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Shariah Finance => Securities Law Disclosure: all material facts relevant to the investment decision of a reasonable post 9/11 investor Transactional transparency: The Black Box Effect Certainty Consistency Predictability Due Diligence: what is it? who are you dealing with? how does it operate?

Shariah-Compliant Finance What is it? Shariah + compliance + finance What is Shariah? Endogenous + Exogenous Elements Corpus Juris of Islamic law (includes law, ritual, morality, ethics, norms) Fundamental Purpose and First Order Principles Jurisprudential Rules Positive Law What is compliance qua Shariah? Endogenous Elements (e.g., ulema as exclusive guardians of Shariah) What is compliance as finance? Exogenous Elements (e.g., Shariah advisory boards)

What is Shariah? The Endogenous Analysis Two approaches to this answer: Theoretical-doctrinal-academic Empirical Theoretical-doctrinal-academic: Textual analysis of classical period over time Contemporary textual analysis Empirical Shariah as applied historically Shariah as applied in contemporary context

Foundational Doctrine: Shariah = Integrated, Indivisible Whole The two leading non-Muslim authorities on Shariah-compliant finance, Harvard professors Vogel and Hayes, both active at the Harvard Islamic Finance Project: Islamic legal rules encompass both ethics and law, this world and the next, church and state. The law does not separate rules enforced by individual conscience from rules enforced by a judge or by the state. Since scholars alone are capable of knowing the law directly from revelation, laypeople are expected to seek an opinion (fatwa) from a qualified scholar on any point in doubt; if they follow that opinion sincerely, they are blameless even if the opinion is in error. From an important text authored by a Bahrain Treasury official and an Australian economics professor who specializes in Shariah-economics, we learn that there is no room for Western notions of a nation-state: Since Islamic law reflects the will of [Allah] rather than the will of a human lawmaker, it covers all areas of life and not simply those which are of interest to a secular state or society. It is not limited to questions of belief and religious practice, but also deals with criminal and constitution [sic] matters, as well as many other fields which in other societies would be regarded as the concern of the secular authorities. In an Islamic context there is no such thing as a separate secular authority and secular law, since religion and state are one. Essentially, the Islamic state as conceived by orthodox Muslims is a religious entity established under divine law.

Doctrinal Shariah: Usul al Fiqh = Jurisprudence What is Shariah? Endogenous Elements Corpus Juris of Islamic law Fundamental Purpose and First Order Principles Jurisprudential Rules Positive Law Quran Sunna (aHadeeth): authenticated via Isnad Usul al-Fiqh: world of the Shariah authorities (ulema) Ijtihad: legal reasoning Ijma: consensus among ulema-authorities Qiyas: analogical analysis-deductive reasoning Ra’ay: personal opinion of authority Istihsan: juristic preference Maslahah, Darurah, Urf, etc. . . . public interest, necessity, custom . . .

Doctrinal Shariah: Usul al Fiqh = Jurisprudence What is Shariah? Endogenous Elements Corpus Juris of Islamic law Jurisprudential Rules What should we know about Shariah jurisprudence? It is not to be dismissed as primitive or medieval. Ijma or consensus among the ulema controls, absolutely. Only recognized Shariah authorities can tell us what Shariah is.

What is Shariah? Endogenous Elements Corpus Juris of Islamic law Fundamental Purpose and First Order Principles Jurisprudential Rules (usul al fiqh) Positive Law Al-Maqasid: Shariah’s Telos (Purpose or Ends) Islam: Submission to Allah’s will = Shariah Submission to Shariah = political order to protect (1) the Islamic faith, (2) the Muslim’s life, (3) his lineage, (4) his intellect. and (5) his property (some Shariah authorities add a sixth, his honor) Politically translated into the Caliphate: A worldwide hegemonic political order based upon Shariah Shariah recognizes that until this end is achieved: dar al-Islam is at war with dar al-Harb Methods to achieve that end is the positive law of the Siyar (Law of Nations): Da’wa (persuasion, education, active proselytizing, and political and social welfare activities) Dhimma (political-economic-social subjugation) Jihad Da’wa Qital Doctrinal Shariah: Purposes + Methods

