Post on 27-Feb-2023
Applicability of Church Autonomy and Religious Question
Doctrines to the Shari’ah Board in Islamic Financial
Institutions
Haroun Rahimi
Introduction
Shari’a is the divine law of Islam. The Islamic Finance
Industry provides financial products in accordance with
Shari’ah, i.e. Shari’ah-compliant products. In 2010,
financial experts estimated the worth of Shari’ah-compliant
assets at almost 1 trillion dollar globally.1Islamic finance
practice is not limited to Sharia-based legal systems. UK is
ranked as 9th country in holding Shari’ah-compliant assets2
while United States is home of at least nine financial
institutions that provide Shari’ah-compliant products.3 It
1 Soraya Permatasari & Suryani Omar, Shariah-Compliant Hedging Derivatives Start inMalaysia: Islamic Finance, BLOOMBERG (Dec. 22, 2010),http://www.bloomberg.com/news/2010-12-21/shariahcompliant-hedging-derivatives-start-in-malaysia-islamic-finance.html.2 Abdi Shayesteh, Islamic Banks in the U.S.: Breaking Through Barriers, NEW HORIZON,Apr.–Jun.2009, at 1, http://www.kslaw.com/Library/publication/6-09%20New%20Horizon%20Shayesteh.pdf.3 Shirley Chiu et al., Islamic Finance in the United States: A Small but Growing Industry,Chicago Fed Letter (May 2005), available at http://www.chicagofed.org/publications/fedletter/cflmay2005_214.pdf.
means that a large portion of Islamic finance transactions
is conducted in a non-Islamic legal environment. Hence,
Islamic financial institutions use a business model which is
based on reference to Islamic legal norms that are not
enforced as the law of the state.4 Under this model, a
Shari’ah board—consisting of Islamic scholars—verifies
compliance of the financial products with Shari’ah, and its
verification is a required condition prior to the contract.5
However, since Shari’ah is arguably a governing law of the
contract—along with a law of financial centers e.g. New York
or London6—the contract can be challenged on the ground that
it does not comply with Shari’ah before a court;7 a concept
referred to as “Sharia risk”.8 4 Kilian Balz, A Murabaha Transaction In An English Court - The LondonHigh Court of 13th February 2002 in Islamic Investment Company of the Gulf (Bahamas) Ltd. v.Symphony Gems N.V. & Ors., Islamic Law and Society, Vol. 11, No. 1, 118(2004).5 Aisha Nader, Islamic Finance and Dispute Resolution: Part 1, 23 ArabLaw Quarterly, 4 (2009).6 On choice of law in Islamic finance see Julio C. Colón, Choice Of Law AndIslamic Finance, 46 Tex. Int’l L.J. 411 (2011).7 For example see Islamic Investment Company of the Gulf (Bahamas) Ltd.v. Symphony Gems N.V. & Ors, 13th February 2002, 2001 Folio 1226 perJustice Tomlinson, 2002 West Law 346969, QBD (Comm Ct).8 Kilian Balz, Sharia Risk? How Islamic Finance Has Transformed Islamic ContractLaw, Islamic Legal Studies Program, Harvard Law School, 9 OccasionalPublications, 23 (2008).
This paper examines the interplay between the ex-ante
determination of compliance of an Islamic finance
transaction by Shari’ah board and its ex-post determination
by a court in the United States where the religious question
and church autonomy doctrine bar the court from adjudicating
a religious question.
In the United States, under First Amendment jurisprudence
“civil courts cannot adjudicate disputes turning on church
policy and administration or on religious doctrine and practice.” 9
This prohibition is referred to as the “religious question”
doctrine. “Religious question” doctrine is understood to be
driven from another doctrine called the “Church autonomy”
doctrine.10 Church autonomy doctrine requires deference to
religious institutions “whenever a question of discipline,
or of faith, or ecclesiastical rule, custom, or law have
been decided by … church judicatories.”11
9 Natal v. Christian & Missionary Alliance, 878 F.2d 1575, 1576 (1stCir. 1989) (emphasis added).10 Michael A. Helfand, Litigating Religion, 93 B.U. L. Rev. 493, 494 (2013).11 Ogle v. Hocker, 729 F. App’x 391, 395 (6th Cir. 2008) (quoting Watsonv. Jones, 80 U.S. (13 Wall.) 679, 727 (1871)).
