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Opalesque Islamic Finance Intelligence

Lex Islamicus: Financial Criminology v Financial Victimology in Islamic Practice By: Hakimah Yaacob

Friday, January 21, 2011

Hakimah Yaacob is an Associate Researcher at the Islamic Banking Unit, International Shari'ah Research Academy (ISRA) for Islamic Finance.She holds a Bachelor of Laws (Hons), Bachelor of Syariah (Hons), a Master in Comparative Laws, from International Islamic University Malaysia and a diploma from Tokiwa International Institute, Japan. Previous positions held include Head of Law Reform & International Treaties, SUHAKAM, legal practitioner, as well as being the Drafter of International Standard Organisation 26000 on social responsibility. She has published many articles on alternative dispute resolution (ADR) in Islamic finance including arbitration, mediation and hybrid ADR.

Laws that directly addressed commercial behaviour were an important part of many ancient legal codes. The Code of Hammurabi dictated the death penalty for many crimes, including theft and fraudulent sale of drink. Law 265 states "if a herdsman, to whose care cattle or sheep have been entrusted, be guilty of fraud and make false returns of the natural increase, or sell them for money, then shall he be convicted and pay the owner ten times the loss". The Twelve Tables of the Roman Republic stated: "If a patron shall defraud his client, he must be solemnly forfeited (killed)". Art 13:3 of Malacca Canon Law punished the offender of selling royal command by committing fraud with scalping the head or splitting the tongue. With the passage of time the study of criminal behaviour has become a science called criminology or offenderology. Only in the 1940's did the world begin to include the victim as a subject for study. This widening of scope resulted from the realization that punishment by itself is not sufficient to deter crime. Since the victim is the other party in any crime, the need was felt to include victims in its study. The aim of this article is to discuss both criminology and victimology from the perspective of Islamic finance.

The term "criminology" derives from Latin word "crimen", which means "crime", and the Greek word "logos", which means "science". Criminology is an independent and autonomous social science that studies crime, forms of criminal behavior, the causes of crime, the definition of criminality, and the societal reaction to criminal activity. Criminology is closer to psychology because it studies the minds and behaviors of criminals as opposed to their criminal actions. Criminologists study a multitude of issues related to crime and the law. Crime is a social phenomenon that is defined by the law, for laws regulate social behavior in a modern society.

The word "victimology" is derived from two words: "victima", the Latin word for victim, and "logos" from the Greek language. Logos is a word with various meanings and is often translated into English as "word" but can also mean thought, notion, speech, reason, proportion, principle, standard, or logic. It has varied uses in the fields of philosophy, analytical psychology, rhetoric and religion. However, logos in the term "victimology" denotes the abstract and conceptual understanding of the victim. The "-ology" suffix in the word "victimology" means "the study of". Thus victimology literally means "the theoretical (abstract) study of the victim". Ideally, it should discuss the central issues of victims.

Criminology would not be complete without victimology. The reason a criminal commits a crime must be linked to the reason for the existence of a victim. This is due to the fact that crime (in particular financial crime) will result in victimisation of an individual. An offender is motivated to commit a crime when there is an opportunity to do so, a suitable target (victim), and lack of a capable guardian and a place manager (Lawrence Cohen & Marcus Felson). Financial crime can be broadly categorised into documentation fraud (security fraud, hedge fund fraud), electronic fraud (phishing, emails, sms and telephone, personal fraud (identity theft, ATM, credit card, debit card) and money laundering (Sirat, S). Types of fraud involving cards can be categorised into counterfeit (duplicating legitimate cards which are then use fraudulently), stolen or lost card (unauthorized usage of stolen or lost card), card not present (unauthorized usage of card information for activities over the internet, phone or mail) and identity theft (obtaining personal info of another person for the purpose of assuming that person's identity to engage in fraudulent activities). The stolen identity will be used for the following purposes;

Source: Federal Trade Commission, quoted from Sirat, S.

These are only limited examples of fraud cases. Victims of financial fraud may be found in many sectors: banking, state and national government, investors, traders and others. The Seventh United Nations Declaration of Basic Principles of Justice for Victims of Crime and Abuse of Power, A/RES/40/34 defines "victims" as "persons who, individually or collectively, have suffered harm, including physical injury and mental injury, emotional suffering, economic loss or substantial impairment of their fundamental rights, through acts or omissions that are in violation of criminal laws operative within member states, including those laws proscribing criminal abuse of power". The Declaration goes on to state: "The provisions contained herein shall be applicable to all, without distinction of any kind, such as race, colour, sex, age, language, religion, nationality, political or other opinion, cultural beliefs or practices, property, birth or family status, ethnic or social origin, and disability."

In essence, victims can be divided into five categories:

i. Primary victims are directly affected by an offence (investor).
ii. Secondary victims are people that have some relationship with the primary victim and are emotionally and/or financially dependent on them (e.g. a child, parent or spouse).
iii. Tertiary victims are persons whose lifestyles have been inconvenienced by excessive fear and those persons (e.g., consumers and tax-payers) who have to bear the cost to society of crime. In this sense, society itself is a victim of crime.
iv. Witnesses might also be affected by crime, yet they are rarely considered victims.
v. Entities (e.g. bank, GLC, incorporation, state) can also be victims.

Enron's case has become a symbol of corruption, greed, and corporate misconduct in the twenty-first century. Victims from the case include investors, banks, states, etc. A valuable lesson, however, has emerged from the ruins of Enron's legacy: without government regulation, a company with greedy executives at the helm will always seek to maximize profit, and will sometimes resort to unethical business practices (such as insider trading and accounting fraud) to maintain artificially high stock prices. The charges against Enron executives included bank fraud, securities fraud, wire fraud, money laundering, conspiracy, and insider trading. What lessons can be gleaned from Enron's sudden collapse and the unethical business practices committed by the insiders? Financial criminals are opportunists who will strike when there is an opportunity and commercial gain to them. The risk of fraud is the same in a conventional or an Islamic financial institution. Fraud awareness and risk management is a key in avoiding financial frauds (Sirat, S).

