Banks freezing over a million individual accounts: What’s the reason and what to do about it
And how to keep spending money from a blocked account
Ukrainian banks have once again been given the authority to freeze their clients' accounts. It was announced by Oleg Gorokhovsky, co-owner of monobank, with reference to the provisions of Law No. 3048-IX, which came into effect on May 6.
Provisions of this law indeed expand the list of situations in which banks can freeze funds in their clients' accounts based on enforcement proceedings. It appears that this issue will become widespread. Only monobank and PrivatBank, which account for about 40% of all individual accounts, can immobilise the funds of nearly 1 million clients.
Mind investigated the basis on which banks would block clients' accounts and how to get rid of such a 'black mark'.
Why can banks freeze accounts? It is not the first year the mechanism of blocking bank accounts has been in place in Ukraine. In short, based on a ruling issued by a state or private enforcement officer, the bank freezes the funds in the account. Enforcement officers have long had the right to seize assets (funds, property) for various debts, such as fines, alimony, and others. However, the procedure for account freezing used to be quite complex. The enforcement service would issue a ruling and send it to the bank by regular mail (in paper form). Therefore, the process of account blocking could take a long time.
In the spring of 2020, the Automated System of Enforcement Proceedings (ASEP) was introduced, which significantly accelerated the exchange of information between enforcement officers and banks and simplified the procedure for account freezing.
Read also: The first tax data sharing is expected in 2024: MPs open tax access to Ukrainians' accounts abroad
After the start of active hostilities, the government decided to ease the rules slightly, and on March 2, 2022, the Cabinet of Ministers adopted Order No. 198-r. It states that during a state of war, individuals can carry out expenditure operations from accounts subject to arrest by the state enforcement authorities or private enforcement officers, provided that the amount of enforcement does not exceed 100,000 UAH. This order remains in effect until the state of war is cancelled.
In simpler terms, even if a bank account is frozen, the account owner can still spend money from that account. However, this only applies if the seized amount does not exceed 100,000 UAH.
How is the freezing of accounts being carried out after May 6, 2023? Law No. 3048-IX has essentially repealed the provisions of Cabinet of Ministers Order No. 198-r. Although the website of the Verkhovna Rada states that this document is still in effect. In other words, it has not lost its validity. However, since the law has greater legal force than government regulations, its provisions should be followed.
According to the new rules, individuals whose funds have been frozen by state enforcement agencies or private enforcement officers can carry out expenditure transactions from their current account up to an amount that does not exceed twice the minimum wage within one calendar month. In other words, there is no complete prohibition on the use of funds in blocked accounts. However, the margin for manoeuvre is extremely narrow. As of today (May 11), two minimum wages amount to only 13,400 UAH.
Furthermore, the mechanism of freezing is also changing. According to the Cabinet Order, the freezing technically did not apply if the amount specified in the enforcement document was up to 100,000 UAH. So, the freezing seemed to be in place, but at the same time, it wasn't.
Read also: Wartime finmonitoring: Whose payments do banks block most often?
Now, relying on Law No. 3048-IX, banks are obliged to freeze all accounts of individuals against whom enforcement proceedings have been initiated. This freezing is not dependent on the amount of debt. Afterwards, the account owner will be able to spend up to 13,400 UAH per month from the account. However, there is one caveat: payment of taxes and other fees to the state budget can be made without restrictions.
How to select the account from which funds can be spent during an arrest? If the debtor has only one account, then in principle, no special actions are required. Let's reiterate: despite the arrest, the debtor will be able to spend an amount equivalent to two minimum wages per month for any purpose.
When there are multiple accounts (two, three, or more) and funds are blocked in all of them (which can happen), the debtor needs to determine from which account they will make payments within the specified amount. It doesn't matter whether the accounts are opened in the same bank or different ones.
To determine the current account from which outgoing transactions can be made, the debtor needs to take the following steps:
- Contact the state enforcement agency or private enforcement officer who imposed the arrest on the individual's funds with a request to determine the current account in the bank for conducting expenditure transactions.
- The request can be submitted in paper form (in person or by mail) or in electronic form, complying with the requirements of the law "On Electronic Documents and Electronic Document Management."
- The request should specify the account number that the debtor requests to be designated for conducting expenditure transactions and the name of the bank where such an account is opened.
- Within 2 working days from the day of receiving the respective request, the enforcement officer issues a resolution to determine the current account of the individual for conducting expenditure transactions. No later than the next working day after issuing the resolution, the enforcement officer:
- Provides/sends the relevant resolution to the bank.
- Checks for the presence of other enforcement proceedings opened against the debtor and, if such proceedings exist, informs other enforcement officers responsible for the recovery based on those proceedings.
- The bank receives the resolution determining the debtor's current account for conducting expenditure transactions from the enforcement officer. After that, the client will once again be able to spend funds from that account within the aforementioned limit (two minimum wages per month).
Peculiarities of account seizure for legal entities and entrepreneurs. The seizure of accounts applies not only to private clients but also to businesses – legal entities and entrepreneurs who have hired employees.
They can only perform transactions from such accounts for the purpose of paying salaries up to a maximum of five times the minimum wage per month (33,500 UAH), as well as for the payment of taxes, fees, and unified social contributions (USC).
In which cases are bank accounts not blocked? Still, there is a list of exceptions under which enforcement actions are suspended during the period of martial law. Therefore, these debtors are not at risk of having their accounts blocked. They include:
- defence industry enterprises defined by the Cabinet of Ministers;
- military management bodies, military units, higher military educational institutions, establishments, and organisations that are part of the Armed Forces of Ukraine;
- individuals who have arrears for housing and communal services within the territorial communities where active combat operations are taking place or on temporarily occupied territories;
- individuals who have arrears for housing and communal services, but their real estate has been destroyed or damaged as a result of hostilities.
How to lift the arrest on an account? To lift the seizure from an account, you need to first determine the basis and the authority under which it was blocked. You can obtain this information from the bank. Sometimes you may not even have to communicate with bank employees, as all the necessary data might be available in your personal online banking account. One can also use the Ministry of Justice system to search for enforcement proceedings.
Most often, the seizure is carried out based on the decision of a state (private) executor who is responsible for debt collection, including court decisions, fines, tax debts, alimony, etc.
The next step is to contact the enforcement service and the specific executor who issued the order to freeze the funds in your account. After that, you need to pay off the debt.
Once the executor closes the proceedings, the bank will be informed through the ASEP, and the funds will be released from the seizure. However, this process does not happen instantly. It may take several days for the money to reach the enforcement service's account and for them to close the proceedings.
There are situations where the account freeze is related to a court decision that imposes a seizure as security for a claim. Unfortunately, in this situation, the account can only be unlocked after the completion of the court process.
By the way, attempting to open a new account instead of the seized one is unlikely to succeed. First, the bank may refuse the customer, citing the presence of existing seizures. Second, even if such an option is successful, the new account may eventually be subject to seizure again.
If you have read this article to the end, we hope that means it was useful for you.
We work to ensure that our journalistic and analytical work is of high quality, and we strive to perform it as competently as possible. This also requires financial independence. Support us for only UAH 196 per month.
Become a Mind subscriber for just USD 5 per month and support the development of independent business journalism!
You can unsubscribe at any time in your LIQPAY account or by sending us an email: [email protected]