In this paper, the author considers whether under religious
question and church autonomy doctrines US courts will
recognize the Shari’ah board determination of a religious
question, i.e. that a financial transaction complies with
Shari’ah, as final; thus, eliminating the Sharia risk. It is
a matter of first impression and the US courts have not
spoken on this question. Therefore, to answer this question,
this paper will use US courts religious question and church
autonomy jurisprudence to see if the decisions of Shari’ah
board of Islamic financial institutions will fall under
these doctrines. This paper using implied consent analysis
argues that the US courts should recognize the Shari’ah
board’s determination as final.
The topic of this paper is particularly important because
there has been no research on this question. It is important
for United States to provide, to the extent possible by the
law, a hospitable environment for Islamic finance.
Otherwise, on international level, the United States will
fall behind London as the premier hub for this one trillion
dollar industry with 15% annual growth.12 On national level
too, it is critical for US, economically, to support a
diverse financial market.13 Many financial institutions in
United States have established Islamic financing units that
offer Shari’ah-compliant services to their Muslim clients.14
University Bank even has established a subsidiary devoted
entirely to Islamic financial services (Islamic
University).15 Likewise, on cultural aspect, it is important
for US as a multicultural society to accommodate the
religionist the ability to practice business in accordance
with their beliefs.16 On the other hand, it might be argued
that the importance of this topic is diminished since the
12 For rate of growth in Islamic finance see Assif Shameen, Islamic Banks: ANovelty No Longer, Business Week Online, Aug. 8, 2005,http://www.businessweek.com/magazine/content/05_ 32/b3946141_mz03 5.htm.13 For economic importance of Islamic finance for US see Todd J. Schmid,The Real Shariah Risk: Why The United States Cannot Afford To Miss The Islamic FinanceMoment, University of Illinois La. Rev. (2013).14 Babback Sabahi, Islamic Financial Structures as Alternatives to International LoanAgreements: Challenges for American Financial Institutions 1 (Boston Univ. Sch. of L.,Working Paper No. 385, 2004) 17, available at http://law.bepress.com/cgi/viewcontent.cgi?article=2038&context=expresso.15 Ben Jackson, In Brief: Mich. Bank Forms an Islamic Lender, Am. Banker, Jan. 3,2006.16 See e.g. Michael A. Helfand, Religious Arbitration and the NewMulticulturalism: Negotiating Conflicting Legal Orders, 86 N.Y.U. L. REV. 1231,1249–52 (2011); Michael A. Helfand and Barak D. Richman, The Challenge ofCo-Religionist Commerce, 64 Duke L.J. (forthcoming May 2015).
Islamic finance industry can utilize arbitration doctrines
to achieve the same result. In US, arbitration doctrine
insulates an arbitration award from judicial review of the
merits of the case.17This assessment is not entirely true.
In US, an award can be set aside based on the grounds that
require the court to answer some questions regarding the
applicable law; for example, the doctrine of “manifest
disregard of the law”18, or the claim that the arbitrators
exceeded their authority by not applying the governing
law.19Hence, answering this paper’s question has real
implications.
This paper consists of four parts. Part one provides a brief
introduction to Islamic finance. Part two discusses the
Shari’ah board in the governance structure of Islamic17 See e.g. TC Contracting, Inc. v. 72-02 N. Blvd. Realty Corp., 833N.Y.S.2d 622, 623 (App. Div. 2007) (“[a] court cannot examine the meritsof an arbitration award and substitute its judgment for that of thearbitrator simply because it believes its interpretation would be thebetter one.”)18 See Jock v. Sterling Jewelers Inc., 646 F.3d 113, 121 (2d Cir. 2011)(stating that manifest disregard is a separate and independent groundfor vacatur of an award). Under the doctrine of manifest disregard ofthe law the party must show that the arbitrator knew and understood thelaw, but deliberately disregarded it, see Prudential-Bache Sec., Inc. v.Tanner, 72 F.3d 234, 239 (1st Cir. 1995). Manifest disregard of the lawis a contested doctrine.19 9 U.S.C.A. § 10(a)(4).
financial institutions. Part three introduces the religious
question and church autonomy doctrine in the US. Part four
discusses the application of religious question and church
autonomy doctrines to the decision of Shari’ah board.
