The recent dismissal by the US court in the case against the US government alleging insurance group AIG’s Shariah compliant business promoted religious doctrine has sent positive signals in the Islamic finance corridors in the US. The ruling has effectively shoved aside the view that Shariah compliant financial business model equates to religious indoctrination.
The case was brought forward by the Thomas More Law Center (TMLC), a national public interest law firm, on behalf of Kevin Murray, and alleged constitutional violations by allowing public funds to be used for Shariah compliant activities when AIG was given a US$40 billion bailout package.
The decision debunks the prevailing myth that Islamic finance is unacceptable and supports the promotion of Islamic doctrine, whose image has been tainted by fundamentalists. Lawyers view the event as significant where Islamic finance has faced stiff challenge and backlash in the US, so much so that Islamic finance has to rely on the US legal system for validity and strength.
While dismissing the case, District Judge Lawrence Zatkoff, said the plaintiff did not prove that AIG’s Shariah compliant businesses engaged in religious indoctrination. The case in the opinion of legal experts was shaky from the start, as elaborated by Eugene Volokh of the UCLA Law School, an expert on the First Amendment, who believed that legal theory the case was based on was very weak.
Megat Hizaini Hassan, partner and head of Islamic finance at Lee Hishammuddin Allen & Gledhill in Malaysia noted that this is encouraging for the growth of the Islamic finance industry. Megat Hizaini said that AIG’s case along with the East Cameron Sukuk ruling in Louisiana in 2010 provide a hopeful future where Islamic finance and its structures can withstand challenges under US laws. Once financial players realize that legal issues pertaining to Islamic finance can be solved in the US, it may help in making Islamic finance acceptable as a mainstream business.
The launch of the Dow Jones Islamic Market Index in 1999 to track Shariah compliant companies and funds; the existence of Shariah funds like the Amana Mutual Funds Trust, and firms like Azzad Asset Management are testament to the fact that Shariah finance has a high degree of relevance in the US. As is the case with Shariah compliant mortgages offered by Devon Bank in Chicago, and Guidance Residential.
Furthermore, it is clear that the US government realizes the importance of Islamic finance and the need to align itself with its growth momentum. The US Treasury has in recent months publicly acknowledged its interest in Islamic finance, and has held courses in the field to educate its staff.
The AIG case may have opened a Pandora’s box in the legal system as Islamic finance transactions are and have been questioned in courts. For example, The Investment Dar versus Blom Bank in the UK. As Isam Salah, senior finance partner at law firm King & Spalding (New York and Dubai) and head of the Middle East and Islamic finance practice group, pointed out that this may not bring an end to legal attacks on Islamic finance activities in the US.