Existing historical data indicate that lending money at high interest rates (usury) has been practiced since the Middle Ages and continues to this day.
Given that this activity is perceived as a form of exploiting someone’s difficult or desperate situation in order to obtain excessive profit, usury has been subject to serious moral and religious condemnation since then, and later also became subject to criminal prosecution, for which severe imprisonment was envisaged.
In today’s world, lending and deposit-taking activities, which are also the subject of the crime of usury, ensure effective economic processes by facilitating the transfer of funds from one economic activity to another, supporting both the security of commercial turnover and the daily lives of individuals. It is precisely because of the high degree of public benefit of these activities that they are regulated by law, and their implementation in contravention of the legal rules is elevated to a crime.
In fact, the colloquial name for the crime is still usury, but it includes in itself not a11> only the granting of loans by natural persons against interest, but and the performance of any banking, insurance or other financial transactions by occupation without the necessary permission, when such is required, as well as the provision of payment services and the issuance of electronic money.
Interesting! Often times the carrying out of activities related to usury turns out to be a crime, which precedes the laundering of money, due to which in many a14> cases charges for committing both crimes are brought simultaneously.
Cases from practice involving charges of usury
The first case concerns deposit-taking activities carried out without the appropriate authorization.
The defendant was a partner and manager in a company whose business was currency exchange. Due to the company’s financial difficulties, she decided to raise funds from more than 30 individuals in exchange for a promise to repay the amounts, together with interest between 1% and 4% on a monthly basis. No written contracts were signed, but promissory notes were issued to the creditors, which included the principal and interest, and the amounts received were not accounted for. This activity became a major source of income for the company represented by the defendant, and the obligations she had assumed were not fulfilled. As a result, all creditors suffered significant financial losses totaling more than BGN 1,000,000.
The charge brought is for usury under the aggravated form for obtaining significant amounts of unlawful income.
The second case concerns actual usury, carried out by granting loans at interest on a professional basis.
For a year and a half, the defendant engaged in the activity of providing sums of money to individuals with an obligation to repay, together with verbally or written agreed interest above the permissible amount. This activity was his main source of income, as a result of which he made a profit of almost BGN 500,000. At the same time, he concluded fictitious loan agreements to justify this income.
He has been charged with usury under the aggravated circumstances clause and with money laundering.
Usury – essence, punishability, and protection
The subject of today’s article will be usury itself, namely the carrying out of lending activities against interest without the appropriate authorization, but before we proceed to a detailed commentary on this crime, it is necessary to point out some general provisions related to it. This is because the legal norm governing this criminal offense is blanket, i.e., it essentially refers to civil and banking legislation with regard to the rules, the non-compliance with which leads to the establishment of the criminal nature of lending against interest without the appropriate authorization.
General provisions
In first place, civil legislation regulates legal possibility in favor of natural persons a11> to conclude between themselves contracts for monetary loans.
Essentially, this agreement imposes an obligation on the lender to transfer a pre-agreed sum of money to the borrower, and the borrower undertakes to repay it within the period agreed between the parties. In a loan agreement between natural persons, interest is payable only if agreed in writing, which is a condition for the validity of this clause.
Important! The fact that civil law requires a written form for the validity of an interest agreement on a cash loan does not change the legal classification of the crime of usury if the interest is agreed verbally. This is because, in the case of this crime, the interest is most often agreed verbally, and in the event of non-fulfillment of the obligation to pay it, the defense is not realized in accordance with the civil law procedure provided for by law. Usually, in order to actually receive the agreed interest, the usurer commits another crime – bodily harm, threats of murder, kidnapping and unlawful deprivation of liberty, etc.
The legal authorization of the Law on obligations and contracts applies to individual contracts for loans, and not to those that are concluded on a professional basis, i.e. represent main income for the lender. It is precisely in the second case that there will be a crime.
Secondly, lending at interest is also regulated in the Commercial Law as a type of commercial transaction. According to its provisions, under a bank loan agreement, the bank undertakes to provide the borrower with a certain amount of money for a specific purpose under pre-agreed written terms and conditions, term, and interest, and the borrower undertakes to use this amount in accordance with the agreement and to repay it within the specified term, together with interest. This activity is legal only when carried out by the entities provided for in the law, namely a bank as a lender and a natural or legal person as a borrower.
In the case of bank credit as a commercial transaction, the lender is always a commercial company – a bank and cannot be a natural person.
Thirdly, the Credit Institutions Act lays down specific requirements for the performance of certain types of financial activities, including financial leasing, the acquisition of loan receivables (an activity carried out by collection agencies) or other forms of financing (factoring, forfeiting, etc.), as well as the granting of loans with funds that have not been raised through public deposits or other repayable funds.