Part 1: Introduction to Islamic Finance
Islamic finance is a financial system based on the Islamic
law, which is Shari’ah;20 Islamic financial institutions
(IFIs) are those which operate based on principles of
Shari’ah. 21 Shari’ah is a religion of laws in every
dimension. It addresses matters ranging from the daily
prayers, fasting, and prohibition against eating certain
foods to penalties for certain acts, marriage, inheritance
and commerce. Quran, which Muslims believe is the Words of
God in literal sense, and Sunnah, which is model of behavior
of Islam’s Prophet Muhammad, are the primary source of
Shari’ah.22 In addition, Muslim jurists have developed20 For understanding the concept of Shari’ah see LOMBARD, B. CLARK,STATE LAW AS ISLAMIC LAW IN MODERN EGYPT: THE INCORPORATION OF SHARI’AINTO EGYPTIAN CONSTITUTIONAL LAW, 12-18 (2006).21 IBRAHIM WARDE, ISLAMIC FINANCE IN THE GLOBAL ECONOMY, 1-2 (2000).22 Fazlur Rahman, The Messange and the Messenger, Islam, Edited by MarjorieKelly, published for Foreign Policy Association, Praiger, 42-43 (1984).
various forms of analogical reasoning to obtain legal rules
from these two sources. The juristic understanding of
Shari’ah is called Figh.23 However, Muslim jurists have long
agreed that the rules created by juristic reasoning can only
be presumptive (unless it is subject to the agreement of all
jurists at a point in time i.e. Ijma).24 Thus, Shari’ah—
apart from the rules expressed clearly in Quran and
trustworthy Sunnah—is a pluralistic body of rules developed
by Muslim jurists over roughly 15 centuries.25 The
pluralistic nature of Shari’ah has real consequences for a
financial institution that pledges to operate base on
principles of Shari’ah.26
“Islamic finance” is commonly understood as Muslim’s
financial operations and interest-free banking.27However,
23 Id. The more appropriate term for juristic understanding of Shari’ahas a set of rules that Muslims believe God wants them to follow is Figh.However, because of popularity of word Shari’ah among scholars in thispaper I will use Shari’ah and Figh in some instances interchangeably.24 Lombardi, supra note 20, 15-18.25 Id, at 12-18.26 Even the defining characteristic of Islamic finance namely is subjectto the disagreement among Muslim jurists; see Mohammad H. Fadel, Riba,Efficiency, and Prudential Regulation: Preliminary Thoughts, Wis. J. Int Law(forthcoming 2008)27 Id.
technically, the definition is broader.28It includes the
avoidance of usury, which in Islamic term is generally
referred to as riba or “unjustified increase”,29 and the
avoidance of uncertainty, which in Islamic term is referred
to as gharar,30 and avoidance of excessive risk, known as
maiser.31Islamic finance also entails earning in a
religiously permissible way (halal) and more generally doing
business consistent with ethical and religious goals.32
To avoid the violation of these doctrinal prohibitions, IFIs
have developed a range of diverse financial products, i.e.
Shari’ah-compliant products, to provide financial services
to their Muslim clients in a way that is consistent with
their religious beliefs.33
28 Id.29 Id, at 5.30 Id.31 Id.32 Id.33 For a brief description of popular Shari’ah-compliant product seeCLIFFORD CHANCE, Introduction to Islamic Finance, Briefing note (2013),available athttp://www.cliffordchance.com/briefings/2013/04/introduction_to_islamicfinance.html.
Part 2: Shari’ah Board in the Governance Structure of
Islamic Financial Institutions
The system that determines how the Shari’ah board34 is being
controlled and directed is referred to as Shari’ah
governance.35Since inception of modern Islamic finance, one
of the defining characteristics of an IFI has been the
existence of a Shari’ah board.36 The board is an independent
body of experts knowledgeable in Figh al-muamalat37 which is
tasked with directing, supervising and reviewing the
activities of IFIs to ensure Shari’ah
compliance.38International Association of Islamic Banks
(IAIB) has described the Shari’ah Board:
It is formed of a number of members chosen from among
Jurists and men of Islamic Jurisprudence and of
comparative law who have conviction and firm belief in34 This paper uses the name Shari’ah board, however, other terms havebeen used such as Shari’ah Committee, Shari’ah Advisory Body, Shari’ahAdvisory Council, Shari’ah Control Body; see Bashar H. Malkawi, Shari’ahBoard in the Governance Structure of Islamic Financial Institutions, 61 Am. J. Comp. L.539, 544 (2013). 35 Id. 36 ISLAMIC FINANCE IN GLOBAL ECONOMY, supra note 21, at 226.37 Figh ul-muamalat is jurisprudence of transactions.38 The Shari’ah Board, supra note 34, at 544.
