2 men acquitted of all fraud, theft charges in Shariah-compliant mortgage case
Omar Kalair and Yusuf Panchbhaya worked with UM Financial, a mortgage company that went bankrupt
Two men who provided Shariah-compliant mortgages to Muslim homeowners in the GTA, were acquitted of a dozen criminal charges in Ontario Superior Court Friday after a trial that began back in October 2018.
Omar Kalair and Yusuf Panchbhaya were on trial for fraud, theft, laundering the proceeds of crime, and violations under the Bankruptcy and Insolvency Act in a case that dates back eight years. They were accused of misappropriating millions of dollars from their company that was supposed to go to a credit union that was their main financial backer.
Before handing out her 68-page decision, Justice Jane Ferguson described it as an "incredibly difficult case" that involved a "huge learning curve in Islamic finance."
Kalair said in a written statement after the judgment, "This in my view, is a victory not only for myself but for the Islamic finance industry, that actions we take due to our religion are accepted in certain courts ..."
The former CEO of UM Financial Inc., and UM Capital, had been offering Muslim homeowners "Shariah-compliant" mortgages since 2004 that were financed through Central 1 Credit Union. Devout Muslims would pay an extra fee to his mortgage company as profit, to avoid interest, which is forbidden in the Islamic faith.
Panchbhaya, an Islamic scholar, was involved in overseeing the religious aspects of the financing. He chaired a board of scholars that later incorporated as the Multi Cultural Consultancy of Canada (MCC). Panchbhaya's board would issue fatwas, or Islamic rulings to UM, confirming its mortgages were Shariah compliant.
Early in 2011, Central 1 Credit Union wanted to pull out of the agreement. That left UM unable to pay back millions of dollars it had borrowed to finance its mortgages for Muslim homeowners.
Ferguson summed up Kalair's position in her decision. She wrote Central 1's "unilateral decision to end the [agreement] left Kalair in an impossible position where he faced demands to pay … Central 1 and the [Islamic scholars], while also ensuring the homeowner's mortgages remained Shariah compliant," she wrote.
"Kalair struggled to balance the competing demands," Ferguson's decision reads.
The judge said Kalair argued in court he understood the Islamic contract with Central 1 authorized him to use UM funds to cover these expenses, and if this generated a shortfall, it would be borne by Central 1 in accordance with the rules of Islamic finance.
Kalair believed "if he was wrong in these beliefs, they were honest but mistaken ones," Ferguson wrote.
Kalair believed he was 'acting appropriately,' judge rules
In her judgment, Ferguson opined, "Even if Kalair's understanding of the application of Shariah law was wrong in law, I find he honestly believed at all times, and had reasonable grounds to believe, that he was acting appropriately under the circumstances."
After his acquittal Kalair wrote, "I believe I acted at all times in accordance with the law … I had consulted with my lawyers at the time before paying the Shariah scholars — at worst this should have been a civil matter.
"My actions did not cause any losses to anyone and it did not result in any benefit to me."
"Obviously we are thrilled," said Edward Prutschi, Kalair's lawyer, outside Superior Court.
Customers 'never lost anything,' defence lawyer says
"He is a religiously committed Muslim ... it's not all just about making profit. He wanted to work in a field that allowed fellow Muslims like himself to participate in the Canadian dream: own a home ... take loans that your faith allows you to take but also allows you to participate in the broader Canadian society," Prutschi said.
"And most importantly they were never losses to the homeowners, which was something that it seems to have been lost in all of this. The real people, the real individuals, Muslim Canadians who went to Kalair saying I need some help to be able to get a mortgage ... they never lost anything."
During the trial court heard while UM was going into receivership, Kalair used money from UM's bank account to buy gold bullion and silver coins worth more than $2 million.
The Crown argued the money should have been paid to the Central 1 Credit Union, but Kalair and Panchbhaya said the precious metals had to be bought to pay a debt owed to scholars in Egypt who had provided UM with religious advice.
Kalair testified he gave the gold to Joseph Adam, the director of finance for the board of Muslim clerics, who took the gold to Egypt, but never returned to Canada.
The Crown alleged Kalair and Panchbhaya worked together to unlawfully take the money from UM's account just before the company went into receivership.
Ferguson ruled the Crown had not proven its case beyond a reasonable doubt.
In a brief statement to CBC News, the RCMP, which investigated the allegations of financial impropriety, said it respects the court's decision and has no further comment.