Shariah’s Black Box

Thus, the analysis of exogenous structures and factors of SCF begin with disclosure of what it means to represent to the public that a financial institution or business has embraced SCF. Is there a duty to represent to the public what a Shariah authority is and how any given authority has obtained that status? Is it material to the investment? Is the failure to articulate the risks associated with conflicting SCF rulings from a more authoritative Shariah authority a disregard of minimal standards of disclosure?[249]

Moreover, is there a duty to disclose to the public whether the Shariah authorities chosen by a U.S. financial institution have ever issued authoritative rulings on matters that would implicate discrimination or violence against non-Muslims and non-Shariah-compliant Muslims? Is it important that a financial institution’s Shariah authority relies on the Shariah rulings of authorities who have called for a worldwide Islamic Caliphate ruled by Shariah? Further, when the Shariah authorities rule that investment in a military or weapons industry are forbidden by Shariah, is it important for the U.S. financial institution to disclose to the reasonable post-9/11 investor whether there is such a Shariah ban on investments by Muslims in Muslim military industries for weapons to be sold to Muslim regimes?[250]

In this context, the Nike case discussed above takes on a whole new dimension. Recall that Nike, an Oregon corporation, was sued in California under its Unfair Competition Law arguing the Nike’s public statements in defense of its labor practices abroad were actionable.[251] The California Supreme Court was not inclined to restrict the statute’s reach and rejected Nike’s argument that its First Amendment Free Speech rights were violated. Nike had argued that the extension of such business fraud statutes to generic discussions by companies that have more to do with social commentary on issues of public importance than promoting the sale of specific goods and services is to effectively deny First Amendment protections to U.S. businesses. In effect, after being attacked publicly in the media and having chosen to open its corporate mouth in its own defense, Nike had invited the lawsuit under California’s Draconian consumer fraud statute. The company could have continued to litigate the case for years, attempting to prove that it had spoken truthfully about its offshore labor practices, but it understood that every new twist and turn in the litigation would amount to millions of dollars in bad publicity for a company that spent millions trying to build and maintain its brand.

Instructive is the language the court used:

The issue here is whether defendant corporation’s false statements are commercial or noncommercial speech for purposes of constitutional free speech analysis under the state and federal Constitutions. Resolution of this issue is important because commercial speech receives a lesser degree of constitutional protection than many other forms of expression, and because governments may entirely prohibit commercial speech that is false or misleading.

Because the messages in question were directed by a commercial speaker to a commercial audience, and because they made representations of fact about the speaker’s own business operations for the purpose of promoting sales of its products, we conclude that these messages are commercial speech for purposes of applying state laws barring false and misleading commercial messages. Because the Court of Appeal concluded otherwise, we will reverse its judgment.

Our holding, based on decisions of the United States Supreme Court, in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices. It means only that when a business enterprise, to promote and defend its sales and profits, makes factual representations about its own products or its own operations, it must speak truthfully. Unlike our dissenting colleagues, we do not consider this a remarkable or intolerable burden to impose on the business community. We emphasize that this lawsuit is still at a preliminary stage, and that whether any false representations were made is a disputed issue that has yet to be resolved.[252]

When U.S. companies tout SCF as “ethical” and “socially responsible investing” or as simply innocuous “interest-free” and “vice-free” investing, does this amount to consumer fraud? In California at least, the groundwork for an affirmative finding has been prepared.