the idea of Islamic Banks. To ensure freedom of
initiating their opinion the following are taken into
account: (a) they must not be working as personnel in
the bank. That means: They are not subject to the
authority of the board of directors. (b) They are
appointed by the general assembly, as it is the case of
the auditors of accounts. (c) The general assembly
fixes their remunerations. (d) The Legitimate Control
Body [i.e. Shari’ah Board] has the same means and
jurisdictions as the auditors of accounts.39
The role of the Shari’ah board varies from one institution
to another. The principle objective of the Shari’ah board,
however, is to guide IFIs in setting their policy and
regulations in conformation to Shari’ah.40 Particularly, the
Shari’ah board approves, in advance, the contracts,
financial products and transactions of IFIs in accordance
with Islamic law.41It does so by issuing an opinion called
39 AHMED ABDEL AZIZ EL-NAGAR, ONE HUNDRED QUESTIONS & ONE HUNDREDANSWERS CONCERNING ISLAMIC BANKS, Cairo: International Association ofIslamic Banks, 20 (1984).40 MUHAMMAD AYUB, UNDERSTANDING ISLAMIC FINANCE 467 (2007); 41 Id.
Fatwa.42 Such a religious supervision enhances the
credibility of the bank in the eyes of its customers, and
improves its Islamic credentials.43Thus, the Shari’ah board
plays a fundamental role in Islamic credibility of IFIs.
In principle, the opinions of the Shari’ah board are
authoritative meaning that their refusal to approve a
financial product should automatically result in the
scrapping of that product by IFIs.44 Strategic changes
caused by the decisions of the Shari’ah boards do happen. In
1987, the Faisal Islamic Bank of Egypt was forced to
terminate its forward contracts in foreign exchange
markets.45 The same year, after an Islamic Fiqh Academy
fatwa stated that fees should not be fixed arbitrarily, but
in accordance with the bank’s real costs, the Islamic
42 A fatwā in the Islamic faith is the term for the legal opinion orlearned interpretation that a qualified jurist or mufti can give onissues pertaining to the Islamic law. see Hallaq, Wael B. "Fatwa".Encyclopedia of the Modern Middle East and North Africa.Encyclopedia.com. Retrieved 22 April 2013.43 ISLAMIC FINANCE IN GLOBAL ECONOMY, supra note 21, at 226.44 Id, at 227 (The reality however is more complicated. Interviewsrevealed that in many cases the review is perfunctory, with boards‘rubber stamping’ decisions already made by the bank’s management orshunning controversial issues).45 Al-Ahram al-iqtissadi, 3 March 1987.
Development Bank changed its practice of charging a fixed
service fee of 2.5 to 3 per cent.46 Moreover, Shari’ah
boards have been pressuring banks to phase out certain mark-
up contracts and to increase profit-and-loss sharing
activities.47
The pluralistic nature of Shari’ah means that the fatwas
issued by the Shari’ah boards of IFIs vary.48 For example,
the Kuwait Finance House is known for its strict rulings
whereas the Shari’ah boards in South Asia are generally more
lenient .49 Therefore, a fatwa issued in the South Asia may
not be recognizable in Kuwait.
Part 3: The Religious Question and Church Autonomy
Doctrines
Under US Supreme Court First Amendment jurisprudence, courts
are prohibited from adjudicating religious question50, i.e.
46 Hamid Algabid, Les banques islamiques, Paris: Economica 1990, p. 126.47 ISLAMIC FINANCE IN GLOBAL ECONOMY, supra note 21, at 230.48 Id, at 228 (Business Competition too plays a role).49 Id.50 Natal, at 1576.
