Sunday, May 19, 2013

Arab Money: Is Islamophobia Preventing U.S. Access to Cash-Rich Investors?

Arab Money: Is Islamophobia Preventing U.S. Access to Cash-Rich Investors?

Mushfique Shams Billah, current Sullivan & Cromwell legal associate, wrote one of the more interesting law review articles I have come across. It is interesting because of the insight and also because it may be the only law review article that starts out by quoting Busta Rhymes.
“Bismillahir rahmanir rahim, Alhamdu lillaahir rabiil’alamin, We gettin’ Arab money, We getting’ Arab money.” – Busta Rhymes – Arab Money Remix[1]

In his note tilted “Arab Money: Why Isn’t The United States Getting Any?,” Billah questions the continual U.S indifference towards the increasingly important role that Islamic Finance has in international finance. 

Islamic Finance: What is it?

In order to discuss this paradox, it is important to first understand what Islamic Finance is. “Islamic Finance attempts to reach the same substantive outcomes as conventional finance but in forms that comply with the concepts underlying the Shari’ah and the divine laws of Islam.[2]” So, how does Islamic Finance differ from conventional finance you ask? Well…depends on who’s asking. If it’s an investor asking, the answer is it differs in many crucial concepts involving risk and asset ownership. If it’s a layman asking, the answer is…well, the end result is pretty identical. However, to those that wish to conduct business in a manner that accords with their religious beliefs the differences can be quite substantial and substantive[3]

Sharia-Law Backlash

Billah in his article focuses on the statutory and constitutional frameworks that have come to present obstacles for Islamic finance transactions in the U.S. I, however, wonder whether the lack of zeal in fixing these obstacles aren’t more rooted in Islamophobia  –or more aptly put, the recent phenomenon of an irrational concern with Sharia Law penetrating American culture. 

Opponents are concerned Sharia Law is permeating into America and might cause “homegrown terror. [4]” To date over a few dozen states have reacted to public sentiment by affirmatively moving to ban Sharia Law[5]. While some critics focus on the notion that Islamic finance promote terrorism others are concerned that Islamic Finance would violate our principles of separation of church and state. Specifically one plaintiff has gone as far to allege that TARP funds received by an institution with Sharia-Compliant products are a violation of the Establishment Clause. 

Constitutional Challenged Shot-down

Murray v Geithner was a challenge in the Southern District Court of Michigan to see whether the EESA violated the Establishment Clause by allowing funds to be appropriated to financial entities that have Sharia-compliant products[6]. The EESA is the authorizing bill that spawned the creation of the Trouble Asset Relief Program (TARP).[7] Murray challenged the government’s assistance to American International Group (AIG) through TARP on the basis that some of these funds would be used to assist their Sharia-based products, in which they argued would be a violation of the Establishment Clause. [8]

Judge Lawrence P. Zatkoff made quick work of this challenge, disposing of it in summary judgment under the Lemon Test.[9] The lemon test states that a statute will be upheld under the Establishment Clause if,  “1) it has a secular legislative purpose, 2) its principal or primary effect neither advances nor inhibits religion, and 3) it does not foster an excessive government entanglement with religion. [10]” Judge Zatkoff found for AIG in all 3 elements. Specifically, under the first and most important element – secular purpose – Judge Zatkoff ruled that the plaintiff failed to produce sufficient evidence to conclude that the primary purpose of the EESA was to advance religion.[11] Judge Zatkoff noted the defendant’s evidence that Shari’ah-Compliant products accounted for less than .03% of AIG’s consolidated revenue.[12] While this case was dispensed on the basis of a failure to the produce evidence to defeat a motion of summary judgment, it is likely the court found persuasive the defendant’s argument. AIG contended that EESA had, not a religious purpose, but a “secular purpose of restoring liquidity and stability to the financial system of the United States.”[13]
Backlash Misguided

Critics concerned about a violation of the establishment clause can be placated by Judge Zatkoff’s analysis of the Lemon Test. And those concerned about Islamic Finance causing “homegrown terrorism” can be dismissed outright as too fringe of a group to be taken seriously. What about those concerned with the moral implications of allowing Shari’ah law in the U.S? It would be disingenuous to not acknowledge the implicit association that drive most of the paranoia surrounding Islamic Finance in the U.S; the deplorable laws and principles that have been proclaimed in the name of Islam around the world. Being the associative machines we humans are, it is tempting to get unhinged by the extreme examples primed in the media of Sharia'ah law. However, in order to remain grounded in reality, it is important to stay focused on the implications of critics’ fears. Will Islamic Finance usher in an era of tolerance for female genital mutilation or honor killings in the U.S? Highly unlikely.  Will allowing Islamic Finance open a pandora’s box of foreign law usurping American public policies and norms? Again, quite improbable. From a common sense perspective the answer to these two questions is readily apparent. From a legal perspective it is similarly as evident. No matter how grandiose our desires of comity, cultural acknowledgement, or international reciprocity of law grows as a nation, no contract will be upheld by a U.S court that violates our constitution, congressionally enacted laws, or our norms of decency and public policy.

Islamic Finance is not some foreign concept or application of laws not already applicable within ordinary U.S contract laws. It is merely contractual agreements, bound by the same rules and laws as other contractual agreements. But what Islamic Finance does provide that conventional finance doesn't is the substantive benefit of allowing greater market participation by Muslims across the world, which in turn can only lead to greater global financial integration. As demand for Islamic bonds (Sukuk) continue to go unsatisfied, cash-rich Islamic investors continue to have too few investment opportunities[14]. With so much demand to be met it would be a benefit to both the interests of the U.S and Islamic followers to damper our resistance and join the Islamic Finance frontiers.

[1] Mushfique Shams Billah, Arab Money: Why Isn't the United States Getting Any?, 32 U. Pa. J. Int'l L. 1055, (2011).
[2]Kalu Kalu, Islamic Finance: Due Diligence in Shari’ah Compliant Transactions (2013). Available at
[3] Note that even amongst followers of Islam there is a lively debate about whether Islamic Finance as practiced is indeed Halal. See
[5] Id.
[6] Murray v Geithner., 763 F.Supp.2d 860 (S.D. Mich. 1992).
[7] Id. at 862.
[8] Id.
[9] Id. at 865.
[11] Id. at 866.
[12] Id.
[13] Id.

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