Losing Interest: Financial Alchemy in Islamic, Talmudic, & Western Law
Michael H. Lubetsky [email protected]
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Ini•erest: Alchemy Islamic, Talmudic, Financial Losing
in
& Western Law
Lubetsky*. Michael H.
..
INTRODUCTION I. 232
REsTRIctIONSON i•iFFERENT
INTEREST LEGAL II. IN
TRADITIONS.. 233
Sharia A. 233
Law.... B. Western 234
C. Halakha 237
("GAAP")• Principles Generally Accepted Accounting D. 238
Comparative Overview E. 239
LEGALSYSTEMS TYPOLOGY III. A 240 OF
of Difference Dimensions 240 A.
of Legal Classification Traditions the 241 B.
Interpretation: Formalist Of Method 1. vs.
242 Substantive
Ordering
Actualizing Vocation: 246 2.. vs,
Hypotheses 248 C. :
249 IV. ASSESSMENT HYPOTHESES OF THE
249 Sharia A.
•..: 252 Halakha B..
Western 254 C: Law
...... •.•
258 GAAP D.
259 CONCLUSION V.
ABSTRACT
ban
throughout the interest, financiers Quranic comply with To
on a
legal such of developed have
wide world arrangements, Muslim
range as a
w6uld like Competition The author Writing winner. to Trandafir International Business
2009
inspired this
originally University McGill Nsour, Mohammad Islamic Law thank whose
at
course
and
Special
insightful Gregory for their
Lucan A. Article, Joshua Krane comments. well
as as
staff UmairKazi of editorial
the at and the
Note Editor thanks also due rest
to
are
Davies
currently author is associate Contemporary Problems. The Law at and Transnational
an
alone. expressed this Article those of the author Vineberg views in Phillips LLP. The Ward & are
[Vol. CONTEMPORARY PI{OBLEMS • LAW 19:281 232 TP•VSNATfONAL
and
ijara.,
repackage profits-on-trade. interest These
that and m•rabaha
as
variety interest-avoiding
other transactions also in
of in
contexts
appear
a
avoidance, planning, and accounting. including West, the corporate tax
usury
tradition's
legal fundamental attitudes how illustrates toward This Article
a
Article transactions. This interest-avoiding that, affect, its in law
argues
orders,
normative Islamic law legal other• has developed with contrast
a
interest•avoiding attitud6 toward tolerant conspicuously transactions due
to
(b) legalinterpretation, approach its and
understanding (a) its formalist of to
actualizing.
ordering rather than law as
INTRODUCTION I.
they
forbidden; though they
took that and
That
were usury,
substance wrongfully; have prepared devoured men's they
we
those reject who faith them grievous
for among a
punishment. 1
Alex
Ahmed, of both hous6 whom and to.buy of the Compare
want
cases a
•akes
bank, loan $100,000..Alex $100,000 of
out worth to at one-year
goes a a
buy
and the the house.
Ahmed
interest, to
to percent 5 money
uses goes
an
purchase house the bank the for for $100,000 and Islamic to bank
arranges
£t
mark-up,
payable him 5 percent resell immediately it and to next to
a year.
Muslim,
identical,
the transactions two have yet flows
The to • cash
a very
are
Alex's In spiritual legal the and different 5 percent case, consequences.
which renders the interest, void Islamic under premium contract constitutes
potentially Alex his banker and ("sharia")
and reservation in law
earns
a
premium
the percent however, Ahmed's constitutes 5
Hell. In
case,
a
financing afil bithaman of profit bait.
trading legitimate How
contract.
a can
identical essentially transactions have such different these
two
consequences?
beyond interest far extends constitutes what debate Muslim the The
over
interest, bans include which law Canon Talmudic and Jewish and world.
on
sought long Modern circumvent. alike have financiers Christian lenders to
interest variety in of of that exact stratagems continue to
to
excess a
use
Corporate and civil by criminal statutes. have allowed accountants
usury
financing classify something
costs incentives other than to
as
numerous
certain
cash ratios. Whether financial flow improve constitutes interest to a
trans.). YusufAli (Abdullah Quran 4:161
produce either if different could transactions Conceivably, his debt
the consequences
pays man
daily Ahmed's
wh{le
invariably rate, interest invoice
will at Alex's loan
late.
a accrue may
accrue
complicated
Moreover, according schedule. if penalties defect is
t6
found late payment
a more
a
against the seller's theory, invoke Ahmed could, the bank in warranty house, in the than rather
backto "can of this risk however, the be practice, original In transferred cost the the
owner.
EL-GAMAL, MAHMOUD A. ISLAMIC buyer."
forward original the LAW, FINANCE:
seller to
or
EL-GAMAL, FINANCE]. [hereinafter ISLAMdC (2006) ECONOiMICS, PRACTICE 68 AND
2010] Winter LAW FINANCIAL ALCHEMY IN 233
int'erest
either
positive has also negative,
enormous in
tax consequences, or planriing.
however, A disparate situations, review of different that these reveals
legal traditions adopt approaches different have tended interest- to to
avoiding taking law, transactions, conspicuously particular, sharia with in
a
permissive other,s. compared• approach Some mark-up all the in of to
or
ajil Ahmed's bai' example, bithaman for certainly be contract, would almost
Io•k
by jurist, Western interest deemed A rabbi. closer accountant,
an a or a
legal of underlying principles the. Islamic of doctrine and at
some a
legal thinking help comparison with explain other modes of why sharia
can
developed
permissive such attitude. has a
analysis, provides facilitate Article this of this To Part brief I overview
a
legal bans of various the traditions. restrictions interest in II Part
or on
typology orders,
two-dimensional normative classify of it
to
proposes
a uses
Generally ("halakha"), law, sharia, Talmudic law Western and Accepted
Accounting Principles and ("GAAP"), hypotheses formulates how the
on
typology interest-avoiding predict towards fictions. attitudes Part III
can
hypotheses jurisprudence using and the
of the doctrine four the tests
analysis ultimately legal identified ready Islam's traditions. The that shows
interest-avoiding from of its transactions results formalist acceptance
legal interpretation ordering attitude and its vocation--a towards
sharia distinguish qualities major legal combination of from other that
traditions.
II. RESTRICTIONS DIFFERENT LEGAL TRADITIONS INTEREST IN ON
A. Sharia
Quran Islam's
ban in the interest that from three
stems
passages
on
•.'•,
"growth"),• literally subsequent "increase" forbid riba which Islamic
or
scholarship (interest loans) al-fadl riba divided and riba al-nasi'a into
on
c0mmpdities). exchange
(unequal definition of and The of both exact 4
scope
of generated times, have riba of debate.• centuries modern animated In forms
leading
jurisprudence Egypt• however, from Pakistan and sharia 7 concur
Quran riba, meaning literal the Arabic 2:276-79, Barbara 4:161, On the of L. word 30:39.
see
Today: Equity, Doing Islamic Law, Business Under Seniawski, Economy, Social the Riba and 39
(2001).. TRANSNAT'L 701, L. COLUM. J. 707
EL-GAMAL, Seniawski,
FINANCE, ISLAMIC 3, 709-10; 2, 49-52. at note note at supra supra
Seniawski, 3, 707-19. at note supra
reprinted May (Egypt), Supreme decision 20, Case of 1985, Constitutional Court in
1, 4,
no. no.
QUARTERLY (1985). ARAB 100 1:1
Pakistan, of Judgment Supreme Historic Given Text of the Court by Interest available the
at
on
http://albalagh.netTIslamic_economics/riba_judgement.shtml (last visited 2010) 29, Jan.
(discussing opinion Judge Sec'y, Taqi Usmani's Minister Faisal Muhammad in Ur-Rahman of v.
•.CONTEMPORARYPROBLEMS [Vo1
19:231 234 LAW TRANSNATIONAL
am0unt•,
"any including
debt,
of interest
forms all that includes
riba a on
the
principal however transaction of in stipulated addition to in little,
a
opinions, including
decision the dissenting from Notwithstanding 9 loan."s
a
definition
dominant view this the Cassation, represents 1° of Court Dubai
aspire,
particularly Muslim today,
jurists countries in that purport or among
law. sharia implement n to
riba, borrowers alike Muslim in the and lenders of the ban
Because on
•ought
financing their transactions
have world to structure to
as
so
trading profit, The interest repackage
the most structures le
common as
shareholding), (similar preferred mudaraba murabaha the include
to
a
resale), tawarruq (sale-and-leaseback), (commissioned purchase ijara and
manufacture), (contract (commodity-intermediated for and loan), istisna
purchase). (forward Through structuring careful these of salaam 1•
sukuk, of forms which transactions, Islamic financiers also various create
can
virtually indistinguishable simple from debt, securitized that is is
debentures. 14
B. Western Law
long manifestations, civil law, in both its law and has Western
common
polemics against regulation.. tradition, civil law In the featured interest
altogether
in back times. Roman banned interest date Roman law to
usury
established
legal of eventually BoC.E., but Genucia of the Lex 340 rate 1
a
month. Lending, legal the attack with under
rate, percent at 1•
came per even
Christianity, strongly Church condemned of Catholic the the advent usu• as
(Pak.). Pak., Affairs, Parliamentary Law, PLD FSC & Gov't of PLD The Justice 89
1992
case
as
("PLD") complete opinion.) reported Digest only and the Pakistan Law the order in contains not
Supreme Judgment [hereinafter Interest]. of Pakistan Court on
¶ however, inflation .the issue of Note, that Justice Usmani Id. did leave 106.
open
compensation. ¶ See id. 180-88.
Wayne of Visser McIntosh, Seniawski, 3, also & Alastair Review 717; A Short
note at
supra see
Critique of Usury, (1998), HIST. available ACCT. Historical & BUS. the FIN. 8 175 at
www.alastairmcintosh.com/articles/1998_usury.htm; E1-Gamal, Mahmoud A. "Interest" and the
Contemporary (2003) Finance, of Paradox Islamic Law & FORDI4AM INT'L L.J. 108, 27 109
[hereinafter Paradox]. E1-Gamal, the Interest and
Judgment 32!/99 (Dec. PRICE & 1999), of Dubai Court Cassation No. RICHARD ESSAM AL 19, in •0
(2005). TAMIM•, CASSATION ARAB EMIRATES COURT UNITED JUDGMENTS 1998--2003 206 OF
PRACTICE
Seniawski, ISLAMIC NOI•ZRUL I•AW 3, 717; THANI at note AL., n ET AND OF
supra
(2003). FL•ANCE BANKING 155-56 AND
FINANCE,
passim. EL-GAMAL, ISLAMIC 2, note supra
passim. Id. •
See id. 97. • at
CANONIQUE USURA]RE COULAZOU, LOUIS DROIT FACE L'INJUSTICE DROIT ET DU • EN
DU
McIntosh, S•CULIER & (1920); Visser THE THEODOSIAN CODE
also 9, 176-77; 14 note at
supra
see
(Clyde 200!). CONSTITUTIONS ed., Pharr NOVELS SIRMONDIAN 61-62 AND THE AND
2010] Winter FINANCIAL LAW ALCHEMY 235 IN
ever-increasing anal
vigor campaigned against throughout with it the Middle
Ages.
