Kuwait Banks Union's Study
May 5th 2002
Kuwaiti Banks Union
Mr. Ahmed Rashid Al-Harun
General Manager
Kuwait Chamber of Commerce and Industry
Best Greetings,
In reference to the meeting held with you in the venue of Kuwait Chamber of Commerce and Industry on Wednesday corresponding April 24th 2002, in regards of considering the proposal of amending the Penal Code which stipulates that the punishment for the crime of issuing uncovered check shall be attenuated which attenuation makes the same a misdemeanor rather than a felony. I attach to you a study containing the opinion of Kuwaiti Banks Union about the above mentioned proposal. Please read it and we hope to be informed with what will be done as soon as possible.
Best Regards
Yousif Abd Al-Hamid Al-Jassim
A Study of Kuwaiti Banks Union's Opinion:
Penal Code proposal amendment in regards of the punishment of issuing uncovered checks
Subject Plan:
First: Main Sources
Second: Brief about the Check:
- The Importance of the Check
- The Main Function of the Check
- The Criminal Protection of the Check
- Decline of the criminal protection of the check in some legislations
Third: The Phenomenon of Checks Abuse:
- Using the check as a credit
- Negative impacts of this phenomenon.
Fourth: The Most Important Modern Modes of Payment Compared to the Check.
- Plastic payment cards
- Advantages of payment cards compared to the check
Fifth: Suggestions and Recommendations
First: Main Sources of the Subject:
Explanatory memorandum of the draft bill of Kuwaiti Trade Law.
The following books of law:
Judge Mahmoud Al-Masri: In the Provision of Check from both Civil and Criminal Perspectives.
Dr. Hosni Al-Masri: Commercial Papers in Kuwaiti Trade Law.
Dr. Samiha Al-Qalioubi: Commercial Papers, Issue: 1999.
Judge Abdul Fattah Murad: Explaining the New Trade Law in the Arab Republic of Egypt.
Additional Mechanisms for Local Banks in Coordination with Kuwait Central Bank for Minimizing Abuse of Checks.
Second: A Brief about the Check
The Importance of the Check:
The check is related to works of banks and its use4d as a mode for implementing them. It does a technical function; the customer can take back the money he deposited at the bank. It is also an easy mode for repaying debts and settling payments among several parties. It is moved from one receivable to another and does the function of money and is considered an alternative for banknotes.
The importance of the check increases or decreases according to the extent to which other modern modes of payment are spread. In countries that witnessed a remarkable development in this field, there was less dependence on the check due to the spread of payment cards especially the USA and most European countries, where several payment cards have nearly replaced the check. There are some legislations in the developed countries that use the way of electronic money fund, which allow settling the purchase list by a card. Also, the banking transfer is used as a mode of payment by way of entry and this system is not subject to a certain form or special conditions and all it requires is a bank account for both the customer who ordered transfer and the beneficiary thereof. It is decided that payment is not considered to have been made except by entry actually in the beneficiary's account.
The owner of the banking account can issue his orders for the bank to repay his debt in installments for a specific creditor on a constant basis (order of continuous transfer) and the beneficiary gives his order to his bank to receive these entries. This system of banking transfer does not result in a crime when there is no balance for the customer.
Because modern modes of payment are not widely spread inside Kuwait and because of the enactments of related legislations, the check is still playing it important role in civil and commercial life alike. This is what led the Kuwaiti legislator to allocate for it a comprehensive organization within the draft of the Trade Law, which come adherent in its provision to the modern legislations in this regard. This is because of the unity of source from which these rules were derived, i.e. the unified subject legislator in Geneva in 1931.
The Main Function of the Check:
The main function of the check is that it is a mode of payment and not a mode of credit. It makes us do without money; instead that the debtor pays an amount of money to his creditor in payment of his debt, the debtor writes a check for his creditor in payment of the debt. Since payment of the check is always made through the bank, the bearer feels secure to a great extent for obtaining its value, which increases transaction with the check, even if this is not achieved except through the availability of sufficient balance for the drawee bank.
In confirmation of the function of the check as a mode of payment, Article 532 of the Kuwaiti Trade Law stipulated that:
1- The check is payable upon reading it, and every statement contradictory thereto is considered as if it was not present.
2- If the check is submitted for payment before the date indicated therein as a date of issue, the check shall be paid on the date it was submitted.
Consequently, the legal stipulation reveals that stipulating payment upon reading achieves the function the check was created for, i.e. as a mode of payment only. It is unlike bill of exchange or promissory note which is considered as a mode of credit. Thus, even if the check is deferred in date, the bearer can submit it to the bank to cash the value thereof and the bank shall not refrain in such case from cashing it so long as it has balance.
The Criminal Protection of the Check as a Mode of Payment:
Due to the important role played in life, and on which the interests of Kuwaiti economy depends, and in order that it does its function as a mode of payment that replaces money to encourage transaction therein and in guarantee of the payment of its value to the beneficiary, it was necessary to add a criminal protection especially for this deed, which was stipulated by Article 237 of Kuwait Penal Code, amended with Law no. 15 for the year 1978, Law no. 3 for the year 1994, as follows:
"An imprisonment sentence of a term not exceeding five years and with a fine not exceeding five hundred dinars or either punishment shall be served by a person who, with bad intention, commits one of the following acts:
A- If he issues a check which has no current cashable payment consideration.
