Commentary on Article 227. Submission of Knowingly False Information by Professional Participants in the Securities Market of the Criminal Code of the Republic of Kazakhstan

1. Submission by professional participants in the securities market to government authorities and holders of securities of knowingly false information regarding the quantity and types of securities held in the personal accounts of securities holders, and transactions involving securities, for the purpose of obtaining property benefits, where such actions cause major damage, —

shall be punishable by a fine in an amount of up to two hundred monthly calculation indices, or corrective labor in the same amount, or community service for a period of up to one hundred and twenty hours, or arrest for a period of up to forty days, with deprivation of the right to hold certain positions or engage in certain activities for a period of up to three years, or without such deprivation.

The public danger of the criminal offense is обусловлена by the submission by professional participants in the securities market to government authorities and securities holders of knowingly false information regarding the quantity and types of securities held in the personal accounts of securities holders, and transactions involving securities. In addition, when it is committed, trust in professional participants in the securities market, who carry out their professional activities under conditions of fair competition, is undermined.

The object of the criminal misdemeanor under consideration is public relations arising in the securities market and related to the regulation of transactions involving securities.

The subject matter of the criminal misdemeanor is a security. The definition of the concept of “security” is provided in subparagraph 4) of Article 1 of the Law of the Republic of Kazakhstan “On the Securities Market” (the same concept of a security is provided in paragraph 1 of Article 129 of the Civil Code of the Republic of Kazakhstan).

In accordance with paragraph 1-1 of Article 129 of the Civil Code, securities may be debt securities and equity securities. Debt securities are securities certifying the issuer's (debtor's) obligation to pay the principal amount of the debt under the terms of issuance of these securities. An equity security is a security certifying its owner's right to a certain share in property in cases provided for by the legislation of the Republic of Kazakhstan.

Securities include shares, bonds and other types of securities determined in accordance with the Civil Code of the Republic of Kazakhstan and other legislative acts of the Republic of Kazakhstan (paragraph 2 of Article 129 of the Civil Code).

Depending on the form of issuance, securities are divided into:

documentary and non-documentary;

issue and non-issue;

registered, bearer and order securities (paragraph 3 of Article 129 of the Civil Code).

The objective side of the criminal misdemeanor is expressed in actions consisting of the submission by professional participants in the securities market to government authorities and securities holders of knowingly false information regarding the quantity and types of securities held in the personal accounts of securities holders, and transactions involving securities, the socially dangerous consequence in the form of major damage, and the causal relationship between them.

The legislation of the Republic of Kazakhstan does not contain a definition of the concept of “transactions involving securities”. The Law of the Republic of Kazakhstan “On the Securities Market” itself establishes a number of actions that may be considered transactions carried out with securities: issuance of state issue securities (Article 7); payment of income on securities (Article 31); issuance of depositary receipts or other securities whose underlying asset consists of issue securities of resident issuers of the Republic of Kazakhstan (Article 34); custodial activities (Articles 73–75); brokerage and dealing activities in the securities market (Articles 63, 64); activities of a stock exchange (Article 88), etc.

The concept of a personal account is provided in subparagraph 28) of Article 1 of the Law of the Republic of Kazakhstan “On the Securities Market”, according to which a personal account is a set of records contained in the system of registers of securities holders or the nominee holding accounting system, which makes it possible to unambiguously identify a registered person for the purpose of registering transactions and recording rights to issue securities and other financial instruments.

The concept of “holder of a security” is provided in subparagraph 12) of Article 1 of the Law and is characterized in the commentary to Article 226 of the Criminal Code of the Republic of Kazakhstan.

State regulation of the securities market is carried out by the authorized body for regulation, control and supervision of the financial market and financial organizations.

A necessary condition for bringing a person to criminal liability under the article under consideration is that the information submitted regarding transactions involving securities must be false, either in whole or in part, that is, not correspond to reality.

By its structure, the elements of this criminal misdemeanor are material. The criminal misdemeanor shall be considered completed from the moment the consequence in the form of major damage occurs, namely, damage caused to an individual in an amount exceeding two hundred times the monthly calculation index, or damage caused to an organization or the state in an amount exceeding two thousand times the monthly calculation index.

From the subjective side, the criminal misdemeanor is committed with direct intent. The offender realizes that they are submitting to government authorities and securities holders knowingly false information regarding the quantity and types of securities held in the personal accounts of securities holders, and transactions involving securities, for the purpose of obtaining property benefits, foresees the possibility or inevitability of consequences in the form of major damage resulting from such actions, and desires their occurrence.

The subject of the criminal misdemeanor is special. It is a sane person who has reached the age of 16 and is a professional participant in the securities market (custodian), carrying out the accounting of clients' financial instruments and money and confirmation of rights thereto, safekeeping clients' documentary financial instruments while assuming obligations to ensure their safekeeping, and other activities in accordance with the legislative acts of the Republic of Kazakhstan.

Subparagraph И) of Article 1 of the Law of the Republic of Kazakhstan “On the Securities Market” provides a definition of a professional participant in the securities market, according to which it is a legal entity carrying out its activities in the securities market on the basis of a license or in accordance with the legislative acts of the Republic of Kazakhstan.

In accordance with Article 1 of the aforementioned Law, professional participants in the securities market include:

underwriter — a professional participant in the securities market holding a license to carry out brokerage and dealing activities and providing services to an issuer in the issuance and placement of issue securities (paragraph 3);

broker — a professional participant in the securities market carrying out transactions with issue securities and other financial instruments on behalf of, at the expense of, and in the interests of a client (paragraph 16);

dealer — a professional participant in the securities market carrying out transactions with issue securities and other financial instruments in its own interests and at its own expense on the unorganized securities market and on the organized securities market with the right of direct access thereto (paragraph 26);

investment portfolio manager — a professional participant in the securities market carrying out activities in its own name, in the interests of and at the expense of a client, involving the management of civil rights objects (paragraph 34);

custodian — a professional participant in the securities market carrying out the accounting of clients' financial instruments and money and confirmation of rights thereto, safekeeping clients' documentary financial instruments while assuming obligations to ensure their safekeeping, and other activities in accordance with the legislative acts of the Republic of Kazakhstan (paragraph 46);

transfer agent — a professional participant in the securities market providing services for the receipt and transfer of documents (information) between its clients (paragraph 84).

The act provided for in Article 227 of the Criminal Code of the Republic of Kazakhstan is classified as a criminal misdemeanor.

Commentary of 2021 to the Criminal Code of the Republic of Kazakhstan by Isidor Shamilovich Borchashvili, Honored Figure of Kazakhstan, Doctor of Law, Professor, Academician of the Kazakhstan National Academy of Natural Sciences, Member of the Scientific Advisory Councils under the Constitutional Council of the Republic of Kazakhstan and the Supreme Court of the Republic of Kazakhstan, Member of the Working Group on the Reform of the Law Enforcement System under the Security Council of the Republic of Kazakhstan, Honored Employee of the Ministry of Internal Affairs of the Republic of Kazakhstan.

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