqi parliamentarians this afternoon when the blast rocked the building. "It was a great explosion," says Mayali, holding a gauze bandage to his left temple shortly after the blast. "I saw many fall on the ground." He also noticed a handful of people plummet from the second floor down into the lobby of the convention center, a large hall inside Baghdad’s fortified Green Zone where the Iraqi Parliament meets. The bomb went off in a cafeteria area next to the Parliament room, turning glass tables, knives and forks into deadly projectiles. "It's a great hit for the government who is talking about the importance of security these days," Mayali, a member of the bloc loyal to hardline Shiite cleric Moqtada al-Sadr, says.

The attack Thursday, which may have been carried out by a suicide bomber, killed eight and wounded at least 20. At least two parliamentarians were among the dead. It was not only a direct attack on the government, but it also sent a clear message from the insurgents that there truly is no safe place left in the capital. Just a few hours earlier, a suicide bomber blew up an explosives-packed truck on Baghdad’s Al-Sarafiya bridge, killing at least 10.

But in a country where daily bombs have become commonplace, it’s the security breach in the Green Zone that has caused the most serious jitters. Recent weeks have seen the Green Zone police, run by the American military, cracking down by stepping up patrols and increasing badge inspections. But there were signs of chinks in the security net. Two weeks ago, a U.S. military spokesman confirmed that a pair of suicide vests had been found inside a trash bin in the protected area.

"This is undeniably a breach of security," Deputy Prime Minister Barham Salih said after talking to some of the victims of Thursday’s attack at the 28th Combat Support Hospital, or CASH, in the Green Zone. "We in the council of ministers have been in contact with the council of representatives for some time about how to tighten security in Parliament. This needs to be investigated thoroughly."

The Green Zone, which has officially been renamed the International Zone, or IZ, has been an odd entity since it was set up after the fall of Baghdad in 2003. It encompasses four square miles of what was formerly Saddam Hussein's choicest real estate on the banks of the Tigris River. As the insecurity increased in the rest of Baghdad, called the Red Zone in military lingo, the concentric rings of security inside the Green Zone kept getting tighter. There are checkpoints manned by Nepalese Gurkhas, by Georgians from the former Soviet Union, by Peruvians and, sometimes, by Iraqis themselves. The Thursday blast was in one of the outer cordons of the Green Zone, which is mostly screened by Iraqi personnel. The security for the Parliament building, which is directly in front of the Al-Rashid Hotel, is also run by Iraqi staff. There are reports that one of the security screening machines leading into the Parliament building may have been down in recent days.

As if to make up for the security lapses, there was a large show of force immediately after the attack. Western security contractors in SUVs and large armored vehicles looking like they’d come straight out of the movie “Road Warrior” blazed around the Green Zone with guns out. All the checkpoints leading up to the Parliament building were shut down, including one staffed by about six Peruvians, backing up traffic for half a mile. A handful of helicopters, including Apaches, buzzed over the attack site; some shot off colorful flares as they banked over the area.

Mayali, the Sadrist parliamentarian, was hustled to the CASH by members of his security team shortly after the attack. He wasn't admitted to the hospital because his injuries were light, so he sat outside in a daze, with ears ringing, waiting for word about his injured colleagues. Many other friends and relatives of the wounded also waited outside the hospital waiting for news. One young man, with blood spattered across both his sleeves, said he had helped carry the injured out of the Parliament building. Parliamentarian Asma al-Moussawi, dressed in a black abaya (a traditional robe) shook her hands in frustration. "Even in the Green Zone this happens," she said, her voice shaking. "This is an alarm for the government and the Coalition forces."

More worrying for some of the Iraqis who live in the Green Zone, it smacked of an inside job one of several that have occurred here recently. Waqas al-Ubaidi, 30, was waiting outside for word about his injured uncle, parliamentarian Salman Jumayli. "Tell me how the bombs came here?" Ubaidi asked, noting that many officials with security clearances don't get searched. "I think the days coming are more bad," he said. "I'm feeling that." National-security adviser Mowaffaq al-Rubaie also visited the victims at the CASH this afternoon and said security at the Parliament building had been a major concern. A thorough search of the building three weeks ago turned up 19 unclaimed pistols. "We told [the Parliament] to give us the force protection. We'll be in charge of the security of the building. They wanted to be in charge of their own security," Rubaie said with a shrug. "We kept away from it."

The attack today crossed Iraq's sectarian divide. One of the parliamentarians killed, United Iraqi Alliance member Niamah al-Mayahi, was a Shia, and another parliamentarian killed was Mohammed Awad, a member of the Sunni National Dialogue Front. Some news outlets reported that a third parliamentarian, Taha al-Liheibi, was killed in the blast, though an official at the Ministry of Interior said he was still in critical condition late Thursday night. "This proves that terrorism is indiscriminate. Sunnis, Shias, Kurds are being maimed and killed in this act," Salih said. This is a reminder that all Iraqis need to be united in the face of terrorism. We have no option."

URL: http://www.msnbc.msn.com/id/18078290/site/newsweek/
© 2007 MSNBC.com

Posted by lmurx at 10:56 AM 0 comments

A new report says humans can easily limit global warming without cooling the economy

UN climate panel: Fix is within reach
A new report says humans can easily limit global warming without cooling the economy




http://www.chicagotribune.com/news/nationworld/chi-0705042041may05,1,5197989.story?coll=chi-newsnationworld-hed