B- If he regains, after issuing the check, all or some of the consideration in such a way that the remaining amount is not sufficient for the value thereof.
C- If he tells the drawee not to cash the check.
D- If he deliberately writes the check or sings it in such a way that prevents it from being cashed.
E- If he endorses or signs for a third party a payable bearer check, despite knowing that it has no consideration that is sufficient for the value thereof or not cashable.
If the perpetrator repeats committing any of these crimes within five years as from the date of sentencing him any of them, the punishment shall be a punishment not exceeding seven years and a fine that does not exceed seven hundred dinars.
The court may exempt the perpetrator from punishment if he proved to have paid the value of the check before the issuance of the final sentence. Whereas if he proved to have paid the value of the check after the issuance of the final sentence, the court, which issued the sentence, may order the suspension of the issued punishment as per the request of the sentenced person or any representative thereof.
And in this case, the punishment is considered as if it has been enforced and the request is submitted to the court, which issued the court, within 3 days as from the day of submitting the request.
The Decrease of the Criminal Protection of the Check in Some Legislations:
It has been previously pointed out, when commenting on the importance of the check, to the role of modern modes of payment and their spread in decreasing this importance especially in the USA and most European countries, which witnessed tools of banking work, have a remarkable development in this field where these modes nearly replaced the check in transaction. This was followed by the decrease of criminal protection in the legislations of some countries that were enforcing the crime of the check without balance. The best example for this is France which gradually began to amend the provisions of the check especially in regards of nullifying the crime of issuing a check without balance as from 1972 till it ended in 1992 to the omission of this crime. Even it has kept some related crimes, i.e. the case of preventing the drawee from paying the value of the check with the order of the drawer or regaining balance after issuing the check, accepting the check or endorsing it despite knowing of regaining the check or the issuance of an order that prevents cashing it or of preventing the issuance of new checks in addition to the crimes of forging or imitating the check. This is in addition to enforcing a civil penalty in case of issuing a check without balance, i.e. paying sums of money and preventing the issuance of new checks.
It is noteworthy that Switzerland does not incriminate issuing a check without balance either, even if it is considered an illegal act and this is also true of Germany, the USA and England.
No doubt that nullifying this punishment has decreased the number of disputes related to issuing checks without balance before courts in particular, and the lapse of the suit in general with civil compensations remaining annexed to these criminal suits.
Third: Abuse of Checks:
Using the check as a mode of credit:
Although the check has criminal protection as a mode of payment and stricter punishment is enforced against the committer of the crime of issuing a check without balance, the spreading of this crime is still existing due to the deviation in using the check out of the scope of the sole function it was created for, i.e. as a mode of payment only if the credit check is endorsed in most cases of selling in installment or when some financial institutions do transactions of installment-paid lending. In stead that the sellers or lenders study the financial positions of their customers to make sure they can bear these financial commitments, they make them write blank checks or deferred checks for the value of deferred installments, taking the criminal punishment of the check without balance as mode of terrorizing them to force them to repay.
It can be said that the outbreak of this phenomenon constitutes a main factor in high rates of the crime of check without balance though it has criminal protection.
Negative Impacts of the Check as a Mode of Credit:
Using the check as a mode of credit, in deviation from its function as a mode of payment, results in several important negative social and economic impacts that can be as follows:
· Returning from a back door to the system of physical coercion for repaying civil and commercial rights, which system was denounced by most contemporary legislation and even the constitutions of countries expressly prohibited it.
· The decline of social ties in a society, which ties are and still the main support for its consistency and the spread of the spirit of cooperation among its members.
· Weak trust in checks as modes of payment that replace money in transactions, which causes great harm to the economic interest of society that necessitated the presence of this organization to facilitate transaction between its members and give an impetus to economy.
· The confusion of the values of some assets because the debtors are forced by these checks to cash their goods or liquidate their other assets for very low prices to avoid the criminal penalty stipulated for protecting the transaction in the check.
Fourth: The Most Important Modes of Payment Compared to the Check:
The context of this research requires reviewing the most important modern modes of payment with holding a quick comparison between them and the check as one of the traditional modes of payment.
Credit Cards:
Plastic Payment Cards:
The most important modes of payment and the most widely spread ones are represented in plastic payment cards usually issued by banks and great financial institutions, which can be classified according to function as follows:
Creditor Card (ATM card):
It is the most widely spread type of payment cards all over the world. It does not give the customer any credit and is characterized by that it enables the customer to pay the value of the goods, purchases and services instead of paying in cash. The customer submits the card to the dealer or service provider who has a special machine connected to the card center at the bank which issued the card. The card is inserted in the machine and its data are read through the magnetic bar code at the back of the card. The card center is automatically connected to then the branch which has the opened account is connected to and the balance of the customer is seen; if it allows deduction, this happens automatically and the value is added to the account of the dealer and thus the process of buying occurs.
