New York Court Rejects Awal Bank Petition for Chapter 11 Bankruptcy

A New York bankruptcy court has rejected a petition for limited Chapter 11 bankruptcy protection by Bahrain-based Awal Bank, a subsidiary of Saudi Arabia’s embattled Saad Group owned by Saudi billionaire Maan al-Sanea. The court’s decision offers temporary relief to creditors who stood to be left high and dry if the court had ruled in favor of Awal’s request, which would have allowed the troubled bank to keep information confidential and would have exempted it from creating a U.S. creditors committee

U.S. Bankruptcy Judge Allan Gropper however kept the door open for Awal to repetition the court provided it the bank agreed to establish such a committee. Groper told David Molton of Brown Rudnick LLP, the lawyers for Awal’s Bahrain Central Bank appointed administrator, Charles Russel LLP, that the committee was needed as a watchdog because US courts do not appoint administrators.

Groper suggested the request be resubmitted by Nov. 1, the deadline for the U.S. Trustee, which oversees U.S. bankruptcies, to seek candidates for a creditors committee. Alisdair Haythornthwaite of Bell Pottinger Middle East (UAE), speaking on behalf of Charles Russel said the administrator intended to follow the judge’s advice and reapply for Chapter 11 protection. Awal had argued that a U.S. creditors committee would duplicate proceedings in the Cayman Islands and the Middle East involving the bank’s largest creditors.

Awal Bank’s request for Chapter 11 came little more than a year after it had filed for Chapter 15 bankruptcy in the same court. Chapter 15 bankruptcy seeks to protect companies from U.S. litigation while they reorganize in a non-U.S. court. Molton told the court that Awal Bank needed Chapter 11 protection to help it recover what it called “avoidable” transfers out of the estate prior to bankruptcy.

Defaults on loans last year by Awal Bank as well as Saudi conglomerate, Ahmad Hamad Al-Gosaibi & Brothers Co. set off a bitter legal battle on three continents between the two groups that are related by al Sanea’s marriage to a daughter of the Ghosaibi family. Gosaibi has accused Al-Sanea in court filings on three continents of siphoning off $10 billion from his in-laws.

Awal’s Chapter 11 court filing suggested that it would it file a reorganization plan or opt for liquidation in Bahrain rather than the United States. Even though the court papers kept reorganization on the table, the Chapter 11 filing suggests that liquidation is the more likely option. According to its court filing, Awal has assets valued at most at $100 million and liabilities of more than $1 billion. Under Bahrain law, the administrator has until the summer of next year to decide whether to liquidate Awal or return it to its owners.

Assuming that the bankruptcy filing was made with the consent of the Bahrain Central Bank, the filing suggests that Bahrain has decided that Awal is beyond salvation and should be liquidated. In its filing, Awal asserts that after payment of the administrators and other immediate expenses, it will not be able to compensate its unsecured creditors, who number somewhere between 60 and 100 and include: Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, AlGosaibi Money Exchange, Bank of Montreal, Bayerische Hypo-und Vereinsbank, Bayerische Landesbank, Boubyan Bank, Calyon Corporate and Investment Bank, Commercial Bank of Kuwait, Commercial Bank of Qatar, Commerzbank, Commonwealth Bank of Australia, Fortis Bank, Gulf International Bank, HSBC, HSH Nordbank AG, JP Morgan, Kuwait Finance House and The International Banking Corporation.

Al-Gosaibi is seeking to recover $9.2 billion in lawsuits in the Cayman Islands against al-Sanea and Awal subsidiaries. The lawsuits were stayed after al-Sanea challenged the Cayman court’s jurisdiction, and an appeal of that decision is set to be heard in November. In July, New York State Supreme Judge Hon. Richard B. Lowe dismissed a lawsuit Al-Gosaibi had filed against Awal and al- Sanea, on grounds of that court being an improper forum. Court proceedings involving Awal are also ongoing in Bahrain, Kuwait, Saudi Arabia, Switzerland and Britain.

U.S. Counterterrorism Strategy Boomerangs in Yemen, Somalia

By James M. Dorsey

World Politics Review

U.S. and European efforts to stabilize Yemen and Somalia are boomeranging. Rather than weakening militants in both countries, Western counterterrorism and counterinsurgency strategies are fueling radicalism and turning wide swathes of the population against the West.

With little real effort to economically and politically stabilize the two countries, U.S. military and security support for Yemeni President Ali Abdullah Saleh and the embattled head of Somalia's Transitional Federal Government (TFG), Abdullahi Yusuf Ahmed, exacerbates local fault lines and strengthens deep-seated anti-Americanism.

The backfiring of Western policies is compounded by a one-size-fits-all approach and a failure to address local grievances. To be sure, the Saleh and Ahmed governments are as much a part of the problem as they are part of the solution. This, and differences between the goals of Western nations and those of their regional allies, complicates efforts to embed security and military policy within initiatives to improve the population's economic lot and enhance good governance. Nonetheless, the incentive to get the policy right is compelling: Together Yemen and Somalia control key oil-export routes through the Gulf of Aden; mounting instability in both countries threatens regional stability in the oil-rich gulf and surrounding resource-rich African nations.

