It is important to note that the use of RF (Islamic) banking as a financing alternative was challenged in many courts in the United Kingdom, Malaysia, the oil-rich Gulf countries, and the United States. Many of the lawsuits were settled outside the court, and the details on all of these cases may not be readily available. Many of these lawsuits were brought to the special courts of the law (Shari'aa courts) in Muslim countries in which such courts operate — in most cases — outside the realm of the civil laws that prevail in many countries of the world. Such courts exist, for example, in many of the Gulf oil-producing countries, such as Saudi Arabia, the United Arab Emirates, and Kuwait. Details of the lawsuits and how such suits were settled are not available because they were not made public. However, in most cases, and based on reports from friends who live and work in these areas, a religious judge presiding over a Shari'aa court may rule that the interest owed on a loan is forgiven because it is considered Riba.

Malaysia and the U.K. courts have litigated many of these Islamic finance cases. Most of these cases involve financing deals that used the cost- plus model (murabaha, or BBA in Malaysia). Philip T. N. Koh, Esq.,[2] a practicing attorney in Malaysia, has documented a number of cases that were brought to British and Malaysian courts.

These cases are quoted here to alert those who think that RF (Shari'aa- compliant) financing in the United States may not one day be brought to and challenged in courts to please think again. All these LLCs and SPVs and sophisticated structures present a smarter attorney with wonderful opportunities to challenge all such schemes, ruses, and claims. A most important and messy claim is that the “Shari'aa compliance” description can be coupled with a religious discrimination claim. These claims can cause damages ranging from expensive settlements that may bankrupt the institution to negative publicity that may have far-reaching negative effects on the operation of the RF institution(s) involved and maybe the RF industry altogether. The following are examples of such cases.

  • [1] Philip T. N. Koh, Islamic Financial Instruments: The Civil Law and the Sharia Confluence or Conflict? Presented at the fifth Islamic Finance Conference, Monash University, Kuala Lumpur, Malaysia. Philip T. N. Koh, FCIS, is an advocate and solicitor (equivalent to an attorney in the United States) for the High Court Malaya; his degrees include: LLB (Hons) (University Malaya), LLM (London), MA (Theology) (Australian Catholic University).
  • [2] Ibid.
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