Document Type : Research Paper
Authors
1
MA, Department of Economics, Law Faculty of Law & Political Sciences, Allameh Tabatabai University, Tehran, Iran.
2
Assistant Professor, Faculty of Humanities, Islamic Azad University: Safadasht Branch, Tehran, Iran.
3
MA., Department of Criminal Law and Criminology, Faculty of Law & Political Sciences, University of Tehran, Tehran, Iran.
Abstract
Introduction
Iran’s banking system plays a decisive and structurally dominant role in the country’s economy. In the absence of a fully developed and efficient capital market capable of independently financing large-scale productive and commercial activities, banks shoulder the principal responsibility for funding both public and private sectors. Through the allocation of credit facilities and loans, they effectively determine the flow of liquidity, shape patterns of investment, and influence the distribution of national resources. Their decisions directly affect economic growth, financial stability, and public confidence in the monetary system. This central role means that granting credit facilities and loans is not merely a contractual or managerial matter, but an issue with wider social, economic, and legal implications. Against this backdrop, the present study aimed to examine whether banks can incur criminal liability for granting credit facilities and loans without adequate guarantees, and whether imposing such liability is legally and normatively defensible under Iranian law.
Materials and Methods
The current research adopted a descriptive–analytical approach grounded in documentary analysis. The sources analyzed included statutory provisions, doctrines, and scholarly writings on the criminal liability of banks. The analysis began by tracing the evolution of criminal law from a strictly individualistic system to a modern framework that recognizes the criminal liability of legal persons. In this respect, the analysis devoted particular attention to Article 143 of the Islamic Penal Code of 2013, which provides that legal entities may be held criminally liable when their legal representatives commit crimes in the name of, or in furtherance of the interests of, the entity. This provision reflects a significant normative shift and provides a legal foundation for assessing the responsibility of banks as corporate actors within the criminal justice system.
Moreover, the study examined several doctrines and theories that justify the attribution of criminal liability to legal persons. In this regard, the identification theory posits that the actions and intent of senior management constitute those of the corporation itself. Accordingly, when individuals functioning as the directing mind of an institution engage in unlawful conduct, their mental state and actions are imputed directly to the entity. Conversely, the doctrine of superior responsibility emphasizes failures in oversight and control, suggesting that inadequate supervision alone may establish grounds for liability. Finally, the organizational liability model adopts a broader approach by focusing on structural and systemic deficiencies, recognizing that wrongdoing in complex organizations often arises not from isolated acts, but from embedded practices, flawed incentive structures, or compliance failures. These theoretical frameworks were subsequently applied to the context of banking operations, specifically the procedures governing the approval and granting of credit facilities and loans.
Results and Discussion
Under certain conditions, granting credit facilities and loans without adequate guarantees can expose a bank—as a legal entity—to criminal liability. It is important to note that poor judgment or mere economic loss does not inherently constitute criminal conduct. Instead, the threshold for criminal liability is crossed when the granting of unsecured or under-collateralized credit facilities and loans is accompanied by legally relevant fault, such as intentional misconduct, abuse of authority, collusion, or gross negligence that severely jeopardizes protected economic interests. When authorized representatives (e.g., board members or senior executives) approve such facilities in the bank’s name, and their conduct meets the criteria for a criminal offense, the conditions under Article 143 of the Islamic Penal Code of 2013 may be met. In such instances, liability is not limited to individual decision-makers; the bank itself may be held accountable as an independent subject of criminal law.
Moreover, even when individual intent is difficult to establish, organizational failures may provide a separate basis for liability. Systemic issues—such as weak internal controls, ineffective compliance, flawed credit assessments, or the deliberate tolerance of risky lending—often point to broader institutional failings. Modern approaches to corporate criminal liability increasingly recognize that misconduct often stems from structural incentives, managerial culture, or persistent supervisory deficiencies. Consequently, the absence of adequate guarantees may signal deeper shortcomings in governance and risk management, rather than an isolated managerial fault.
Beyond its legal feasibility, the recognition of criminal liability in such cases is supported by strong policy considerations. Deterrence plays a crucial role in financial regulation. Banks operate on the foundation of public trust; their stability and credibility are essential to economic order and social confidence. The prospect of criminal sanctions—whether fines, restrictions on operations, or other measures—creates a strong incentive for institutions to strengthen compliance frameworks, improve risk assessment procedures, and adhere strictly to professional and legal standards. Furthermore, effective enforcement requires holding entities accountable when individual liability alone would be insufficient. Given the complexity and hierarchical nature of banking structures, identifying a single responsible individual may be difficult. Limiting prosecution to natural persons may therefore undermine the preventive and compensatory functions of criminal law.
Irresponsible lending practices may also enable broader economic wrongdoing, including embezzlement, corruption, favoritism, and the misappropriation of public resources. In economies where banks dominate financial intermediation, the effects of such conduct extend well beyond private contractual disputes and can erode economic justice. Therefore, recognizing corporate criminal liability aligns with preventive criminal policy and anti-corruption objectives by strengthening accountability within key financial institutions and protecting the integrity of financial governance.
Conclusion
Granting credit facilities and loans without adequate guarantees is not a minor procedural lapse or a mere administrative irregularity. In the banking sector, guarantees—whether personal (e.g., suretyships) or proprietary (e.g., mortgages and pledged assets)—serve as fundamental safeguards against credit risk, which is widely recognized as one of the most significant risks facing financial institutions. Sound banking practice requires thorough assessment of borrowers’ financial capacity, careful evaluation of the sufficiency of collateral, and strict compliance with the regulatory standards governing credit allocation. When banks fail to observe these requirements, they expose not only themselves, but also depositors, shareholders, and the broader economy, to substantial harm. The current study concludes that holding banks criminally liable for granting credit facilities without adequate guarantees is both legally grounded and practically justified under the Iranian legal framework. The Islamic Penal Code provides a clear doctrinal basis for attributing criminal liability to legal persons when offences are committed in their name or for their benefit.
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