Church Council Vienna declared The of violation 1311
of both 16
usury
a
excommunication public .law divine and .human ordered of and the all
officials
in
jurisdictions. lending However, who allowed interest their reformation 17
on
and industrialization ultimately legalization motivated of interest-based the
beginning continuing lending, during in Austria France in and in the 1787
Europe Century, By Revolution. 19th the late of America and Latin most is
regulation had.no general. maximum and little interest interest in 1• rate
very
relat'ively proved However, short-lived, affairs after of and this
state state
criminal by state--led, again, .France in. 1807•reintroduced civil and
subjecting regulations capping Otherwise interest loan contracts rates to
or
judicial scrutiny.2°
originally fell England, for primary under the actions In
usury
ecclesiastical
By Century, jurisdiction growth of the 15th Of the. the courts. 21
class .for resulting, and demand commercial the the credit cor/verted
usury
temporal issue, enacted ParIiament interest- into and ban statutory
a a on
proved sporadic, however, lending Enforcement and the ban in 1487. 2•'
gave
Against regulation Usury, Act interest the which allowed with 1545 to a3 way
to.bear interest loans
10 percent to up per annum.
jurisdictions, throughout charging
Today; law interest above
common a
elicits.both and civil prescribed criminal sanctions. Contracts statutory rate •4
routinely criminal levels have been found void for that of. interest exact
policy liability
exposed unjust publi lenders for have. of
and to 25 c reasons
COULAZOU, 15, 17-21. note 1• at supra
OF
I990), (Norman ed., Id.; ECUMENICAL DECREES COUNCILS Tanner available P. also • THE
see
INTt•R•.T: DU PR•T/• GOFF, LE www.piar.hu/councils/ecuml5.htm; LE MARCEL at MOULIN ET LE
(1905). L•GISTE: SON INFLUENCE 79
(1899); Harrison, Foreign Usury Laws, 215, COMP. LEGIS. also Art. W. M. J. 219, Soc. 299 1 •s
see
•5,
COULAZOU, (Ft.); C. 1904 21-25. at note CIV, supra
Harrison, 215. 18, nste at •e supra
•°Id: 219. at
JONES,
MODERN EARLY •V•ONEYLENDERS: GOD USURY •bAW NORMAN AND 2z AND THE THE IN
MEDIEVAL SEABOURNE, LOANS (1989); REGULATION SALES
GWEN ROYAL ENGLAND 47 IN AND OF
(2003). ENGIAND 44-49
Bargains,
Usury, Against 1495, Against Usury Unlawful Edw. 3, ch. Act & 1487, 5; An Act 15 •
prior this
of regulation On royal to interest Hen. ch. 8, 7; JONES, 47-48.
21, 11 note at
supra see
legislation, SEABOURNE,
21, 27-30. note at supra see
J•NES,
48. Against §§ Usury, 21,
1545, Act Hen. ch. 2-4; 8, 9 at 37 note • supra see
percent
receiving 60 examp]e, actually
interest contracting Canada, receive In for to a•
over
or
prison.
punishable
in
by five offenses under Criminal Code
to constitute the
years
up
per
annum
R.S.C., (1985) (Can.). §§ Criminal Code, 46, 347-49 ch. C
H•STORICAL
(1999).
212--13 OBLIGATIONS IBBETSON, INTRODUCTION LAW D.J. A • TO THE OF
[Vo1. 19:231 PROBLEMS •. 236 LAW TRANSNATIONAL CONTEMPORARY
Even protection .without 26 statutes. and violations of enrichment
consumer
Particular
of. ..variety interest statutory prescribing limits .rates,.
a
on
judged credit loan review and revise provisions contracts allow courts to
or
extravagant" "unconscionable. grossly "extortionate and "27
or
particular characterizatio• of
fl0w
Cash
accrual the law, In Western
or
a
prefer Investors "interest" implications.
also have
tax
may
enormous can as
repackaged gains profits, business capital interest have
•s
e9 to
revenues or as
qualify generally for l•wer
income. Borrowers which than interest tax rates
expenditures,
interest
also capital benefit from
repackaging
often
as. can
for depreciation.• large
m•y increased allow A firm since with accelerated it °
prefer capital accumulated losses in its subsume debt
its to expenses may
operatihg
indefinitely, losses that be carried forward rather than its in
can
losses
other only ban.d, that be forward On the carried
twentY 81
years.
can
profitable deductible.and dividends business since interest is not,
tax
are a
equity
repackaging financing from interest, costs a of benefit its form
can as
alchemy directly financial that firm's increase the value. 82
can
purposes,
.Wegtern planning regulation and To around interest for get
tax
borrow4rs developed lenders have reconstitUte techniques interest and
to
as
Ss
trading
recognized like..Credit of
form the sales
expenses
were or a
century,
early charged interest 1.3th the .when Milo of Evesham
as as was
on
selling dearly day grain '%is for with worth
than it the Was
usury more
sold.
Europe Medieval alia of when commercialization it inter the
''3• was saw
Ct. Kilroy Payday [2007] (B.C. Inc., OK
App.) See Loan BCCA A 193, D.L.R. 278 2007 231 •
v.
(Can:)
leading issue). (reviewing jurisprudence Canadian the the on
20(1)(c) R.S.C., § (1985) http://www.canlii.org/ ch. Act, (Can.)., available Income Tax 1, 2•
a6
en/ca/laws/statYrsc-1985-c-l-5th-supp/latest/rsc-1985-c-l-5th-supp.html (defining interest).
as capital gains Act, Canada, the income. In taxable half of other Income Tax forms rate •8 at
are
§ Many Other countries have rules. similar 1, ch. 38.
primarily "specified corporation, Canada, with In
interest constitutes investment incom•
2•
a a
qualify § business", small business deduction. Income ch. Act, and does for the Tax 125. 1, not
to
their
•lepreclate thereby
Many corporations accelerated allow governments rates, •0 assets at
creating subsidy Margalloth, Panacea/or indirect for generally See investment. Not Yoram
an
a
Depreciation, of Growth." (2007). 493, Accelerated REV. Economic The Case TAX VA. 26 494-96
however,
21(1) Canada, capitalize Income Note in section allows that taxpayer Tax of the Act
to
a
acquire 21(1). depreciable § interest used Act, This 1, Income Tax ch. be the property. to not
may
jurisdictions. however, other in case,
lll(1)(a)'(b);
Act, §
(2009), Income I.R.S. http:// PUBLICATION available Tax ch. 550 1, s• at
http://www.irs.gov/ www.irs.gov/pub/irs-pdf/p550.pdf; PUBLICATION I.R.S. (2009), available
536 a•
df/p536.pdf. pub/irs-p
deductibility impact On the of of value, STEPHEN the interest firm A. ROSS
•2
AL., ET on see
(4th 20.05). CORPORATE FINANCE 448--57 ed.
SEABOURN•,
21, at27. • note supra
2010] Winter 237 FINANCIAL ALCHEMY LAW IN
(contracting
double the (revocable sale), stoccado the loan the s4 mortgage.
good),• through of serie• artificial.sales basic and forward
of
currency
a a
times, exchange rates).S• (interest included the modern transactions in In
through sought regulations
have avoid and disclosure financiers to
usury,
an•iilary
gift bundling fees, lending products l•ke with other .insurance
or
non-payment
penalties. certificates, planners ihdirect and Tax direct
•7
or
repackage
particularly devising creative in have
structures to
proven new
mutual (a) tax-advantaged examples prominent include: interest:. Some
commo•lity
interest [ntermediation funds, which dividends and
to convert
use
gains;:•S
denominating
high foreign capital (b) into in currencies interest
debt
interest. expenses;
repayinehts .into (c) capital purchasing bonds to. •9 convert
thereby"
converting interest through corporation, offshore shell income into
an
hybrid capitalgains; preferred shares, (d) arid flows have whose cash the
4°
fascinating by quality being the U.S. Revenue interest Internal of considered
Agency.4• by service Canada dividends the Revenue but
C. Halakha
passages Jewish form the basis of law's Three in the Pentateuch
explained riba). (n'a•,..same prohibition etymology Arabic As in of ribbit •2
as
law, expositions, authoritative Jewish the biblical Talmud and other the
on
(a) prohibition essential with three elements:
agreement; contracts an covers
Knoll, Early of History Fidancial of Michael Modern The Ancient Roots Innovation: The 3•
(2008). Regulatory Arbitrage, OR. REV. 93, 107-•11 L. 87
122•-23.
JONES, 21,.at 3• note supra
USURY, ERIc-KERRIDGE, INTEREST JONES, 139-41; also 21,
note THE • at AND •supra see
(2002). REFORMATION
12
901-02-(2007)
REV.855,
Just Until Payday, UCLA.L. Ronald & Jim
Hawkins, See J. Mann 54 •
regulations regulatory policies). payday (discussing practices and by lenders circumvent to
Bppd d, which example.is Corporate Capital indirectly in Yield Fun invests interest- An the TD ss
"capital gains" into interest payihg The fund the bonds. payments purports convert corporate to
'•nvesting entering forward which by equity securities and into under it Canadian in contracts
equity the total of investment in units of. will forward the securities in for Sell
return return
an
• Corporate SIIVIPLIFIED. Pool." CANADA TRUST, TD .MUTUAL- FUNDS Bond TD TD PROSPECTUS
http:/]www.tdcanadatrust.com]mutualfunds/pdf] (2007), available FUND PROFILES
12 at fixedincome.pd•.
upheld interest-creating in. Supreme Shell Can. Ltd. The Court Canada such scheme of
•
v.
.an
subsequently Currency "Weak Debt" [1999] (Can.). Can., added the S.C.R. Parliament 3 622
R.S.C., Act, § provisions transactions. Income Tax ch. Income Act disallow such 1, the Tax
to to
http:llwww.canlii.org/en/callaws]statlrsc-1985-c-l-5th-suppllatestl (Can.), (1985) available 20.3
at rsc-1985-c-l-Sth-supp.html.
such
inyolving Supreme scheme in Ludco Ltd. Court heard Enters. Canada The of
•o
case a v.
a
Canada, (Can.). SCC [2001] S.C.R. 1082, 2001 2 62
2007). M.B.A., LL.B., (Nov. C.A. Teper, Michael 23, •Interview with R.
