Shariah’s Black Box

While it is not necessarily the case that an aberrant ruling by an “extremist” Shariah authority will be imputed in every case to his employer, it is not a logical stretch to conclude that a company employs a Shariah authority precisely because his legal rulings are authoritative and because Shariah is a holistic and integrated legal and normative unit.[247] Thus, a ruling on Jihad by a Shariah authority is no less a part of his role as an internationally renown Shariah authority and his employment as such than his other rulings on SCF.

Yet another more threatening avenue of liability arises under the Smith Act. To what extent might the U.S.company have criminal exposure for “collective knowledge” of the endogenous elements of Shariah? Put differently, if Shariah is universally understood by Shariah authorities to advocate the destruction, and in some circumstances the violent destruction, of the U.S., are U.S. financial institutions and companies which employ Shariah authorities, and the lawyers expert in SCF, liable based upon a “willful blindness” and “reckless disregard” of the criminal designs and methodologies of Shariah? Legal commentators have discussed the notion of corporate “collective knowledge” as an evidentiary basis for a finding of scienter:

Other cases further expanded the prosecutor’s ability to charge corporations, while simultaneously constricting such defendants’ ability to mount certain arguably legitimate defenses, often explicitly on policy grounds. One legal consequence of vicarious liability was the development of the “collective knowledge” doctrine, largely ushered into existence by a federal appellate case, United States v. Bank of New England. In that case, the Bank of New England was tried and convicted of a number of violations of the Currency Transaction Reporting Act, while the individual bank employees were acquitted of the charges. In charging the jury, the trial court instructed them that the bank could be found to have had the requisite guilty knowledge either through one of its agents, or through the “aggregate knowledge of its employees.” Because the bank was a collective institution, its “knowledge [was] the sum of the knowledge of all of the employees.” Thus, the doctrine “aggregates the states of mind of several agents within a corporation” to be attributed to the corporation itself. Consequently, “there is no question that [the collective knowledge doctrine] subjects corporations to criminal liability where there is literally no one in the organization that ever intended to commit a crime.”[248]

Beyond the duty of disclosure of endogenous elements of Shariah — facts which would be material to a reasonable investor who has been told of an investment or business transaction represented to be Shariah-compliant — a whole host of other legal issues arise in the context of how SCF is actually structured. Thus, beyond the question of what must be disclosed about Shariah itself, the “rules and principles” of Shariah have been fitted to modern finance and business to achieve a product that is represented as Shariah-compliant. These contemporary structures are exogenous to Shariah but very much a part of how Shariah has been manipulated to accommodate modern finance and commerce. These exogenous elements reflect on how Shariah has been transformed, modeled, and presented in various SCF contexts. How these contemporary structures interrelate with various legal duties and obligations is the focus of this section.

In this analysis, it is important to keep in mind a fundamental principle of SCF and a corollary of that principle. The first is that Shariah compliance must be judged by one or more Shariah authorities. It is clear from the literature that a non-Muslim cannot determine what is Shariah-compliant and further that a Muslim who is not recognized by his peers as a Shariah authority cannot assume the role of one. The corollary of this principle is that the Shariah authorities are themselves bound by the community of Shariah authorities within which they operate. The exact nature of this community or “consensus”, both in terms of its theoretical elasticity and it geographic boundaries, is only vaguely articulated in the SCF literature, but the implications of its contours both when adhered to and when breached are quite significant.