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Compliance and enforcement: doing business in Serbia

There are different legal issues companies operating or planning to operate in Serbia should take notice of to prevent a potential wrongdoing, or navigate the case/mitigate the responsibility should the situation escalate. Due to its geographical position, Serbia is a very important country for transnational crime prevention (especially for organized crime, corruption and money laundering), so there was a need for a more efficient enforcement mechanisms. Government's financial crime investigation strategy deals with financial investigations and cooperation between relevant agencies by which the prosecutor may form a task force comprised of a police (or other governmental) officer and forensic accountant to examine money flows and financial transactions especially in the areas of finance, accounting, auditing, banking, stock exchange and commercial operations. Also, the changes in procedural criminal law have been designed with the assistance of US DOJ – office of overseas prosecutorial development assistance and training which has bilateral assistance programs in most of Balkan countries. These changes encountered a strong opposition from the majority of the Serbia's legal community and been seen as interfering with its legal tradition, due to shift from traditional inquisitorial towards adversarial system.

During the pre-investigative phase and internal investigation, counsel/lawyer may collect evidence and materials, whereas there is no specific provision that all communications between a lawyer and client should be regarded as privileged and not subject to disclosure. Communications are protected in principle (based on general provisions in professional advocacy law and by-laws), but there is no formal mechanism to prevent authorities from obtaining this information and potentially using it for purposes of directing the case. The same applies for internal investigation reports (save for the materials that are in counsel's actual possession at his office), and interview witness memos, as there is no work-product doctrine. While privileged communications may be discoverable, they should not be used in legal proceedings (and a court decision should not be based on such communications). As a practice pointer, counsel should request from the judge during preliminary proceedings to issue a ruling excluding these communications from the file immediately or, at a minimum, no later than the conclusion of the investigation. These evidentiary rights are generally reserved only for a local counsel/lawyer and foreign companies should always be assisted by such a counsel.

Companies should not rely on the general protection offered by business secrecy legislation – such protection is exempted and these data can be obtained by the authorities if they directly relate to the perpetration of the offence. Personal data of employees are generally protected from unauthorized access by third parties, however, if an employee is under criminal investigation, he/she generally should not rely on the provisions of the data protection legislation to prevent disclosure.

If the case goes to court, the court shall examine the evidence upon motions by the parties, whereby it has no duty to examine evidence proprio motu (by its own motion), unless it finds that the evidence that has been examined is contradictory or unclear, and finds such action necessary in order to comprehensively examine the subject matter. This feature – production of new additional evidence, has raised numerous uncertainties as to which particular situations enable the court to take this course of action, but nevertheless should not, be used to support the prosecution case.

Further changes of substantive criminal law have also entered into force, especially the part referring to criminal actions in economic areas, with a special focus on the crime of tax evasion, cartels and public procurement. The new provision on cartels i.e. restrictive agreements state that any person in a company that concludes a restrictive agreement, which is not exempted from the prohibition under the competition legislation, and which fixes prices, limits production or sales or divides markets, shall be held liable. There is a possibility to be exempted from punishment (the court shall render a guilty verdict anyhow which shall be entered into penal registry) if the defendant satisfies the conditions for leniency under competition legislation, but this is yet to be seen how this will work in practice given the possibility of cooperation agreement under procedural criminal law. The solution might be to include all of the leniency conditions into the agreement concluded by the cooperating witness with the public prosecutor.

It is possible to decline to contest criminal charges in exchange for an agreed-upon sentence, by entering into plea agreement with the prosecutor, but generally speaking, this kind of agreement has not yet gained its full scope, as seen in traditional adversarial systems. In practice, if the case is in the very early stage i.e. shortly after the issuance of the investigation order, the disclosure issues usually occur so defendant cannot fully assess the case against him and as a corollary cannot fully ascertain whether to enter into the plea agreement. Similarly, deferred plea agreements do exist in a certain form and the prosecution can defer criminal prosecution for certain criminal offences (up to five years) if the defendant accepts certain obligations within a prescribed time limit.