Ezekiel
23:20;
ribbit Deuteronomy Exodus also Note that is 22:26; 25:35-37; Leviticus 18:8. •
see
Certain See, infra pronounced REISMAN, ribbls Hebrew in dialects. 43. note e.g.,
LAW [Vol. 19:231 238 CONTEMPORARY • TRANSNATIONAL PROBLEMS
services
(b) (c) loan; of or.provide time of the the the commencement at to. pay
of Such the amount loaned.•3 the lender in constitute contracts to excess
strictly.prohibited; ketzutzah void ab initio and ribbit is and the contract
are
lender, and borrower scribe and the well the the the
to contract
any as as
rabbinic
transaction, Subsequent the serious .sin.• witnesses commit to •
a
expanded forbidding, decrees the for example, ban, of have the further
scope
giving mark-ups sales, gift intended for influence of the credit
45 to
any a
anygift given loan; after 10an--even service it has in for thanks been
46
or a
complimenting,
praising, off, blessing paid offering and lender the 47 or to
a
outstanding.! Of Such ribbit while ribbit the loan remains constitute forms s
features forbidden
b•t d'rabbanan, exceptions weaker which also and is
more
prohibition applies r•bb•t sanctions. of only bears that the It •9 note to
gentile, Jews. transacting Jew between with transactions When
may a a
charge
restri.ction.•O without interest
to agree pay or
Islamic Christian borrowers As cultures, Jewish in both and and the
including prohibition ribbit, lenders
various to-circumvent found
the
ways on
(virtually
original mortgage) identical sales revocable the law to •1
common
non-Jewish Ages, through and transactions intermediaries. Middle In the •
relatively complicated mostly iska, the approaches
heter these to
gave way a
equity partnership loan-like form that basis of of the loan
most
serves as or
today. transactions Jews between 5•
("GAAP") Generally Accepted Principles Accounting D.
order, GAAP origins differs As both normative from law in its Western
a
primarily approaches. and international• GAAP Both American and are
P•IBBIS 1995). eds., REISMAN, (Nossom THE LAWS &Meir YISROEL Sherman 51-52 Zlotowitz 4s OF
•Id. 51, 57. at
Id. 59. • at
Id. 60. • at
Id. 61. • at
REISMAN, 68--70. 43, •s note at supra
Id. 50. • at
Deuteronomy REISMAN, 23:20; 43, 94-97. note at •o supra
FALK, COMMONWEALTH, ZE'EV W]LttELM JEWISH SECOND INTRODUCTION PART 2 5• TO LAW THE OF
(1978). 206--07
Pawnbroking: Exile, Soloveitchik, generally Study of Haym Ribbit Halakah See A and the in in •
(1970). AM. ACAD. RES. PROC. JEWISH 38 203 FOR
Visser &.McIntosh, note 9, 177-78. • at supra
By GAAP," principles "international this Article primarily by refers the enacted • to
Accounting However, Standards International Board. the the less since is than accurate, term
"generaIly Board's accepted." standards have become See. GAAP COOK IFRS/US yet to AL.,
ET
(3d 2005). COMPARISON ed. 29-31
2010] Winter
I•INANCIAL A•CHEMY LAW 239 IN
established
by.professionals professionals,5• for by
rather than governments
public G.AAP good. for the primarily not.through evolves
jurisprudence before
but through tribunals, ongoing rather dialogue by practitioners about their
clients' situations and needs. differences These produce
different 56 new
very a
approach
interpretation and the elaboration of compared rules to Western. to
private criminal law. or.
classification
of GAAP, particular In cash the flow accrual
interest
a or
as
i'mpact
significant firm's key have financial metrics,
particularly can
upon a a
the
interest earnings and interest ("EBIT"). before ratio and If
taxes coverage
rather' financing firms the option interest as have than report
to cost
as a
an
operating
reclassification the interest
of
affect also
payment expense, an
can
firm's operations cash from the and other ratios derive that from it.•
Creditors
make. investors alike and extensive of these and other metrics
use
determining when debt
Consequently, stock valuations. •s covenants •9 or
and have incentive characterize interest
to in managers owners an expenses
improve important that ratios the firm the time. that most to at ways
Transactions potentially that interest non-interest into include convert
can
receivables, sale. of repurchase the sale inventories, the of and long-term
borrowing .purchase through commitments, subsidiaries special-purpose and
combining vehicles, derivatives, operating debt with and like leases. 6o swaps
Overview Comparative E.
quasi-legal
legal All four of traditions discussed the and recognize above
"interest" cash flows that from Other somehow different forms
of
trade are or
setting overview For international
of the of American accounting standards,
and 5• id. at
an
see
States, For
for of setting accounting overview the 31-41. standards
United the in
an process
see
GERALD WHITE I. THE ANALYSIS FINANCIAL USE (special STATEMENTS 4, AL., ET 7-10
OF AND
for States, Candidates, edition CFA 1994). In the United the Accounting Financial Standards
makes clear Board equity and that investors
primary constitute creditors the of financial
users
FIN. ACCOUNTING OBJECTIVES STANDARDS FINANCIAL BD., statements. REPORTING
OF BY
]•NTERPRISES, BUSINESS STATEMENT (1978), FIN. ACCT. CONCEPTS
NO. http:// available 1 OF at
www.fasb.org/pdf/con 1.p•.
•6 COOK See (distinguishing GAAP 54, standard-•etting from 31 bodies note at AL., that ET
supra
legitimacy
their legislative national politically frameworks and
accountable). to owe are
Firms
this do accounting standards, international but under under U.S. 57 GAAP. Id. the not can
716-17. at
Design
G•rleanu Jeffrey Zwlebel, Nicolae Renegotiation & (Sept. Covenants of Debt and 2006), 58
http:]]faculty.haas.berkeley.edu]garleanu]coven.pdf available (unpublished manuscript,
at
University Berkeley California of W: School Business); of Hass Clifford Smith, Jr., Consecutive A
Accounting-Based Perspective Violations, Covenant Debt ACCT. (1993). R•V. 289, 68 292 on
generally See Multiples J..Lie, Erik & Corporate Value, Lie Heidi Estimate Used 58:2. 59 FIN. to
(2002). ANALYSTS J. 44
GIBBINS, MICHAEL
ACCOUNTING: FINANCIAL (Sth AN INTEGRATED 2005); 6o APPROACH 595 ed.
see
Badly Repair, Need Of ECONOMIST, also in May 2002, 4, 66. at
[Vol. !9:231 240 LAW & CONTEMPORARY TRANSNATIONAL PROBLEMS
and
special income, However, deserve rental thus borrowers and treatraent.. 61
developed, tools interest circumvent lenders have different in each culture to
focus
murabaha, regulation. mudaraba, ijara. financiers and Muslim the
62
on
lende}s Europe perfected, in medieval Jewish heter Traders the have iska. •3
prefer stoccado, penalty developed double and the their modern Successors
Service and charges, manipulations sales. of clauses, various credit 64
long-term mileage of Chartered continue considerable get to out accountants
diversity especially The in operating leases, s5 procurement contracts, vast
approaches inquiry why traditions settled invites how into and different
an
solutions:
different on
SYSTEMS LEGAL III. A TYPOLOGY OF
of Difference A. Dimensions
legal (a) dimensions: This traditions under the Article classifies two
primary interpretation (b) primary understanding legal and
of method of the
law. legal four the illustrates where traditions of Table the vocation I
typology.. discussed I fall within this in Part
SYStem.s Typology Legal Table of 1:
Vocation
Ordering Actualizing
Formalist Sharia Halakha Interpretive
Method GAAP Substantive Western Law
difference. dimension interpretive The the first of A method constitutes
primarily expressed given. law. It formalist tradition the takes
as a
emphasizes provisions, privileges me.aning Of law's and the the literal the
conflict. By spirit into letter of the the law its
when contrast,
two
come a
over
tradition deal substantive from with premise the that laws aim starts to
It problems certain certain benefits. aims societal thus promote to
or
effectively problems,, interpret in that with those when laws deal
ways even
regulation legal traditions law, Other reach similar conclusions. in On interest Sumerian 61
see
SYLLA, (2005). A SIDNEY HOMER & RICHARD INTEREST On ancient HISTORY RATES 26--27
OF
RI•PUBLIQUE ATHI•NIENNE, PRIVY.
law, BEAUCHET, Greek •IISTOIRE DROIT LUDOVIC DU DE LA
see
(1969). IV, law, vol. McIntesh, 9, On Hindu & 247-48 176. Visser
at note supra see
accompanying IIA and See Part notes. 82 supra
Part
accompanying IIC and See 8s notes. supra
also
accompanying JONES, See 21, Mann & Part 122-23; IIB and
notes; at •4 note
supra supra see
Hawkins, 37, 901-02. note at supra
(discussing
of Repair, See generally Badly Need of off-balan6e-sheet in
the 60 86 note
supra use
loophole• by businesses). operating such leases as
2010] Winter 2 ALCHEMY LAW FINANCIAL 41 IN
full:•
the consistent interpretation plain language does with the of not seem
.text. the .•
difference.
ordering
dimension of the An The constitutes vocation second
legal
society. tradition views ground just. law of the tool rules the
to set
as a a
individualism
high places establishes that and
value and It autonomy, upon a
permits tradition forbid. Such law law the whatever it does views
not
as a
essentially
society. By of if for the betterment
necessary onerous, even
actualizing legal places considerably value
tradition less contrast,
upon an.
and ought .and reflect diversity, individual choice maintains that laws and to
people given guide how should in situation. of the law The silence
act
any on.
nebessarily
•mply subject particular individuals do does that
not
can a
fully they only has been articulated. whatever that but the law want, not
primary burden, for individual Rather law vehicle than the is
seen as a a as
co.llective and self-actualization.
Classification of Legal Traditions B. the
ordering, formalist, substantive, legal All four traditions and contain
actualizing example, Canadian.courts, of the Western elements. For part
as
adopted approach interpreting tradition, the Income have formalist
to
very a
appi0ach
dealing Act, constitutional When substantive with Tax but
66 more a
ordering commercial reveals orientation due the freedoms. Sharia law
to 67
an
of.contract, pre.mium while places freedom sharia law of inheritance it
6s
on
lackof actualizing striking flexibility, suggestive
is of exhibits which
an
a
vocation. 69
legal interpretive change A tradition's methods" also and vocation
can
over example, featured time. for A law
Western century contract
ago, very a
by parole Today, approach, epitomized formalist rule. in- evidence the
affording
judges weight approach, take substantive contrast,
to
more a more
emphasis, parties.
assumptions unspoken intentions of the It the and bears
7o
the
therefore, 0nly place classification that traditions the take the of at
can
highest generality. level of
V.
