Posted Apr 28, 2005 07:40 am CDT
Indeed, the Middle Eastern Law Committee of the ABA’s International Law Section has seen a steady increase in membership, says co-chair Christopher H. Johnson of Washington, D.C. “We have been active with programs at most major International Law Section events and regular meetings of our Islamic law forum,” he says.
Islamic law isn’t business law as usual. Deals must adhere to Shari’ah, the belief system that underpins the Islamic way of life. Because it prohibits certain Western financing conventions, lawyers say these deals can pose unique challenges. For example, Shari’ah forbids “riba,” essentially the paying or receiving of interest. To ensure Shari’ah compliance, lawyers can structure transactions as investments in which Islamic banks share profits with the customer instead of making pure loans with interest.
Most Islamic financial institutions have religious boards to ensure Shari’ah compliance, says Michael McMillen of King & Spalding, which devotes an entire practice group to Islamic transactions. McMillen, who is based in New York City, serves as counsel to a variety of Islamic clients, including large Middle Eastern banks.
International energy projects involving oil, gas and electricity are also turning to Islamic capital markets for financing, adds William Voge of New York City. Those energy deals involve what look like loans but still abide by Islamic law. As a result, they offer a return analogous to what Western banks earn, Voge says.
The majority of Islamic transactions are still structured under Western principles, says Joan Story of San Francisco. But the sector of Shari’ah-compliant deals is growing, perhaps because there’s more emphasis in Middle Eastern countries on being religiously observant. “Those countries have developed stronger economies, and the wealthy can only do so much regional investing,” she adds.
In the United States, there are growing numbers of observant Muslims who need mortgage capital but don’t want to borrow and pay interest, Story says. As a result, financial companies are developing vehicles analogous to mortgages that are essentially joint ownership agreements in which some rent is paid.
Some may worry that terrorist funds could be entangled in Islamic transactions. But McMillen says deals include extensive procedures to vet bad money, including a process of cross-referencing sources against U.S. government terrorist lists. Also, he says, “Private equity, real estate and bonds are not terribly liquid investments,” so these typical Shari’ah compliant deals are unattractive to terrorists.
Despite the strict nature of Shari’ah-compliant deals, the religion of others involved in a deal “is not an issue at all in these transactions,” says McMillen, whose team is composed equally of Jews, Muslims and Christians. He says he’s even worked on deals between Islamic countries and Israelis.
And while Story says it’s “undoubtedly easier for men, and easier yet for men who are Muslim, to develop relationships with Islamic banking institutions,” she hasn’t encountered gender bias from Islamic clients or colleagues.
Indeed, she finds that this unique but growing subspecialty has been an engaging addition to her practice. “It forces you to have a better understanding of what Islam is,” she says, “and not just a Western notion of it.”