Property Damage by Deception or Breach of Trust: Theory and

Implementation Practice of Article 165 of the Criminal Code of the

Russian Federation

Viktor Ivanovich Gladkikh

and Maria Genrikhovna Reshnyak

All-Russian Scientific Research Institute of the Ministry of Internal Affairs of the Russian Federation, No 25 bld. 1

Povarskaya Street, 121069, Moscow , Russia

Moscow State University for International Relations (University) of the Ministry for Foreign Affairs of Russia (MGIMO

MFA of Russia), Criminal Law Department, Criminal Procedure and Criminalistics, International Law Faculty, Vernadsky

Prospekt, 76, 119454, Moscow, Russia

Keywords: Criminal law, Legislation issues, Causing property damage, Breach of trust, Fraud, Misappropriation,

Embezzlement.

Abstract: This article observes current issues of legislative regulation and implementation of criminal accountability for

causing property damage by deception or breach of trust. The objective of the research is to identify and

consider current problems of implementing criminal liability measures for committing a crime under Article

165 of the Criminal Code of the Russian Federation. The subject of the research is the social relations related

to the establishment and application of the specified criminal law provision. The scope of the research is a set

of legislative, theoretical and law enforcement nature problems in this field, the study of which contributes to

the criminal law theory development. The methodological framework of the research includes universal,

general scientific and specific scientific methods, as well as the comparative legal and the simulation ones.

As a result of the research, by analyzing and summarizing previous researches and studying court decisions

in criminal cases initiated under Article 165 of the Criminal Code of the Russian Federation, qualification and

judicial errors were identified, recommendations on the qualification of causing property damage by deception

or breach of trust were summarized and proposed, and suggestions for improving criminal legal means of

combating this offence were formulated. As part of the research, the authors reached a scientifically sound

conclusion about the need for a unified system of criminal-legal and operational-search measures to counter

this offence effectively.

1 INTRODUCTION

Article 165 of the Criminal Code of the Russian

Federation, prescribing liability for inflicting of

damage on property by deceit or breach of trust has

always maintained a special place among the material

elements of offences specified in Chapter 21 of the

Criminal Code of the Russian Federation on "Crimes

against property". This was justified by the dual legal

nature of the offence in question. On the one hand,

this crime contained such indications of

misappropriation, and in particular fraud, as methods

of taking possession of someone else's property or the

right to its ownership by deception or breach of trust,

https://orcid.org/0000-0003-1830-2157

https://orcid.org/0000-0002-7281-8149

as well as socially dangerous consequences in the

form of property damage infliction. On the other

hand, there is an indication of the obligatory failure

of the misappropriation elements in the disposition in

Part 1 of Article 165 of the Criminal Code of the

Russian Federation.

This duality has often led to qualification failures

in assessing property damage by deception or breach

of trust cases, especially in distinguishing them from

other property crimes.

The research purpose was to examine the practice

of applying Article 165 of the Criminal Code of the

Russian Federation, to identify investigative and

judicial failures in cases relating to this category of

Gladkikh, V. and Reshnyak, M.

Property Damage by Deception or Breach of Trust: Theory and Implementation Practice of Article 165 of the Criminal Code of the Russian Federation.

DOI: 10.5220/0010626500003152

In Proceedings of the VII International Scientiﬁc-Practical Conference “Criminal Law and Operative Search Activities: Problems of Legislation, Science and Practice” (CLOSA 2021), pages

10-15

ISBN: 978-989-758-532-6; ISSN: 2184-9854

offences and to develop proposals for improving the

legislative framework and law enforcement practice

in countering the crimes in question.

2 MATERIALS AND METHODS

The methodological basis for this research was the

universal, general scientific and specific scientific

methods that include analysis, generalisation,

simulation, comparative legal method and other ones.

The research was analyzed the available theoretical

works on this issue (Lisitsa, Parkhomenko, 2018;

Babushkina, 2012; Terskov, Klimovich, 2012;

Vedernikova, 2018; Inshakova, Goncharova et al.,

2019), the investigative and judicial practice for more

50 criminal cases initiated under Article 165 of the

Criminal Code of the Russian Federation, considered

by first instance courts of general jurisdiction through

the period from 2016 to 2020, and resulted in

convictions.