Western policy assumes that ungoverned spaces fuel instability and provide oxygen to al-Qaida's Yemeni affiliate, al-Qaida in the Arabian Peninsula (AQAP), and to al-Shabab in Somalia, rather than viewing both countries as territories with alternative power structures that, if properly engaged, could potentially further Western interests and undermine support for the militants. A recent Chatham House report (.pdf) concludes that "no amount of international support can compensate for the TFG's lack of internal legitimacy," a shortcoming clearly illustrated by the desertion of TFG military recruits to al-Shabab. By contrast, the emergence of stable forms of local government in Somalia based on reconciliation among clans calls into question assumptions that a lack of central-government control in Yemen must necessarily result in tribal safe havens for AQAP.

Western policy assumptions also fail to adequately distinguish between AQAP's global ambitions, which were demonstrated by the failed Christmas 2009 bombing of a U.S.-bound airliner, with al-Shabab's continued focus on regional, rather than Western targets. For instance, al-Shabab's twin attacks in June on soccer fans in Kampala, which killed 74 people, were aimed to persuade Uganda to withdraw its troops from the African Union peacekeeping force in Somalia. Western policymakers also see Somali refugees as potential jihadist recruits, ignoring the fact that most of those who have fled the country did so to escape the Islamists.

The Obama administration earlier this year took a step toward expanding its regional focus beyond piracy to address the emergence of lucrative networks engaged in human trafficking as well as the smuggling of arms, drugs and fuel. To move against these networks, which often operate with the connivance of government and security officials, the administration imposed sanctions on Yemeni and Somali arms merchants with close government ties, coupled with increased efforts to strengthen the coast-guard capabilities of Yemen and Somaliland, a self-declared republic in northwest Somalia. Yet, such actions are likely to have limited effect as long as they fail to similarly align the interests of the Yemeni navy, controlled by the Defense Ministry, and the coast guard, reporting to the interior minister. They must also guarantee that these forces are complemented by an effective customs service and ensure that Somaliland anti-piracy efforts move beyond targeting only those activities that threaten the interests of government ministers.

The threat posed by misguided Western policy extends beyond the borders of Yemen and Somalia into their extensive diaspora communities. Yemenis and Somalis increasingly see the U.S. and Europe as aggressors seeking to exclude domestic actors, rather than enhancing their ability to resolve local issues and build a system that provides greater accountability. The Somali community in the United States is proving to be a fertile al-Shabab recruiting ground, while Somali-Americans constitute the largest contingent of U.S. nationals suspected of joining al-Qaida affiliates. Britain's MI5 Director-General Jonathan Evans warned last year that terrorist plots hatched in Somalia and Yemen pose an increasing threat to U.K. security.

Increasingly, Yemen and Somalia demonstrate the need for finding and supporting creative measures that involve the private sector and civic groups in efforts to deradicalize individuals and groups. Such measures do exist. One campaign backed by FIFA, soccer's world body, and local Somali businessmen has shown success at luring child soldiers away from the jihadists with a program whose slogan is "Put down the gun, pick up the ball."

Another key to a successful policy is to align Western interests and those of regional allies. In Yemen, a division of labor between the U.S. and the U.K. has emerged, whereby Washington focuses on security and London on economic issues. However, Saudi Arabia, Yemen's single largest donor, has no clear Yemen policy and simply wants to keep the country afloat. In their new book, "Yemen On the Brink," the Carnegie Endowment for International Peace's Marina Ottaway and Christopher Boucek caution, "Without strong pressure to address the systemic challenges facing the country, it is extremely doubtful that the Yemeni government will make any serious efforts to curb corruption, improve governance or address political grievances, which are directed against the government itself. As long as donors remain divided, there can be no such pressure on the government of Yemen."

International donors have already begun to use badly needed foreign assistance as leverage to force the Yemeni government to address the issues fueling radicalism. At a meeting earlier this year, they demanded that Yemen clearly explain how aid will be managed before monies are transferred. But such aid must also be coherently designed and integrated if it is to provide a perspective of change to significant chunks of the population and, with it, an alternative to militant Islam.

Oil Deposits Fuel Tension in Eastern Mediterranean

Oil and gas discoveries in the eastern Mediterranean are notching up tension in a region that already has its fair share of pernicious disputes. Rival communities on the divided island of Cyprus as well as Turkey and arch enemies Lebanon and Israel are racing to stake their claims in what is one of the world’s newest oil frontiers.

The deposits may be minor compared to those of the oil-majors in the Gulf, but for small nations in the eastern Mediterranean they promise to be substantial. Yet, rather than providing an opportunity to enhance stability through economic cooperation, the discoveries are raising the specter of renewed conflict as the parties strike deals to start exploration.