By Laurie Goering
Tribune foreign correspondent

May 5, 2007

BANGKOK -- The UN Intergovernmental Panel on Climate Change, which up to now has laid out some doomsday global warming scenarios, had some good news Friday: Climate change can be limited, and at what scientists said would be a reasonable price.
Just as important, existing technology will do most of the job, as long as policymakers make sure it is quickly adopted. And average citizens can make valuable contributions by making small lifestyle changes without waiting for governments to act.
But skeptics, including the Bush administration, said that the most stringent recommended measures could strain the world economy. And others doubted that the worst-polluting nations would have much incentive to cooperate.
The panel's latest report, released Friday in Bangkok, "addresses a fundamental concern of Americans: Can we do something about this?" said Peter Altman, a climate expert at the National Environmental Trust. "The answer is a resounding yes."
By rapidly ramping up the use of renewable-energy sources like solar, wind and hydroelectric power, making cars, homes and factories more energy efficient, producing electricity with natural gas rather than coal and sequestering carbon dioxide below ground, the world could hold temperature increases to around 3.6 degrees Fahrenheit above preindustrial-era levels, low enough to avoid potentially disastrous droughts, severe storms and sea-level rise, the report's summary said.
Just as important, dramatically cutting greenhouse gas emissions to levels scientists believe would stem increases in warming would cost nations at most 0.12 percent of economic growth each year through 2030, scientists said.
"The bottom line is all it takes to beat this problem is the political will to put the solutions in hand to work and to invest in clean energy solutions for the future," Altman said. "To do this at about a 10th of a percent of GDP per year is a very low-cost investment for something with tremendous payoff."


U.S. warns of recession
Bush administration officials, who along with representatives of 120 other countries approved the report's policy summary before its release, praised it for highlighting "the importance of deploying a portfolio of clean energy technologies." But they said that trying to cut greenhouse gas emissions by 50 percent to 85 percent by 2050, in line with the report's most ambitious scenarios, would have economic consequences.
"It would cause a global recession," insisted James Connaughton, chairman of the White House Council on Environmental Quality. "Our goal is reducing emissions and growing the economy," he said.
Analysts suggested that persuading China and other growing greenhouse gas emitters like India to invest in clean technology and hold down emissions would be difficult as such developing nations continue to focus first on building their economies. Developed nations also in many cases have failed to meet their own targets for reducing emissions, providing little incentive for poorer nations to make their own cuts.
But the 2,000 scientists who contributed to the report concluded that, with the needed political will, stabilizing greenhouse gas emissions at near-current levels was not only possible but would cost no more than 3 percent of the world's income between now and 2030.
The costs could also drop significantly if the world reaps other benefits from reduced emissions, including healthier air, greater energy security as reliance on foreign oil drops, and export opportunities as newly developed technology is sold and adopted elsewhere, the report's authors said.
"The good news is there's substantial mitigation potential available at reasonable cost," said Jean Bogner, a Wheaton, Ill.-based landfill expert who contributed to the report. "And the positive message is it's not just one single solution, not just nuclear or reducing coal use. It's that in many sectors there are opportunities for positive contributions to reducing greenhouse gas emissions."
The report, the third in a series of UN climate change studies this year, is the first aimed at analyzing solutions to the problem. It lays out a wide range of options -- including behavioral changes -- that could be useful in cutting greenhouse gas emissions, and tries to analyze the costs of making the changes.
It suggests major drops in emissions are possible through switching to natural gas from coal as a source of electricity, using hybrid and fuel-efficient vehicles, incorporating active and passive solar design into buildings, using more insulation and energy-efficient appliances in homes, improving industrial energy efficiency, and using renewable energy sources.
Capturing and storing carbon dioxide emissions also could lower atmospheric concentrations of the gas, the authors said.
Nuclear power, a controversial alternative to fossil fuels, probably will not gain wide acceptance as the world searches for ways to cut carbon emissions, if only because of its relatively high cost compared with other options, the report said.
The document also examines a range of policy measures shown to be effective in promoting emissions reductions, from fuel, road and auto taxes to energy efficiency standards for appliances, subsidies for renewable energy, mandatory fuel efficiency standards, investment in public transit and tax credits.
Voluntary agreements by industries to cut emissions, a favored measure in the United States, for the most part "have not achieved significant emissions reductions beyond business as usual," the report notes, despite a few recent exceptions.
Probably the easiest and cheapest way to cut greenhouse gas emissions, the report's authors said, is to improve energy efficiency. But other keys will be ensuring that massive expected growth in developing nations, particularly China and India, is cleaner and more sustainable, in part through transfer of clean technology, and that people everywhere cut consumption and emissions without waiting for politicians to act.

Lifestyle changes, not sacrifices

That could mean putting on a sweater rather than turning up the heat, buying a hybrid car, choosing a house near public transportation or hanging the laundry out to dry rather than throwing it in a clothes dryer.
"It does require lifestyle changes but not any sacrifices," insisted Jayant Sathaye, a senior energy technology scientist at the University of California, Berkeley, and one of the report's authors.
He predicted the document would help guide the creation of emissions reduction policies around the world.
"Absolutely this will drive change," he said. "If we can convince everybody they should always keep climate mitigation in their minds in whatever decisions they make, we will be a long way toward achieving the goal."
The report warns that failure to take quick action to cut greenhouse gas emissions could lead to concentrations of the gases in the atmosphere more than double the current 435 parts per million by 2100, raising average temperatures as much as 11 degrees.
"If we continue doing what we are doing now, we are in deep trouble," warned Ogunlade Davidson, a co-chairman of the working group that produced the new report. But "this report is all about solutions," he said.
"The IPCC has delivered a road map for keeping the planet safe. Now it's the turn of politicians to do more than pay just lip service," added Hans Verolme, director of the World Wildlife Fund's climate change program.

----------



lgoering@tribune.com

Copyright © 2007, Chicago Tribune

Posted by lmurx at 8:30 AM 0 comments

Geographic Funds


Geographic Funds


By Kevin Baker
TheStreet.com Ratings Senior Financial Analyst
5/5/2007 9:58 AM EDT
URL: http://www.thestreet.com/funds/ratings/10354986.html

Befitting Cinco de Mayo, which celebrates Mexico's military victory over the French at the Battle of Puebla in 1862, Mexican stocks rose up this week and trounced the French companies.

The Battle of Puebla kept France out of the U.S. Civil War, and the U.S. returned the favor in 1867 by helping liberate Mexico from French rule. The two countries have been investing and trading partners ever since.

Just as the Mexican troops were outnumbered 4,500 to 6,500, the 35 members of the Mexican Bolsa Index triumphed over the 39 members of France's CAC-40 Index, returning 1.41% to 1.14% for the week ending Thursday, May 3.

