Financial reforms pushed through by the Labour government allowed Islamic banks to flourish in Britain, amassing assets valued at more than £12 billion.

Financial reforms pushed through by the Labour government allowed Islamic banks to flourish in Britain, amassing assets valued at more than £12 billion.
To comply with Islamic law, their financial products do not pay or charge interest, and the banks cannot invest in alcohol, tobacco or gambling firms. But while government officials have promoted Britain's status as the most Islamic-friendly economy in the Western world, cables obtained by WikiLeaks show that the US feared the banks could be used to channel funds to terrorists.
The State Department was so concerned that it ordered US diplomats in London to compile a report on the activities of sharia banks in Britain. The cable, sent from the office of Condoleezza Rice, George Bush's then Secretary of State in June 2006, requested information on "Islamic financial institutions' vulnerability to exploitation for illicit or terrorist purposes, such as structuring accounts to mask illicit activity or money laundering". The US had particular suspicions that "charitable donations", which Islamic banks are obliged to make to comply with sharia, could be funnelled to al-Qaeda sympathisers.
Washington was also keen to discover whether British regulators and anti-corruption investigators had the "capacity" and "effectiveness" to monitor Islamic banks. Information on the types of customers who have accounts with these banks was also requested.
While the report compiled by the US embassy remains secret, a separate cable sent two months later on Aug 17 2006 claims the British Government was aware of "profound shortcomings" in the regulation of charities with links to terrorist groups overseas.
Stuart Young, a Home Office official, allegedly told US diplomats that the Charity Commission was "completely out of its depth" in how it dealt with groups suspected of funding terrorists. Its officials would have "already trampled over the crime scene" by the time they contacted police, he was reported to have said. Regulations covering charity financing have since been tightened.
The two cables highlight the controversial nature of Labour's policy of promoting London as a hub of Islamic finance. Britain was the only country in western Europe for which the US requested intelligence on the activities of sharia banks.
Almost all the 20 other countries to which the cable was sent are Muslim-majority nations in North Africa, the Middle East and Asia. Research in 2009 found that Britain's Islamic banking sector is the biggest in Europe, and larger than many Muslim nations, including Pakistan.