Fort Walton Beach Council agenda — 03-09-2010 Regular — reading text

would consider (a) the purpose of Shariah ( i. e., establishing Shariah as the law of a worldwide hegemony) and ( b) the methods of Shariah ( i. e., including 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 traditional and authoritative 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 rea- sonable 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 sacrificed 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 inter- est 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 pres- ent still -more issues of exposure for those embracing this new industry. The current structure of the SCF industry in which roughly several 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 that any aggres- sive 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 —until now —the 44 Shariah, Law and `Financial Jihad': How Should America Respond? wholesale failure of the participants and facilitators in this industry to under- take a serious analysis of these risks. Indeed, the legal academic and pro- fessional literature reads more like promotional material than 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. The following sections offer an overview of the details on the nature of the civil and criminal exposure believed to be associated with Shariah -compliant finance. Racketeering The Racketeer Influenced and Corrupt Organizations Act (commonly referred to as RICO) is a United States federal law that provides for extend- ed penalties for specific criminal acts carried out as a " pattern" and per- formed as part of an ongoing criminal enterprise. The predicate offenses which can qualify as part of the " pattern of racketeering activity" include bank fraud and money laundering. Since the passage of the Patriot Act, money laundering offenses include " material support of terrorism ". Section 2339(A) of Title 18 of the U. S. Code, states: " Whoever, within the United States or subject to the jurisdiction of the United States, knowingly provides material support or resources to a foreign terrorist organization, or attempts or conspires to do so, shall be [ guilty of a crime]." Material support" is defined in the U. S. Code as: 1. the term " material support or resources" means any property, tangible or intangible, or service, including currency or monetary instruments or financial securities, financial services, lodging, training, expert advice or assistance, safe -houses, false documentation or identification, commu- nications equipment, facilities, weapons, lethal substances, explosives, personnel ( one or more individuals who may be or include oneself), and transportation, except medicine or religious materials; 2. the term " training" means instruction or teaching designed to impart a specific skill, as opposed to general knowledge; and 3. the term " expert advice or assistance" means advice or assistance derived from scientific, technical or other specialized knowledge. 45  The Criminal and Civil Liabilities Associated with Shariah -Compliant Finance The thrust of the RICO case that applies to Shariah- compliant financial transactions rests in part on the fact that, as has been noted above, such prominent Shariah advisors as Sheikhs Qaradawi and Usmani have both issued fatwas that provide material support to Jihadists the world over. These advisors intend for Shariah- adherent jihadists to use their fatwas as legal authority to engage in murder and terrorism. In other words, they know or have reason to believe that their fatwas constitute such support. Moreover, all of the Shariah authorities who confer with Usmani and Qaradawi — even ones who do not personally issue such violence- inspiring fatwas —are guilty of aiding and abetting the material support of terrorism because they are knowingly participating by providing greater authority to such rulings even as they themselves avoid personally issuing rulings on Jihad. RICO is violated when a defendant —or, in this case, a cadre of defen- dants acting as Shariah authorities —engage in a " pattern of racketeering activity" and have: 1. Invested income from a pattern of racketeering activity in an " enter- prise"; 2. Acquired or maintained an interest in an " enterprise" through a pattern of racketeering activity; 3. Conducted or participated in the affairs of an " enterprise" through a pattern of racketeering activity; or 4. Conspired to do any of the above. In Shariah -compliant finance, the pattern of racketeering activity is both the material support of terror (issuing fatwas towards that end) and the fraud and failure to disclose the connection with terror and jihad ( bank fraud is also a predicate offense). The " enterprise" in this context is the SCF indus- try, including the financial institutions and their advisors which have opened their doors, sometimes naively, sometimes recklessly, and sometimes know- ingly, to men seeking the West's subjugation or destruction. Fraud: A Lack of Disclosure and Due Diligence State and federal securities laws, and common law, and state consumer anti -fraud laws, all require disclosure of facts that are material to a post -9/ 11 investor. The nature of Shariah itself, particularly the requirement for aggres- sive jihad, is material to investors. The associations, fatwas and writings of the 46 Shariah, Law and `Financial Jihad': How Should America Respond? Shariah advisors are material to these investors. The possible disbursement of charitable Zakat funds and " purified" funds to terrorist and jihadist groups is material. Yet none of these topics is disclosed by Shariah -Compliant busi- nesses to their post -9/ 11 investors. This constitutes a lack of disclosure giving rise to additional civil liability and possibly criminal exposure. Further, because Shariah is understood as divine and the Shariah authori- ties are considered the trustees of its authority, integrity and interpretation, the application of Shariah' s well -established and ancient doctrines to the quite modern practice of SCF necessarily lacks transparency. Shariah is, by its own terms, a divinely ordained law which can never be subordinated to a secular political, legal or regulatory system. As a result, Shariah is simply not a positive law or normative system that is articulated and enforced within a political structure of codified laws, procedures, courts and binding legal opinions. In the absence of such mechanisms and the precedence and effective enforcement mechanisms they provide, there will, by definition, be a lack of transparency in Shariah -governed transactions. SCF represents nonetheless an attempt by the participants (financiers, businessmen, facilitators, and Shariah authorities) to apply divine law to a modern secular political, legal and financial system. Should a secular court or legislature attempt —in an effort to establish transparency - to codify Shariah' s precepts as they apply to SCF ( setting aside the constitutional issues this would raise in the United States), it would fail its fundamental purpose: Shariah simply cannot be rendered subservient to secular law. In stark contrast, domestic finance and commerce in the United States, and indeed international financial transactions more generally, are based upon Western legal financial structures which provide transparency. It is transparency that renders a complex transaction manageable and viable. When the parties to a transaction and the professionals facilitating it know that a given transaction format has previously been used successfully after being stress -tested and enforced in many forums under various circum- stances, the risks of the deal are then limited to the specific business terms and market conditions, rather than the formalities of the documents and their enforcement. The problem the SCF industry currently faces is that none of this analysis has been conducted, and if it has, the results of this analysis have been buried in the Shariah black box without any of the disclosures required by U. S. law. What follows is a survey of those laws and the implications for U.S. financial institutions engaged in SCF. 47  The Criminal and Civil Liabilities Associated with Shariah -Compliant Finance Common Law Tort Action for Deceit or Fraud The common law of most states incorporates the tort action of deceit, commonly referred to as fraud, to allow private rights of action for misrep- resentation. The essential elements of a common law fraud action are: 1. a false representation of 2. a material fact which 3. the defendant knew to be false with the intent 4. to induce the plaintiff to rely upon it and 5. the plaintiff in fact justifiably relied upon the representation, thereby 6. suffering damages as a result. Most states have relaxed many of the provisions governing common law fraud. For example, certain relationships under the common law (such as a fiduciary) might also give rise to a claim for constructive fraud which allows recovery for an omission of material fact. In other words, not pro- viding material facts about Shariah and Shariah advisors could be such an omission, and the basis for a claim filed under the common law of the plaintiff' s state. Securities Statutes In addition to common law actions for fraud or misrepresentation, there are federal and state statutory regimes designed to govern disclosures in a myriad of business and financial contexts, including the sale of goods and the provision of loans; investments such as the formation of partner- ships; and the sale of intangibles such as the offering of securities. In the world of SCF, the disclosure statutes most obviously