When you take those index values and translate them back into U.S. dollars, the victory was even more pronounced at 1.68% to 0.89%.

With 38 Mexican stocks out of 71 holdings plus additional American depositary receipts of Mexican companies traded in New York, the Herzfeld Caribbean Basin Fund (CUBA) led the world of geographically focused funds for the five trading days from Thursday, April 26, to Thursday, May 3.

The sectors represented in the fund include 23.0% transportation, 9.7% leisure time, 8.5% water, 8.2% distribution and wholesale, 6.8% building materials and 6.5% telecommunications.

The fund's biggest winner this week is baker Grupo Bimbo SAB de CV, rising on an 11.4% increase in top line sales and a 15.2% bump in bottom-line net income for the quarter ending March 31. Grupo Bimbo baked its way to a sweet return of 8.85%.

Another holding, Trailer Bridge (TRBR) , a continental U.S. and Puerto Rican trucking and marine freight company, delivered a gain of 7.67% with the disclosure of insider buying by its chairman and CEO, John McCown.

The Herzfeld Caribbean Basin Fund is a closed-end fund that is trading at a 37.4% premium over its net asset value. The fund's premium maxed out at an astounding 113.5% back in January 2007 on rumors surrounding Cuban President Fidel Castro's ill health. With Castro not attending the May Day rally, premium is built up again.

In second place at 12.54% is the closed-end First Israel Fund (ISL), which has 90.6% of its assets invested in Israeli stocks, 4.4% American, 2.5% German and 1.0% South Korean. The stock holdings are allocated to 21.7% banks, 18.5% pharmaceuticals, 9.2% insurance, 9.0% chemicals, 8.1% telecommunications and 7.4% Internet.

Trailing Mexico and Israel is a fund that whose holdings are 32% French, 20.5% German, 12.0% Italian, 5.3% Finnish and 4.7% Austrian. The third-place finisher, the European Equity Fund (EEA), gained just 2.86% for the period.

The fund's biggest holdings are Societe Generale at 4.5% of assets, AXA SA at 4.0%, Intesa Sanpaolo SpA and Sanofi-Aventis. But the biggest gainer, Compagnie Generale de Geophysique-Veritas, returned 7.09% on the continued positive outlook for its seismic oil and gas surveying equipment.


Best-Performing Geographically Focused Funds
Fund Ticker Rating Security Type 1 Week Total Return
Herzfeld Caribbean Basin Fund CUBA B- Closed-End 13.34%
First Israel Fund ISL B Closed-End 12.54%
European Equity Fund EEA A- Closed-End 2.86%
Oppenheimer International Small Company Fund OSMAX B- Open-End 2.74%
China Fund CHN C- Closed-End 2.71%
iShares MSCI Malaysia Index Fund EWM E ETF 2.58%
Thai Capital Fund TF B Closed-End 2.52%
Chile Fund CH C+ Closed-End 2.36%
BlackRock Latin America Fund MALTX E- Open-End 2.15%
SPDR S&P Emerging Latin America ETF GML B- ETF 2.04%
Source: Bloomberg

On the other side of the planet is the Aberdeen Australia Equity Fund (IAF) dropping 3.14% on poor performances by Downer EDI , Rio Tinto and Bendigo Bank. If slack in the U.S. economy slows down global growth, Australia, a heavy supplier of natural resources, could continue to underperform.

The New Ireland Fund (IRL) and the Spain Fund (SNF) each gave up just over 3%. One significant difference between these closed-end funds is that the New Ireland Fund is trading at a 1.68% discount to its net asset value, while Spain Fund has run ahead to a premium of 18.83%.

Exposure to Russia weighed heavy on the Templeton Russia and Eastern European Fund (TRF), grinding away 2.98%. With 91.3% of assets in Russia, 5.3% in Hungary, 2.4% in Poland and 1.1% in Austria, the fund is overexposed to the Russian economy that is sliding backwards from capitalism toward state control.

The positions causing the worst of the damage include CAT Oil AG, down 16.56%; Uralsvyazinform, down 6.99%; Tatneft, down 4.69%; Lukoil, down 4.57%; and OAO Gazprom down 2.6%.

Worst-Performing Geographically Focused Funds
Fund Ticker Rating Security Type 1 Week Total Return
Aberdeen Australia Equity Fund IAF A Closed-End -3.14%
New Ireland Fund IRL B+ Closed-End -3.09%
Spain Fund SNF A- Closed-End -3.03%
Templeton Russia and Eastern European Fund TRF C+ Closed-End -2.98%
Central Europe and Russia Fund CEE B Closed-End -2.87%
Turkish Investment Fund TKF C Closed-End -2.73%
Mexico Equity and Income Fund MXE B Closed-End -2.72%
Halter Pope USX China Fund HPCHX U Open-End -2.60%
US Gbl Inv Accolade - Eastern European Fund EUROX C- Open-End -1.98%
Morgan Stanley India Investment Fund Inc IIF C Closed-End -1.74%
Source: Bloomberg

There is always a bull market somewhere in the world. With more than 500 geographically focused funds, it has never been easier to target specific regions or countries. For example, check out Richard Widows' Sizzlin' Mexican Funds .

So, today, we shall raise our cervezas and toast to your financial success. Happy Cinco de Mayo!

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University."/>

Posted by lmurx at 8:08 AM 1 comments

Friday, May 4, 2007
Curious Coincidences of 2001




Curious Coincidences of 2001




By William Bergman
Apr/05/2007
[Given the recent increased interest in publications from www.sandersresearch.com, we will begin republishing the occasional piece from the archives. The following, first published in December 2005, is the first.] Hamilton, Bush & Kean

Former FBI Director Louis Freeh took leaders of the former 9/11 commission to the woodshed in a recent opinion piece in the Wall Street Journal . Freeh criticized Thomas Kean and Lee Hamilton, former Chair and Vice Chair, respectively, of the 9/11 commission, regarding the Defense Department’s “Able Danger” project.