Doctrinal Evidence Classical theory and doctrine: One of the best and most authoritative academic statements on the classical Siyar (or Law of Nations, which includes the Law of Jihad) was written by Prof. Majid Khadduri, an Iraqi-American scholar who founded the Paul H. Nitze School of Advanced International Studies, a division of The John Hopkins University. Writing in 1965, long before the plague of academic political correctness had fully taken hold and before the abject fear of speaking truthfully on the question of Shariah-Islam infected academic discourse, he wrote: The Islamic faith, born among a single people and spreading to others, used the state as an instrument for achieving a doctrinal or an ultimate religious objective, the proselytization of mankind. The Islamic state became necessarily an imperial and an expansionist state striving to win other peoples by conversion. At the very outset, the law of war, the jihad, became the chief preoccupation of jurists. The Islamic law of nations was essentially a law governing the conduct of war and the division of booty. This law was designed for temporary purposes, on the asssumption that the Islamic state was capable of absorbing the whole of mankind; for if the ideal of Islam were ever achieved, the raison d’etre of the law of war, at least with regard to Islam’s relations with non-Islamic states, would pass out of existence. . . . . . .The Islamic law of nations . . . is not a system separate from Islamic law. It is merely an extension of the sacred law, the shari’a, designed to govern the relations of Muslims with non-Muslims, whether inside or outside the territory of Islam.

Doctrinal Evidence Prof. Khadduri also explained the Islamic conception of world order: In Islamic theory, the world was split into two divisions: the territory of Islam (the dar al-Islam), which may be called Pax Islamica, comprising Islamic and non-Islamic communities that had accepted Islamic sovereignty, and the rest of the world, called the dar al-harb, or the territory of war. The first included the community of believers as well as those who entered into an alliance with Islam. The inhabitants of those territories were Muslims who formed the community of believers (the umma), and non-Muslims of the tolerated religious communities collectively called the “People of the Book” or Dhimmis (Christians, Jews, and others known to have possessed scriptures), who preferred to hold fast to their own law and religion at the price of paying a poll tax (jizya) to Islamic authority. The Muslims enjoyed full rights of citizenship while the followers of the tolerated religions enjoyed only partial civil rights . . .. The dar al-Islam, in theory, was in a state of war with the dar al-harb, because the ultimate objective of Islam was the whole world. If the dar al-harb were reduced by Islam, the public order of Pax Islamica would supersede all others, and non-Muslim communities would either become part of the Islamic community or submit to its sovereignty as tolerated religious communities or as autonomous entities posssessing treaty relations with it.

Doctrinal Evidence Prof. Khadduri’s examination included an explanation of how the Siyar used the Law of Jihad to achieve its grand purposes: The instrument which would transform the dar al-harb into the dar al-Islam was the jihad. The jihad was not merely a duty to be fulfilled by each individual; it was also above all a political obligation imposed collectively upon the subjects of the state so as to achieve Islam’s ultimate aim—the universalization of the faith and the establishment of God’s sovereignty over the world. Thus the jihad was an individual duty, especially in the defense of Islam, as well as a collective duty upon the community as a whole, and failure to fulfill it would constitute a gross error.

Doctrinal Evidence Classical theory and doctrine: For a textual presentation of the classical period over time, turn to the illustrative rulings in Handout #1. In these examples, you will find representatives from each of the 4 major schools of Sunni jurisprudence: Al-Shaybani (8th-9th centuries), the leading Hanafi scholar on the Siyar--Law of Nations Al-Qayrawani (10th century), a leading Maliki jurist Ibn Rushd (12th century), or Averroes as he is known in Christian circles, was a renowned philosopher and Maliki legal scholar in Spain during the waning period known as the "Golden Era" of Islam Abu Bakr al-Marghilani (12th century), jurist of the Hanafi school, authored the authoritative work, Hidaya, which is today considered widely authoritative as a guide to Islamic jurisprudence in Central Asia, Afghanistan, and India Ibn Taymiyya (14th century), a Hanbali jurist, and a favorite of contemporary mujahideen and Shariah-compliant finance Shariah authorities Abu’l Hasan al-Mawardi (11th century), renowned Shafi’i scholar Ahmad ibn an-Naqib al-Misri (14th century), compiled the Shafi’i manual, ‘Umdat al-Salik (available in English as Reliance of the Traveller), certified in 1991 by the highest authority in Sunni Islam, Cairo’s Al-Azhar University, as conforming “to the practice and faith of the orthodox Sunni community.” Ibn Khaldun (1332-1406), a pioneering historian and philosopher, was also a Maliki legal theorist. In his renowned Muqaddimah, the first work of historical theory, he notes that “in the Muslim community, the holy war is a religious duty, because of the universalism of the Muslim mission and (the obligation to) convert everybody to Islam either by persuasion or by force.”