Essence of usury
Loan sharking constitutes a deliberate criminal attack on the monetary and credit system, which in its aggravated forms constitutes a serious crime within the meaning of the Criminal Code.
The elements of the crime are:
- performing banking, insurance or other financial transactions; and/or
- provision of payment services; and/or
- issuing of electronic money;
- without the respective permission, when such is required and
- the activity shall be carried out by occupation.
Which transactions are banking?
The types of banking transactions are exhaustively listed in the law: provision of payment services, issuance of traveler’s checks and letters of credit, acceptance of valuables on deposit, activities as a depositary or custodian institution, financial leasing, guarantee transactions, trading in foreign currency or precious metals, investment services and activities, investment intermediation, money brokering, acquisition of credit claims and other forms of financing (factoring, forfeiting, and others), issuing electronic money, acquiring and managing equity interests, renting safe deposit boxes, collecting, providing information and references on the creditworthiness of customers, activities as a collective financing provider, other similar activities specified by a regulation of the BNB.
Which transactions are insurance-related? These are all transactions related to health insurance, life insurance, motor insurance, insurance brokerage and agency activities, etc.
IMPORTANT! A crime will also be committed when banking, insurance, or other financial transactions are carried out beyond the scope of the authorization granted. Criminal liability will be incurred by the specific banking or insurance employee.
When is the activity carried out by occupation?
The performance of an activity as a profession is deemed to exist when the perpetrator has turned this activity into a source of permanent and/or main income. The assessment is made with regard to the behavior of the specific perpetrator, taking into account whether he or she systematically performs certain activities in his or her private interest for the purpose of obtaining income. “Systematicity” may be manifested both through regular income and through the duration and/or frequency of the activities performed.
Whether actual income has been realized is irrelevant to the existence of the crime of usury under the basic provision. The amount of actual income received is assessed with a view to determining whether it should be considered an aggravating circumstance or applied as a qualifying feature.
Punishability
For the crime of usury, the law provides for one basic and two aggravated elements.
Under the main provision, a person who, without proper authorization, carries out banking, insurance, or other financial activities as a profession, as well as a person who provides payment services or issues electronic money, shall be punished with imprisonment of three to five years. The law provides that, in addition to imprisonment, the court may confiscate up to half of the guilty party’s property.
Thus, the punishment provided for indicates that it is not possible to exempt a person from criminal liability by imposing an administrative penalty, nor is it possible to replace a sentence of imprisonment with probation.
However, it is possible to impose a suspended sentence, including a sentence of less than three years, if there are multiple or exceptional mitigating circumstances. In this case, it is also possible that no confiscation of property will be imposed. The existence of such circumstances is established by evidence provided by the defense attorney for each specific case.
Under the first qualifying provision, when the crime of usury has resulted in significant property damage or significant unlawful income, the punishment is imprisonment for five to ten years and a fine of five thousand to ten thousand leva. Here, the confiscation of part or all of the perpetrator’s property is provided for as a power of the court to assess and is not mandatory.
In this case, exemption from criminal liability with the imposition of an administrative penalty is also not possible. It is also not possible to impose a suspended sentence, unless there are multiple or exceptional mitigating circumstances and the court imposes a prison sentence below the minimum provided for, but not exceeding three years.
If the imposed punishment is more than three years, it shall be served effectively, and it shall be possible to seek conditional early release upon the occurrence of the specified conditions therefor.
According to the second qualified composition the punishment is the same, but is imposed in cases where in the carrying out banking activities with authorization, the actor uses funds acquired in violation of the established provisions.
Protection
As with any other crime, in cases of usury charges, the defense is also built around the specific case, taking into account all the circumstances of the case.
The most important moment in building the line of defense when a charge of usury is brought is to… raised charge of usury is to establish the absence of at least one of its elements. This will mean that the act is not punishable, i.e. it does not constitute a crime.
In fact, the most common reason in practice for acquittals on charges of usury is the finding that the activity is not carried out systematically and professionally, but episodically and does not constitute the main or permanent income of the perpetrator.
Given that this is a complex crime, the provisions of which refer to civil law, in order to build an adequate line of defense, it is necessary to have detailed knowledge not only of the law and judicial practice in the field of criminal law concerning charges of usury, but also an excellent understanding of financial processes, along with the legislation governing banking, insurance, and other financial transactions.
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More information regarding the defense of defendants accused of committing various types of crimes, can be found in the section “Criminal law”.
Sole proprietorship law firm company “Silvia Petkova” provides qualified legal assistance from experienced lawyers in criminal law in the event of charges charges for committed crimes against the monetary and credit system.
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