Commentary on Article 243. Unlawful Use of Funds of a Bank or a Branch of a Non-Resident Bank of the Republic of Kazakhstan of the Criminal Code of the Republic of Kazakhstan
1. The use by employees of a bank or a branch of a non-resident bank of the Republic of Kazakhstan of the bank's or the branch of a non-resident bank of the Republic of Kazakhstan's own funds and (or) attracted funds for the issuance of loans that are knowingly irrecoverable or for the conclusion of transactions that are knowingly disadvantageous to the bank or the branch of a non-resident bank of the Republic of Kazakhstan, as well as the provision of unjustified guarantees by the bank or the branch of a non-resident bank of the Republic of Kazakhstan, or unjustified preferential terms to clients of the bank or the branch of a non-resident bank of the Republic of Kazakhstan or other persons, if these acts cause substantial damage to a citizen, organization or the State, —
shall be punishable by a fine of up to three thousand monthly calculation indices, or correctional labor in the same amount, or community service for a period of up to eight hundred hours, or restriction of liberty for a period of up to three years, or imprisonment for the same period, with deprivation of the right to hold certain positions or engage in certain activities for a period of up to three years.
2. The knowingly incorrect or knowingly untimely transfer by employees of a bank or a branch of a non-resident bank of the Republic of Kazakhstan of monetary amounts, including foreign currency funds, through clients' bank accounts, if this act causes substantial damage to a citizen, organization or the State, —
shall be punishable by a fine of up to two hundred monthly calculation indices, or correctional labor in the same amount, or community service for a period of up to one hundred and twenty hours, or arrest for a period of up to forty days, with deprivation of the right to hold certain positions or engage in certain activities for a period of up to three years.
Note. A person who has committed an act provided for by this Article for the first time shall be released from criminal liability if the damage is voluntarily compensated.
The public danger of the criminal offense (Part 1 — a crime, Part 2 — a criminal misdemeanor) lies in the fact that its commission may lead to significant consequences both for the banks themselves and for branches of non-resident banks of the Republic of Kazakhstan (i.e., revocation of a license, bankruptcy, etc.), as well as for the country's economy as a whole.
The object of the crime is the public relations ensuring the implementation of the process of using the bank's monetary funds.
The subject matter of the criminal offense may consist of the bank's or the branch of a non-resident bank of the Republic of Kazakhstan's own and (or) attracted funds. The bank's own funds are formed on the basis of the bank's authorized and equity capital.
In accordance with Article 16 of the Law of the Republic of Kazakhstan dated August 31, 1995, “On Banks and Banking Activities in the Republic of Kazakhstan,” the authorized capital of a bank is formed in the national currency of the Republic of Kazakhstan through the placement of shares, except for the cases established by paragraph 2 of this Article.
Paragraph 2 of Article 16 of the aforementioned Law states: “Shares of a bank, upon placement, must be paid for exclusively in money. This requirement shall not apply to banks in the following cases:
placement of bank shares among the bank's creditors and payment for such shares by offsetting any right (claim) under a monetary obligation of the bank to the respective creditor, when the bank carries out restructuring in cases provided for by this Law and other laws of the Republic of Kazakhstan;
1-1) conversion of securities and other monetary obligations of the bank into ordinary shares of the bank in the event of the application of a measure to resolve an insolvent bank on the grounds and in accordance with the procedure provided for in Article 60-10 of this Law;
conversion of securities into bank shares on the basis of the prospectus for the issue of issue securities convertible into bank shares;
2-1) exchange of placed shares of one type of the bank for shares of another type of the same bank on the basis of the bank's charter and its share issue prospectus;
payment for bank shares during reorganization carried out in accordance with the procedure established by the Law of the Republic of Kazakhstan “On Joint-Stock Companies”;
payment for bank shares with government securities of the Republic of Kazakhstan in the case provided for by Article 17-2 of this Law.
When placing bank shares in the cases provided for by this paragraph, an assessment is not required.”
The objective element of the crime consists of: 1) using the bank's own funds and (or) attracted funds to issue loans that are knowingly irrecoverable; 2) using the bank's own funds and (or) attracted funds to conclude transactions that are knowingly disadvantageous to the bank; 3) providing unjustified bank guarantees to the bank's clients or other persons; 4) providing unjustified preferential terms to the bank's clients or other persons.
According to paragraph 8 of Article 30 of the Law “On Banks and Banking Activities in the Republic of Kazakhstan,” banking borrowing operations are the provision by a bank, a mortgage organization that is not a bank and carries out brokerage and (or) dealer activities in the securities market, or subsidiaries of the national managing holding in the field of the agro-industrial complex, of loans in monetary form on the terms of payment, maturity and repayment.