According to Freeh, Able Danger had concluded that military personnel had identified Mohamed Atta as an al Qaeda agent operating in the U.S. at least by early 2000. This revelation arrived in August 2005, over a year after the 9/11 commission published its final report.

In that report,[2] the commission did not mention Able Danger, and concluded that the alleged lead hijacker Atta had not been identified prior to the attacks. After the Able Danger reports came out a year later, however, one group of victim family members, the September 11 Advocates, issued a statement that said they were “horrified” to learn of this information, especially as it was not included in the 9/11 commission report.

In an August 12, 2005 statement, Kean and Hamilton responded to the new revelations and resulting heated questions. They asserted, among other contested rationale, that the Able Danger project “did not turn out to be historically significant, set against the larger context of U.S. policy and intelligence efforts that involved Bin Ladin and al Qaeda.”[3]



In his November 17, 2005 Wall Street Journal article, Freeh sharply criticized Kean and Hamilton. He stated that the commission’s failure to adequately investigate Able Danger “raises serious challenges with respect to the commission’s credibility and, if the facts prove out, might just render the commission historically insignificant itself.” In turn, Freeh offered a number of compelling reasons for pursuing a fresh investigation into unknowns about Able Danger.

Mindy KleinbergFreeh has not been alone. Less than a week after Kean and Hamilton released their August 12, 2005 statement, leaders of the September 11th Advocates responded. This statement[4] criticized Kean and Hamilton in fairly blistering language, particularly with respect to the description of Able Danger as not "historically significant." In an interview, Mindy Kleinberg -- whose husband died in the World Trade Center -- stated, "They somehow made a determination that this was not important enough. To me, that says somebody there is not using good judgment. And if I'm questioning the judgment of this one case, what other things might they have missed?"[5] Kleinberg’s question was joined by similar observations by many, including Rep. Christopher Shays of Connecticut, who was quoted “If this wasn’t reported by the commission, what else wasn’t reported?”[6]
Some other “insignificant” things

Here is one way to try to identify similarly significant but under-reported issues. If having former members of the 9/11 commission call things “not … historically significant” suggests serious issues may be under the rug, where else has the 9/11 commission applied this dismissive language?

A word search on the 585-page final report of the 9/11 commission produces nothing else, strictly speaking, described as “not historically significant” or “historically insignificant.” However, the commission applied quite similar language in one other material instance. On p. 172 of the final report, after discussing money laundering issues, the commission concluded, "To date, the U.S. government has not been able to determine the origin of the money used for the 9/11 attacks. Ultimately, the question is of little practical significance."

This rather ridiculous statement suggests that some of the biggest bones may be buried in the financial area. Examples include wire transfers from Pakistan to Mohamed Atta in Florida bank accounts in mid-2001, a spike in U.S. currency growth in July and August 2001, suspicious activity reporting by financial institutions in July and August 2001, and the commission’s misleading description of the emphasis on counterterrorism in anti-money laundering initiatives.
Wire transfers to Mohamed Atta

As early as October 2001, government investigative work and media reports publicly suggested that Mohamed Atta had been receiving wire transfers in bank accounts in Florida in the year before 9/11.[7] Some of those transfers were reported to have been arranged by people linked to Pakistani intelligence services as well as al-Qaeda.

One of those reportedly[8] involved in making the transfers left his position as Director of the Pakistani intelligence service soon after September 11. This person happened to be visiting Washington the week before 9/11, and was having breakfast with leaders of the Senate and House Intelligence Committees on the very morning of 9/11 – leaders of the subsequent Congressional Joint Inquiry into the events of September 11.

A complete discussion of what we know about these transfers, whether these transfers were or were not made, and if they were, who arranged them and how, would seem to be a critical element of any full and complete investigation.[9] Yet, amazingly, and yet, perhaps not so amazingly, they went unmentioned in the 9/11 commission’s final report.

In saying that the origin of the money used for the 9/11 attacks was of “little practical significance,” the commission asserted that al Qaeda could have easily tapped other funding sources. In the case of these possible wire transfers, this seems to be a bit like saying that the identity of the person who may have paid to help a murderer take a plane to go kill people is not practically significant, given that the murderer could have found other people willing to pay for the flight.

The wire transfers to Atta were received in bank accounts in Florida. A second money issue undiscussed by the 9/11 commission may also have connections to Florida, among other places.
Rapid currency growth in July/August 2001

The stock of U.S. currency circulating outside banks rose especially rapidly in July and August 2001. In fact, the increase from June to August 2001 was the largest such June-August increase in the currency component of M1 since 1947, the first year for which this data is reported by the Federal Reserve.[10] The August increase alone was the third largest single monthly increase since 1947, trailing only December 1999 (with pre-Y2K concern as well as terrorism threats) and January 1991 (the onset of US military action in Iraq, and an important enforcement month in the BCCI money laundering scandal). The dollar amounts are significant, at least to the Average Joe. The above-average growth in currency in July and August 2001 totaled over $5 billion.[11]
Currency Growth 2001

Why might currency circulating outside of banks have risen so sharply in July and August 2001? A bird in the hand, the saying goes, is worth two in the bush. Under money laundering and other laws, including those applied in a time of war or a declared national emergency, assets in the banking system can be frozen and seized. The implied incentives help explain a related phenomenon called “wartime hoarding.” Historically, in wartime, currency in circulation outside of banks has tended to rise relative to other forms of money like bank deposits.

In part due to efforts of the 9/11 commission, we now have a greater appreciation of the extensive intelligence warnings that arose (quietly, from the public’s point of view) in mid-2001. The spike in currency growth in July and August may have arisen as anyone mindful that their financial assets might be seized or otherwise at risk after the attacks converted their bank accounts to a more liquid asset before the attacks.

Was “wartime hoarding” at work right before 9/11? The conversion of bank accounts into currency could have been responsible for the surge in currency in July and August 2001.