66See, (Can.); SCC Imperial R., [2006] Income Oil S.C.R. 25-30 46, Ltd. 447, 2006 2
e.g.,
paras.
http://www.canlii.org/en/caflaws/stat/ (1985) § 20(1)(c) (Can.), R.S.C., Act, Tax available 1, oh. at
1-5th-supp]latest/rsc- 1985-c-l-5th-supp.html. rsc-1985-c-
Research) Investigation See, (Combines of and Investigations Canada Dir. Act,
•7.
e.g.,
v.
$.C.R. [1984] (Can.). Southam, 145, 2 18-20 paras.
KAMALI, ANALYSIS LAW: See MOHAMMAD ISLAMIC COMMERCIAL AN FUTURES HASHIM 68 OF AND
(2000). OPTIONS 68-70
generally Systems, and Programme, Islamic Inheritance Laws See U.N. Human Settlements 69
Property (Islamic Series, 2005), No. available 6, Land Research & 10-11 at
http://www.unhabitat.org/downloads/docs/3546_3490_ILP%206.doc.
Formality Law, RISE generally of See Posner, The Contract FALL in in Erie Decline A. THE
AND 7o
CONTRACT61,
1999). (F. Buckley ed., FREEDOM H. 65 OF OF
[Vol. 19:231 PROBLEMS LAW. 242 TRANSNATIONAL CONTEMPORARY &
vs.:Substantive Interpretation:. Formalist Me•hod of
1.
bo•h
apprdaches
formalist primarily halakha feature and
Sharia to
legal document--the framework grounded interpretatio is written Each in
n.
a
respectlvely--believed
God's• word, the Torah letter- and revealed Quran be
to
sacred
•heir supplement faiths Both by-letter. authoritative with 71 texts
an
commentary--the the Torah-originally Oral and orally, transmitted
sunna
eventually writing hadith the for and mishnah but the Islam for set to
as
Both eternal, consider Judaism. faiths immutable, •heir •revealed law
72
as
faiths
humanity from and suitable all for days. until
end of the Both also
now
being
large •rooted feature bodies of ritual deeply .tradition that, and law in
symbo.lism, •primarily
lend forms of formalist themselves to
more
interpretation. Although Jews that Muslims would their and •3
agree
excessively respective interpretations require exegesis, deviate texts cannot
question meaning truth from the literal of the calling of into without the text
•Consequently, legal God's interpretation word. solidly faiths remains in both
anchored meaning in the of used sacred words and the. the texts to express
law, the rather the unarticulated than in benefits seeks societal law that the
achieve. to
guide exposition explains• Hallaq Wael how approaches B. formalist the
elaboration of situation, Islamic and When confronted novel law. with the
a
identify jurist subject the •elevant and most available it must
text to
a
analysis,74 linguistic rigorous presumption start.ing with the that words
are
meaning legal
of used
plain in their Issues dominate
and 75
sense. grammar
Hallaq points Islamic• discussion. legal theory As topics "There few
in out,
are
that. much arousing succeeded imperative in Of the issue the
controversy
so
as
identifying clarifying form. After meaning, the and its relevant "v6 the
text •v
analogical
qiyas whether-and jurist the method determine how the. to
uses
principle apply
to Under different
-of suitability the scenario.TS text may a
&Gamal
Regarding Quran, Cherff M. Badr,. Shari'ah: Sources, Bassiouni the M. The 71
see
Interpretation, Rule-Making, (2002). and UCLA J. Regarding ISLAMIC & NEAR E.L. 1.35, 147-50 1
Samuel Levine, Torah, Theory Legal Jewish the Theory: Constitutional J. and American
see
Contrasts, Comparisons and Some L.Q. (1996). HASTINGS CONST. 24 441, 444-45
hadith,
Regarding Bassiouni. Badr, the and & Regarding 71, 150-53.
at 7•
note
sunna
supra
see
mishnah, see supra"note Levine, Oral Torah the and the 7t, 445. at
LeOne, 462. 71, • at note supra
HALLAQ, B. ISLAMIC WAEL A HISTORY LEGAL THEORIES: SUNNI AN INTRODUCTION USUL 7• OF TO
(1997). AL-FIQH 42
Id. 43. at
Id. 48. 7• at
Analysis
question Id. of the 82. in also take into consideration related •7 at must
verse
verses,
previousconsensus, detail provided further hadith, the whether in has the been and
verse
abrogated by Id. another.
HALLAQ, 74, 83. note at 7• supra
2010] Winter .•'INANCIALALCHEMYINLAW 243
(rn'unasaba),
maysometimes
qiyas the of involve
consideration of
the process
particular underlying
good that rule sought achieve; only however, in
to
a
situations jurist certain the munasaba, general its and resort to
may
the
appr0pr•ateness .long subject has been of controversy. A
•9
consensus
developed early history in requires rulings Islamic legal that all based be
authoritative Quran revealed either the
the
s°
upon source, an sunna,
or
Consequently, promulgation religious the
rules of relied less
new
on
traditional pre-Islamic legal law of of methods reasoning, and such
sources
as
(juristic welfare), istihsan and istislah public preference and 10th The sl
Century decline of independent "•ndividual reasoning personal
or
dubbed
interpretations" law, has combined with what of the been.
as source a
"closing ijtihad, of of the door" further institutionalized formalist s2
interpretati0n.S3 legal approaches to
Classical exposition al-fadl Islamic of the the ban riba
scope
on on
("exchange ribC') illustrates prevalence formalist of the the substantive
over
approach. According accepted Prophet hadith, Muhammad the forbade to
unequal exchanges gold, barley, silver, wheat, dates, of and salt. When s4
considering the of rule, this Hanafi Hanbali and by concluded, schools
scope
analogy,
actually only appligs goods weighed ban that the that be to
can or
capacity, by The measured schools, Maliki by Shafi'i hold and that s5 contrast,
only ban goods extends (gold silver) the and used to.
storable
currency as or
(wheat, barley, Consequently, foodstuffs salt): dates, and the and Hanbali s6
that Hanafi schools believe unequal the exchanges extends fabric ban of to
or
paper lumber but Shafi'i schools while the Maliki and not to come to
money,
opposite noteworthy conclusion. It the that of traditions the
seems none
interpreted have in.clude "goods exchanged the hadith between
to to
seems
necessities parties bargaining unequal "goods with power" that constitute
or
life"•approaches of which purposive have allowed
for
may
a more
application of the law.
comparison gives considerably In sharia, with Jewish law
to
power
more
religious political its supplement, extend, leaders and adapt and the to
88-90; Id.
Badr, also BassJouni 71, & 79 at 143-45. note at see supra
HAL•Q, 74, 30-33. •o note at supra
Badr, Bassiouni & 136. 71, st note at supra
Mohammed, Principles Id. of Law, also Noor 165; Islamic Contract J.L. RELIGION s• & at 6
see
(1988). 115, 125
Harold Sahih (Abdul Siddiqui available Muslim http://www.usc.edu]schools/ trans.), 10:3853 st at
college/crcc/engagement]resource s/muslim/hadith/muslim/010, s/text html. smt.
Seniawski, 3, 711. s9 note at supra
Id. Ss
[Voi..19:231 CoNTEMPORARYPROBLEMS
244 TRANSNATIONAL LAW •
circumstances,
exceptional"
light law changing revealed .of in. s•
or
fundamentally
sharia, Nevertheless, halakha like approach. formalist takes
a
legal interpretation. starting both wo2ds of the The Torah the constitute to
ending .point reference and hermeneutics for and law, discussion of
.any
prominently feature Talmudic legal reasoning, in Like.the oral the
ss
sunna,
provides teachings explanation authoritative Torah's of
Torah written the an
several supersedes rabbinic innovation.S9 and Talmud debates The records
and
between Rabbi-Simon Rabbi Judah
what unstated
an
scope
over
"purpose"
interpretation. commandment bf should have For its in 90-
a
discussed tal•ing against example• whether the rabbis the.biblical law
a
pledge from widow applies. .The .the rich. .Talmud when widow is 91
a
ultimately concluded clearly compliance stated, that biblical when rule is is
a
mandatory, when the supposed rationale be does relevant to not
even appear
specific
of circumstances the parties of broader realities the to present to
or day.•
Halakha's of exemplifies approach legal formalist ribbit this treatment
to
prohibition interpretation. exposition Talmudic limited biblical the ribbit to
paid ketz•tzah--interest time of the the pursuant made agreement to at
an
loan.gS decree, banned The rabbis have other by but forms have. of interest
violations, made that clear these d'rabbanan, only constitute which ribbit
truly carries A weaker sanctions. approach legal substantive •4 to
interpretation have. would the made distinction between the forms of two
Moreover,
sanctions,
although ribbit
it carries serious
unnecessary. more no
demonstrably harmful ketzutzah that ribbit
is to
to argue one seems
more
ribbit than society
thecontrary,, d'rabbanan. the lack. To of .transparency
influencethe
.gift giving involved in (a issuing form
0fa of ribbit .to loan
a
d'rabbanan) the. functioning inimical the. of
economy than to
seems, more
government
Therefore,
(a interest bond ketzutzah).
form the of ribbit
on a
difference between forms the sanctions Of ribbit different and their two rests
purely distinctions, application formalist
rather purposive of the than upon
a law.
S•e/•I•ON
IN
KIRSCHENBAUM, EQUITY JEWISH LAW: CML LAW: 87 HALAKHIC PERSPECTIVES IN
FORMALISM FLEXIBILITY JEWISH LAW (Norman 1991). 9-15, ed., Lain 21-26 AND IN
Levlne, 71, 445, 448.. s• note at supra
Id. 447. s9 at
Id. 458-59. 90 at
Deuteronomy The Talmud, Talmudic debate Babylonian 24:10. the Metzia in Baba •1
appears
(Salis l15A Daiches Freedman & H. http://ww.come-and-hear.com/ trans.), available
at babamezia/babamezia_115.html.
REISMAN, 51, 43, n.3. note •s at supra
Id. 58. at •
2010] Winter FINANCI_•LALCHEMYINLAW 245
Modera
features
primarily law, .substantive Western in contrast,
a
law.
approach legal interpretation. In'both and civil law contexts, to
common
interpretation
placesstrong emphasis giving effect the will of statutory to
on
legislature, text. Under "mischief rather than the of the the the 95 statute.