Among the above-mentioned conditions that the parties must comply with when concluding borrowing transactions and obtaining a loan, the most important is repayment. Thus, in accordance with paragraph 1 of Article 35 of the said Law, repayment of loans may be secured by a penalty, pledge, guarantee, surety and other methods provided for by the legislation of the Republic of Kazakhstan or by agreement.
Paragraph 3 of the same Article states that, provided the client has high creditworthiness and reliability, the bank is entitled to decide to grant a loan without security (an unsecured loan).
Thus, the use of the bank's own funds and (or) attracted funds to issue loans that are knowingly irrecoverable, in violation of the provisions of banking legislation, entails criminal liability.
The use of the bank's own funds and (or) attracted funds to conclude transactions that are knowingly disadvantageous to the bank implies the use of the bank's funds in operations or professional activities that are not profitable.
In accordance with paragraph 11 of Article 30 of the Law of the Republic of Kazakhstan “On Banks and Banking Activities in the Republic of Kazakhstan,” banks, in addition to banking operations, are entitled, subject to obtaining a license from the authorized body, to carry out the following operations:
purchase, acceptance and pledge, accounting, storage and sale of refined precious metals (gold, silver, platinum and platinum-group metals) in bars, and coins made of precious metals;
purchase, acceptance and pledge, accounting, storage and sale of jewelry containing precious metals and precious stones;
bill transactions: acceptance of bills for collection, provision of services for payment of bills by the payer, as well as payment of domiciled bills and acceptance of bills by way of intermediation;
carrying out leasing activities;
issuance of the bank's own securities (with the exception of shares);
factoring operations: acquisition of the right to claim payment from the purchaser of goods (works, services), with the assumption of the risk of non-payment;
forfaiting operations (forfaiting): payment of a debt obligation of the purchaser of goods (works, services) by purchasing a bill without recourse against the seller;
trust operations: management of money, rights of claim under bank loans and refined precious metals in the interests of and on behalf of the trustor;
safe deposit operations: services for the safekeeping of securities issued in documentary form, clients' documents and valuables, including the rental of safe deposit boxes, cabinets and premises.
Furthermore, in accordance with paragraph 12 of Article 30 of the said Law, banks are entitled to carry out the following types of professional activities in the securities market:
brokerage activities involving government securities of the Republic of Kazakhstan and countries having the minimum required rating of one of the rating agencies, or without such a rating by decision of the authorized body, as well as derivative securities and derivative financial instruments, the list and procedure for acquiring the underlying assets of which are determined by the authorized body;
dealer activities involving government securities of the Republic of Kazakhstan and countries having the minimum required rating of one of the rating agencies, or without such a rating by decision of the authorized body, as well as derivative securities and derivative financial instruments, and other securities in cases established by Article 8 of the Law;
custodial activities;
transfer agency activities.
The provision of unjustified bank guarantees or unjustified preferential terms to the bank's clients or other persons violates the prohibition established in Article 40 of the Law “On Banks and Banking Activities in the Republic of Kazakhstan” concerning the provision of preferential terms to persons connected with the bank through special relationships. Thus, according to paragraph 1 of Article 40 of the said Law, banks are prohibited from providing preferential terms to persons connected with the bank through special relationships.
Banks are prohibited from issuing unsecured loans (blank loans) to persons connected with the bank through special relationships, except for loans in an amount not exceeding the amount established by the regulatory legal act of the authorized body, as well as loans to persons who are participants in a banking conglomerate.
According to paragraph 2 of Article 40 of the Law of the Republic of Kazakhstan “On Banks and Banking Activities in the Republic of Kazakhstan”: “The provision of preferential terms means entering into a transaction with a person connected with the bank through special relationships, or in the interests of such person, which, by its nature, purpose, characteristics and risk, the bank would not enter into with a person who is not connected with it through special relationships, namely:
charging remuneration and fees for performing a banking operation at a rate lower than the terms offered to third parties;
paying remuneration on deposits and other funds attracted by the bank from a person connected with the bank through special relationships at a rate higher than the terms offered to third parties;
accepting pledges, guarantees, sureties or other methods of securing the performance of obligations in an amount lower than that required for similar transactions with third parties;
granting a deferral in the collection of remuneration, repayment of the principal debt and (or) other payments for banking operations for a longer period than under similar transactions with third parties;
paying for property and (or) services acquired from a person connected with the bank through special relationships at a price higher than the price paid for similar property and (or) services acquired from third parties, under a transaction or a set of transactions whose value exceeds the amount established by the regulatory legal act of the authorized body;
selling property to a person connected with the bank through special relationships at a price lower than the price at which similar property is sold to third parties or below its market value;
selling securities to a person connected with the bank through special relationships at a price lower than the price at which similar securities are sold to third parties or below their market value;
entering into transactions previously classified by the authorized body as transactions on preferential terms through the use of motivated judgment.