3 RESULTS AND DISCUSSIONS

Paragraph 22 of the Russian Federation Supreme

Court Plenum Decree of November 30, 2017 No. 48

"On judicial practice in cases of fraud,

misappropriation and embezzlement" states that in

each case, determining if there were elements of

corpus delicti in the offence under Art. 165 of the

Criminal Code, it must be established whether the

owner or other property possessor suffered real

financial damage or damage in the form of loss of

profit.

Thus, the mentioned Decree closed the question

of what is an effect of crime under Art. 165 of the

Criminal Code – real damage or only loss of profit.

The Plenum considers that both versions are possible.

However, examples cited in the resolution concern

only lost profits.

One of the most frequently discussed issues when

analyzing the corpus delicti under Article 165 of the

Criminal Code of the Russian Federation concerns its

subject matter.

According to Babushkina E.A., the crime subject

matter under Art. 165 of the Criminal Code of the

Russian Federation may be certain objects of civil

rights: cash, other things, other property including

non-cash funds, uncertified securities, property

rights, as well as the results of design works and

services, protected intellectual product and

individualization similar means (intellectual property

objects), that have value, are not withdrawn from

circulation, are capable of being transferred from one

entity to another, and are owned (Babushkina, 2018).

In our opinion, this is an overly expansive

interpretation of the considered corpus delicti subject

matter and, as we subsequently see, judicial practice

does not identify most of these subjects, except for

electric and thermal energy ones.

Such methods as deception and breach of trust are

among the obligatory constructive objective

attributes of property damage under Art. 165 of the

Criminal Code of the Russian Federation, therefore

their establishment is obligatory for the correct

qualification of crime in question.

Many authors assume that when damage is caused

by deception or breach of trust, it only refers to not

benefiting opportunities or lost profits (Ivantsova,

Prygunova, 2017; Gribunov, Knyazkov, Kachurova,

2019; Kolobanov, Eriashvili, 2016; Voronin, 2006).

Meanwhile, this approach is contrary to the above-

mentioned Plenum Decree, which differentiates real

damages and lost profits.

We analysed judicial practice in cases on

accountability for crimes under Article 165 of the

Criminal Code of the Russian Federation for the last

five years, from 2016 to 2020. To this end, we studied

50 convictions from the website: https://sudact.ru/.

The study showed that the most common damage

by deception or breach of trust claims involve

managing organisation full or partial failure to pay the

contract entity for the utility services including blocks

of flats heating ones.

Thus, on July 23, 2020 the Sormovsky Regional

Court of Nizhny Novgorod sentenced Medvedev,

LLC Sormovskaya housing management company

general director, to a suspended term of imprisonment

under Part 2 (b) of Art. 165 of the Criminal Code of

the Russian Federation, who transferred to the JSC

Teploenergo settlement account only 3.5 million

rubles instead of 6.16 million rubles collected on

heating and hot water services bill, thereby causing

JSC Teploenergo extremely large damage in the

amount of 2.66 million rubles.

It is unfortunate that the investigation failed to

establish and the court verdict did not reflect on which

purposes the underpaid money was spent. It is typical

situation for the majority of such cases. If this money

was used for the needs of the organisation headed by

Medvedev and was intended either to gain benefits

and advantages for himself and other persons, or to

cause harm to others, then it is legitimate to question

whether he should be charged with abuse of position

under Art. 201(1) of the Criminal Code of the Russian

Federation (Tolstaya, 2018; Krekhovets, Nikiforova,

Property Damage by Deception or Breach of Trust: Theory and Implementation Practice of Article 165 of the Criminal Code of the Russian

Federation

2021). If Medvedev used money for his own benefit,

it is clear misappropriation of entrusted property or

monetary assets in this case, i.e. embezzlement

provided for in Art. 160(4) of the Criminal Code of

the Russian Federation (Golovin, Bugaevskaya,

2020).

It is not uncommon situations when property

damage is caused by deception or breach of trust

without the intention to misappropriate in course of

drawing up and executing money-loan contracts.