Surah al-Mutaffifin (83:1-33) condemns all types of fraud. "Woe to those that deal in fraud. Those who when they have to receive by measure from men, exact full measure. But when they have to give by measure of weight to men, give less than due. Do they not think that they will be called to account? On a mighty day, a day when all mankind will stand before the Lord of the world? Nay! Surely the record of the wicked is preserved in Sijjin...". Fraud in this verse not only covers giving short measure or short weight but also fraud in commercial dealing. It prohibits any type of tadlis (swindling) and giving less than what is due from you, whether you expect or wish to receive full consideration. There is no fixed Shari'ah penalty (hadd) for fraud; rather, it falls under ta'zir, a discretionary punishment determined by a judge or the authority. It may be anything from a social boycott up until the death sentence.

As long as no oppression, deceit, hoarding or cheating is involved, every Muslim is encouraged to do trade and business. Allah's Messenger (peace be upon him) said, "If the two parties speak the truth and make [all matters] clear, their transaction shall be blessed, but if they conceal and tell a lie, the blessing of their transaction shall be obliterated" [Al-Bukhari, Ch. 34, hadith 19].

Financial losses to the state or victims (corporation, institution or individual) from financial deals are known as darar mali. Darar mali covers financial expenses in terms of financial and property loss. It also covers damages suffered as a result of crime. Neither financial costs nor economic costs of crime are easy to define or measure. For example, the economic costs of crime prevention can include security hardware, environmental design and various lifestyle measures. Estimates from the security industry, therefore, must underestimate total prevention costs; yet, by its very nature, the extent of the underestimation is indeterminate. Long-term and indirect costs of crime are often particularly difficult to define. For example, serious victimisation which causes severe emotional stress can in turn affect employability and, therefore, career earnings. These types of costs can be seen to have economic "multiplier effects" in which the victims' families, relatives, business associates and even whole communities also suffer losses.

Apart from darar mali, financial crime involves darar ma'nawi, damage or injury caused to a person's reputation ('ird) or dignity (sharaf) by subjecting him to slander and ridicule, defamation, insult and abuse, causing the victim emotional pain or stress and apprehension, which will ultimately affect his body even though there are no apparent physical marks.[1] The injury is more abstract in nature. It involves trauma and mental injury, and is more similar to psychological disturbance. It is submitted that compensation for darar ma'nawi should be decided by an expert. This is due to the fact that many costs and bills need to be borne by the victim in order to get through the trauma and psychological blow caused by the crime. This type of crime may also come as a result of appalling treatment, discrimination, rude manner and even a beating which does not leave any visible permanent marks on the victim's body.

Due to the absence of physical marks apparent to the human eye, it is termed as moral or nonphysical damage, as distinct from physical injury or loss. Some jurists allow the coverage of injuries even as to pain and suffering. This is based on the maxim "la darara wa la dirar" ([There should be] no infliction of harm and no reciprocation of harm). Some jurists like al-Balqini argue that the amount of compensation will be decided by the judge to show that the wrongful act can never be free from any legal consequences.

Darar mustaqbal covers the future loss of the victims. It can be interpreted as losing income or losing the breadwinner in the family as a result of crime. The crime may also incapacitate the victim and cause them to lose their job. In the case of financial fraud victims, the future loss may cover the future possibility of losing job, savings, identity risk, education, disruption, etc.

The Shari'ah has given rights to victims of crime. Trade in all forms must be clean and honest. If one carries it out according to the guidance of the Qur'an and Sunnah, one will see Allah's blessings even though one may not be able to amass fabulous wealth. Indeed nine parts of ten of recommended livelihood lies in trade and commerce. It is hoped that in dealing with financial fraud, legislation and law enforcement ignore its victims. Alternatively, we may begin to look at restorative justice being applied to both criminals and victims, rather than punitive justice, which merely considers the criminal.


[1] Muqaddam al-Said 1985, al-Ta'widan-dharār al-ma'nawi fi al-msu'liyyah al-madaniyyah, dirasah muqaranah, Bayrūt, Dār al-Hadathat, p 76.

i. Al-Sharbini al-Khatib, 1950. Mughni al-Muhtaj, Beirut: Dar Ihya al-Turath al-'Arabi. Vol. 4, pp. 78-79.
ii. Kirchhoff, G.F. What is victimology? Tokiwa International Victimology Institute Monographs, Series No 1, Tokyo: Seibundo, 2005, vol. p. 68. Refer also to Kirchhoff, GF on Perspectives on victimology, the science, the history, the presence, Tokyo: Seibundo, 2006, vol. 3, p. 42.
iii. Kirchhoff, G.F. what is victimology? p. 42.
iv. Liddell, HG, Scott, R, and Jones, HS. Greek-English Lexicon. Perseus Digital Library Project. Ed. Crane, GR. Tufts University. Retrieved 7th of September 2008, at 6pm. See reference link.
v. See also Al-Jundi,Muhammad al-Shahat, Jarimat Ightisab al-Inath fi al-Fiqh al-Islami Muqaran bil-Qānun al-Wad'i. Cairo: Dar al-Nahdah al-'Arabiyyah. p. 54.
vi. Strang, Heather. Repair or Revenge, Victims and Restorative Justice, Clarendon Press, Oxford, 2002, p. 28.

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