by Laylo Qarshiboyeva
Image source: lawstrust.com
November 26, 2021

The institution of banking secrecy is an integral part of banking law, which ensures a stable and robust relationship between banks and the customer. On June 26, 2021, the Oliy Majlis (Parliament of Uzbekistan) adopted a new version with amendments to the Law on Bank Secrecy.

This blogpost introduces amendments to the Law «On Bank Secrecy» and analyzes the differences between the old and new versions of the Law. Blogpost will also discuss the reasons behind these amendments.

 Notion of “banking secrecy” in legislation

It is well known that banking secrecy, alternatively known as financial privacy, banking discretion, or bank safety, is a conditional agreement between a bank and its clients that all preceding activities remain secure, confidential, and private.

So, what does the legislation say about it and what information constitutes a bank secret?

Article 3 of the Law on Banking Secrecy defines the concept of banking secrecy. According to this Article, the following information is regarded as bank secrecy under Bank Secrecy Law and not allowed to disclosure to third parties:

  • Information of bank operations, accounts and deposits of the customer (correspondent) of the bank;
  • Information of customer (correspondent) of the bank, obtained by bank in connection with rendering banking services to its customer;
  • Existence, type and cost of customer’s property (correspondent), kept in safes and premises of the bank;
  • Interbank operations and deals, made by customer’s (correspondent’s) order or in his favor;
  • Information of customer (correspondent) of other bank that became known as a result of exchanging data (related to bank secrecy) between banks;
  • Participants of savings pension system, amount and flow of pension deposit sums, pension savings on individual savings pension accounts of citizens.

Third parties are all other entities, except the bank, its customer (correspondent), and the Central Bank of Uzbekistan.  Furthermore, information regarded as bank secrecy might be provided to law enforcement bodies, courts, tax and customs bodies, and legal successors in cases stipulated in Law.

Analysis of amendments to the Law

According to the addition to Article 5 of the Law,  it is now possible to exchange information constituting banking secrecy between the prosecutor’s office, the preliminary investigation, inquiry and investigative agencies, as well as the competent authorities of foreign countries.

Another amendment in the legislation states that law enforcement agencies can automatically obtain whether a citizen has a bank account from the Central Bank’s database. Here, the prosecutor does not have to authorize this.

 For information, under the previous version of the Banking Secrecy Act, investigators and inquirers would need a prosecutor’s sanction in all cases in order to obtain information about a person’s bank secrecy.

The press service of the Central Bank issued the following statement:

“Simply put, an investigator or inquirer can only know if a legal entity or an individual has a bank account. It may be 1 sum or 1000 sums in this account, but they cannot know how much money has the account. The investigator or inquiry officer may receive the account turnover only with the prosecutor’s sanction within the framework of the criminal case.

The statement also said that the Central Bank was developing a program that would automatically allow investigators and inquirers to determine whether the suspects have bank accounts.

It should be noted that these amendments to the Law on Banking Secrecy contribute to the following:

a) implementation of the requirements of UN conventions and the Eurasian Group on Combating Money Laundering and Financing of Terrorism recommendations into national legislation;

b) ensuring the successful completion of the second stage of the assessment of the national system of Uzbekistan by the Eurasian Group on Combating Money Laundering and Financing of Terrorism.

At this point, the question arises: Wouldn’t these amendments be a disclosure of citizens’ bank secrets?

Article 5 of the Law on Banking Secrecy stipulated that disclosure of information constituting a bank secret through the mass media, oral or written information, as well as distribution to third parties, is considered disclosure of a bank secret.

In addition, Article 7 of the Law on Bank Secrecy determined that the bank guarantees the protection of information constituting banking secrecy. Managers and other employees of the Bank are prohibited from disclosing information that includes a bank secret entrusted to them or known in connection with the performance of official duties, as well as the use of this information for personal purposes or in the interests of third parties.  Even the head or other bank employee has no right to disclose information that became known to him during his work in the bank, even after the termination of his employment contract with the bank.

It must be also noted that there are some cases in the Law where bank secrecy may be disclosed to certain individuals in certain circumstances, based on legal grounds, of course.

According to the second part of Article 5 of the Law on Bank Secrecy, the following is not considered bank disclosure.

Firstly,  the message or provision by the bank of the data which are bank secrecy, to the third parties in the cases provided by this Law and also to persons rendering to bank legal, accounting, auditor, information and consulting services provided that it is necessary for rendering this service;

Secondly, the exchange of information constituting bank secrecy between the prosecution, preliminary investigation, inquiry and the bodies carrying out operational-search activities, and the competent authorities of foreign states in the manner prescribed by the legislation and international treaties Uzbekistan.

Based on the above grounds, we can say that these amendments are not considered disclosure of bank secrecy. They provide for the implementation of urgent measures to prevent and detect crime. This procedure exists in many countries around the world and only applies to criminals or suspects.

The experience of foreign countries

Having studied the experience of Germany, we can say that there are numerous exceptions to the banking secrecy requirement (as exceptions provided by the Law of Uzbekistan on Banking Secrecy) based on legal obligations to disclose information to certain public authorities.

For instance, banks have to provide information in the case of suspicion of money laundering under the Money Laundering Act to the local public prosecutor and police as well as to the German Financial Intelligence Unit at the Federal Police Authority, in penal proceedings at the request of the public prosecutor, authorized by a court order. Moreover, banks have to provide information at the request of the German Financial  Supervisory Authority and under certain circumstances in response to inquiries from fiscal authorities.

In addition, the obligation to disclose information was extended considerably by the Fourth Financial  Market Promotion Act of July 2002. To fight terrorism, this Act lays down a procedure that gives banking supervisors direct automated access to the key account information banks must hold in special databases.

As for the experience of  Latvia, Article 63 of the Law on Credit institutions provides dispensations from professional secrecy,  if the tax authorities require the information, prosecutors, courts, bank of Latvia, Financial and Capital Market Commission.

If we look at the French experience, Article L511-33 of the Financial and Monetary Code only dispenses banks from their obligation of professional secrecy in cases covered by specific laws, requests by judicial authorities acting in the framework of a penal procedure. Relations with the Bank of France, the Banking Commission, and the Commission for Stock Exchange Operations also dispense banks from their obligation.

Based on the experience of the countries analyzed above, it can be said that the practice of disclosure of information constituting banking secrecy is almost identical to that of Uzbekistan. That is, in Uzbekistan, as in Germany, France, and Latvia, banks, tax authorities, prosecutors, courts, judicial authorities are the general competent authorities with the right to required information constituting banking secrecy.

Conclusion

Summarizing the above analysis, these amendments to the Banking Secrecy Law have been made taking into account the need to implement the international experience in combating money laundering into national legislation. This practice is used in many foreign countries and we have seen this practice in the experience of Germany, France, Latvia.

It is also essential to mention that the amendments to the Law on Banking Secrecy do not affect citizens’ rights related to banking secrecy. The Law stipulates that information related to banking secrecy may not be disclosed. Bank secrecy is provided only in the presence of serious grounds to prevent crime. These amendments serve the security and interests not only of the state but also of the citizens.

Cite as: Laylo Qarshiboyeva, “A review of amendments to the Law “On Bank Secrecy”: challenges and issues”, Uzbekistanlawblog, 26.11.2021