The criminal case against Abdrashitov, an

individual entrepreneur accused of committing a

crime under paragraph "b" of Part 2 of Art. 165 of the

Criminal Code of the Russian Federation, which was

considered on November 28, 2019 by the Samara

Regional Court, could serve as an example of this

type of offence.

Having accounts payable in the amount of 88

million roubles and wishing to solve his financial

problems, Abdrashitov asked his acquaintance K. to

lend him 5.2 million roubles. Thus, being aware

beforehand about impossibility to repay the debt

Abdrashitov mislead the latter about his

circumstances. S. gave Abdrashitov the specified

amount in the presence of witnesses and made

borrower sign an acquittance a week later.

Abdrashitov did not repay the debt within the agreed

period, thereupon prejudiced S. turned to the law

enforcement agencies.

According to the case circumstances, the question

arises if Abdrashitov's actions were qualified

correctly. The point is that the guilty verdict is stated

that the defendant had no intention to fulfill his

obligations in good faith in drawing up the loan

agreement. Available criminal case investigation

materials, in particular to the fact that the perpetrator

"did not have a real opportunity to repay the loan

amount", having an outstanding debt of 88 million

roubles, confirm this.

It is submitted that it would be more appropriate

to qualify the crime as an especially large-scale fraud,

i.e. misappropriation of property committed by

deception and breach of trust in this case.

There are examples of the application of Art. 165

of the Criminal Code of the Russian Federation in so-

called “defrauded shareholders” cases in judicial

practice. (Sukhodolov, Novikova et al., 2018).

On September 25, 2019, the Central District Court

of Sochi examined a criminal case against defendant

V., accused of committing crimes under paragraph

"b" of Part 2 of Art. 165 and part 4 of Art. 159 of the

Criminal Code of the Russian Federation. The

investigation revealed that V., as the housing

construction co-operative director, had collected

several tens of millions of roubles from six persons in

order to finance the building a house. The Court

found that the applicant had no intention to fulfill his

contractual obligations regarding the transfer and

registration of ownership for properties to these

individuals, but merely wanted to misappropriate the

funds belonging to them.

The question arises why did the judicial scrutiny

and the Court qualify V.'s crimes as fraud committed

on a particularly large scale in some cases (Part 4 of

Art. 159 of the Criminal Code of the Russian

Federation) and as causing property damage by

deception or breach of trust in other absolutely similar

ones (paragraph "b" of Part 2 of Art. 165 of the

Criminal Code of the Russian Federation)? There is

no substantiation in judicial decision in the court's

verdict, although, in all instances, the case

circumstances clearly indicate the facts of

misappropriation by deception, with premeditated

specific intention.

A typical scheme for causing property damage by

deceit or breach of trust is energy supply sources

illegal connection and the further use of electricity

both for their own needs and for vending it to third

parties on a reimbursable basis.

N. and T. together with the unidentified wage

workers laid an underground power cable from the

transformer substation overpass to the power

substation along the ring road. And then illegally

connected it to the power supply by means of a band

aid circuit.

Hereafter the stolen electricity was sold to third

parties. The proceeds were embezzled.

On 9 September 2019 Vsevolozhsk City Court in

the Leningrad Region sentenced N. and T. to 1.5

years of a suspended sentence under paragraph "a, b"

of Part 2 of Art. 165 of the Criminal Code of the

Russian Federation.

This case raises several questions and one of them

is: to what extent does the crime fall within the actus

reus under Article 165 of the Criminal Code of the

Russian Federation?

Judging by the case circumstances, there is only

large-scale damage to the electricity owner as a

corpus delicti of Art. 165 of the Criminal Code of the

Russian Federation. There is no evidence of

deception or breach of trust though the

misappropriation purpose and the unlawful

acquisition of someone else's property itself are clear.