“religious question” doctrine, instead, they should accept
the resolution reached by the internal dispute resolution
established within the religious community51, i.e. “church
autonomy” doctrine. Courts can resolve controversies
pertaining to religious issues only if they can rely
“exclusively on objective, well-established concepts …
familiar to lawyers and judges” thereby avoiding
“entanglement in questions of religious doctrine, polity,
and practice[;]”52an exception referred to as neutral
principle law.
Under religious question doctrine, courts are prohibited
from adjudicating disputes turning on religious doctrine and
practice.53Courts cannot “interpret[] ambiguous religious
law and usage”54 or resolve “controversies over religious
doctrine and practice.”55 Under church autonomy doctrine,
the courts must accept the decision of “church judicatories”51 Watson v. Jones, 80 US 679, 727 (1871).52 Jones v. Wolf, 443 U.S. 595, 603 (1979).53 Natal, at 1576.54 Serbian Eastern Orthodox Diocese v. Milivojevich, 426 U.S. 696, 708(1976).55 Presbyterian Church in US v. Mary Elizabeth Blue Hall Mem’lPresbyterian Church, 393 US, 440, 449 (1969).
as binding on them, “whenever the questions of discipline,
or of faith, or ecclesiastical rule, custom, or law” is
presented before them.56
In 1871, Watson v. Jones, on nonconstitutional ground, the
Supreme Court held that it is not to be supposed that the
judges of civil courts are competent in ecclesiastical
law.57 In that case, a church was divided over the question
of slavery each claiming through representation of the
church and ownership of its property.58 Reversing the lower
court decision, which decided that one fraction violated the
Presbyterian constitution, the Supreme Court held that the
civil courts are not competent to answer religious
questions.59In the 1960s and 1970s the Supreme Court
constitutionalized the religious question doctrine basing it
56 Watson, at 727; At first, the courts only recognized such decisionsif they were not “arbitrary” until the Supreme Court decided thatrecognition of such an exception would undermine the general ruleholding that courts may not inquire as to whether the decision of areligious court was “arbitrary”, see Milivojevich, at 712-713.57 Watson, at 679.58 Id, at 681.59 Id, at 729.
on Establishment Clause and Free Exercise Clause of the
Constitution.60
The church autonomy doctrine too is rooted in Watson v.
Jones where the court held that an ecclesiastical question
should be resolved by the “highest of … church
judicatories.”61This approach was also confirmed in a
constitutionalized case, Serbian Eastern Orthodox Diocese v.
Milivojevich, which also involved division over control of
church property within a hierarchical church.62 In that case
a bishop was defrocked by decision of highest judicators of
the church for misconduct.63 The bishop sued. The Illinois
Supreme Court decided in favor of bishop holding that the
church violated its own rules and procedure.64 The Supreme
Court, reversing the decision of the Illinois court, ruled
that in cases where hierarchical religious organizations
60 Michael C. Grossman, Is This Arbitration?: Religious Tribunals, Judicial Review, and Due Process, 107 Colum. L. Rev. 169, 183 (2007).61 Watson, 679, 727.62 Milivojevich, at 698.63 Id.64 Id.
have their own internal rules, “the Constitution requires
that civil courts accept their decisions.”65
In 1979, in Jones v. Wolf, deciding similar facts as
Milivojevich, the Supreme Court established an alternative
approach: “neutral principle.”66 The case involved the
question of trust and property law decided within a
hierarchical church.67The Supreme Court decided that the
constitution does not require deferral to the church
judicatories where the civil court can solve the dispute
applying secular law without examining religious law.68
The view of scholars varies about the justification of
religious question and church autonomy doctrine. Lupu and
Robert Tuttle argued that Establishment Clause prohibits the
court from deciding cases implicating religious doctrine or
practice.69 They proposed the “adjudicative disability”
doctrine which means that state simply has “limited65 Id, at 725.66 Jones v. Wolf, 443 U.S. 595, 602 (1979).67 Id, at 603.68 Id.69 Ira C. Lupu & Robert W. Tuttle, Courts, Clergy, and Congregations: DisputeBetween Religious Institutions and Their Leaders, 7 GEO. J.L. & PUB POL’Y, 138(2007).
