Given the global economic downturn, opportunists are in search of lucrative investment strategies. Still, the industry’s expansion into non-Islamic markets poses several challenges. The US in particular is a complex arena given its diverse — albeit substantial — Muslim population, cumbersome financial regulatory schema, and of course, a secular history that drives both public sentiment and legal frameworks.
In an effort to better understand the principles of Islamic finance, the US treasury department hosted an Islamic Finance 101 Workshop in October of 2008. Coming on the heels of the financial meltdown in the US, there was some American public sentiment that viewed the educational initiative as a distraction from the current financial crisis and a violation of the First Amendment of the US Constitution, as well. Considering the US’ historical background as a product of the Enlightenment and Reformation periods lends insight into its staunch top-down secular ethics that promote the separation of “Church” (i.e., religion) and State.
The First Amendment clearly states: “Congress shall make no law respecting an establishment of religion … or prohibiting the free exercise thereof.” It is this ideology that often drives public sentiment and the financial regulatory responses to the Islamic finance industry in the US. Shortly following the Islamic Finance 101 Workshop hosted by the US financial regulators; the Thomas More Law Center in Michigan filed a lawsuit in December 2008 on behalf of Kevin J. Murray, a retired Iraq veteran and devout Catholic, against the former secretary of the US treasury department, Henry M. Paulson. Murray cited a direct violation of his First Amendment right due to the government using American taxpayer dollars to bail out American International Group (AIG).
Murray views the economic relief provided to AIG as a constitutional infringement because it offers Takaful. The court filing by Murray’s lawyer states: “…[AIG] engages in Shariah-based Islamic religious activities that are anti-Christian, anti-Jewish, and anti-American.”Positing that American financial regulators are promoting Islam by providing relief to AIG is tenuous at best. The Islamic financial industry has been present in the US since 1996 with the Office of the Comptroller of Currency’s issuances of the interpretive letters that accommodate Ijarah and Murabahah structures.
Abdi Shayestah, senior associate with King & Spalding law firm in New York, member of the Middle East and Islamic finance practice group, and an active practitioner in the US Islamic financial space, expounded: “[US financial regulators] are not promoting Islam but rather promoting the channels for all market participants.” Thus, it is incumbent upon US financial regulators to make sure that there are no road blocks to the industry’s growth — ironically — based on the First Amendment because the state cannot prohibit the free exercise of any particular religion.
“From the regulatory side; doors are open. The challenge is the [American] people … because [sentiments] are different [in each US region, for instance, New York versus Alabama].” Ultimately, the First Amendment is a crucial law that can be used either against or for the growth of Islamic finance. International practitioners and global investors need to consider its influence when eyeing the US as, potentially, a viable market.
By Fatimah S Baeshen