Complicating matters is the fact that the deposits are all in international waters, historically a reason to call in the gun boats in the absence of a production-sharing agreement. The potential threat is heightened by the fact that Israel and Lebanon are locked into a state of war while Turkey backs its Turkish Cypriot brethren in their communal dispute with the majority Greek islanders. While Israel and Lebanon have warned that their economic rights in the eastern Mediterranean could constitute a casus belli, Turkey and the two Cypriot communities have so far steered clear of military threats in their perennial disputes over oil and gas.

Tension is nonetheless mounting with last week’s Turkish announcement that it is about to start exploring for oil off the coast of northern Cyprus, the breakaway Turkish Cypriot states that hosts an estimated 40,000 Turkish troops. For its part, the internationally recognized government of Greek Cyprus is negotiating oil exploration deals with Lebanon.

For now, Israel may be the party laughing all the way to the bank. Lebanon has yet to achieve agreement with Cyprus and Syria on its economic boundaries in the eastern Mediterranean. Meanwhile, Israel has completed preliminary exploration on the back of an agreement with Cyprus and is preparing to begin extracting black gold. Lebanon will no doubt assert that Israel is drilling in Lebanese territory, but will need years to prove its claim and given Israeli military superiority is unlikely to be able to do much about it.

Nonetheless, the race for resources will only complicate efforts to reduce tension in a region that already has sufficient flash points.

Dutch Jihadist Recants

A key figure in one of militant Islam’s European networks has joined the ranks of a small but important number of jihadists who have had a change of heart and are calling on their brethren to abandon violence.

Writing from the Vught maximum security prison in the Netherlands, Jason Walters, a leading member of the Hofstad Group that police say was responsible for the 2004 killing of Dutch filmmaker Theo Van Gogh, declared that “the ideals that I once honored have been lost and I have come to realize that they are morally bankrupt.”

Walters’ letter, published in Trouw, a Dutch daily, offers a window into the mind of a man who had dedicated his life to propagating militant Islam through violence; it contributes to understanding why some adopt terrorism and what prompts them to reconsider.

The son of an African-American father and Dutch mother, Walters converted to Islam at age 16 and in 2003 made his way to Pakistan from where he returned to boast that he could "disassemble a Kalashnikov blindfolded and put it back together again." Accused of plotting to kill controversial Dutch parliamentarians Geert Wilders and Ayaan Hirsh Ali, Walters resisted arrest in 2004 in a 14-hour siege during which he threw a grenade at police.

Unlike the recantations of jihadist ideologues such as Sayyid Imam al-Sharif who employed Islamic theology to explain their change of heart, Walters who is serving a 15-year sentence, denounces a basic tenant of his former worldview that holds that in a world of believers and infidels, the infidels seek to destroy the believers. It is a view Walters now describes as “a childish and coarse simplification of reality” that ignores the complexity and many nuances of which reality is rich.”

Analysts say Walters’ letter, or review document as he describes it, is likely to spark debate in militant Islamist circles and serve as an important tool in efforts to counter jihadists in Europe.

A Rarely Told Story: Muslims Save Jews

A Jewish community synagogue in Missouri is focusing attention on a rarely told story about Muslims who saved Jews amid controversy in the United States over plans to build an Islamic cultural center near Ground Zero in New York and mounting anti-Muslim fervor in Europe.

Temple Emmanuel in Creve Couer, a small town in St. Louis County, is hosting an exhibition that explains why predominantly Muslim Albania emerged from World War Two as the only European country to boast a larger number of Jews than it had housed prior to the Holocaust.

The exhibition tells the virtually unknown story through the pictures of fine art photographer Norman H. Gershman, who on visits to Albania and Kosovo found some 150 Muslim families who had taken part in the rescue of Jews under Nazi occupation. It is a story of Muslims who risked their lives to live by a code of faith and honor they call Besa and that saved the lives of more than 2,000 Albanian Jews and Jewish refugees.

Besa, says Dr. Ghazala Hayat, a St. Louis University neurologist and Islamic Foundation of Greater St. Louis spokesperson, is Albanian for the Islamic code that requires Muslims to endanger their own lives if necessary to save the life of those seeking asylum; it is code that remains a moral law in Albania that supersedes religious differences and blood feuds.

Emmanuel Temple Rabbi Justin Kerber says his community is hosting the exhibition because “at this time of tension over Islam, there is so much more to understanding Islam."

Gershman’s pictures tell a lifetime of stories. "I did nothing special. All Jews are our brothers," says a man portrayed in the exhibition, who was among those hid Jews from the Nazis. A leader of the Bektashis, a primarily Balkan and Turkish Muslim sect that blends Shiite and Sufi concepts, recalls an Albanian prime minister secretly ordering during the German occupation that “all Jewish children will sleep with your children, all will eat the same food, and all will live as one family."