jurisprudential competence” to decide religious matters.70
For others the prohibition stems from concern that judicial
resolution of religious questions will be interpreted as an
endorsement of one religious view over another. Thus,
Laurence Tribe argued that prohibition against doctrinal
entanglement in religious issues is based on the conviction
that the government including the judiciary must never take
sides on a religious matter.71 Similarly, Christopher
Eisgruber and Lawrence Sager have argued that “[i]f
government were to endorse some interpretations of religious
doctrine at the expense of others, it would thereby favor
some religious persons, sects, and groups over others.”72
Supports of all these views can be found in the Supreme
Court jurisprudence.73 Recently, however, in its first
church autonomy decision after thirty years, Hosanna-Tabor
Evangelical Lutheran Church & School v. EEOC, the Supreme
70 Id.71 LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW § 14-11, at 1231 (2ded, 1988).72 Christopher L. Eisgurber & Lawrence G. Sager, Does It Matter What Religionis?, 84 NORTE DAME L. REV. 807, 812 (2009).73 See Litigating Religion, Supra Note 7, 493-562.
Court highlighted Free Exercise Clauses in context of a
wrongful termination case. The Court stated, “Free Exercise
Clause … protects a religious group’s right to shape its own
faith and mission through its appointment.”74Thus, the court
rooted the church autonomy doctrine in the rights of
religious groups to shape their own faith and mission.
Helfand understands this decision, along with previous
Supreme Court jurisprudence on church autonomy doctrine, to
mean that implied consent is the basis of the church
autonomy.75 In his view, church autonomy is premised on the
idea that individuals have implicitly consented to be
subject to the church authority thus binding themselves to
accept that institution’s adjudication of religious
questions.76
74 Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC, 243 S.Ct. 694, 706 (2012).75 Michael A. Helfand, What is A “Church”? : Implied Consent and the ContraceptionMandate, 21 J. Contemp. Legal Issues, 415-419 (forthcoming 2015)76 Id.
Part 4: The Application of Religious Question and
Church Autonomy Doctrines to The Decision of Shari’ah
Board
The purpose of this paper is to answer this question:
whether under Religious Question and Church Autonomy
Doctrines, US courts will recognize the Shari’ah board ex-
ante determination of Shari’a-compliance as binding in
disputes involving Islamic financial transactions. In order
to answer this question, first, we have to establish that
the question of Shari’ah-compliance is a religious question.
Second, we need to analogize the decision of “church
judicatories” to the decision of the Shari’ah board to see
if they both can enjoy the same authority before a civil
court in the US.
Religious Question Doctrine
The question of Shari’ah compliance is clearly a religious
question, because to answer it will require a court to
resolve controversies over religious doctrine. As was
mentioned before, Shari’ah is a pluralistic body of rules.
Muslim jurists not only disagree about what Shari’ah
requires but they also disagree about how and from what
sources ruling of Shari’ah can be understood. Despite
efforts to harmonize the industry, even the Shari’ah boards
of IFIs, differ on their view about compliance of a
financial product with principles of Shari’ah issuing
contradictory Fatwas. Therefore, the question of Shari’ah
compliance does fall under religious doctrine prohibition.
Furthermore, the courts cannot turn to neutral principles of
law doctrine to answer a Shari’ah compliance question.
Shari’ah principles governing Islamic finance, e.g.
prohibition of riba, maysar, gharar and the requirement of
earning in a religiously permissible way, have moral and
religious meanings which cannot be resolved exclusively
based on objective, well-established concepts of law
familiar to lawyers and judges in the US.
Now it can be argued since, under religious question
doctrine, the question whether a contract is in compliance
with Shari’ah is not justiciable, the decision of board will
stand; therefore, there is no need for courts to accord the
Shari’ah board decision binding authority. However, this
argument may not be correct.
In Islamic financial contracts Sharia is arguably only a law
that along with law of a financial center (e.g. NY or
London) governs the contract. This means that if a court
does not recognize the approval of Shari’ah board as
binding, it will apply the co-governing law (NY or English
law) to the dispute. It is true that applying a secular law
(NY or English law) would most likely result in elimination
of Shari’ah risk–contract being considered valid since those
law do not share the religious value of Shari’ah based on
which an Islamic financial transaction can be challenged—
thus, achieving the same result. It is not, however, the
same result.
