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Banking secrecy available to the public

Ukrayins'ka pravda

Actually banking borrowers do not differ from other borrowers. Bank practices may be used by any of the lenders – the state, public utilities or ex-wife. Refresh your memory about you are in debts or not. Otherwise you might turn out to be the last to discover this

Just a month ago the only obstacle to exit the country was forgotten foreign passport or ticket.
Today none can be sure that the end of their trip won’t be a meeting with frontier guards at the passport check frontier point. Even those having no bank loans.
Whereas lately no amendments were introduced to the law regulating the procedure of exit for the country, the grounds for sudden limitations are rather interesting.

What has happened?

Everything started on the 7th of October 2009 from the meeting between the President of Ukraine and shareholders and borrowers of the Ukrprombank and Nadra Bank with participation of officials of the NBU and other state authorities.
That day Viktor Yuschenko ordered the State Frontier service to strengthen border control for those, who “joined” the destabilization of banks operations was not allowed to exit the country until paying their debts in full. The Head of the State added that legislation sets out all necessary grounds thereof.
National Bank had immediately sent the letter No. 18-312/4255-18700 to heads of the financial institutions suggesting enforcing debts temporary restricting the right of movement of the borrowers. The main ground thereof is the Law on Procedure on Entry and Exit of the Citizens of Ukraine to/from Ukraine.
Though the next day in the Order on Actions Aimed at Resumption of Stability in Banking System the President didn’t mention the order he voiced to frontier guards during the meeting.
He suggested merely complying with the requirements of Law with regard to temporary denied exit from the country to citizens, who deemed to be troubled borrowers. But banks did not take the trouble to investigate neither the text of the Law nor the way of its enforcement.
Only with reference to the President’s Order provisional administration of banks shortly informed that data on borrowers were passed to the Frontier Service of Ukraine to restrict their movements without any court decision. It is being reported that currently frontier guards prevented a thousand and a half individuals from exit form the country.

Mr. Law

Article 33 of the Constitution of Ukraine guarantees the right to freely leave Ukraine's territory, except restrictions imposed by law.
In accordance with the Law on Procedure of Exit and Entry from/to Ukraine effective from 1994 there are a few reasons to introduce restrictions.
Citizens familiar with information, which constitutes state secret, have unsettled alimony or other financial obligations, a criminal suit is filed against them, have been convicted for crime or evade fulfillment of obligations imposed by decision of a court, may be prohibited to exit Ukraine.
At the same time it will be impossible to leave Ukraine for those who deliberately presented false information about them, are subject to being called up for military service, have any civil action brought against them, or were declared by a court decision a dangerous recidivist, or are under the administrative police surveillance.

Temporary retention or withdrawal of the passport in these cases is executed by the court, offices of public prosecutor, bodies of internal affairs, security service, customs service, military commissariats, and consular service of Ukraine
Moreover, it is stipulated in the Law that the procedure of such retention or withdrawal shall be set out by the Cabinet of Ministers of Ukraine. But government made “a judgment worthy of Solomon”. In Resolution No. 231 of March 31, 1995 it confined itself to just defining the bodies empowered to decide on temporary retention or withdrawal of passport repeating that provision of law word-for-word.
Thus, language of the law did not stipulate any circumstances, which provide grounds for restriction of citizens’ right to exit the country, while mentioned decisions are being taken by the appropriate government authorities, and procedure of disputing such decisions.
If we consider the literal sense of provisions of the mentioned law it will turn out that any respondent in the matter of any civil claim may be prohibited to exit the country!
In view of law enforcement, if there is no procedure stipulated by the law it will be impossible to implement restriction on exit from the country. According to Article 19 of the Constitution governmental authorities shall act only pursuant to, within the limits of authority and in the manner envisaged by the Constitution and laws of Ukraine.
Nevertheless procedural legislation provides for the possibility to restrict temporarily exit of the citizens from Ukraine with passport withdrawal or without it, but only under the effective court decision and filing of the state executive. Such court filing is possible just in case there are some proofs of a citizen evading execution of a court decision.
By the way, until recently the judicial practice also proceeded from that the basis for temporary restriction of a person in the right to exit abroad with withdrawal of foreign passport shall constitute only the court decision on debts recovery.
The court decisions on temporary restriction in the borrowers’ right to exit from Ukraine with withdrawal of foreign passport were made upon the banks’ claims. Satisfying such claims the courts substantiated their decisions by the borrower’s escape from the court decision execution which was evidenced by appropriate facts.

Fierce Russia and Humane Europe

Adherents of sharp methods of fighting with debtors refer to the Russia’s experience.  Albeit, the procedure of temporary restrictions on exit from this country is absolutely different, that is why it is impossible to draw an analogy therewith.  
According to the new Russian law on enforcement proceeding taken effect on February 1, 2008, court bailiffs were entitled to ban the exit of non-payers of alimony, bank defaulters and non-payers of fines for traffic regulations breach.
The basis for such banning constitutes the default by the borrower without any valid reasons to satisfy the requirements of the court order issued upon the court decision.
It is curious that the Russian law on international travel compared to the Ukrainian one does not contain in the list of cases of temporary ban on exit the provisions on default obligations and filing of civil lawsuit as well as a long list of authorities which might prohibit the exit by reason of some obscure circumstances.  
The aforesaid law clearly charges the federal regulatory agency for migration with the obligations to advise a citizen on the established restriction.
That is not the case in the European Union. Four pillars of EU laid down by the Treaty of Rome 1957 – namely freedom of movement of citizens, commodities, services and funds – prevent such ban.
However during recession in 1990-ies sparked after the USSR collapse the EU countries adopted the law on settlement of indebtedness within the framework of the policy on social protection of citizens from the recession aftermath arisen through no fault of them.
There has existed awareness that incapacity of citizens to discharge debts constitutes a social problem the same as unemployment, loss of a part of income and savings due to devaluation of national currency, disability or disease.
The laws on settlement of troubled debts passed in the EU countries are not harmonized though they are based on the general regulatory principles.
1. Limited access of the settlement procedure, in particular under the criteria of assessment of a debtor’s ethic regard towards debt repayment.
2. Mandatory nature of the repayment schedule for all the debts matured in 5-7 years.
3. Mandatory pre-trial settlement with a lender through the agency of a special-purpose counsel.
It is obvious, adopting the abovementioned laws the EU countries proceeded from the necessity to recover a person’s financial health and from the understanding that future borrowers would follow ethic rules concerning debt redemption under the threat of being enforced and deprived of all the property.

Down in the prosecutor’s notebook

Recently an NBU’s official has announced the banks that disclosed the lists of their borrowers have not infringed anything. It is quite weird as in fact the resolutions issued by the regulator before imply contrariwise.
The NBU’s letter dated April 19, 2005 On Disclosure of the Banking Secrecy stipulates any information related to the customer shall be deemed the banking secrecy.
Since according to the law On Information the information about a person shall be deemed all the documented or publicly disclosed data, in particular address, date and place of birth, the disclosure by the banks of information with respect to the customers’ names must be considered a legal abuse.
Thus, there is a legal basis for the prosecutor’s response upon the banking secrecy disclosure.
Actually banking borrowers do not differ from other borrowers. The flack of financial institutions’ ‘best’ practices may be used by any of the lenders – the state, public utilities or ex-wife. Refresh your memory about you are in debts or not. Otherwise you might turn out to be the last to discover this.

Lesya Kovtun, Attorney at Law of Volkov Koziakov & Partners

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