“Deposit Splitting” of Individuals. Legal Civil and Criminal Aspects
In accordance with the Federal Law “On Insurance of Household Deposits in Banks of the Russian Federation” the Deposit Insurance Agency (DIA), in the case of revocation (cancellation) of the banking license of a bank, pays insurance indemnity to individual depositors from the compulsory deposit insurance fund. Currently, the maximum amount of payout makes up 700 thousand rubles.
However, there are precedents when the Deposit Insurance Agency refuses to include holders of deposits in the register of claims of the Bank’s creditors and refuses to pay the sum insured in the amount of 700 thousand rubles. This occurs when the Agency has reasons to believe that the individual abuses his/her right by deposit splitting.
Funds in bank deposits are property of persons who made deposits. The owner of deposited money may dispose of them at their discretion, including transfer to the account of their relative. The transfer of the deposit to the account of relative (i.e. transfer of money from his/her deposit account to the deposit account of relative) means gifting these funds. The law provides for no restrictions on gifting funds.
After the transfer of funds to the deposit account of relative, i.e. after the gift, such funds become property of the relevant relative (donee). He/she is owner of funds transferred to his/her deposit account regardless from where and when they arrive there. Since the receipt of funds to the deposit account they are automatically subject to insurance.
According to the Federal Law “On Insurance of Household Deposits in Banks of the Russian Federation” the funds:
- Deposited in bank accounts of individuals engaged in entrepreneurial activities without establishing a legal entity.
- Placed by individuals as bank deposits payable on demand.
- Transferred by individuals to banks under the trust management.
- Placed in deposit accounts outside the Russian Federation with branches of Russian banks.
- That are e-money.1
are not subject to insurance.
The above list is not exhaustive and the legislation does not provide other restrictions.
It should be taken into account that insurance applies to deposits placed with banks authorized to attract deposits from citizens. If the bank’s relevant authorization is withdrawn, but it nevertheless continues to receive from citizens funds to be placed in deposit accounts, such deposits are not subject to insurance.
Previously, courts took the position, according to which, upon transfer of funds from a deposit account of an individual to a deposit account of another individual or to another account of the same individual, both deposits in the amount of 700 thousand rubles are subject to insurance without any additional restrictions, if such transfer was made prior to suspension of license of the bank. For example, in the Tyumen region claims were filed by about 450 depositors of Tyumenenergobank excluded by the DIA from the register of depositors subject to insurance compensation (the registry has about 40 thousand depositors as a whole), whose deposits were formed as a result of transfer of funds amounting to less than 700 thousand rubles from larger deposit accounts in the same bank. The DIA treated such actions as an attempt to illegally impose an additional burden (estimated at 300 mln. rubles.) on the deposit insurance fund and refused to pay insurance indemnity. The court did not support the position of the DIA and ruled to include the depositors in the insurance indemnity register. The main reason for the loss of the DIA was the fact that splitting of deposits placed with Tyumenenergobank was carried out before the restriction of the Central Bank to conduct bank transactions.
However, the Ruling of the judicial board on civil cases of the RF Supreme Court of 28 June 2011 N 89-B11-3 cancelled the Decision of the Leninsky district court of Tyumen city of 3 June 2009 and the ruling of the judicial board on civil cases of the Tyumen regional court of 16 August 2010. The board in its ruling refers to the representative of the Deposit Insurance Agency stating that, at the time of transfer to the account of individual of the amount of deposit, the Bank was already insolvent and did not have sufficient funds to be able to perform its obligations to creditors, respectively, the deposit was not made. The insolvency of the Bank was confirmed by the statement of account balances.
Based on the regulations of art. art. 433 and 834 of the RF Civil Code, the bank deposit agreement is real, i.e. is deemed concluded since the depositor places funds in the bank. Failure of the depositor to place funds under the bank deposit agreement evidences that the agreement is not concluded. Thus, if the Deposit Insurance Agency in a proceeding in court submits evidence that at the time of signing bank deposit agreements the bank was insolvent and did not have sufficient funds to meet its obligations to creditors the bank deposit agreement can not be considered concluded. The Deposit Insurance Agency usually also confirms the insolvency of the bank with the statement of balances, which enables to identify the impossibility of real transferring of funds to the client’s accounts. Thus, the court does not consider any more the presence of a restriction on bank transactions, as the main argument in favor of the DIA. The evidence is the insolvency of the bank and the absence in its account of funds allegedly deposited by depositors upon signing the deposit agreement. The transactions made by the bank without actually withdrawing or depositing funds are recognized as technical transactions that do not entail a real conclusion of the deposit agreement. This position also has been confirmed by the Ruling of the Constitutional Court of the Russian Federation of 25.07.2001 no. 138 -O.