As noted above, the final report of the 9/11 commission stated that the origins of the money used to fund the attacks were “ultimately … of little practical significance.” Certainly, the alleged 9/11 hijackers did not need a great deal of money to carry out their mission. But tracking financial activity could still provide evidence useful to help understand and prosecute the crimes.

Focusing on transactions directly involving 19 alleged hijackers misses the forest for the trees. The surge in currency in July and August 2001 may have arisen in accounts for people related to a broader conspiracy. Investigating that broader money flow could yield important findings. For example, when the currency was ordered for shipment, was it ordered in advance of 9/11 by people with knowledge attacks were imminent? Yet the final report of the 9/11 commission makes no mention of the extraordinary growth in currency in circulation in July and August 2001, nor any related investigative efforts.

Why might this issue be particularly important, as touched on above, in light of the fact that Atta was reported to have received wire transfers in a bank account in Florida? A flowering scandal involving one of the owners of a fleet of casino boats in Florida may provide an important investigatory avenue.[12] Atta was reportedly aboard one of those boats soon before 9/11.[13] Was he just gambling? Were casino boats, financial institutions, aviation companies, or other parties in Florida involved in extraordinary currency shipments just prior to, or soon after, 9/11? Atta’s alleged appearance on a casino boat -- or any investigation of that appearance and its implications -- goes unmentioned in the 9/11 commission’s final report.

This leads to another topic unmentioned in the 9/11 commission’s final report. Atta was reported to have visited not only casino boats, but also Las Vegas, in the weeks before 9/11. Casinos, like casino boats, have a lot of currency. Their operation provides the means for distributing currency. The final report of the 9/11 commission did describe the timing of Atta’s visits in Las Vegas, but the word “casino” is not to be found.

Nor does the final report draw any connection between the existence of substantial amounts of currency in Las Vegas and the fact that several extraordinary airplane flights left soon after 9/11, including some from Florida and at least two from Las Vegas. These flights carried relatives of Osama bin Laden, as well as other people from Saudi Arabia said to be concerned for their safety.[14] One of the controversial flights that left soon after 9/11 reportedly included a bank CEO. Another passenger of interest was the former head of Saudi intelligence, who had left his post in August 2001.[15]
Did anyone check the luggage?

Were large amounts of currency being shipped in other ways for these passengers, or people related to them? More generally, how much currency moving after 9/11 was originally shipped in July and August, when we saw the surge in currency circulating outside of banks?

President George W. Bush first signed an executive order freezing bank accounts relating to 9/11 on September 24, 2001. All but one of the above-noted controversial flights were gone before September 24, however, while one of them left that day. Even if they left without substantial sums of currency aboard, and even if the people on the planes were not directly connected, similar efforts to transport currency may have been pursued in July, August and early September, as well.

Further south, banking conditions were deteriorating in Argentina. This may provide a less sinister reason for the surge in currency in July and August 2001. Yet a downdraft in U.S. dollar-denominated deposits in Argentina may itself have been related, at least partially, to 9/11. Large depositors concerned that their savings might be frozen may have been trying to withdraw currency in Argentina, as well.
Suspicious activity reporting

Some of the tools used to monitor possible money laundering abuses and to investigate crimes after they occur include “suspicious activity reports.” They used to be called “criminal referrals,” and are normally prepared when banks and other financial institutions are required by law and regulation to report transactions relating to suspected criminal activity.

On August 2, 2001, at a time when intelligence warnings of impending terrorist attacks were intensifying and currency growth was spiking higher, the Federal Reserve Board of Governors issued a non-routine supervisory letter to the Federal Reserve Banks.[16]

This letter stated that the importance of monitoring suspicious activity reports had long been recognized by the Federal Reserve, and then emphasized that it was important that the Reserve Banks continue to do so. The letter did not explain why it was issued when it was issued, given that this was a need that had long been recognized.

Intelligence warnings on terrorism were rising significantly in mid-2001, and with terrorism and its financing already recognized as an important element of the national money laundering strategy (see below), a plausible question arises whether the August 2, 2001 supervisory letter was related to these warnings. We didn’t learn until early 2005, for example, that the FAA had received numerous warnings of a terrorist threat during mid-2001.[17]

The August 2, 2001 date might be especially coincidental. In Forbidden Truth, authors Jean-Charles Brisard and Guillaume Dasquie report that negotiations between the Taliban and representatives of the United States over energy production issues in Afghanistan ended on August 2, 2001. Four days later, President Bush received a “PDB” – a Presidential Daily Brief – with a headline warning that bin Laden was “determined to strike in US,” and the body text of the PDB referred to “patterns of suspicious activity.”

If intelligence warnings prompted the Federal Reserve to issue the August 2, 2001 supervisory letter, how well and how quickly was that intelligence incorporated into any investigation into the surge in currency growth in July/August 2001? Federal Reserve banks, for that matter, ship currency to banks, who move it in turn into public circulation. The August 2 letter may not have been related to terrorism intelligence warnings, of course, but we have no evidence that the issue was explored by the 9/11 commission.

The final report of the 9/11 commission also makes no mention of a spike in suspicious activity reports in July and August 2001. The chart below shows the number of suspicious activity reports filed in the U.S. from 1997 to 2001; the line at the top is for January through August, 2001.[18]



The final report of the 9/11 commission does state (in a footnote) that no financial institution filed a suspicious activity report regarding a transaction of any of the 19 people that the report identified as hijackers. This statement is repeated in the staff monograph on terrorist financing that followed one month after the final report.[19] However, as noted above, the transactions of 19 people can miss the forest for the trees. The report does not state whether any suspicious activity reports relating to terrorism, period, were filed in the months before 9/11, or whether the commission even looked into it. Maybe they didn’t.
Money laundering initiatives related to terrorism

The final report of the 9/11 commission provides a vivid description of intelligence warnings rising in the months before September 11.[20] However, the most meaningful relevant reference to money laundering in this regard is true only in a very narrow sense.

Every year since 1999, the U.S. government has issued a national money laundering strategy report, as required by law. On page 186 of its final report, the 9/11 commission stated that the Treasury Department did not consider terrorist financing important enough to mention in the national money laundering strategy report before September 11.