Additional criteria for classifying transactions as transactions on preferential terms shall be established by a regulatory legal act of the authorized body.”
Paragraph 3 of Article 40 of the above-mentioned Law lists the categories of persons connected with the bank through special relationships:
an official or executive employee, heads and permanent members of the committees of the board of directors and the relevant body of the bank, whose powers include making decisions on the alienation of assets, changing the subject matter of a pledge and terminating a pledge (except in cases of repayment by the debtor of obligations to the bank secured by a pledge or foreclosure by the bank on the pledged property), as well as decisions on the issuance of bank loans and bank guarantees in amounts exceeding those established by the regulatory legal act of the authorized body, as well as their spouses and close relatives;
an individual or legal entity that is a major participant in the bank, or an official of a major participant in the bank, as well as their spouses and close relatives;
a legal entity in which the persons specified in subparagraphs 1) and 2) of paragraph 3 of Article 40 own ten or more percent of the placed shares (excluding preferred and repurchased shares) or participation interests in the authorized capital, or are officials;
affiliated persons of the bank;
an individual or legal entity meeting the criteria for being connected with the bank through special relationships established by a regulatory legal act of the authorized body.
A transaction with a person connected with the bank through special relationships may be carried out only pursuant to a decision of the bank's board of directors, taking into account the requirements of paragraph 1 of Article 40 of the Law “On Banks and Banking Activities in the Republic of Kazakhstan.”
The executive employee, first head and chief accountant of a bank branch must not participate in the consideration and adoption of decisions on any transaction between the bank and: themselves; any of their close relatives; any legal entity in which they or any of their close relatives are an official or a major participant.
A decision of the board of directors on any transaction between the bank and a person connected with the bank through special relationships may be adopted only after the board of directors has considered all of its terms (paragraph 5 of Article 40 of this Law).
By its legal structure, the corpus delicti is material, since the crime is deemed completed from the moment substantial damage is caused to a citizen, organization or the State. According to subparagraph 38) of Article 3 of the Criminal Code of the Republic of Kazakhstan, with regard to the crime under consideration, substantial damage should be understood as damage caused to a citizen in an amount two thousand times exceeding the monthly calculation index, or damage caused to an organization or the State in an amount ten thousand times exceeding the monthly calculation index.
From the subjective side, the crime is characterized by an intentional form of guilt (direct and indirect intent). The person is aware that they are using the bank's own funds and (or) attracted funds to issue loans that are knowingly irrecoverable or to conclude transactions that are knowingly disadvantageous to the bank, as well as providing unjustified bank guarantees or unjustified preferential terms to the bank's clients or other persons; they foresee the possibility or inevitability of causing substantial damage to a citizen, organization or the State, desire such consequences or remain indifferent to them.
The subject of the crime is special — a bank employee who has reached the age of 16. Under Article 243 of the Criminal Code, a bank employee shall be held liable in the absence of signs of misappropriation in their actions. If the actions specified in the disposition of this Article are committed by a bank employee with the intent to convert the bank's monetary funds into their own property or the property of other persons without compensation, such person shall be held liable under the relevant articles concerning misappropriation, without additional qualification under Article 243 of the Criminal Code.
Part 2 of this Article of the Criminal Code of the Republic of Kazakhstan provides for liability for the knowingly incorrect or knowingly untimely transfer by employees of a bank or a branch of a non-resident bank of the Republic of Kazakhstan of monetary amounts, including foreign currency funds, through clients' bank accounts, if this act causes substantial damage to a citizen, organization or the State.
The definition of the concept of “bank accounting” is provided in the commentary to Article 242 of the Criminal Code.
The knowingly incorrect transfer by employees of a bank or a branch of a non-resident bank of the Republic of Kazakhstan of monetary amounts, including foreign currency funds, through clients' bank accounts violates the lawful procedure for conducting transfer operations and is expressed in the intentional incorrect transfer of funds through clients' bank accounts. This may include, for example, the unlawful crediting of money to one's own account or to the accounts of third parties without notifying the client, which essentially constitutes misappropriation (the unlawful and uncompensated withdrawal of monetary funds from the client's account).
The knowingly untimely transfer by employees of a bank or a branch of a non-resident bank of the Republic of Kazakhstan of monetary amounts, including foreign currency funds, through clients' bank accounts is less dangerous compared to the above-mentioned criminal offense; nevertheless, this criminal misdemeanor violates the conditions for conducting banking operations and may jeopardize the business reputation of the bank itself or the branch of a non-resident bank of the Republic of Kazakhstan, as well as that of their clients (for example, the disruption of business contracts, loss of investors, etc.).
