Praise be to Allah.
Zakaah is not due on haraam wealth, nor is it valid, because it does not really belong to the one who in whose possession it is, and one of the conditions of zakaah is that the wealth should belong to the person. And Allaah is Good and accepts nothing but that which is good. The Prophet (peace and blessings of Allaah be upon him) said: “O people, Allaah is Good and only accepts that which is good. Allaah commanded the pious to follow the same commandments as He gave to the Messengers. He says (interpretation of the meaning):
‘O (you) Messengers! Eat of the Tayyibaat [all kinds of Halaal (lawful) foods which Allaah has made lawful (meat of slaughtered eatable animals, milk products, fats, vegetables, fruits)] and do righteous deeds. Verily, I am Well-Acquainted with what you do’ [al-Mu’minoon 23:51]
‘O you who believe (in the Oneness of Allaah — Islamic Monotheism)! Eat of the lawful things that We have provided you with’ [al-Baqarah 2:172]
Then he mentioned a man who has travelled on a long journey and is dishevelled and covered with dust; he stretches forth his hands to the heaven, (saying) “O Lord, O Lord”, but his food is haraam, his drink is haraam, all his nourishment is haraam, so how can he du’aa’ be accepted?” Narrated by Muslim (1015).
What he should do is get rid of that haraam wealth. He should return it to its owners if it was stolen or seized by force, and he should donate it to charity if it came from selling drugs, alcohol, music and the like.
It says in al-Mawsoo’ah al-Fiqhiyyah (23/248): Haraam wealth, such as that which is taken by stealing, seizing by force, bribery or riba etc does not really belong to the one in whose possession it is, and he does not have to pay zakaah on it, because zakaah is due on things that actually belong to a person. And zakaah is a purification for the one who pays it and for the wealth of the one who pays it, because Allaah says (interpretation of the meaning):
“Take Sadaqah (alms) from their wealth in order to purify them and sanctify them with it”
And the Prophet (peace and blessings of Allaah be upon him) said: “Allaah does not accept zakaah from any haraam wealth.” So haraam wealth is all impure and cannot be purified.
What should be done with regard to haraam wealth is returning it to its owner if it is possible to find out who he is, otherwise it should all be given away so as to get rid of it, not so as to give it in charity. This is agreed upon among all madhhabs.
The Hanafis say: If the ill-gotten wealth reaches the nisaab, zakaah is not required from the one in whose possession it is, because he is obliged to give all of it, so there is no point in saying that he must give some of it in charity.
In al-Sharh al-Sagheer by al-Dardeer, who is a Maaliki, it says: Zakaah is required from the one who owns the nisaab, and it is not required of one who is not the owner, such as one who took it by force or the one who is keeping it for someone else.
The Shafaa’is say –as was narrated by al-Nawawi from al-Ghazaali, and he also confirmed it – that if a person does not possess anything but purely haraam wealth, he does not have to do Hajj or pay zakaah, and he does not have to offer expiation in the form of wealth.
The Hanbalis say that use of wealth that was seized unlawfully for shar’i purposes is haraam and is not valid. This is like doing wudoo’ with water that was seized unlawfully or praying in a garment that was seized unlawfully or in a place that was seized unlawfully, and it is like paying zakaah from wealth that was seized unlawfully or doing Hajj with such wealth. Any transaction involving this (haraam) wealth, such as selling, renting etc, is invalid.
And Allaah knows best.