The national money laundering strategy report for 2001 was dated September 12, 2001, so this statement may be true in a very narrow sense. That 2001 report did deal with terrorism as an important topic,[21] however, even though it did not refer to the events of September 11. More importantly, the Treasury Department’s national money laundering strategy reports for 1999[22] and 2000[23] stressed terrorism and its financing, directly and prominently, as an important end to which anti-money laundering efforts (including suspicious activity reporting and analysis) were to be directed.

Also in the late 1990s the Financial Action Task Force (the FATF, where the United States is significantly represented) repeatedly stressed terrorism threats in its international guidance. In turn, the U.S. Financial Crimes Enforcement Network’s “Suspicious Activity Report Review” dated June 2001 described a late-2000 FATF “Typologies Exercise,” where the major issues examined included terrorist financing as well as the role of cash vs. other payment methods in money laundering schemes.[24]

In mid-2001, terrorism was a known object of anti-money laundering efforts. Yet the commission erred considerably in its assertions about the importance of terrorism in the national money laundering strategy, among other areas. Why?
Conclusion

In their August 12, 2005 statement dismissing Able Danger as “not … historically significant,” former 9/11 commission chairs Kean and Hamilton echoed their final report of a year earlier, which stated that

"To date, the U.S. government has not been able to determine the origin of the money used for the 9/11 attacks. Ultimately, the question is of little practical significance."

Amidst speculation that classified projects related to and possibly including Able Danger were tracking financial transactions, the coincidence may be more than coincidental.[25]

Under-explored financial issues relating to 9/11 appear to be part of a broader, significant problem. The 585-page final report of the 9/11 commission is extensively footnoted and superficially impressive. Many people worked long and hard on it. However, in a statement following the Able Danger revelations several months ago, members of the September 11th Advocates (the above-noted victim families group) aptly described the report as a “hollow failure.”[26] Unanswered questions pointing to serious issues abound, and in a variety of areas.[27]

More recently, members of the former 9/11 commission issued a ‘report card’ on the performance of the government in enacting their recommendations. The fact that the only A issued (out of 41 graded areas) was in the area of terrorist financing could be another clue that big bones are buried in this area. Putting the value of their recommendations aside, it is worth recalling that dismal report cards have been issued on the 9/11 commission itself, notably by the Family Steering Committee.[28]

Congress should heed the call of 9/11 family leaders and others and hold hearings on the Able Danger project, with the leaders of that project enabled to testify as part of a broader, thorough and urgent inquiry. The structure of such an inquiry is critical, as one of the topics should be the performance of the “independent, bipartisan” 9/11 commission itself, a product of the Congress as well as the President.
[1] Louis Freeh, “An Incomplete Investigation,” Wall Street Journal , 11/17/05.
[2] National Commission on Terrorist Attacks Upon the United States, The 9/11 Commission Report .
[3] See http://www.9-11pdp.org/press/2005-08-12_pr.pdf .
[4] See http://www.911citizenswatch.org/modules.php?op=modload&
name=News&file=article&sid=635
[5] See Ian Bishop, “Angry Kin Call For a New Panel on 9/11,” New York Post, August 18 2005
[6] Quote in CQ Weekly , August 12, 2005.
[7] See Gary Fields and David S. Cloud, “At Least Six Hijacking Suspects Got U.S. Visas in Saudi Arabia …” Wall Street Journal , October 9, 2001.
[8] See Michel Chosuddovsky, “The 9/11 Joint Inquiry Chairman are in Conflict of Interest,” Online Journal , August 7 2003, and Dave Williams, “Porter Goss, the New CIA Head, Linked to Funding 911 Terror Attacks.” Melbourne Indymedia , August 13 2004.
[9] A notable effort appears in Nafeez Ahmed, The War on Truth , Interlink Books, pp. 137-53.
[10] In addition to the currency component of M1, the Federal Reserve also reports a statistic called “currency in circulation,” which includes currency in bank vaults. However, many sources -- including the Federal Reserve’s own “Purposes and Functions” handbook, the Federal Reserve Bank of New York’s “Fedpoints,” and the website for the cash services area of the Federal Reserve – refer to the currency component of M1 (which excludes currency in bank vaults) as “currency in circulation.” A careful effort that distinguishes the currency component of M1 from “currency in circulation” is in Richard D. Porter and Ruth A. Judson, “The Location of U.S. Currency: How Much is Abroad?” Federal Reserve Bulletin , October 1996.
[11] For the data, see the St. Louis Fed “FRED” database, the currency component of M1, at
http://research.stlouisfed.org/fred2/series/CURRSL/24 .
[12] See James V. Grimaldi and Susan Schmidt, “Lawmaker’s Abramoff Ties Investigated,” Washington Post , October 18 2005; Susan Schmidt and James V. Grimaldi, “Witness May Have Pivotal Role in Probe of Alleged Corruption,” Washington Post , November 20 2005, and Susan Schmidt and James V. Grimaldi, “Lawmakers Under Scrutiny in Probe of Lobbyist,” Washington Post , November 26, 2005.
[13] Vickie Chachere, “SunCruz Casinos Turns Over Documents in Terrorist Probe,” Florida Times-Union , September 26 2001; The Complete 9/11 Timeline, “September 5, 2001: Hijackers Go on Gambling Cruise in Florida,” Center for Cooperative Research. See also Daniel Hopsicker, “Hammer To the Slammer,” MadCowMorningNews, September 30 2005.
[14] See Dana Milbank, “Plane Carried 13 Bin Ladens,” Washington Post, July 22 2004; Craig Unger, House of Bush, House of Saud , Scribner, 2004.
[15] See Margie Burns, “Why Were Saudi Passengers Flown Out of the Country After 9-11?” Baltimore Chronicle , April 9 2004.
[16] See http://www.federalreserve.gov/boarddocs/srletters/2001/sr0118.htm .
[17] See AP report at www.washingtonpost.com/wp-dyn/articles/A13203-2005Feb10.html .
[18] FinCEN SAR Activity Review, By The Numbers, May 2004, http://www.fincen.gov/sec1filingsarissue2.xls .
[19] National Commission on Terrorist Attacks Upon the United States, “Monograph on Terrorist Financing,” p. 141.
[20] See e.g. Chapter 8, “The System Was Blinking Red.”
[21] See http://www.treas.gov/press/releases/reports/ml2001.pdf ,
and do a word search on “terror.”
[22] http://www.treas.gov/press/releases/reports/money.pdf ,
[23] http://www.ustreas.gov/press/releases/docs/ml2000.pdf
[24] FinCEN, “SAR Activity Review,” June 2001.
[25] In a recent interview, Gen. Hugh Shelton described the origins of the Able Danger program, including a note that the program was aimed ‘to see if there was any way that we could track down Osama bin Laden or where he was getting his money from or anything of that nature.’ See James Rosen, “Able Danger Saga Stirs New 9/11 Claims,” McClatchy Newspapers, 12/5/05.
[26] See their August 10, 2005 statement at the following link : www.911citizenswatch.org/modules.php?op=modload&name=News&file=article&sid=619.
[27] See e.g. www.justicefor911.org/Appendix4_FSCQuestionRatings_111904.php .
[28] See http://www.justicefor911.org/Appendix4_FSCQuestionRatings_111904.php .

