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A continuation from a Western professor, this time about embezzlement and some theses by Maxim Mironov.

Many thanks to everyone who read and responded to my previous thread, it was completely unexpected and very pleasant. I would especially like to thank everyone who left comments on the content of the theses — your questions were absolutely fair and well-founded, and helped me understand what needed to be explained better.

This note will cover the following: a) Why the actions of Probiznesbank look like embezzlement, and not just falsification of reporting with risky operations. b) Why FBK’s response does not in any way refute the version of embezzlement.

1. What is embezzlement?

There are different types of embezzlement: misappropriation, fraud, appropriation, etc. What do they have in common? All these actions are unlawful, gratuitous seizure and/or conversion of someone else’s property for the purpose of obtaining benefits for oneself or others, which causes damage to the owner of this property.

In everyday life, all such “takers” are called thieves and crooks.

2. “How to prove embezzlement in any described scheme of Probiznesbank?”

The elements of embezzlement follow from its definition:

  • Gratuitousness. Depositors did not know about the risky illegal operations that the bank carried out with their money, and did not receive fair compensation for this. There is no disagreement here.
  • Illegality of actions. Here too, everyone already agrees: the operations were carried out in violation of the Central Bank’s regulations and with falsification of reporting.
  • Benefit from illegal operations for the bankers themselves or third parties.
  • Harm to depositors.

It is not enough to show the final losses of depositors. It is necessary that both the harm to depositors and the benefit to bankers or third parties were the original purpose of the operation. And this is exactly what unites all the described schemes involving Probiznesbank. They were originally designed so that depositors had no opportunity to recover illegally withdrawn money or receive fair compensation for it (for example, collateral or a guarantor’s guarantee). That is why the documents point to embezzlement.

3. “How does a bank issue a regular loan?”

When a bank issues a loan, especially a large one, it tries to insure itself in case of non-payment. It looks at your solvency. Very often it asks for collateral that can be taken in case of non-payment of the loan. If you have a mortgage, such collateral is your apartment or house. Another example is a guarantee from a guarantor who agrees to repay the loan instead of the borrower if the borrower cannot repay it. The riskier the loan, the higher the interest rate. In addition, the bank must allocate reserves for such risks. The less “insurance,” the more reserves.

4. The essence of the accusations against the bankers for embezzlement

All schemes for the illegal withdrawal of depositors’ money to offshore companies, for which there are documents, were originally designed so that depositors had no opportunity to recover illegally withdrawn money or receive compensation if the offshore simply refused to return it.

For example: 1) there was no collateral, 2) having initially received guarantees from guarantors, the bank simply canceled them itself (Immoger), 3) there was no personal liability of the bankers themselves, who owned the offshore companies, to demand repayment of the loan from them in case of non-payment. At the same time, the loans were huge both compared to the assets of the companies to which they went and compared to the bank’s own capital. The interest rate on the loans was very low. All this huge risk was not reflected in the bank’s balance sheet or in additional reserves.

Harm to depositors is not only the money that apparently was never intended to be returned (and ultimately was not returned), but also the extremely low, completely non-market compensation for the level of risk to which their investments were exposed.

5. “But some of the money could have been returned or even was returned!”

In many embezzlements, partial payments are made, usually to create the illusion that everything is fine before stealing the rest. Even if there were some reverse payments to the bank, this does not affect the fact of the original embezzlement.

6. “But there were as much as 90 million that returned to the bank! Katz hid it!”

The 90 million returned to the bank not as repayment of the offshore loans, but as a loan from them to the bank itself. Imagine that your car was stolen, and then the next day it was rented back to you. This does not change the fact of the original theft of the car.

7. “We don’t have all the reporting (for example, on all operations of the collection agency), we will never know the whole truth”

To establish the fact of embezzlement, it is not necessary to have the reporting of all affiliated companies. It is enough to show that harm to depositors and benefit to third parties were originally embedded in all these schemes for the illegal withdrawal of assets from Probiznesbank. The available documents confirm this.

8. “The Central Bank is to blame! If it had not revoked the license, all payments would have returned!”

Embezzlement occurs at the moment of the initial withdrawal of money, not when it is completely gone. The fact that depositors would lose their money and receive no compensation if companies of Zheleznyak and Leontyev simply decided not to pay on loans was originally embedded in all the schemes. When exactly this loss was realized or discovered does not matter, because the embezzlement had already occurred.

If your TV was stolen, the theft occurred when it was taken out of the house, not when you noticed it was gone. The thief may even return the TV or its remote to you, but this does not cancel the fact of the original theft.

9. Professor Mironov: “To prove theft, you need to trace the path of this money to the personal offshore accounts or bank accounts of the bankers”

To prove embezzlement, it is not necessary to trace the path of this money to the personal offshore accounts or bank accounts of the bankers. Embezzlement occurs at the moment when bankers withdrew money from the bank through schemes so that depositors had no opportunity to recover illegally withdrawn money in advance. After guilt is established, they will have to pay from any personal assets (withdrawn money, accumulated salary, investment results, property, etc.).

Similar cases of withdrawing money from a bank are usually prosecuted either as misappropriation or embezzlement, or as fraud, so the requirements for proving “theft” here are irrelevant.

10. Professor Mironov: “Because in court their arguments will be evaluated by professionals, not a poorly educated audience that can easily be fed the argument that if the money was withdrawn to an offshore and did not return to the bank, then it was stolen.”

The documents of Probiznesbank’s transactions indicate not just that the money was withdrawn to an offshore, but that the transactions were originally structured so that depositors would have no access to this money in case of non-payment by the companies, and they could not receive compensation (for example, the right to access collateral). This is exactly what professionals would evaluate if the case had ever been considered on the merits in court.

The origin of the money in Leontyev’s account in Liechtenstein is irrelevant to establishing the fact of embezzlement. Embezzlement can be proven by showing that the transactions for withdrawing money were originally structured so that the bank would have no access to this money in case the offshore refused to pay under the contracts (and no insurance/guarantee in such a case). This is exactly how all the schemes of Probiznesbank were arranged.

Leontyev’s account in Liechtenstein is important for the charge not of embezzlement, but of money laundering. This is a separate charge, and proof of embezzlement does not depend on it. But the charge of money laundering depends on Leontyev’s ability to prove the legal origin of the initial funds that came to him through the network of offshore companies.

12. Why FBK’s response does not refute the accusations of embezzlement

Because they never even tried to challenge the very arguments that prove embezzlement. Namely, why the transactions were originally created so that in case of non-payment by the offshores controlled by Zheleznyak and Leontyev, depositors would not be able to gain any access to either the bankers’ own assets, or collateral, or payment from a guarantor. This risk was not reflected in the cost of the loan, nor on the bank’s balance sheet, nor in its reserves.

Some schemes FBK completely ignored in its response. For example, they said nothing about the situation with Immoger, when the bankers simply canceled the guarantee. As a result, when the company of Zheleznyak and Leontyev decided not to pay on the loan, the bank could not even demand compensation from the guarantor.