The knowingly incorrect or knowingly untimely transfer by employees of a bank or a branch of a non-resident bank of the Republic of Kazakhstan of monetary amounts, including foreign currency funds, through clients' bank accounts violates the provisions of Article 749 of the Civil Code, according to which a bank (an organization carrying out certain types of banking operations) withdraws the client's money held in the bank (an organization carrying out certain types of banking operations) on the basis of the client's instruction, unless otherwise provided for by legislative acts or the bank account agreement.
The bank shall not have the right to determine or control the directions in which the client uses their money, or to establish other restrictions on the client's right to dispose of money at their own discretion that are not provided for by legislation or the bank account agreement, unless otherwise provided for by legislation.
If the money was deposited by an individual, the right to dispose of the money held in the bank belongs either to the individual themselves or to the person to whom they have entrusted this right.
If the money was deposited by a legal entity, the right to dispose of the money held in the bank belongs to the head of that legal entity and (or) other persons authorized by them.
The rights of persons exercising the right to dispose of money held in a bank (an organization carrying out certain types of banking operations) on behalf of the client shall be confirmed by the client through the submission to the bank (organization carrying out certain types of banking operations) of documents provided for by legislation and the agreement.
The bank account agreement must establish the procedure for disposing of money held in the bank. Requirements for such procedure shall be established by legislative acts regulating banking activities.
In conclusion, it should be noted that, since December 16, 2020, the liability provided for in Parts 1 and 2 of Article 243 of the Criminal Code has applied not only to bank employees but also to employees of branches of non-resident banks of the Republic of Kazakhstan.
According to paragraph 1 of Article 29 of the Law of the Republic of Kazakhstan “On Banks and Banking Activities in the Republic of Kazakhstan,” a resident bank of the Republic of Kazakhstan is entitled, on the basis of a decision of the bank's board of directors and without the consent of the authorized body, to open its separate subdivisions — branches and representative offices — both within the territory of the Republic of Kazakhstan and abroad.
A bank branch is a separate subdivision of a bank that is not a legal entity, is located outside the location of the bank, carries out banking activities on behalf of the bank and operates within the powers granted to it by the bank. A bank branch has a balance sheet common with the bank, as well as a name that fully coincides with the name of the bank (paragraph 4 of Article 29 of the Law).
A non-resident bank of the Republic of Kazakhstan is entitled to open its representative office without obtaining the consent of the authorized body (paragraph 10 of Article 29 of the Law).
In accordance with paragraph 11 of Article 29 of the Law: “Within thirty working days from the date of registration for record purposes with the Corporation, a representative office of a non-resident bank of the Republic of Kazakhstan must notify the authorized body in writing of its opening, attaching the following documents:
excluded by the Law of the Republic of Kazakhstan dated May 16, 2014 No. 203-V;
a notarized copy of the regulations on the representative office bearing the mark and seal of the Corporation;
written confirmation from the banking supervisory authority of the relevant state that the non-resident bank of the Republic of Kazakhstan holds a valid banking license;
written notification from the banking supervisory authority of the relevant state that it has no objection to the opening of a representative office of a non-resident bank of the Republic of Kazakhstan in the territory of the Republic of Kazakhstan, or a statement from the banking supervisory authority or a reputable legal service of the relevant state that such permission is not required under the legislation of the state of the non-resident bank of the Republic of Kazakhstan;
a notarized power of attorney issued in the name of the head of the bank's representative office.”
The opening of branches of non-resident banks in the Republic of Kazakhstan is prohibited, except in cases provided for by the laws of the Republic of Kazakhstan.
By its legal structure, the corpus delicti of this criminal misdemeanor is material. A criminal misdemeanor shall be deemed completed if substantial damage is caused to a citizen, organization or the State as a result of this act. The concept of substantial damage is identical to the concept of substantial damage provided for in Part 1 of the commented Article.
According to the Note, a person who has committed an act provided for by the commented Article for the first time shall be released from criminal liability if the damage is voluntarily compensated.
The act provided for in Part 1 of Article 243 of the Criminal Code belongs to the category of crimes of medium gravity.
The act provided for in Part 2 of Article 243 of the Criminal Code belongs to the category of criminal misdemeanors.
Commentary of 2021 on the Criminal Code of the Republic of Kazakhstan by Isidor Shamilovich Borchashvili, Honored Figure of Kazakhstan, Doctor of Law, Professor, Academician of the National Academy of Natural Sciences of Kazakhstan, member of the Scientific Advisory Councils under the Constitutional Council of the Republic of Kazakhstan and the Supreme Court of the Republic of Kazakhstan, member of the working group on reform of the law enforcement system under the Security Council of the Republic of Kazakhstan, Honored Worker of the Ministry of Internal Affairs of the Republic of Kazakhstan.
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