[First published December 15, 2005]

Posted by lmurx at 1:21 PM 0 comments

Wednesday, May 2, 2007
Islamic Scholars Play Role in High Finance

©2007 Legal Times Online
http://www.legaltimes.com
Alexia Garamfalvi

04-30-2007


For those with a passing knowledge of the strictures of Islamic law, in particular its prohibition on the charging of interest, the term “Islamic financing” might seem to contain an inherent contradiction.
But far from being disfavored, deal work in the Islamic world is booming. Ten years ago, best estimates put the amount of global financing done under Islamic law at about $70 billion. This year, it’s ballooned more than tenfold to an estimated $750 billion. That’s enough to propel the Islamic finance industry out of its niche market status and into the mainstream of international banking.
It also means the industry is facing growing pains, with an acute shortage of lawyers and Islamic scholars who can advise companies and financial institutions on how to structure their investments and deals so as to comply with Islamic law.
A recent game of musical chairs among lawyers with Islamic finance expertise at U.S. and U.K. firms in Dubai shows that firms are scrambling to get in on the action and are looking to ramp up their Islamic finance capabilities.
“The market for Islamic finance lawyers is hot,” says Ayman Khaleq, a Dubai-based partner with Vinson & Elkins, who worked on the first sukuk, or Islamic bond, to be issued in the United States for East Cameron Gas Co. last July. “There’s a relatively small pool of good Islamic finance lawyers,” says David Church, DLA Piper’s regional managing partner for the Middle East.
Church should know, having scoured the market for lawyers to kick-start DLA’s Islamic finance practice. In February, the firm announced it had scooped up Oliver Agha, a project finance lawyer with al-Jadaan, Clifford Chance’s affiliate in Saudi Arabia, to launch its Islamic finance practice.
Earlier this month, DLA Piper brought on another three Islamic finance specialists, including Adil Hussain, the former head of the Islamic finance group in the Bahrain office of Norton Rose, a British firm considered to have one of the leading Islamic finance practices. DLA Piper, which only opened its Dubai outpost last year, aims to have a 12-to-13-lawyer Islamic finance practice by year’s end, says Agha, who heads the practice.
“In the last three years, the industry has gone from nascent to burgeoning,” he says.
Broadly speaking, Islamic finance involves structuring investments and transactions in a way that complies with the strictures of Islamic law, or shariah, which is intended to govern all aspects of Muslim life, including business affairs.
One of the most fundamental prohibitions is the charging of interest. The key idea is that investors should not make money off simply lending money. This puts shariah at odds with most conventional financing techniques, such as loans and bonds. So deals have to be structured in other ways, often as leases, profit-sharing, or trading.
Shariah also bans investing in a number of activities that are considered sinful, such as gambling, pornography, the manufacture or distribution of alcohol or tobacco, and the consumption of pork. It additionally prohibits highly speculative investments and investing in companies that are highly leveraged (that have excessive amounts of debt).
Bankers, lawyers, and shariah scholars have come together to develop a number of different investment vehicles that comply with these prohibitions. One of the most recent innovations is the sukuk, which has been dubbed an Islamic bond and is similar to an asset-backed security. A sukuk can be structured to offer a fixed return similar to the interest on a conventional bond. But unlike a bond holder, a sukuk holder is granted an ownership interest in the assets or business being financed, and the return is tied to the performance of the underlying assets.
GULF STREAM
DLA Piper is far from the only firm raiding its competitors for Islamic finance talent. Last October, British firm Herbert Smith announced that it would open an office in Dubai with two lawyers, Zubair Mir and Nadim Khan, Islamic finance experts it poached from Norton Rose.
Meanwhile, in February, Lovells, another U.K.-based firm, scored a major coup when it recruited a three-lawyer group from U.K. rival Denton Wilde Sapte to start its own Dubai shop, which it plans to open in May. The group — Rahail Ali, chairman of Denton’s Islamic finance practice; Rustum Shah, a banking and finance lawyer; and corporate lawyer Imtiaz Shah — has been involved in some of Dubai’s most high-profile Islamic finance deals, including advising the underwriters, Dubai Islamic Bank and Barclays, on a $1 billion sukuk offering for the expansion of the Dubai airport and a $3.5 billion sukuk issued in connection with Dubai Ports World’s $6.8 billion acquisition of P&O, the largest sukuk offering to date.
That deal garnered more attention in the United States for the furor that ensued over whether DPW’s acquisition of P&O’s port assets in the United States would be a national security risk than for the fact that it was partially financed by a sukuk issuance.
DPW was represented by Clifford Chance, one of the top firms in the field. Established in 1975, the firm’s 50-lawyer Dubai office dwarfs most of its competitors. The firm beefed up its Islamic finance practice early, having transferred a number of practitioners to Dubai last spring.
Not to be outdone by its British competitors, King & Spalding, the first U.S. firm to have an Islamic finance team when it established its practice in 1994, launched its Dubai shop earlier this year to service its Persian Gulf-based clients. “We wanted to protect our franchise,” says Isam Salah, a partner in the firm’s New York office and the head of its Islamic finance and investment practice, noting that the firm has more than 20 lawyers who do the work almost exclusively.
The firm is in essence following its Middle Eastern clients, many of which have been increasing investment in the region.
Meanwhile, Michael McMillen, Salah’s former partner at King & Spalding, moved to Dechert’s New York office to launch that firm’s Islamic finance practice. The firm also lured former Norton Rose associate Abradat Kamalpour and Clifford Chance partner Andreas Junius. Both are partners at Dechert.