'• Century, responsibility the first rule, articulatedin have the 16th courts to
sought piece the legislature particular address harm the into in look
that to
a
legislation legislature's interpretation and its achieve the of tailor to
objectives. authority which Courts the have have been
to 96 statutes correct
what improperly drafted--substituting legislature what .for the it meant
power.inconceivable actually legal and Islamic the..Jewish in wrote--a
explicitly judges traditions. statutes .Numerous confer, and]or 9•
upon
discretionary modify officials administrative waive the
to
power or even
guidelines they achieve deem it statute's when the statutory to
necessary
purposes.gS ultimate
application primarily approach GAAP substantive also calls for of the to
a
objectives production accounting fundamental of norms--the The of rules. its
portrayal position of firm's financial conservative and and
accurate
a a
performance---constitute point starting discussion for accounting the of
any
dpplication produces accounting standards. When formalistic of
rule 99
a an a
potentially
professional misleading the has statement, accountant
an
principle obligation particularly finds follow rule. This the strong not to a
expression of American Code of Conduct Institute of Of the the in section 203
Accountants: Certified Public •..
accounting
principles However, of in the establishment it is
difficult which anticipate of the all circumstances such to to
principles applied. therefore might This recognizes rule be
occasion
there circumstances that unusual be upon may
application of where literal pronouncements the
on
principles rendering accounting effect would Of have the
Such
the
misleading. financial In statements cases, proper
COTI•, (3d
PIERRE-ANDR• CANADA See, ed. THE INTERPRETATION LEGISLATION 7 IN 95 OF e.g.,
1999).
7• (K.B.). (1584) Eng. Heydons Rep. Id.; Case, 3 96
i McIntosh, ¶ (Can.). [1995] See, S.C.R. 686, R.
76 6• e.g., v.
Support Examples Guidelines, include rules th• Federal Child in child the support payment 98
SOPJ1997-175, http://www.cantii.org]en/ca/laws/regu/sor-97-175/ §§ (Can.), 4(b), available 10
at
immigrants Immigration Refugee latesffsor-97-175.html, criteria for the and and selection in
§§ 87(3), Regulations, (Can.), http:// 76(3), Protection SOPJ2002-227, available 109 at
www.canlii.org/en/ca/laws/regu/sor-2002-227/latest/sor -2002-227:html.
EASTON
(4th 2010). ACCOUNTING ed. •-26 See D. MBAS PETER FINANCIAL 99 FOR AL., ET
[Vol: CONTEMPORARY 19:231 246 LAW TRANSNATIONAL • PROBLEMS
treatrrlent accounting financial is render which the that will
misleading. 10o statements not
recently, the ("SEC"), U.S. Securities Exchange More Commission in and
Congress by Sarbanes-Oxley 2002, mandated the of outlined Act report to lol
a
accounting standards: future for vision its
minds, optimal concise standard involves In
a our an
substantive accounting principle of the where statement
accounting objective appropriate has level been included at
an
integral specificity and of standard of where
the part
an as
exceptions few, if inconsistencies conceptual
any, are or
Further, in standard. should included the standard such
a
guidance provide implementation of appropriate amount an
given and
of the transactions of the class events nature
or
Should
bright:line, Finally, devoid of standard be such tests.
a
with, coherent should be consistent from, and derive
a
conceptual financial framework reporting. of 10•
SEC has this approach standard-setting The labeled financial to
"objectives-oriented, marked literal which stands the in
''1°3 to contrast
approahhes characterize written rules adherence formalistic that law. to to
Ordering Vocation: Actualizing 2. vs.
the
system
ordering legal setting An itself characterizes "rules of the
as
society ft•nction conception game" allow that and flourish. of This law to
recognizes of personal individuality; freedom the value and allows it
whatever obligate. optional does does forbid and it whatever it makes not not
particularly law, Modern Western markets in enshrines that and
free
age
an
constitutionally-protected paradigmatic liberties, civil the represents
:opposite ordering legal At the GAAP end of the has system. spectrum,
a
quintessentially actualizing It aspire accounting foster does not to purpose.
diversity, but
standards facilitate and to set transparency to
common
comparisons
meaningful periods. Indeed, between firms and fiscal the 1°4
ACCOUNTANTS, INST. AM. § CERTIFIED PUB. PROFESSIONAL CODE (1988), CONDUCT 10o 203 OF OF
www.aicpa.org/aboutJcode/et_203.html. available at
Sarbanes-Oxley U.S.C. of (2002). § 7218(d) 2002, Act 15 lol
U.S]
COMM'N,
SEC. & STUDY EXCH. SECTION PURSUANT lo•. 108(D) SARBANES-OXLEY TO OF THE
ACT STATES UNITED 2002 ADOPTION REPORTING SYSTEM FINANCIAL OF THE ON THE BY
OF A
SYSTEM, PRINCIPLES-BASED ACCOUNTING Summary (2003), http:// Executive available at at
www.sec.gov/news/studies/principlesbasedstand.htm.
Id. i03
See 99, EASTON 1=26. note AL., at ET supr a
2010]
Winter LAW. FINANCIAL ALCHEMY 247 IN
witnessed history modern accounting of ever-increasing has standardization,
including development of the accounting international standards. recent
law,
In Western
sharia actualizing
contrast, constitute to to
appears
an
legal order. typically It compzeher•sive is described "a for code of conduct
as
orbits, social, Muslims political & in their economic placing
with ''•0s less rules
rights
emphasis
individual and
community
welfare, lo7 upon upon more
Nevertheless,
that closer both reveals sharia look
law and Western
a
primarily
S•haria Ordering places function.
strong
value
serve an a
upon
freedom
religion,
freedom of of and
and 10s contract enshrines •°9
a as
fundamental principle law
permits whatever the that does it forbid. not 1•o
While provisions strike of its Westerners intrusive
and
some
may as
draconian, "easy" "light" describes Islam itself and religion follow, and
to
a as
developed (bringing doctrines ease) the of taysir has al-haraj raf and
legal
hardship) (removal guide of interpretation. These doctrines reveal to
111
importance although recognizes that Islam brings, of good the the law and it
essentially regulations it rules nevertheless views and as Sharia
onerous.
developed (continuity), imposes also doctrine of istishab the which burden the
proof
change seeking law, of
further and thus the hinders to
upon anyone a
promulgation ordering
of sharia's The rules. vocation finds
clear
•2
new
a
the expression Quran itself, in which states:
by. obey limits Allah. Those who Those Allah and His set
are
Messenger will flowing be admitted Gardens
with rivers to
therein
ever) beneath, (for abide that will and be the to
disobey achievement. those Allah But v•ho and His supreme
Messenger
admitted and limits will be His transgress
to
a
to Fire,
humiliating they therein: abide And shall have a
punishment.
'2imitg'
Islam
views
The of essentially the reveals sharia that
term
use
as
boundaries setting collective, for endeavors, individual and rather than
45-46.
lOS.See, COOK 54, ETAL, note at e.g., supra
Faruqui, Mahmood Demystifying Islamic Proposition, 34, the Value SHIRKAH Finance 35 10• 1
http://www•shirkah-finance.com]Shirkah%20n%2001.pdf. (2006), available at
Morgan-Foster, Universality Perspective Jason Moderate A New the Debate: Reverse lo•
on
L. 'Relativism (2003); Context, ILSA COMP. Islamic & 35, J. in the INT'L 54-57 also 10
see
Badr, Bassiouni & 71, 158-59. note at supra
KAMALI, Quran
('%et also 68, 74-77; be trade 66-70, there 4:29 los note
at
among supra
you see
consent.'•.' by mutual
Quran compulsion religion.'9. ('•here 2:257 in is •o• no
KAMALI,
68, 72. note •lo at supra
Id. 70-74. at m
HALLAQ, 74, 113-15. • note at supra
Quran (emphasis added). 4:13-14 •
[Vol. CQNTEMPORARY 19:231 •z 248 TRANSNATIONAL LAW PROBLEMS
given
exhaustively people conduct how in regulating themselves must any
situation.
..
Halakha, actualizing vocation. in The reflects Torah contrast,
an
principles establishes the continuous and that foster structures
numerous
no•es, promulgation body of As law. consists "a of halahha scholar 1•4.
one new
in-the-process-of established for being of and standards established
Notwithstanding diversity considerable behaviour. communal of the ''115
diversity opinion Jewish within do practice, have law and and autonomy not
prominence Islam;. ready equivalent scripture no the Jewish in has
same as
•eligion
canonicalprinciple "[t]here compulsion Islam's that is in 'ul• to
no or
"[d]iffere•ce Community
opinion my that. of people. is for in "n7
mercy my a
liturgy, daily, shema, exhorts '•ou The the twice in Jews holiest the prayer
the.yearnings
hearts will follow after that of and lead not your eyes, you your
theology---celebrated "freedom" The word Jewish with in astray. ''•s very
during festival--refers annual Passover the great not to
ceremony an
ability right wishes, individual's fulfill do but she he rather the to to
as or
myriad commandments. obey God's the laws that To Jew portray
119
must
a as
the long burdensome been with of has associated the heretical Biblical views
swallowedup by ultimately Korah, villain himself his followers who and
saw
that, fundamental the All these halakha's earth.•20 features suggest most at
society. Rather, level, collection does characterize of it limits law
not
as a on
:collecti0n society goals law is characterized of members of which all
to as a
aspire. must
Hypotheses C.
facie, legal interpretive tradition's method and Prima vocation
suggest
a
interest-avoiding regard should tradition how transactionslike the the
iska, sale-and-leaseback, heter murabaha, formalist service A charges. loan
or
ordering law, generally, sharia, of like accepting should and the most
prove
transactions, approach general restrictive such its due in toward law and to
emphasis of substance. its form the At other substantive and
extreme, over a
note87,
K/RSCHENBAUM, 9--15. at 1•4 supra
of Ethics?; 2•hy Review Newman, (2003), Robert Louis A Gibbs J. TEXTUAL REASONING u5 2
http:[[etext.lib.virginia.edu/journals[tr/volume2[newman.html. available at
Quran 2:256. •
of various Islamic law the Haddad, G.F. hadith, that For list this
in n•
report
som-ces
see
a
Differences Madhhab http://www.livingislam.org/ Islam, ISLAM, LIVING in 1996, 5, Dec.
mdf_e.html.
Numbers 15:40. n8
SOLOVEITCHIK, FESTIVAL JOSEPH HAGGADAH FREEDOM: P.
