Islamic banking in Luxembourg and the conflict of law
The financial center of Luxembourg, in its quest for diversification away from former niche banking made impossible through automatic reporting, has turned among others to Islamic Finance. Products formerly unknown are listed on the Luxembourg Stock Exchange, Parliament recently authorized the first Luxembourg Sukuk, and private banking based on Sharia is offered by many financial institutions. We are here at the intersection of Sharia and Luxembourg’s secular law. Conflicts will arise, as they do with much closer jurisdictions and legal systems, such as France or Spain and other western law. The victims of Landsbanki and Madoff have brought lawsuits abroad with dramatically conflicting outcomes with the Luxembourg (very slow) courts.
As a matter of thought for Luxembourg banking, the article referenced below by Nicholas H D Foster is well researched and documented about Islamic commercial law in western secular courts. Sharia compliance conflicts are described with UAE, Saudi, Malaysia, and Indonesia.
“The revival of interest in Islamic law prompts a number of questions, including its suitability for the modern commercial world, and the appropriateness of western-style courts for enforcement of the sharia.
This is true even of Gulf states, the regimes of which are based, to a greater or lesser degree, on the sharia. So whether one attempts to follow the principles of the sharia in one’s financial dealings within a Western law context, or one attempts to incorporate rules based on the sharia into a state-based legal system, Western and Islamic legal mindsets come into contact. o as to permit the sharia to be the applicable law of a contract, as it is not the law of a “country” in the presumed intention of the parties” in the context of “the commercial purpose of the contract.
As a conclusion, the author “submits that the answers to the question posed at the beginning of the previous sub-sections are: No and No.
No: the sharia is not inherently unsuitable for the modern commercial world, even if the process of adaptation is not yet complete.
No: with the possible exception of the UAE assignment case, the decisions discussed herein do not constitute instances of secular, Western-style courts dominating and overturning the sharia. There is no inherent or insoluble dichotomy between the sharia as it concerns financial transactions and Western-based legal systems.
On the conflict point, if a secular, say, English, court did find itself in the position of having to enforce the sharia, whether as the governing law of the contract (if this is made possible by the revised Rome Convention), or as a set of rules incorporated by reference, various issues would arise…..
We can see, therefore, that although the apparent problems of adaptation and conflict are actually not anywhere near as serious as they might appear at first glance, the relationship between the sharia and secular law is far from settled, and will be one of the most interesting and significant topics for legal studies over the course of the next few decades.”