BOOM TIMES
So what’s behind this recent flurry of activity and why are firms so eager to launch an Islamic finance practice?
In large measure it’s tied to the emergence of Dubai as a regional financial center. In the past few years, at least six U.S. and seven British firms have opened up shop in Dubai, following an earlier migration of investment banks.
“It’s a natural follow-on to opening an office in Dubai,” says Mark Walters, a Dubai-based recruiter with First Counsel. The market for legal work in Dubai and the Middle East is soaring, he explains. And because a larger and larger proportion of the deals being done in the region are at least partially funded according to Islamic precepts, firms active in the Middle East need to have Islamic financing capabilities in order to attract clients. Although many lawyers in the region have worked on deals involving an Islamic financing component, many of them “were learning on the job,” so having genuine expertise sets a firm apart, Walters says. Vinson & Elkins’ Khaleq agrees: “Eight times out of 10, clients ask if you can advise on Islamic finance matters,” he notes.
Lawyers in the region attribute the increase in the number of Islamic finance deals in large part to the Middle East’s overall economic boom resulting from record oil profits. The surge of liquidity in the market has driven investors to demand a broader range of financial instruments in which to invest. And more of the money is staying in the region than it did during the oil booms in the 1970s and 1980s. “Muslim investors’ increasing interest in Islamic finance is also tied to a groundswell in religious identity that has been building in the Middle East in the post-colonial period,” says Ali Adnan Ibrahim, who teaches a course in Islamic finance at Georgetown University’s law school. “Real movement is afoot in the Middle East. Investors want alternative ways to invest their money,” says Agha.
Islamic finance is not limited to the Middle East, however. King & Spalding's Salah points out that many of the financial structures used in Islamic financing were developed for shariah-compliant investment firms doing deals in the United States. The firm represents Arcapita, a Bahrain-based, shariah-compliant investment bank, in many of its private equity transactions in the United States, including the purchase and then sale of New York-based clothing company Loehmann’s Inc.
One of the real trailblazers in the industry is Malaysia, which pioneered the use of the sukuk and still accounts for a majority of the Muslim world’s sukuk offerings. And London is viewed as the Western capital of Islamic finance. Georgetown’s Ibrahim says estimates put 58 percent of the total assets invested in the industry in the Middle East, with Southeast Asia (including Malaysia, Indonesia, and Singapore) at 22 to 25 percent, and Europe, the United States, and South Asia making up the rest.
The increased demand has led large financial institutions to realize that they are going to be able to do enough of these deals to amortize the cost involved in developing new structures, says Dechert’s McMillen. “The industry has grown up,” says Sheikh Yusuf Talal DeLorenzo, a Virginia-based shariah scholar who has been involved in the industry since the 1980s and is now the chief shariah officer for New Canaan, Conn.-based Shariah Capital.
In just the past year, ABN Amro, Societe Generale, UBS, and Deutsche Bank have all launched Islamic investments. And as more deals get done, templates emerge and the transaction costs of doing deals go down, bringing in other investors who might have been reluctant to trade commercial benefits for deals that are religiously compliant. And on goes the cycle.
SIGNING OFF
The boom in the industry has also caused a run on the shariah scholars who decide whether deals meet the strictures of Islamic law. Shariah scholars review transactions to determine whether they comply with Islamic law before issuing a pronouncement, or fatwa, that is akin to a legal opinion, approving the deal and assuring investors that it is acceptable from a religious perspective.
There’s a real dearth of shariah scholars who have an in-depth knowledge of Islamic law along with a sufficient understanding of complicated financial structures and the ability to read hundreds of pages of deal documents in English, DeLorenzo says.
“There’s very little bandwidth,” notes Bill Redman, Shariah Capital’s managing director. Lawyers estimate there are only about 10 to 20 shariah scholars who are sufficiently qualified and whose opinions are respected enough to sign off on these deals.
And as the industry continues to mature, it faces other challenges, as well. The deals are often segmented among regional markets, and although a few countries have defined parameters for what counts as Islamic finance, most financial institutions continue to rely on their boards of shariah scholars to determine whether individual transactions comply with Islamic law. This can make it difficult to structure cross-border deals or develop financial products that can sell across the Muslim world. For example, Saudi Arabia-based scholars often judge Malaysian deals to be too “flexible.”
Although lawyers say they focus on getting approval from shariah scholars in the jurisdiction where the target investors are, the “issue of standards does come up more and more often,” Vinson & Elkins’ Khaleq says.
Some movement towards standardization is afoot. Dechert’s McMillen is advising the Malaysia-based Islamic Financial Services Board on the development of a legal infrastructure — including model uniform acts for each of the major Islamic finance structures and business entities used in Islamic finance.
Meanwhile, there’s been a gradual tightening among some shariah scholars of the standards for whether a deal is shariah-compliant and more legal push-back as new deals get done that scholars aren’t comfortable with, says Dechert’s McMillen.
DeLorenzo, for example, worries that new products, such as swaps and derivatives, will be designed to adhere to the letter of Islamic law but ignore the spirit behind the shariah’s prohibitions. He sounds a note of caution.
“The safe course is to ensure adherence to the letter of the law,” he says, “but when you are down in the trenches, it’s hard to step back and see where this is leading.”