ESSAYS PESAH n9
54
OF THE
ON AND
(Joel Wolowelsky Ziegler eds., 2006). & B. Reuven
i6:1-40;
JEWISH Morris Jastrow, also (1901), al., Korah, Numbers Jr. ENCYLOPEDIA in •20 et see
http://www.jewishencyclopedia.condview.jsp?artid=362&letter=K.- available at
2010] Winter 249 FI•VANCL•L ALCHEMY LAW IN
accepting
law, prov• actualizing GAAP, like of should the least interest-
schemes, difficulty interpreting avoiding existing law rules little has since the
creating and and/or rules formalist novel situations. A
to
cover new
actualizing tradition, halakha, intermediate like the Due represents
an
case.
interest-avoiding formalist tend take.
orientation, .its would also it to to
would"accept transactions value, them. its However• thus face and at
jurists propensity legal promulgate easier, for for innovation makes it .to
new
interest-avoiding regulation rules that extend schemes and other interest to
developing
fina,nciers •Of
respond by interest-like transactions.
course, may
increasingly
creating complex rules, these avoid schemes of
tug- to
sort
new a
e.xplains, Eventually, acquiesce, of-war. lawmakers E1-Gamal the since
as
increasingly jurist "lilt complex impossible all of is for the those stop to
ruses
supportable sales, banning clearly be which without credit would spot not
or
a.nalysis."l•• Therefore, cost-benefit overall, social the in would
expect
.one a
actualizing recognize simpler forms of formalist and tradition interest not to
increasingly avoidance, complex schemes. but accept to
ordering legal law, substantive Western A like modern and would system,
ordering likely adopt approach. different vocation The militates
very a
expansion hand, other against of law. On the wholesale substantive
a
regulation judges beyond interpretation look of interest invites the to text to
regulation objectives. approach applied that This will its interest be suggests
interest:avoidance contextually. particular Thus, transaction be
may a
Circumstances depending acceptable others, whether in but in
not
some on
of regulation situation. .question the aims kind in address .that to
HYPOTHESES IV. ASSESSMENT THE OF
popular of the schemes that have taken A review interest-avoidance most
validity explored confirms the of the the four in this Article in traditions root
hypotheses general, previous sharia has section. the In the raised in most
interest-avoiding schemes; GAAP permissive approach has the least to
complex schemes, approach; permissive halakha but the tends accept not to
approach--strict simpler and law takes contextual in
Western
ones; a some
situations permissive others. and in
Sharia A.
Quranic jurists strictly holding riba, ban have Islamic construed the
on
including paid debt, inflation that inclndes it interest
any on a
numerous notwithstanding adjustments. against fulminations However, 122
E1-Gamal, Jurisprudence of Mahmoud A. Financial the Incoherence Contract-Based Islamic in 121
(2008) of [hereinafter E1-Gamal, Financial Engineering, Age 605, WIS. INT'L L.J. 620 25
Incoherence].
Judgment Supreme Interest, 106,
Court of 7, See 180-88. Pakistan note •2 supra paras. on
CONTEMPORARY [Vol. !9:231 250 W.& TRANSNATIONAL LA PROBLEMS
jurists "schemes, ultimately sharia be
''123 "ruses" and have to
proven
transparent
interest-avoiding of remarkably accepting the most
even transactions.
beginning Article, this of purchase, home discussed Ahmed's the at
very
ajil, purchase bai' commissioned resale and bithaman represents at
a a a
popular banking Islamic if mark-up. is of the the It
most, not
more, one
virtually financing indistinguishable from standard and transaction is 1•4
a mortgage:
Ai-Ba•"
Ajil, delayed sale with is the Bithaman payment,
or
accordingly analogue finance, interest closest Islamic and to
universally employed of has finance vehicle been
as a
throughout history. Islamic Nothing dictates Islamic law in
simply .is price how for determined: the such sale is it
a
parties nothing Therefore, [have] agreed whatever the
upon.
period linking price from the seller the sale the of prevents to
for.which time credit extended, is le5
at
ajil does, problem: inception however, bithaman bai' The the
pose one
scheme, of object commits that the she he the. financier sell does
to not
or
an
permitted provision generally under sharia Such is contract yet not own.
a
intermediary However, trade opinion law. Maliki school allows, .to
l•s
a a
binding purchase promise from item obtain his her the to
customer
a once or
acquired.IS7 throughout world, adoption opinion Muslim the The of this
Malaysia including peninsula, the Arabian regions non-Maliki of and the in
commercially ajil made the bai" and related transactions viable bithaman
forms of banking. Islamic
ajil closely resembles bai' bithaman murabaha The another the contract,
purchases finance, transaction popular Islamic in financier which in
a an
object pre-arranged mark-up. Pakistan's Federal resells Shariat and it •9 at
a
approved explicitly decision, landmark Faisal Court murabaha the in its
although
characterized '%orderline it should it transaction" used that be
as a
equity-0riented
only partnerships when available. not are
4-6.
E1-Gamal, Incoherence, 121, note at 128 supra
THANI 11, 38. 124 AL., note at ET supra
Id. 39. at •5
EL-GAMAL,
FINANCE, 66; ISLAMIC 2, THANI •2• 39. 11, AL., note at note at ET supra supra
EL-GAMAL, note FINANCE, 2, 66-67, ISLAMIC 98. • at supra
•do 128
EL-GAMAL,
FINANCE, 67-68; ISLAMIC 2, also THANI
•8• 11, AL., note at note at ET supra supra see
57-58.
0f Supreme Judgment Interest,
Court Pakistan 7, 227.. •0
note supra para. on
2010] Winter
FINANCIAL ALCHEMY LAW IN 251
Another
transaction, bai' related the
al-•na, has
proven
more
controversial.
scheme, the
this In borrower
sells object
for cash and
an
immediately
repurchases mark-up it for
credit.181 The
bai'
a al-•na
o•
generated
considerable discussion
early Islamic
jurists,
among of
many
whom--particularly the Hanbali in and schools--eventually Maliki
proh.ibited
it grounds it the that constituted
circumvent ruse.to the ban on
a
However, riba.182
transaction the allowed by
the Shafi'i school,
on which was
dominates Asia, Southeast in become has and
widespread
transaction with a
Islamic Malaysia.Inn banks in
murabaha,"
"reverse
The also known
tawarruq,
constitutes
another a as
ostensibly controversial form of interest-free f'mancing. In this scheme,
the
commodity purchases borrower credit
sells and it the
bank for to cash, a on
•res611s whereupon immediately
the bank it the market.•84 spot
These on
multiple commodity transactions effected be almost instantaneously
can
through
brokers, particularly
the if bank for all acts agent the
parties
as
involved; physical underlying
of the commodity movement
need take
no
place. The virtually end identical result lending, is 18• unsecured
to the with
difference between constituting
prices credit the and spot the
facto de
interest:
Although
jurists of have number criticized
the strategy,
a
some
scholars of the schools, situations, Hanbali allow certain it in and tawarruq
fastest-growing become has of banking Islamic products the in the Gulf
one
region. 136
Th•
ijara generally has controversial, although less contract its
proven
incarnation modern opinion relies another Maliki make it to
upon
commercially
purchases ijara, feasible.
financier object In the the (either
an
from
personally
borrower party) the and third then
it the rents to
or a
financier The borrower. commits give object also the back sell the 1•7 to to
or
contract. borrower expiration of rental the This again clause terminal •s8
upon
raises problem financieris the that making concerning the
contract a
THANI
EL-GAMAL, ISLAMIC FINANCE, 68-69; 11, 2, la• 70-71. ERA/.., note note at at supra supra
Id., 132
AL.I
Sanusi,
THANI Rosly 11, generally Saiful Mahmood 68--69;
Azhar & 133 at note
ET
supra
see
of Some Bay' (2001). Malaysian al-'Inah Issues L.Q. Islamic Markets, Financial in ARAB 263 .16:3
EL-GAMAL,
FINANCE, ISLAMIC 2, •34 70-73. note at supra
classical See (discussing id. the of voids 69-70 how the • transaction at structure tawarruq
a
entity restriction from Issues parties); acting Fiqh Academy trading
for both agent OIC
on one
as
http:llinvesthalal.blogspot.comJ2009105loic- Tawarruq Ruling Fatwa Shari'ah-Compliant, Is Not
fiqh-academy-issues-fatwa-ruling.html (May PST). 2009, 20, 16:09
EL-GAMAL,
FINANCE, ISLAMIC •s3 2, 70-73. note at supra
THAN] 11, •37 AL., 44-49. note ET at supra
Id. 18s
LAg•r•.CONTEMI•.O.RAt•Y
]•9:23'1 IV01. 252 TRANSNATIONA'. PROBLEMS L
the-Maliki something However, does she that he believe
yet
not 139
own. or
dncertainty against prohibition .apply. does such that the contractual to not
gifts, financier enforceable which the commitment make that
means an can
of end• gratuitously object the ijara the borrower remit the the at to to
world, throughout adopted This been Muslim opinion has the term. 140
including regions peninsula, Malaysia Arabian non-Maliki the the and of' in
ijara increasingly popular financing become and
ha 1•1 arrangement. s an
legality espe.cia!ly murabaha,, .bithaman ijara, bai• .and ajil, of The the the
permissiveness
surprising regionsreveals bai" and in al-,•na tawarruq,
some
a
interest-avoiding
Islam towards scholars Many in schemes. Muslim lament
proliferation characterizing
financing the of them .these products,•
as
departures of•Islamic and from ideals formalist However, finance. the the 142
ordering attitudes Islamic little
critics with. of leave law these
recourse.
the.Muslim
Ultimately, developed through broad has world that
consensus a
comply spirit---and, transactions these ff sharia--in do with in letter not
are
trade principle Quranic by lawful."l•3 allowed the that "Allah made has
Halakha B.
predicted hypotheses, rec0gnizethe does
As Talmudic in the law not
i• cgmplex simpler interest-avoiding trar•sactions, the but does •accept
more
legislation credit-extending •.number banned, of Rabbinic
wide ones.
a.
d'rabbanan, of ribbit scenarios the which
makes most
common as
rule, general unacceptable. finance transactions in Islamic merchant :As
a a
for charge prices cash, different advance sales. credit,
payment not 144 may
or
effectively of differential The prices lack between cash makes the credit and
a
bithaman al-'ina• .murabaha, currently .bai'. ajil, bai" and tawarruq,
as
interest-avoiding practiced, ineffective TalmUdic law. vehicles under 145• as
ijara However, sharia allow Halahha both the and rental 14• contracts.
banking legality Islamic used in has due in halakha the dubious contract •to,
conclusion promise item remit the the the of the borrower to to upon
Id. 48-49.
1•9 at
40 APPROACH
(2004). KHORSHID, ALY ISLAMIC ISLAMIC MODERN A INSURANCE: BANKING 1•o TO
THANI 11, 44-46. 141 at note ETAL., supra
2003, See, Banking ISLAMIe-FINANCE.COM, Islamic Islamic, Diwany, Isn't Tarek E1 June •
e.g., http:flwww.islamic-finance.com/iteml00_f.htm.
Quran 2:275. •
REISMAN, 43, 114-15. at • note supra
the
incidentally, also, It billing forbids "2/10 States.