According to the objective criteria, we can see

someone else's property stealing (Art. 158 of the

Criminal Code of the Russian Federation). However,

it cannot be the object of stealing due to the fact that

electric power is not tangible. But not all the corpus

CLOSA 2021 - VII INTERNATIONAL SCIENTIFIC-PRACTICAL CONFERENCE “CRIMINAL LAW AND OPERATIVE SEARCH

ACTIVITIES: PROBLEMS OF LEGISLATION, SCIENCE AND PRACTICE”

delicti elements under Article 165 of the Criminal

Code of the Russian Federation are present in this

case.

It seems that despite the fact that electrical and

heat energy do not have a tangible form, the issue of

recognizing them as property, i.e. objects of stealing,

is long overdue, since they are a human activity

product of and have a certain value.

Article 165 of the Criminal Code of the Russian

Federation is often applied in cases of deliberate

failure to fulfill contractual obligations in

entrepreneurial activity.

On 8 May 2019, the Tyumen Leninsky Regional

Court examined the criminal case against Kazakov,

accused of committing a crime under paragraph "b"

of Part 2 of Art. 165 of the Criminal Code of the

Russian Federation.

Kazakov, LLC “M” acting financial director,

entered into agreements with the individual

entrepreneur B. for the provision of specialized

equipment, not intending to fulfill the rendered

payment services terms of the contract.

Kazakov transferred funds for a total amount of

28.3 million roubles to the controlled settlement

accounts of both individuals and legal entities that

were not engaged in any real business activity, thus

inflicting material damage on IE B. on a large scale.

It appears that it is legitimate in this situation to

consider the possible qualification of the offence

under Part 7 of Art. 159 of the Criminal Code of the

Russian Federation, which provides for liability for

fraud involving willful failure to fulfill contractual

obligations in the field of business activities and

committed on a large scale.

Classic examples of the offence qualification

under Art. 165 of the Criminal Code of the Russian

Federation are cases of entrusted property use for

personal gain.

On 24 May 2019, the Ryazan Zheleznodorozhny

District Court examined the criminal case against

Knyazeva, accused of committing a crime under

paragraph "b" of Part 2 of Art. 165 of the Criminal

Code of the Russian Federation.

While working as an accountant in the Tax

Accounting and Income Generating Activities Unit of

the Accounting and Internal Control Department of

the Ryazan State I.P. Pavlov Medical University,

Knyazeva received cash from international students

as payment for services provided for some of the

accommodations. In this way, she illegally used the

property belonging to the Federal State Budgetary

Educational Institution of Higher Professional

Education Russian Ministry of Health “Acad. I.P.

Pavlov Ryazan State Medical University”, which she

managed at her own discretion, thus causing large-

scale damage to the university in the form of non-

receipt of income.

While the formal offence qualification is

appropriate, in accordance with the Russian

Federation Supreme Court Plenum Decree No. 48 of

30 November 2017 'On Judicial Practice in Cases on

Fraud, Misappropriation and Embezzlement', the

question arises: how does the crime differ from

ordinary fraud? There is both deception and large-

scale damage. The question remains to be seen

whether there is misappropriation of property or not

in such situations.

Then would it be possible that those researchers,

such as A.A. Bakradze (Bakradze, 2013), suggesting

to decriminalise Art. 165 of the Criminal Code of the

Russian Federation are right? Or we only need to

make appropriate amendments to Article 159 of the

Criminal Code, as I.V. Botvin proposed (Botvin,

2018).

There have been cases of bringing the perpetrators

to justice under Art. 165 of the Criminal Code of the

Russian Federation for the creation of so-called

“pyramid investment scheme”.

On 3 May 2018 the Kozlovsky Regional Court of

the Chuvash Republic examined a criminal case

against E., accused of committing an offence under

paragraphs "a" and "b" of Part 2 of Art. 165 of the

Criminal Code of the Russian Federation.

Without intending to and not having a real

opportunity to repay, E., as the executive director of

the Kozlovka-Soglasiye agricultural consumer credit

cooperative, accepted money from natural persons on

cash receipt vouchers, thus causing financial damage

to the victims in an particularly large scale amounting

to 16.5 million roubles.

It is a typical scheme for creating an investment

pyramid, which, as a rule, was qualified as a fraud on

an especially large scale under Part 4 of Article 159

of the Criminal Code of the Russian Federation.