The concept of “deposit splitting” used by the Deposit Insurance Agency and the media implies actions of individuals aimed at dividing the amounts of the deposit in several (their or their proxies) deposits placed in accounts with the Bank, which by that time was already largely insolvent and is not able to carry out debit transactions with funds in full. Such actions of individuals, according to the Agency, are effected if there is information about the upcoming bankruptcy of the Bank in order to circumvent the statutory limitation of the amount of compensation payments on Bank deposits. Such actions are possible with the assistance of bank employees, as individuals may not have information on the availability on the bank’s correspondent account of funds for money transfers.
Consequently, the reason for exclusion of individuals from the register of depositors whose deposits are subject to insurance is intentional splitting of deposit at a time when the bank does no longer make transactions through its correspondent account.
In this case such actions contain the intention to create an additional “imaginary” deposit for the relative in order to create an artificial right to obtain additional insurance payment.
In addition, there is a judicial practice of bringing persons splitting deposits to criminal liability for the offence committed under article 159 of the Criminal Code (fraud).
Thus, the Central District Court of Tyumen city rendered the judgement against the general director of a legal entity in the case of transfers of funds from corporate accounts to deposit accounts opened in the name of individuals.
Based on the norms of the criminal and criminal procedural law, fraud is a secret theft of another’s property, committed by deception or breach of trust2. The constituent elements of this offence provide for intention to commit theft of property; this intention is factor in proof.
The legislation allows transfers of funds from one deposit account to another one; there are no restrictions and respectively, the only possibility to bring an individual to criminal liability for commission of the office provided for under article 159 of the RF CC is proving the intention to steal money. For this purpose evidence shall be collected. Here is an example of direct evidence: confessionary statements of the individual concerned; audio or video records of conversation of the individual with anyone about intention to make a deposit in order to obtain insurance compensation (or about an already made deposit), acknowledgement or any other letter, handwritten by the individual on the circumstances of the offence. Here is an example of indirect evidence: individual e-mails containing information about the offence, information contained in electronic media owned by an individual (frequently visited sites of bankrupted banks, media sites that contain information about such banks, etc.), testimony. Evidence may be different. Thus, to prove the intention it is necessary to collect certain evidence, to gather evidence inspection is required at least, at most – investigative actions. Investigative actions are conducted mainly after initiation of criminal proceedings based on sufficient grounds. That is, to initiate a criminal prosecution of an individual a real suspicion, which is quite difficult to prove, in a single case is needed. In the absent of the above evidence it is virtually impossible to establish the intention to steal funds.
Thus, we can speak about sufficient grounds for criminal prosecution only, if the transfer was made from an account of a legal entity or account of individual entrepreneur holding deposits that are not subject to insurance, to the account of an individual aimed at obtaining a deposit insurance indemnity in violation of the legislation on insurance, as well as the Law on insolvency (bankruptcy) in terms of priority of payments to bank creditors3.
Given the abovementioned the following conclusions can be drawn:
- Individual may transfer funds from his/her deposit account to the deposit account of a third party, including relative, as well as open a new deposit account with the same bank, but if the bank, in which his/her funds are deposited, at the time of the transfer of funds suspends account transactions and is insolvent, such actions may be regarded as “deposit splitting”, hence the Deposit Insurance Agency may refuse inclusion of an individual in the register of bank creditors;
- In order to protect deposits, obtaining information about a possible bankruptcy of the bank, it is reasonable to transfer funds totalling more than 700 thousand rubles in a more reliable bank that will not be defined as “deposit splitting”.
- Part 2 of article 4 of the Federal Law of 29.07.2004 N 96-FZ “On payments of Bank of Russia on household deposits in the banks recognized as bankrupts which do not participate in the system of compulsory insurance of household deposits in banks of the Russian Federation”.
- Part 1 of article 159 of the Criminal Code of the Russian Federation.
- Part 4 of article 134 of the Federal Law of 26.10.2002 N 127-ФЗ ” On Insolvency (Bankruptcy)”.
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