Probiznesbank: A Crash Course from a Professor

A good friend of mine, a professor at a Western university, has long been observing the events surrounding Probiznesbank, but for various reasons does not want to participate publicly in the discussions (looking at the comments on the previous post, I can understand him). Yesterday, after once again reading some rather inventive interpretations of seemingly simple financial matters, he finally couldn’t take it anymore and wrote a crash course on the key points. He asked me to share it, which I am happy to do.

Given the amount of discussion online about Zheleznyak, Leontiev, and Probiznesbank, I thought it would be useful to write a short FAQ for non-specialists (and, in particular, non-lawyers) on the topic of potential embezzlement of funds, and why FBK’s arguments do not refute it but rather confirm it.

1. “How do we know that the money was withdrawn from the bank illegally, bypassing regulations?”

Banks in Russia must comply with Regulation N6, which states that
they cannot issue loans to one person or a group of persons affiliated with the bank in an amount exceeding 25% of the bank’s capital. PBB’s capital was about $200 million, 25% of that is $50 million. Loans issued through the described schemes exceeded $400 million, meaning the regulation was violated by a factor of 8. This is not a small mistake, but a deliberate violation of the law and concealment of this fact.

2. “To prove embezzlement, do we need to trace the money to the bankers’ personal accounts?”

No, we don’t. It became embezzlement the moment the money was transferred to affiliated companies in clear violation of the law. What happened to it afterward does not affect the fact of embezzlement, though it may affect the specific legal classification in court (large-scale fraud, misappropriation, embezzlement, etc.). The only way to prove it was not embezzlement from a financial standpoint is to justify the legality and economic feasibility of the initial transfer of funds to the companies (but this was done without collateral, with assets far smaller than the loan itself, and with no signs of normal economic activity — tough luck!).

3. “FBK’s response shows it wasn’t embezzlement because part of the money came back?”

No, it became embezzlement at the moment of the initial illegal withdrawal of funds. Whether part or even all of it was later returned is irrelevant, because the embezzlement had already occurred (at most, it’s a mitigating factor).

4. “But some of the money did return to the bank and to a debt collection agency!”

Vermenda, in that now internet-famous transfer, did not return the money to the bank but simply deposited it into her own account there (which makes sense — they certainly wouldn’t ask about its source there). That money does not belong to the bank. The debt collection agency also does not belong to the bank. Once the money left the bank illegally, it never returned. All FBK showed is that it remained in affiliated companies. Where it went afterward is very interesting (some of the money from the agency went back to Vermenda), but none of this changes the conclusion about the initial embezzlement.

5. “This was risk-shifting! The bank just moved the money to use it in risky projects (like stocks) and would have returned it later, sharing the profits with creditors!”

Embezzlement also includes the intent “to use, not to steal outright.” That does not make it non-embezzlement, because the money was still illegally withdrawn from the bank. Moreover, if that’s really what happened, the bankers’ debt to the bank’s creditors is even greater, because they must return not only the principal and promised interest but also all profits from those risky investments, since they were obtained with illegally acquired funds — meaning it’s illegal income.

6. “You can’t prosecute for risk-shifting because there’s no such article. So it’s just morally wrong?”

A separate article might be useful, but it’s still a subtype of embezzlement, and all similar cases are currently prosecuted under one of the existing embezzlement statutes. In short, it’s still embezzlement.

7. “But they could have only made profits for everyone and returned everything! It’s the Central Bank’s fault for revoking the license!”

That’s also irrelevant, because the initial embezzlement — whether with the intent to use or to steal — occurred at the moment the money was withdrawn. Plus, again, illegal income must also be returned.

8. “Can bankers only be required to return the portion of withdrawn funds that can be traced to their personal accounts?”

No, once embezzlement is established, bankers must return the entire corresponding amount, whether it’s the same bills that were stolen or others (e.g., from salary savings or inheritance) — that’s not important.

9. “This was just a precautionary withdrawal before the DIA came and seized all assets!”

The embezzlement occurred at the initial moment the assets were withdrawn from the bank, and far more money was withdrawn than the bankers personally owned. Whether there was a threat from the DIA or additional corruption during liquidation does not affect the illegality of the initial withdrawal of other people’s money — and thus the embezzlement itself.

10. “All banks were stealing back then! We should look at who benefits from this particular investigation.”

No, every case of fraud should be investigated, regardless of who was harmed or who supports the defendant. If one crook wasn’t prosecuted, that’s no reason not to consider the case of another. Here, there is a very clear body of evidence pointing to embezzlement, and the court should examine it on the merits.

11. “So, it turns out that FBK, Mironov, and everyone else either confirm or do not refute the allegations of embezzlement by the bankers?”

Exactly. The embezzlement occurred at the stage of illegal withdrawal of funds in favor of affiliated companies, which none of the participants in the discussion dispute. Thus, they all either confirm or do not refute the embezzlement.

12. “Then why all these discussions about offshore accounts and where the money goes?”

That’s to determine whether there was money laundering. It does not contradict the embezzlement charge, because the illegal withdrawal of assets had already occurred. For example, in Liechtenstein, there is an account belonging to Leontiev with millions in it, whose economic source lawyers cannot determine (everything gets stuck in a web of offshore accounts where money moves back and forth for no clear reason). That’s why the money was initially frozen on suspicion of money laundering. In particular, in money laundering cases, it’s not always necessary to show the full chain from embezzlement to a personal pocket — there are many indirect methods more than sufficient for court (and in this case, they are all present, but that’s a separate FAQ).

Chez’s note: This thread had a continuation