In cases of corporate criminal liability, Serbia accepts identification doctrine whereby a company shall be responsible for acts or omissions of their officers as long as they act in capacity of their engagement and for the benefit of the company or due to the lack of supervision or control of the officer, an employee commits a crime for the benefit of the company. In addition, the non-executive directors are required to control the business in a growing number of areas, so not only are the executive members subject to external control, they are also subject to the enhanced internal control by the non-executive directors/supervisory board members, or the special control organ of the company, i.e. internal audit. Because of the due diligence defence rule – which enables the company to mitigate the responsibility by proving that it took all reasonable measures to prevent the wrongdoing – the non-executives must claim that they made a comprehensive inquiry of the matter at hand thus creating an additional motive to monitor the executives in order to ensure that such acts are not committed. In case of an acquisition, the acquirer shall face a criminal successor liability in case of past wrongdoings of a target company whereas in case of a merger, the situation is not so clear – the successor may assume certain liabilities, though unlikely a criminal liability.

New anti-money laundering (AML) legislation has recently been enacted following observations of the Council of Europe's committee of experts on the evaluation of AML measures and the financing of terrorism (MONEYVAL) and based on Financial Action Task Force (FATF) international standards. The new legislation recognizes risk assessment for obliged entities i.e. banks, investment funds, brokers, insurance companies, real estate agents, factoring and tax consulting, certain state owned enterprises (i.e. public postal enterprise), and notaries, as the key measure for identification of potential signs of money laundering and taking into account certain risk factors i.e. those relating to their customers, countries or geographic areas, products, services, transactions or delivery channels. More duties have been imposed on members of senior management to monitor the implementation these measures, however the definition of senior management is not entirely clear and also whether the duties under the new law extend to members of the board of directors/supervisory board and in which situations. The concept of politically exposed person (PEP) expanded earlier definition which referred only to foreign officials, so now PEPs are defined as officials of the foreign state, officials of the international organization as well as the officials of the Republic of Serbia.

Whistle-blowers have certain judicial protection when reporting suspicions relating to corruption but this legislation does not see breaches of whistle-blowers' rights as criminal offences, and offers only civil judicial protection. In any case, companies are increasingly dedicating more attention to the topic of compliance, particularly towards fighting corruption and other business criminal acts through professional preventive measures and establishment of whistleblowers' mechanisms, i.e via external compliance advisor (ombudsman). Other anti-corruption framework is scattered between various pieces of legislation, but basically recognizes both passive and active bribery, applying both to private/commercial bribery and public bribery and trading in influence. In public procurement, contracting authority is obliged to take necessary measures to prevent/reveal corruption on time, remedy or mitigate the corruption, and sanction the actors. Similarly, persons engaged in any way in a public procurement, as well as any interested person who possesses information on occurrence of corruption in public procurement, has the duty to report the corruption to the public procurement directorate or the competent prosecutorial office and cannot suffer any adverse consequences due the reporting, in line with the whistleblowers' protection.

Finally, in cases with a cross border dimension which include a request from a foreign country for mutual legal assistance, i.e. extradition of a foreign national, there have been significant developments relating to the scope of application of multilateral and bilateral mutual legal assistance treaties (MLATs). In cases when there is no bilateral MLAT between requesting (country claiming it has jurisdiction over the case) and a requested (country which received the extradition request) country, the ratified multilateral MLAT shall apply. If there is no ratified multilateral MLAT, domestic legislation on mutual legal assistance in criminal matters shall apply. However the courts – even in cases when there exists a ratified MLAT – often give precedence over domestic legislation, leaving the precise scope of application of MLAT subject to case by case determination of a presiding judge. It is not rare that these cases also have a political dimension which may lead to interplay between asylum and extradition, as seen in recent practice. In these cases, if there is a risk of persecution or flagrant denial of justice in the requesting country, the international law suggests that the requested country should adhere to the principle of non refoulement whereby no one should be expelled (deported or extradited) to a country where such a risk exists. These assertions should also be examined in parallel asylum application and reviewed by a court. However, the practice so far rarely allowed a full judicial review of an asylum application before deciding on extradition. Generally, the recourse should be taken via request for interim measure before European Court of Human Rights or application before UNHCR.

NOTE: The views and opinions of Vladimir Hrle expressed here are personal, and do not necessarily represent the opinions of current or past employers or colleagues, or professional associations, or organizations with which Vladimir has collaborated