The Court did not find that E. had committed

fraud by deception or breach of trust, confining itself

to the following phrase stating that the defendant "did

not pursue the aim of personal unlawful enrichment

and uncompensated appropriation of other people's

property and funds in her favor as well as the other

persons’ benefit." The question that has to be

answered is what was the aim of Mrs. E., who had

fraudulently taken the individuals owned money

amounting to 16.5 million roubles?

Study of criminal cases instituted on the evidence

of offences covered by Art. 165 of the Criminal Code

of the Russian Federation showed that such offences

are also committed in the insurance industry, the

Property Damage by Deception or Breach of Trust: Theory and Implementation Practice of Article 165 of the Criminal Code of the Russian

Federation

gambling business, the payment of various subsidies

and compensations, pledge relationships, etc.

4 CONCLUSIONS

The research revealed a number of both theoretical

and practical problems resulting from applying Art.

165 of the Criminal Code of the Russian Federation.

The structure of actus reus, for which liability is

provided in Part 1 of Article 165 of the Criminal Code

of the Russian Federation has a certain deficiency that

generates problems of its classification and law

enforcement (Borkov, Nikolaev, 2020).

1. Since there are a number of similarities between

Article 165 of the Criminal Code of the Russian

Federation and the corpus delicti of Fraud (Article

159 of the Criminal Code of the Russian Federation),

there is a problem of their differentiation. From the

criminal law theory standpoint these crimes are

distinguished according to whether there are

indications of fraud or not. In practice, however, it is

difficult to reliably establish the purpose of causing

property damage by deception or breach of trust. In

the majority of the criminal cases we have analysed,

those convicted under Art. 165 of the Russian

Federation Criminal Code pursued the aim of

unlawfully appropriating someone else's property,

usually the victims' financial means, but the

investigating authorities and the court either failed to

establish this aim or simply ignored it, merely stating

formally that there was no misappropriating financial

resources purpose but the purpose to cause property

damage to the victims was. As a result, the guilty

persons have been prosecuted under a less severe

article and have got short, mostly probation sentences

in the vast majority of cases.

2. The practice of application of Article 165 of the

Criminal Code of the Russian Federation shows that

the perpetrators are held criminally liable both for the

real damage caused to the victims' property and for

lost profits, or specifically, not benefiting from

opportunities. In our view, the public danger degree

of these crimes is different, but the liability for them

is the same, and this fact does not comply with the

principle of justice.

3. Article 165 of the Criminal Code of the Russian

Federation provides that persons guilty of unlawful

use of heat and electricity actually stolen from the

lawful owner i.e. as a result of covert embezzlement

or per se stealing are often liable to punishment.

Unfortunately, neither the theory nor the practice of

criminal law acknowledge different types of energy

as property and, accordingly, as the object of stealing.

We believe that these problems give rise to the

need for their regulation, which is possible by means

of the following alternative methods individually or

simultaneously.

1. To amend Article 165 of the Criminal Code of

the Russian Federation by clarifying the terms of real

property damage and loss of profit (not benefiting

from opportunities). In addition to this amendment, to

clarify in more detail the content of these terms with

specific examples in the Russian Federation Supreme

Court Plenum Resolution.

2. To limit the content of Article 165 of the

Criminal Code only to the concept of property

damage in the form of lost profits (not benefiting from

opportunities) concurrently with reformulation of

Article 159, equating real property damage

committed by deception or breach of trust to a form

of fraud (Kazanovskaya, 2020).

3. To decriminalise Article 165 of the Criminal

Code, as it duplicates to a great extent other property

crimes: theft (Article 158 of the Criminal Code),

swindling (Article 159 of the Criminal Code),

misappropriation or embezzlement (Article 160 of the

Criminal Code).

4. To equate various energy sources to property

and consider them as objects of stealing.

5. To issue a special resolution of the Russian

Federation Supreme Court Plenum Decree to clarify

the theory and implementation practice of Article 165

of the Criminal Code of the Russian Federation.

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Property Damage by Deception or Breach of Trust: Theory and Implementation Practice of Article 165 of the Criminal Code of the Russian

Federation