Criteria for the Permissibility and Impermissibility of Legal Stratagems in Usury and Transactions

Abstract

The use of legal stratagems to circumvent the prohibition of usury is based on the abuse of a lawful instrument with the intention of evading a religious and legal prohibition. The lender and borrower seek to give their illegitimate objective an apparently lawful and formally valid character by resorting to a fictitious contract, such as a sale, loan, gift, or similar transaction. Undoubtedly, opening the door to and facilitating the widespread use of deception and subterfuge in social affairs to neutralize the restrictions imposed by laws and social regulations constitutes one of the causes of moral decline in any society. Where individuals are able, through deceptive appearances and the fraudulent use of formally valid but fictitious religious contracts, to prevent the enforcement of legal rules, not only are the legal foundations, principles, and culture of society placed at risk, but conditions are also created for lawbreaking and public disrespect for the law. Nevertheless, Shiʿi jurists have not adopted a uniform approach to this issue. Some jurists consider the use of legal stratagems in usury to be permissible without qualification; others regard such stratagems as permissible only in cases of necessity; and still others maintain that rulings obtained through legal stratagems are categorically impermissible. Among the latter group, the late Imam Khomeini distinguished between rulings arising from the use of legal stratagems in transactional usury and those involving loan usury. More specifically, with regard to transactional usury, he referred to customary understanding and considered such stratagems permissible in cases where custom does not regard them as unjust. By contrast, he regarded loan usury as absolutely impermissible. The Iranian legislature has likewise criminalized, under Article 595 of the Islamic Penal Code (Discretionary Punishments), enacted in 1996, the conclusion of contracts ostensibly framed as sales, loans, settlements, or similar transactions for the purpose of circumventing the prohibition of usury.