Sunni Salafi world: Wahhabi--Al Qaeda; Deobandi—Lashkar-e-Taiba (LeT) from Pakistan (i.e., the Mumbai massacre) Shi’a world: Ruhollah Musavi Khomeini, marja al-taqlid (Hokumat-e-Islami: Velavat-e faqih [Islamic government: Guardianship of the Jurist] ) Muslim Brotherhood (al-Ikhwan al-Muslimin ) or what has been called Islamism or Political Islam: "Allah is our objective. The Prophet is our leader. Qur'an is our law. Jihad is our way. Dying in the way of Allah is our highest hope.” Hassan al-Banna Sayyed Qutb Abul A'ala Maududi Sheikh Omar Abdel Rahman (later split to form al Gamma’a Islamayah [Islamic Group]) Ayman Muhammad Rabaie al-Zawahiri (later split to form Egyptian Islamic Jihad and later merged into al Qaeda) Yusuf al-Qaradawi (has refused formal role but is the unchallenged religious leader of the Ikwan) Shariah-compliant finance developed out of the MB doctrine to establish a dominant political Islam (including a Shariah-centered political economy) Doctrinal Evidence: Contemporary

Doctrinal Evidence Handout #2: Doctrinal evidence of the Muslim Brotherhood in the U.S.

Doctrinal Evidence Handout #2: The Ikwan planning memo introduced as evidence leading to the conviction of the Holy Land Foundation charity and its officials

What is Shariah: Empirical Evidence

What is Shariah: Empirical Evidence Fully Shariah: Saudi Arabia; Iran; Gaza; Sudan; Somalia; Taliban in Afghanistan & SWAT Valley-Pakistan; N. Nigeria; Aceh, Indonesia Partially Shariah or Shariah Supremacy Clause: almost all Arab countries; Pakistan; Malaysia; Afghanistan What does Shariah mean in practice? Hudood criminal punishments Apostasy is subject to capital punishment Infidels-unbelievers, including People of the Book, are not free to practice their religion publicly; must live in a state of dhimma Support for jihad is high (i.e., financial, manpower, territory, doctrinal)

What is Shariah: Empirical Evidence Positive Attitudes About Islam’s Increased Role in Political Life Increases Support for Terrorism: “People who support a strong role for Islam in politics are somewhat more likely to also support terrorism. Perhaps more surprisingly, people who perceive Islam to play a large role in the politics of their home country also seem to be slightly more likely to support terrorism (though this correlation does not rise to conventional levels of statistical significance). “One might conjecture that this latter correlation is due to people from countries where Islam does play a strong role also supporting terrorism more. However, as we will see in the statistical model, even controlling for country, the perception that Islam plays a large role in politics is a positive correlate of support for terror.”

One Last Bit of Empiricism Pew Study U. of Maryland, Program on Int’l Policy Attitudes

What is Shariah: Test Case From the World of SCF Mufti M. Taqi Usmani: Handout #3 Sheikh Yusuf al-Qaradawi: Jihad for the sake of Allah

Disclosure: What is Shariah? Is it an innocuous, a-political, a-military religious or ethical grounding for financial products and services? or Is it a rich, theological-political-legal-social construct that seeks to displace secular Western nation-states?

© 2009 Law Offices of David Yerushalmi, P.C. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the expressed written approval of the Law Offices of David Yerushalmi, P.C. For information on sponsoring a seminar on Shariah-compliant finance, or for information on having Mr. Yerushalmi speak at your event, please go to www.davidyerushalmilaw.com (‘Contact Us’ page)