Whereas if the balance does not allow deduction, it will be indicated on the machine screen that the transaction was not made and is cancelled. These cards occupy the highest degree of guarantee for the dealer who accepts payment therewith, where the issuing bank is committed to pay; they perform the function of the check accredited by the bank to guarantee payment to the bearer thereof.
Credit Card:
This card represents a real credit for its bearer; the bearer enjoys real credit from the issuing bank, where instant payment is not necessary. Usually, the relationship between the bank and customer includes an organization for the credit facilities submitted for the customer and the conditions for these facilitations whether in terms of the period allowed after which deduction from the customer's account begins. The agreement also includes the maximum allowed amounts for use or the dates of the payment thereof.
Advantages of Payment Cards Compared to the Check:
Comparing the characteristics of these modern modes with the check, it is clear that they are characterized by the following:
· They are difficult to be forged or duplicated.
· They can be used outside the regional scope of the issuing authority of the card.
· They represent guaranteed modes of payment for the creditor unlike the check which the beneficiary has the right to refuse or ask for payment in cash. This makes these cards have a power like the payment in cash to a great extent.
· Their transactions do not require stating a special criminal protection as it is the case of the check.
To sum up, payment cards achieve guarantee and trust among all transacting parties to the extent that they are called "Trust Card".
Fifth: Proposals and Recommendations:
The orientation towards commuting the punishment of the committer of the crime of issuing a check without balance by making it a misdemeanor instead of a felony as it is according to the current legislative stipulations, is a matter which necessitates striking the balance between two opposing considerations: between the present need of the society to the check as the prevalent mode of payment, with its result of keeping the criminal protection stipulated for it to enhance its credibility in transaction, and avoiding the social negative impacts resulting from the high rates of committing these crimes despite applying stricter punishment therein.
Kuwait Banks Union, represented in local banks, views that this balance can be achieved in the framework of an integrated plan that includes the following:
· Encouraging the transactors and the different State sectors to use modern modes of payment and accept them as a mode of payment due to the advantages they have in comparison to the check. They replace the check in transaction on the condition that the Kuwaiti legislator reduces the criminal protection stipulated for the check gradually in preparation for nullifying it.
· Reducing the opportunities of abusing the checks through the following additional mechanisms:
1- Banks have to close the customer's account if it is related to direct or indirect financial facilitations if three checks are returned within one year. An article should be added to the contracts concluded with customers to allow banks to open other accounts through which to use facilitations.
2- The terms and provisions of opening the current account at the banks should include the following statement:
"The customer shall declare his ultimate and absolute consent to be bound by the instructions of Kuwait Central Bank in regards of closing all its accounts because of returning checks withdrawn from it or from the authorized person thereof because there is no balance in consideration thereof. If these checks are returned within a year because there is no balance at a maximum of three checks. The customer shall also declare its prior agreement to any other procedures the bank might take in such regard. The bank shall, according to its sole discretion, open another account for the customer without checks as an alternative for the closed account and record the banking facilitations, previously granted on the old closed account, on the new account, if any. The customer shall bear all the legal liabilities resulting from issuing such checks, without having the right to refer to the bank because of closing his account or enrolling his name in the mentioned list or any of the procedures taken by the bank in this regard."
3- Having an access to the information provided by the central counting system for the check customers whose accounts were closed because of returning checks before opening any new account.
4- Taking the requirements of the customer's business into consideration as a guiding factor in issuing check books.
5- Setting a standard for the minimum salary that allows issuing checks for customers.
6- Issuing check books in a limited number of papers for the first time and supervising the way of using them.
7- Taking the measures of implementing public awareness campaign for the customers.
8- Taking the necessary measures towards the inclusion of the bank policies (written ones) to these additional mechanisms.
9- Taking the necessary measures to implement the public awareness campaign that was decided in the Kuwait Banks Union's book to point out to the risks of using checks.
10- Including the additional mechanisms to minimize the abuse of checks for periodical follow up to develop these mechanisms.
11- The Central Bank should be acquainted with the development of the mechanisms implemented and follow up this implementation at the end of June 2002.
Creating Legislative Stipulations that address the following:
· The elapse of criminal suit in the crimes of issuing or endorsing a check without balance.
This can pave the way for the perpetrator to pay the amount of the check to the affected party and reduces the rates of committing this crime.
· Creating a stipulation that incriminates the incident in which the beneficiary obtains, with bad intention, the check despite knowing that it has no balance, provided that the punishment shall be restricted in this case to a financial fine that is equivalent to a percentage out of the value of the check to be paid to the State. This is for encountering the cases of using the check as a mode of guarantee out of the scope of its function as a mode of payment.
Conclusion:
1- The check, as the prevalent mode of payment, plays an important role in the civil and commercial life alike and the economic interest of the society depends upon it. Therefore, Kuwait Banks Union views to keep it according to the current legislative stipulations without amendment.
2- Activating the implemented mechanisms at the local banks in coordination with Kuwait Central Bank in minimizing the abuse of checks.
3- In the future, the reduction of the criminal protection of the check can be considered gradually after making sure of the spreading of the modern modes of payment and generalizing their use in the State sectors and departments as an acceptable mode for settling payments.
Kuwait Banks Union
May 5th 2002 |