Id. 30" in the United practice • net
common
120-23. at
halakha, Under purely borrows the for the of certain of cash ff
•
amount
person purposes a a
display, provided demand that the returned. the lender Id. identical cash is rent at 19596. can
FINANCIALALCI-tEMYINLAW 2010] Winter 253
by
raised cdntract. 15ossible
jurists One solution mixed Talmudic is sale- 147
a
lease, agreement,..in object purchases which the question financier in and the
back,
fraction=by,fraction, sells purchaser. the it scenario, Under the this to 14s
•he financier properly remaining charge for of its
rent
can co-owner use
fraction. ijara, similar layer result is The but with
added of
149 to
very an
m•xed complexity brought co-ownership by the introduction of. and
on
purchase-rental .payments. 15o
makes
Of
banking
Islami also considerable mudaraba the contract,
c
a use
Par•nershi equity form of
in Which provides capital the' financier,
to
p
an
for profits business, according entrepreneur shared fixed with to
to
use
a a
(typically each). law, percent Jewish this kind of percentage Under 50 151
u'palga is called palga pikadon ("PMUP") milveh and is contract
investment characterized from the financier and 50 percent percent 50
asa
However, 10an the relationship lender-creditor because entrepreneur. to 152
a
parties, exists provide between the free the entrepreneur two
cannot
any
financier, including managing services to-the her his without
money, or
violating Consequently, the ribbit. of only law the PMUP if 1•3 muster
passes
managing salary, financier usually the
the fixed
partner
at
pays
one a
additional.level, complexity dollar,154 which required is of by sharia. not 1• an
halakha,a
Under
PMUP profit level of the guarantee contract cannot
or
principal.i•6
However• parties of the the include repayment clause
even
can a
stating expected profit, the recipient level of and allow the of the funds to
profit the that of return of financier lieu the actual in amount net to
the:recipient
If of income: the funds wishes claim loss lesser level 1•7
to
a
a or
require
profit, of the PMUP him take Jewish
solemn oath before to
may
a
a
highly produce the entire impractical and/or
of number court synagogue, or a
Id. 245. 14• at
Id. 248-50. at •
REISMAN, 43, 248-50. • note at supra
A kind similar bai', transaction, ijara of also the thumma in exists Islamic finance. •0 very
THANI
11, 48-49. AL., note at ET supra
• See EL-GAMAL, id. FINANCE, 49-52; 120-.23. ISLAMIC 2, at note at supra
REISMAN, 43, '379, 391. • at note supra
•S.Id. 383-84, 394. at
Id. 379-80. at •
"salary" entrepreneur's Id. The Ottoman possibly afoul code
the rule in. the civil of •
runs
('2Ylejelle")
that compensation from entrepreneur's profits limits the THE See the to venture.
MEJELLE: EL-AHKAM-I-ADLIYA BEING ENGLISH AN COMPLETE TRANSLATION MAJALLAH
O]•
AND A
(discussing (C.R. Tyser CIVIL CODE ISLAMIC 1967) LAW al. the of 236 section trans., 1426
et OF
Mejelle).
REIsMAN/supra 43, 391-92. • at note
392-93.
Id. 390, at •
[Vol. 254 19:231 CONTEMPORARY TRANSNATIONAI•LA.W•¢ PROBLEMS
refrain testify traditionally Orthodox Since witnesses the loss.. I•S Jews to to
oaths taking fear.of taking from Lord's inadvertently solemn for the in
name
effectivel•
vain, clause" fixed-return the. "oath PMUP into the converts
a
forms, iska, known heter iska. The various allows in the heter contract 159 as.
interest,bearing and. of interest-like Jews in number
to
engage a
transactions, for essentially all-purpose has vehicle and become
an
circumventing prohibition of of proliferation the ribbit. heter fska the The 1•o
tradition, law,. formalist how. and-actualizing Jewish reveals takes
a a
permissive
approach interest-avoiding..transactions they reach to
once a
level certain complexity.. of
...
C. Western Law
As hypotheses, predicted law the in both and civil have
common
developed deciding particular approach contextual of ensemble whether
to a a
effectively transactions non-interest. Whether interest into converts
a
particular payment-constitutes depends precise legal interest the less form
on
relationship of parties, transaction, the and the the between their
more on
underlying objectives regulation intentions, of that the and the the
transaction circumvents.
Under approach law, contextual dates back the the to
common
Elizabethan-era Tanfield Finch•6•.. of Chief where Baron Bell
case v.
explained long-term purchase, annuity lease, such that scheme
a as a an or a
"usury" parties-had sale of land previously constitutes the when rents
communicated Subsequent formed intent make and loan.
to 1•2
a common a
jurisprudence
approach applied forms variety of of other this interest-
to
a.
interest avoiding by ultimately concluding transactions, created the that is
the of parties, intent formal of the the 163 structure contracts. not
focus today, This remains intent in by illustrated the law as
on common
leading Co., sales, Boerner Colwell of credit the the issue where
164
v. case on
Supreme California the Court observed that:
constitutional and Although provisions dealing the
statutory
•erms
speak only with "forbearance" Of "loan"
in usury
a or a
158
159/•d,
McIntosh, Visser • 9, 177-78. IBO note at supra
Finch, Tanfield (1588) Rep. (•LB.). Eng. 78 1• 293 v.
JONES, 21, • 119. note at supra
•Id. 120-21. at
(Cal. Co., Boerner 1978); Co., Colwell P.2d also Mission Services
Kunert Fin. 577 200 •
v.
see v.
App.
Cal. (2003) (noting subject that 242, 4th 110 loans 249 and Constitutional statutory to are
usury). restrictions on
2010] Winter ti'INANCIALALCHEMYINLA.V• 255 :..
value,
of things other,
of the alert the courts, to money or
fashioning
resourcefulness of. lenders in transactions
some
the
designed law, have looked evade the substance to to
usury
assessing form ofsuch than transactions rather the in their
validity, effect and in have and
struck down
many cases
as
bearing usurious little facial resemblance arrangements to
thought
normally "loan'.' what is "forbearance" of of
a as a or
such In whether issue is all
the the
not
money. cases or
bargain light of parties, assessed in the of the all
circumstances and form, view substance than with rather to a
object
has hire of its excessive of the
true
at rate
money an as
interest. requisite existence The of always intent the
is a.
question of fact. 16•
Court
Appellate Supreme Division York The of the New took similar
a
approach seminal Co. the Relin, of Archer Motor in which involved
case v. a
appended service'charge
credit sale of automobile.166 Court The to a
an
unanimously that: concluded
broadly been of It stated sale has "A merchandise that:
on
credit
[is one] application." which the laws have
to
usury
no
However, pretended doubtless it if that, goods is of sale true
a
underlying
loaning is made the scheme for
money
upon usury,
the vigilant judge the will be by transaction real its courts to
by than character the form color parties rather which the and
seen have give fit it. 167 to
Canadian analyzing also approach take contextual when courts
a
interest-like
For transactions. example, for income
whether tax
purposes, a
depend relationship mark-up credit interest sale the constitutes
s upon
parties between prevailing conditions. economic Supreme the and The Court
principle Canada of
of demonstrated Minister this in Revenue.v. National
Groulx,
.long-term finding sophisticated by credit, sale that made
a a
above businessman price
considerably implicit included market value
at
a an
interest
The Revenue Agency has attempted apply Canada component.
16s
to
a
to approach similarly ijara-like sale-and-leaseback conteXtual contracts:
a'greement
A involves sale-leaseback separate two
transactions; the prospective sale of the the property lessor to
original subsequent and the lease of the the property to
Department's the In of such respect
agreement, owner. an
204-05
omitted). (internal Boerner, P.2d citations 577 at
(N.Y. Relin, Archer Motor Co. 1938). N.Y.S.2d App. Div. 469, 8 470 v.
(footnotes omitted). Id.
Revenue
Groulx, (Can.). Minister of Nat'l [1966] C.R. Ex. 447 v.
.[Vol. e• 256 CONTEMPORARY TRANSNATIONAL PROBLEMS 19•231 LAW
principal ensuring, is of what in that rep.ayments
concern are
borrowed Charged against funds being substance in not are
Where i§ of that •intent it the income tri•e apparent rent.
as
money
parties security lessee of the borrow is that the the
on
in
the is loan arrangement substance property, agreement
a
strongly price of indicated Such intent •where an is the sale
from substantially is" the different fair its market property
sale-leaseback determined value Where is agreement
a
arrangement,
considered be a.sale ofthe loan is property•
to a
place taken lessor lessee have and and
the to not are
res..pectively be
borrowe Considered lender with and the
to
a a
r
principal dealt with being of and payments
account on
of readily interest. total interest is The ascertainable amount
difference by computing the between the advanced amount
repaid. and total be the 169 to
one
law's particularly of illustration approach ironic contextual Western
interest-avoiding Haft transactions Nik•Mahmud Dato' in bin to
appears
Malaysia Malaysia, originated Islam Berhad. Daud Bank in The
lvo
v.
case a
predominantly and population large, with common-law Muslim country
a a
federally-regulated banking industry. Malay Islamic involved Bin Daud 171
a
developer bai' engaged financing who bithaman transaction ajil in with
a an
Bank; immediately repurchased land for Islamic sold his RM he and 000 520
sale, however, for credit. violated it RM The purported land 629 the 17•" 200
on
forbids Malay Enactment,173 effectively Kelantan Reservation which ethnic
Malays selling land non-Malays. Lumpur from their Kuala Court The of to
upheld unanimously Appeal the ajil decision that bithaman trial bai" court
violate reservation did since transaction the land the did statute, not not
!and. involve transfer of transaction of the. the In the court, true 174
any eyes
interest-bearing for law, of constituted but debt the land
purposes an a non-
interest-bearing banking for transaction law. 175
Bulletin
Interpretation
C{•stoms Agency,
"Lease-Option IT-233R, & Revenue Canada
16•.
Sale-Leaseback Agreements; (Feb. athttp://www.cra- Agreements" 1983), available 11,.
arc.gc.ca]formspubs/prioryear/it2S3r/it2S3r-e.pdf. Agency The withdrew the bulletin June 14,
on
then, of such CUSTOMS 2001; since the transactions remains unclear. CANADA See & status
http://www.cra- (2001), AGENCY, TECHNICAL NEWS: REVENUE available INCOME TAX NO. 21 at
arc.gc.ca]E/pub/tp/itnews-21/itnews-21-1p-e.pdf.
Haji Daud Malaysia [1996] Berhad, bin Dato' Bank Nik 170 Islam Mahmud M.L.J. 295 4
v.
