SCF exposes the financial institutions and other businesses which attempt to exploit this new industry to a whole host of disclosure, due diligence, and compliance issues, all of which elevate substantially the civil liability and criminal exposure such companies otherwise factor into their business risk profiles. What is clear from this preliminary legal analysis of what might be called the SCF industry is that very little of this increased civil and criminal exposure has been recognized, analyzed, or guarded against in any meaningful way.
The salient points of this analysis are:
- The Shariah black box syndrome: U.S. financial institutions and businesses involved in SCF risk grave consequences by willfully ignoring the endogenous elements of Shariah. Ignoring what Shariah is — both in theory and in practice — and its intimate connection to Islamic terror and holy war against the non-Muslim world amounts to corporate recklessness.
- Putting Shariah in a black box and treating its prohibitions as if they were benign secular and objective “screens” ignores the duty of disclosure of the most important elements of Shariah: its purposes and its ultimate methods.
- Undoubtedly, a reasonable post-9/11 investor contemplating an SCF investment would consider (a) the goal of establishing Shariah as the law of the land and (b) the promulgation of the Law of Jihad to establish this goal material to the investment decision.
- To the extent that U.S. Shariah authorities or foreign Shariah authorities retained by U.S. businesses advocate the implementation of historical and traditional Shariah, they risk being charged with a violation of 18 U.S.C. § 2385.
- U.S.financial institutions and businesses have a duty to conduct reasonable due diligence investigations to be certain that their respective Shariah authorities are neither advocating crimes in the name of Shariah nor promoting the material support of terror, either through legal rulings or through the funneling of “purification” funds to terrorists. Failure to conduct such due diligence might very well lead to civil liability, if not criminal exposure.
- The Shariah black box is yet another financial fad like the sub-prime market where transparency is shrouded in opacity in the mad rush to market-share and quick profits. U.S. mutual funds are poised to embrace SCF without a word about the risks associated specifically with Shariah. U.S. banks are cavalierly promoting Shariah-compliant loans as “interest-free” when in fact they are merely repackaged loans at standard interest rates. This violates any number of consumer protection statutes. Financial institutions are underwriting Shariah-compliant loans and bond issuances without really understanding the risks associated with default and bankruptcy treatment.
- Insofar as U.S. financial institutions participate in and cooperate with the Shariah authorities’ efforts to establish the rules and regulations for the SCF industry, antitrust issues such as rules collusion are likely to present yet additional issues of exposure for those embracing this new industry.
- The current structure of the SCF industry in which two dozen of the most influential Shariah authorities control the way funds go in and out of the largest financial enterprises in the world creates the paradigmatic pattern of predicate racketeering activity any aggressive prosecutor or plaintiff’s lawyer looks for in a RICO cause of action.
The failure by corporate management and their legal advisors to confront these issues in any serious fashion is not surprising given the wholesale failure of the participants and facilitators in this industry to have undertaken a serious analysis of these risks. The extant legal academic and professional literature reads more like promotional material and not serious legal analysis conducted by men and women trained to protect clients from their own blind enthusiasm. The legal industry has gone down this road too many times in the past. The difference this time is that the risk is not simply financial; it is potentially existential.