Shariah’s Black Box

[301] Id.; see also Callum McCarthy, Chairman, FSA Muslim Council of Britain Islamic Fin. and Trade Conference, Regulation and Islamic Finance (June 13, 2006), available at (last visited Jan. 31, 2008).

[302] See Rutledge, supra note 113.

[303] 12 U.S.C. § 29 (2006). For a senior officer at the Federal Reserve Bank of New York remarking favorably on Islamic banking in the United States, see Michael Silva, Islamic Banking Remarks, 12 Am. Law & Bus. Rev. 201, 201 & n.4 (2006).

[304] See supra note 58.

[305] Id.

[306] Supra note 147.

[307] Supra note 148.

[308] For a thorough discussion of the strengths and weaknesses of TILA in regulating misleading advertising, see Patricia A. McCoy, The Middle-Class Crunch: Rethinking Disclosure in a World of Risk-Based Pricing, 44 Harv. J. on Legis. 123 (2007).

[309] 15 U.S.C. § 1664(c) (2006), 12 C.F.R. § 226.24(b) (2005).

[310] 15 U.S.C. § 1665(a).

[311] Id. § 1664(d); Supp. I to Part 226 – Official Staff Interpretations, 12 C.F.R. pt. 226 (construing § 226.24(c)), available at

[312] See, e.g., University Bank, Opening Doors to Islamic Financing, (last visited Feb. 1, 2008) (declaring Islamic Financial Corporation’s loans “free of interest”). While deep in University Bank’s “Frequently Asked Questions,” (last visited Feb. 1, 2008), the bank attempts to explain that “[a]n accountant may argue that rent in the latter two and profit in the former is interest, but in none of these cases is it riba. Some accountants argue that anything that may be perceived as generating a benefit from the passage of time has interest in it. The Sharia’a scholars have not defined riba in this way, rather riba necessarily relates to loans of money or exchanges of money like commodities when they are used as money.”

Interestingly, in contrast to what one might expect of, an argument aimed at the IRS or OCC — which would downplay the “form” and argue that the “substance” of the transaction is a loan — University Bank represents to its customers that its Shariah-compliant transactions are in fact substantively not loans and that their form is their substance. For example, again buried in its Frequently Asked Questions:

Query: Isn’t the Islamic system of purchasing houses the same thing, the same mechanics, as the traditional mortgage system only with different labeling?

SHAPE™: This too is inaccurate. The process of qualifying a consumer and disclosing costs and risks to a consumer is the same as the mortgage system. This process is regulated by federal and state statutes in theUnited States. Hence, the paperwork is the same or very similar prior to and after making the acquisition, but not the acquisition itself.

The acquisition mechanics are fundamentally different without creating all of the same rights and obligations as in a traditional mortgage. Hence, it is not a question of labeling, but of actual structure.

Id. (emphasis added).

[313] See supra note 58.

[314] See supra note 312.

[315] Bankruptcy and loan defaults open up an entire Pandora’s box of issues that this memorandum will not and cannot address. Legal commentators have discussed this in passing; however, only in the most cursory of terms. See, e.g., McMillen, supra note 88.

About David Yerushalmi

Mr. Yerushalmi is a lawyer specializing in litigation and risk analysis, especially as it relates to geo-strategic policy, national security, international business relations, securities law, disclosure and due diligence requirements for domestic and international concerns. David Yerushalmi has been involved in international legal and constitutional matters for over 25 years. David Yerushalmi is today considered an expert on Islamic law and its intersection with Islamic terrorism and national security. In this capacity, he has published widely on the subject including the principle critical scholarship on Shariah-compliant finance published in the Utah Law Review (2008, Issue 3). This work and the empirical investigation known as the Mapping Shariah project in America was the focus of a recent monograph published by the McCormack Foundation and the Center for Security Policy.