The whole purpose of using Shari’ah-compliant financial
products is for the Muslims to conduct their business in
accordance with their religious beliefs. Therefore, a
decision that a contract is Shari’ah-compliant as a Shari’ah
board verified it to be, can be very different, from a
decision that a contract is valid under NY or English law
because the clause that requires compliance with Shari’ah
does not have any legal implication. Granted, it is a
formalistic (or sentimental) difference rather than a legal
difference but for an industry, which is defined by its
adherence to religious values and beliefs, this difference
can be very important.
Finally, recognizing the authority of the Shari’ah board in
Islamic finance can help Shari’ah to evolve in a sustainable
manner whereas an approach that sees its role as legally
redundant can harm the natural development of Shari’ah.
Now we turn to the church autonomy doctrine.
Church Autonomy Doctrine
Application of church autonomy doctrine to the decision of
Shari’ah board poses two serious problems. First, the
doctrine applies to the decision of internal dispute
resolution tribunals established within hierarchical
religious institutions whereas the Shari’ah board is not a
dispute resolution tribunal. Second, the doctrine applies to
the institutions which are defined by their religious
purpose and IFIs are rather financial profit-making
institutions, sometimes incorporated within purely secular
financial institutions.
The first problem is premised on the assumption that church
autonomy doctrine is conditioned on existence of an
adjudicatory process within religious institutions. This
assumption is not well founded. Although the doctrine is
developed in context of church internal dispute resolution
tribunals and the court relied on the right of religious
institutions to establish such tribunals,77 it can be
understood from decision of the Supreme Court in area of
employment law that due process is not a firm requirement in
the context of church autonomy doctrine.78Therefore,
77 Watson, at 729 (“It is of the essence of these religious unions, and of their right to establish tribunals for the decision of questions arising among themselves, that those decisions should be binding in all cases of ecclesiastical cognizance, subject only to such appeals as the organism itself provides for.”)78 See, e.g., Combs v. Cent. Tex. Annual Conference of the UnitedMethodist Church, 173 F.3d 343, 349 (5th Cir. 1999) (relying on the FreeExercise Clause to reject a claim of employment discrimination against achurch); EEOC v. Catholic Univ. of Am., 83 F.3d 455, 461-62 (D.C. Cir.1996) (“[T]he Free Exercise Clause exempts the selection of clergy fromTitle VII and similar statutes and, as a consequence, precludes civilcourts from adjudicating employment discrimination suits by ministersagainst the church . . .”); Natal v. Christian & Missionary Alliance,878 F.2d 1575, 1578 (1st Cir. 1989) (“By its very nature, the inquirywhich Natal would have us undertake into the circumstances of hisdischarge plunges an inquisitor into a maelstrom of Church policy,administration, and governance. It is an inquiry barred by the FreeExercise Clause.”); Wisniewski, 943 N.E.2d at 76; Kathleen A. Brady,
arguably, an ex-ante determination of a religious question
can enjoy the same authority under the doctrine.
Moreover, implied consent and Free Exercise Clause, which
are more appropriate candidate for the basis of the church
autonomy doctrine, can support the extension of the doctrine
to the Shari’ah board.
Implied consent is even more prominent in case of Islamic
finance contract. A customer enters into an agreement with
an IFI knowing the Shari’ah board of that IFI has approved
the agreement. Thereby, it can be argued that customer
consented to be bound by the board interpretation of
Shari’ah.
In regard to the Free Exercise Clause, since under the
Supreme Court jurisprudence the Shari’ah board must be
considered a religious institution in order to be protected
under the Clause, I will address it in my answer to the
second problem.
Religious Organizations and Free Exercise: The Surprising Lessons ofSmith, 2004 B.Y.U. L. REV. 1633, 1636; Douglas Laycock, Towards aGeneral Theory of the Religion Clauses: The Case of Church LaborRelations and the Right to Church Autonomy, 81 COLUM. L. REV. 1373, 1378(1981).
The church autonomy doctrine applies to the institutions
which are defined by their religious purpose whereas IFIs
are rather financial institution. In fact, the Department of
Health and Human Service, in its current iteration regarding
“religious employer” qualified for “contraception mandate”
exception, requires the employer to satisfy the following
requirements to be qualified as a religious employer for the
purpose of exemption: (1) The inculcation of religious
values is the purpose of the organization; (2) The
organization primarily employs persons who share the
religious tenets of the organization; (3) The organization
serves primarily persons who share the religious tenets of
the organization; and (4) The organization is a nonprofit
organization as described in section 6033(a)(1) and section
6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of
1986, as amended.79In response to the critics from
religiously affiliated service providers—such as some
hospitals, universities, and social service organizations
which are not qualified under these requirements—the
79 45 C.F.R. § 147.130(a)(1)(iv)(B) (2012).