(Malay.).
generally See THANI 11, note at 1. 17• AL., ET supra
Daud, M.L.J. Bin 295. 4 • at
(discussing Malay 7(i)). Id. § Enactment, Reservation 1930, 302. the Kelantan 1• at
Id. 296, 304. • at
See id. 302. at
2010] Winter 257 F•VANClAL ALCHEMYIN LAW
Civil
featt{red considerable .jurisdictions flexibility law also have when
concerning recognized applying jurists laws law "interest." long Civil have
interest exploitation. regulation seeks forms that of As economic prevent to
Centuries, legislative (and, the early 12th and 13th various France
as saw
judicial) rarely, and initiatives rental against sale "usurious" more
GermanylT•and Quebec The modern civil codes have 1•6 of both 17s contracts.
regulations---under concerning."good subsumed morals" interest broader rules
and respectively--making "lesion"i particular of question .whether the
a
.virtu'ally constitutes interest irrelevant. payment
Pdtrement Quebec Yaya (Cregesmo)• A
illustrates the recent 1so
case, c.
approach contextual financing characterization the of transactions. The
to
who
C$2500
sold involved his for
and finance
to
case car a company man
a
rental C$175 for back Typically, rented week it year.•Sl
contract
one over a a
Quebec law, reviewing under judges considered exploitative loan arid is
not
a
provisions have typically referred code rental concerning abusive to contracts
Amyot however, Yaya, declared, in of adhesion: In Justice clauses Contracts •s2
elaboration, l'esprit doute, Tribunal, dans "I1 fait without
du
any ne aucun
qu'il s'agit d'argent pr•t d'abord d'un"
de de assorti tout. contrat et avant
•le
simplement garantie de d'un location then He v•hicule. "•s8 et contrat
non
groands, including
declare several the null the
contract went to on on
RI•VOLUTION FRANQAIS .• OLMER-MARTIN, ORIGINES HISTOLRE DROIT 279--80 FR. •76 DES DU LA
(2000).
Bfirgerli•hes
[RGB1] Code] Gesetzbuch [BGB] [Civil Aug. Reichsgesetzblatt 18, 1896, 195, •
as
§ GERMAN amended, ¶
BASIL MARKENSINIS CONTRACT: 2; also THE A 138, LAW AL.,.
ET OF see
(2d 2006). COIVIPARATIVE ed. TREATISE 250-53
COMMENTAIRES
QU•.BEC,
JUSTICE, CML M_INISTRE JUSTICE: LE DEP'T
CODE
•76 DE LA DU OF
DU
ART. QU•.BEC (1993); Poudrier-LeBel, R•gles Louise G•n$rales du Les Me de Pr$t 2332 Contrat
(2007). D'Argent, COLLECTION CONTRATS,
OBLIGATIONS DROIT For 281, in 281-85 5
ET DE an
at.3.0-32...
perspective, COULAZOU,.supra 15,. older French note see
Franq0is
T6th, Option Ddcision Consommateurs Service See,
Commentaire la
•
e.g., aux
sur
c.
Finance)--Fra/s (Household Contrat Marchands D•tailIan•s Limitde dans le de Retard P•nalitd et
[Commentaries Prbtection Decision Loi la de Credit Sourn•'s du Consommateur & :the la
sur
on
Finance)--•ExpenSes Option (Household Retailers and Service Limited Penalties Consumers to
v.
REPREES, Law], Aug. § Delay Credit Consumer-Protection 2003, Under the Contracts for in
http://www.dcl.editionsyvonb]ais.com]app/dclrejb/dclrejb/dcl_welcome? HI(D), productname=dcl.
•0
(Cregesmo), (ct. [2006] Quebec) (Can.).
Yaya P•trement J.E. 2007-242 c.
Id. 11-13. •s•
para.
Tiffany
Leasing Quebec [1998] Inc., (ct. Location REJB See,
1998-07430 Inc. 3088-6022 •8•
e.g., c.
(Can.). Quebec)
opinion Court, doubt, in of that is first the '•There foremost the this and is to
contract •8•
a no
agreement." [translation author] security Yaya, simply by and rental lend with
not money a car
3i. JE 2007-242, para.
[V01. 19:231 CONTEMPORARYPROBLEMS TR/2FSNATIONAL •. 258 LAW
aid
the
interest issued criminally fagt of lender the usurious the that rate ls4
provincial license, "loan" without ls5 a
transaction
riba/ribbit particular halakha, sharia and either In creates
a
such .factors reference the the broader without contextual
not,. to
as or
parties. whether law,. of the subjective In Western
intentions in contrast,
a
f•ct
•remains creates question particular largely interest of that transaction
a
which apprais light of of in. factors, the broad of judges
e
range a can
part.
Constitute.
transacti0P contextual formalities of This
but the
one
Western subStaritive 0rd•ring law'• Vocation with consistent approach and is
legal interpretation. of methods
demonstrates predicted hypotheses, .the willingness GAAP the As in
least
to interest-avoiding transactions accounting face
value. Numerous accept
at
Standards)
('XAS" ("SFAS" standards, international American both and
transactionsappear
financing Standards), mandate that financial
on
regardless legal interest-bearing debt form. This of their statements
as
particularly principle found which expression 32, IAS has in strong lss
a
the effective of. accounting method for the mandates, interest
any
use
right "contractual cash from another receive financial another to
asset
or
Interest-avoiding-transactions long-term of entity. credit that make. "•s7
use
potentially differentials, the murabaha fall within such and all tawarruq,
as
provision. of this the scope
example, standards specific Other address of For IAS transactions. types
both
leases, SFAS deal treating purported require and 13189 with .17 and •s8
a
interest-including substantially ".transfers credit when it lease sale all
as an
and
of
incidental rewards ownership the risks ijara The "1•° to asset.
an
ownership transfers end since it of of the the the contract, term, asset at
qualify requiring under would therefore both standards lease
a as
capitalizat•on.l• arrangements, Sale-and-•epurchase like al-•na, fall the bai
34, Id. 40. •s4 paras.
Id. 36--39. • paras.
Plus:
http://www.iasplus.com/standard] IAS IAS Financial Presentation, 32 Instruments
•s•
[hhreinafter (last 32]. 2010) ias32.htm 27, visited Jan. IAS
COOK 54, 348. AL., note •s7 at ET supra
http://www.iasplus.com]standard]ias17.htm Leases, IAS LAS Plus: Jan. (last 27, visited 17, •s
[hereinafter 17]. 2010) ][AS
BD., See I•IN. STATEMENT NO. STANDARDS ACCOUNTING FIN. ACCOUNTING STANDARDS 13:
• OF
(1976), http://www.fasb.org/pchYfasl3.pdf. available ACCOUNTING LEASES at: FOR
IAS COOK 188, cited 17, in 54, AL, note 458. •0 at note ET supra supra
Id. 462-63. at •
2010] Winter
I•'INANCIAL 259 LA ALCHEMY W IN
which within IAS 18192 SFAS accounting require and 49,19a both for the
interest-bearing transaction
loan Furthermore,
sale. rather than 1•4 as
an
a
IAS SFAS and 321•5 pertain 1501•6
distinction the debt between and to
determining "[i]n require equity, that, and classification equity the between
and liabilities substance takes precedence
legal form. Interest- "1•7
over
avoiding
transactions .that to equity purport be investments--like the
heter
(in iska "profits" the where mudaraba
the
guaranteed)--must
or cases
are
therefore the balance interest-bearing sheet
appear
debt, they since
on
as
transfer unconditionally oblige
the of funds from
the party other. to TM one
r•cognizes
Ultimately, virtually GAAP interest-avoiding of the none
commonplace transactionsthat have become sharia in halakha. GAAP's
or
interest-avoiding through tendency look transactions meshes with its to
actualizing interpretive method vocation. This substantive and systematic
important non-recognition served driver doubt for has the
an
as no
development accounting standards "more appropriate" of alternative
seen as
for institutions. financial Islamic •99
V. CONCLUSION
exploitation misery, of lead and all virtually thus and Debt sorts to
can
regulate promulgated legal that order interest has rules and rates
every
relationship. hand, creditor-debtor •he other On other .the of aspects credit
raising integral forms of the efficiency the basic
part
most
economy, even an
surprising, hardly therefore, production consumption. of It and that
seems
developed ha!akha, legal sharia, law, civil law, and GAAP all have
common
]ending spite facilitate of the frameworks restrictive and devicesthat in
regulations. largely produce results--Alex These mechanisms the gets
same
heter
bai' iska,• loan,.Ahmed ajil, Aryeh his bithaman three his his and all °
Revenue,http://www.iasplus.comYstandard]ias18.ht
i8, (last Jan. 27, IAS IAS visited Plus: • m
2m0).
'FIN. STATEMENT BD., STANDARDS NO. 49: See ACCOUNTING ACCOUNTING STANDARDS FIN.
•9• OF
http://www.fasb.org/ (1981), ARRANGEMENTS available ACCOUNTING FINANCING PRODUCT at FOR
pdf/fas49.pdf..
54,
.note Id. COOK 7-8; 568--69. •4 at ETAL, at supra
supr•
IAS 32, 186. note •
NO. 49: BD., See STATEMENT ACCOUNTING STANDARDS FIN. ACCOUNTING STANDARDS FIN. • OF
LIABILITIES INSTRUMENTS CHARACTERISTICS BOTH ACCOUNTING FINANCIAL
CERTAIN WITH OF FOR
http://ec.europa.eu]internal_market/account•g/docs/consoli
(2003), EQUITY available at
AND
datecYias18_en.pdf.
at
COOKET G4, 378. AL., 1•7 note supra
Id. 378-79. •s at
THANI 11, 22-25. • note at AL., ET supra
strains
home" •he it
since
law, purchases Jewish for of iska is controversial in The heter •0o
use
limit. REISMAN, 43, fiction the the 249. note at to supra
[Vol. 19:231 CO•TEMPORARY 260 TRANSNATIONAL • PROBLEMS LAW
next
intotheir
new.homes settle $105,000 have and-
.to year.
pay
men
develop.ed characterize traditions tools actual in the However, the various
to
Article
quite sought .different. illustrate that transaction has This the to
are
fundamental chance, reveal do instead from but differences stem not these
differencesin
interpreted. of attitudes
•he .should on law it be and how nature,
apprbach permissive
interest-avoiding relatively sharia, of the the.
In to
case
interpretation
legal approach formalist and reflects transactions
to
a an
of essentially ordering vocation law.
•levelop .research typology, further Cem similar thi.s and Using test
thorny challenges legal faced other different traditions. by about hypotheses
topics hardship grounds include the void Possibly of fruitful role to
as
a
.unjus involving enrichment claims, issues forms of t
various contract,
or
property.
apply useful It the also :may. matrimonial to taxonomy to
prove
within legal sharia, example, different within each tradition. the For currents
interpretation, legal approach.to substantive and Maliki tend take
to a more
engender formalist Shafi'i differences These different the view.
more can
a
particular problems. legal solutions to
underlying exploration Ultimately, give the attitudes of the that rise to
between legal productive facilitate dialogue differences and
among can more
traditions,
identifying points both and by different the of the cultures
better understanding commonality by difference. of This the and Sources
interest-avoiding sharia, study particular of transactions reveals that
as a
ordering
tradition; formalist different is from Western law and it
not
as as
periods,
through portrayed.
Western often itself is has its formalist law
gone
whichremain of theunderlying .recognition today, and of aspects
bridge help commonalities sharia and only between Western law
the gap
can
legal traditions between these societies and the that them. adhere to