Department has proposed new criteria for the exemption.
While the proposed changes would allow an employer to
qualify for the exemption even if its “purposes extend
beyond the inculcation of religious values” or if it “serves
or hires people of different religious faiths,” the new
proposed rules still preclude for-profit employers from
qualifying for the “religious employer” exemption.80
As it was explained before, the Shari’ah board is
independent from management of IFIs, their primary purpose
is to ensure Shari’ah-compliance. Therefore, it can be
argued that the doctrine applies to the Board not the IFIs,
which has a primary religious purpose, i.e. ensuring
Shari’ah compliance. By the same token, the Board is not
for-profit body of the IFIs. In other word, their purpose is
not to make profit for the IFIs. They are not under control
of IFIs. In their fatwas, the Shari’ah board is supposed to
only take into account the requirement of Shari’ah with good
faith and their members shall decide on their conscience.81
80 Coverage of Certain Preventive Services Under the Affordable CareAct, 78 Fed. Reg. at 8,459 – 8,461.81 ISLAMIC FINANCE IN GLOBAL ECONOMY, supra note 21, at 226.
In alternative, even if considering the Board as a separate
entity for the purpose of the Church Autonomy Doctrine is
not acceptable, one can borrow the implied consent analysis
of Helfand used in the context of religious employer
exemption from contraception mandate. Helfand “rejects the
assumption that for profit organization cannot, as matter of
law, qualify as religious institutions.”82 Instead, he
proposes that church autonomy should be grounded in implied
consent therefore “we must first and foremost focus on
whether employees were able to recognize that they were
joining an institution with unique religious
objectives.”83Using his analysis, the customers of IFIs’
Shari’ah-compliant products enters into a contract knowing
that the contract is being approved to be Shari’ah-compliant
with a specific religious board. Therefore, under the church
autonomy doctrine, it would sustain that the fatwa of the
board shall be binding for the purpose of the contract
before a civil court.
82 What is church?, supra note 75, at 424.83 Id.
I do understand that as some courts pointed out religious
institutions do have special recognition under First
Amendment;84 hence, affording such recognition to the
Shari’ah board would seem unacceptable. However, if one
looks at the new changes in field of employment law, the US
courts, adapting to the changing religious practice, have
recognized wider definition of a religious. I see no reason
why that recognition cannot be accorded to the IFIs
Conclusion
Islamic finance is a fast growing industry globally. It has
been growing in the US, too. It is critical for the US
courts to provide a hospitable environment for the growth of
this economy. One of the main challenges for US court in
doing so would be to accommodate the religious
84 E.g. the D.C. Circuit has stated that “the burden on free exercisethat is addressed by the ministerial exception is of a fundamentallydifferent character from that at issue in Smith” because “[t]heministerial exception is not invoked to protect the freedom of anindividual to observe a particular *414 command or practice of hischurch. Rather, it is designed to protect the freedom of the church toselect those who will carry out its religious mission.” EEOC v. CatholicUniv. of Am., 83 F.3d 455, 462 (D.C. Cir. 1996); see also Petruska v.Gannon Univ., 462 F.3d 294, 306 (3d Cir. 2006) (noting that despiteSmith, the Free Exercise Clause still protects “a religiousinstitution's right to decide matters of faith, doctrine, and churchgovernance”).
characteristics of Islamic finance institutions. The US
courts have long developed two important doctrines in
context of church related disputes to accommodate religious
practice, eve in area of commerce, church autonomy and
religious question doctrines. In this paper I argued that
using implied consent analysis US court should recognize the
ex-ante determination of the Shari’ah board of Islamic
finance institutions on the question of Shari’ah compliance
as final. Building on work of Helfand, I too argued that
since a customer of Shari’ah compliant product knowingly
enters into a contract with an institution which is defined
by its religious pledges, she accepts the interpretation of
the Board of that institute as binding upon her before civil
courts in the US. I argued such recognition would have
meaningful affect on an industry which is defined by
adherence to sets of religious beliefs.