Business Integrity Country Agenda – BICA Assessment Report Serbia

Transparency Serbia presented the Report on conditions for business with integrity in Serbia.[1]The assessment is based on the methodology that was developed by Transparency International (TI) and until 2020 was implemented in a dozen countries. The analysis is structured into 15 thematic areas, comprising a total of 51 indicators and 139 general questions.

Key findings

The research shows that the conditions for business entities to operate with integrity in Serbia are not fully provided.Such a situation is only partly due to the flawsand the fallacies contained in legislation(where the average score is 85 out of a possible 100 points), but rather a result ofinsufficient engagement of public authorities in implementation of regulations (average score 47 out of a possible 100).This is especially reflected in therelatively small number of investigated and detected cases of corruption and other wrongdoings that occur in the interaction between the public and private sectors or within the private sector. When it comes to measures for strengthening of integritythat companies apply independently and voluntarily, there is significant room for improvement in order to reach standards of good practice.Current contribution of the media and civil society to the business integrity is insufficient for the moment.

Taking all that into account, there is a huge space for improvementthrough the initiatives of the business sector and through the cooperation of this sector with state institutions and civil society. Previousanti-corruption plans, including a recently revised Action Plan for the Chapter 23 in Accession Negotiations between Serbia and the EU, have not paid sufficient attention to these issues.

In order to overcome these problems,Transparency Serbia has proposed 40 recommendations for the public, private and civil sector with the aim of creating conditions for increased integrity. Among them are recommendations related to the work of investigative bodies, protection of whistleblowers, financing of political activities and public officials campaigns, public procurement, lobbying, anti-corruption programs, media programs of public interest and the issue of conflict of interest in relation to media and private sector.

Transparency Serbia

Belgrade, December 16, 2020

Download BICA report : https://transparentnost.org.rs/index.php/en/projects/203-business-integrity-country-agenda-bica

Findings by researchareas

Within the analyses of relevant legislation and institutions thatshould ensure the implementation and application of rules in practice,the following issues were considered: bribery of public officials, bribery in the private sector, money laundering, illicit arrangementsthat undermine economic competition,undue influenceon decision-making processes, public tendering,accounting and auditing rules, protection of whistleblowers and the work of certain bodies that affect the economy. Legal provisions in Serbia for most thematic areas provide a solid basis to foster and maintain business integrity. However, there are still legal loopholes in all areas and, as a result, harmful consequences that occur in practice are significant.

There are even more problems in the enforcement of existing rules. The main problem in this regard is the small number of law violation cases that have been investigated by the relevant authorities.One reason is the insufficient capacity of some institutions in charge.Another factor is the exposureof law enforcement agencies to political influence, resulting with unequal treatment of businesses in similar situations.In addition, when state control bodies carry out controls, they use much of their capacity to verify and formally comply with regulations, while substantial offenses remain largely unchecked.

Within the conditions for business integrity related to the business sector, we assessed the existence and quality of anti-corruption policies in companies, implementation of rules on internal control and audit, transparency of operations and cooperation with other actors in the fight against corruption.

Measures to strengthen integrity in the business sector are only partly based on legal rules, and much more are dependent on initiatives of business entities themselves. As a result, there are significant differences in the scope of implemented measures, depending on the size of the company, share of international capital, professionalism of the management and the industry in question.

There are still no sufficient external incentives for the private sector in Serbia to promote integrity in its activities. There is the odium again corruption throughout the private sector, but it is still not articulated into an action in the common interest.In part, such a situation is the consequence of a high influence of the public sector on the national economy and the dependence of businesses on their connections with those in power, in particular when it comes to small enterprises at the local level.

Despite the fact that anti-corruption is one of the frequent topics in Serbian civil society and media, business integrity texts and initiatives are rare exceptions. There is a huge potential to improve that situation through collective actions. Most media outlets cannot function independently of the government and commercial advertisers, which prevents themfrom fulfilling their role completely in the fight against corruption in both public and private sector, it was concluded in the research results.

Recommendations for public sector

• The capacities of law enforcement agencies need to be strengthened in order to secure the prosecution of corruption and economic crimes fully and to implement wide range of proactive investigations
• Enforcement authorities should demonstrate independence in their work, while political decision makers should refrainfrom any interference
• The Commission for the Protection of Competition, the Public Procurement Office and the Republic Commission for the Protection of Rights in Public Procurement Procedures should cooperate with each other as well as with the private sector in order to identify an increased number of cases of collusion and to impose dissuasive sanctions
• The Law on Whistleblower Protection need to be amended in order to penalize appropriately all forms of retaliation and to place one agency in charge of general and comprehensive oversight of the law’s implementation
• The Ministry of Justice (which now partially monitorsthe Law on Whistleblower Protection) should closely analyse the effectiveness of lawenforcement and transparency of other bodies in this area. This monitoring should focus not only on the protection granted to whistleblowers, but also on acting on informationprovided by them
• The Law on the Prevention of Corruption should be amended so as to prevent all forms of so-called officials’ campaigns (and not just direct misuse of public resources and public officials’ meetings for the benefit of political parties)
• The Law on the Financing of Political Activities should be amended in order to:
  • increase transparency and improve rules onpolitical party financing and other election participants (donations and non-financial contributions, payment of loans, deferred payment of campaign costs, third party campaigning, etc.)  
  • introduce the duty for the ACA to prepare and publish report on the control of the financial statementsof political parties and election participants, as well as obligation to publish all information about identified wrongdoings and the measures taken by the ACA
• The Law on Lobbying should be amended so as to coverinformal attempts to influence both the adoption of laws anddecisions in individual cases (for the time being, only lobbying for the adoption of regulations is considered lobbying per se)
• The government should increase the transparency of the negotiation process and the transparency of information related to bilateral agreements and credit arrangements with other countries,in particular whensuch agreementsmay affect the application of the Public Procurement Law and the Public Partnership Law for major infrastructure projects
• The current Law on Public Procurement should be revised to include a provision from the previous law (2012) that obligated bigger contracting authorities to draft an internal planfor preventing corruption in public procurement, restrictions for post-employment in former suppliers’ companies, the mechanism of the independent civil supervisor oversight mechanism for procurements of higher value, special rules for contract approval in conflict of interest cases and duty to report violation of competition
• The transparency of the work of the Tax Administration should be significantly increased by publishingannual reports on regular basis, information on agreements with national and multinational companies, and by providing access to information about the TA’s activities in accordance with the law
• The Ministry of Finance should revise regulations and practices of the TA and the customs administration in order to:
  • clarify legal provisions and thus reduce the need for further regulation through the institute of legal opinions, issued by the TA
  • reduce thediscretionary powers of tax and customs officials
  • further limit the level of interaction between taxpayers and customs officers who directly inspect goods
  • boostthe capacities of tax inspection in order to reduce opportunities for unequal treatment of controlled subjects bearing a similar control risk
• in order to fully secure the enforcement of accounting standards and rules, the role of accounting and audit needs to be strengthened; this includes, among other things,the introduction, through the law, of an obligation for a greater number of companiesto use the services of qualified accountants and for accountants to be co-liable for fraud in financial reporting
• The institutions in charge of overseeing the application of accounting and auditing rules should significantly increase the transparency of information about their findings

Recommendations for the business sector

• New national strategic anti-corruption documents should provide for a greater role of the private sector in the prevention of corruption, including incentives for businesses to support anti-corruption activities of other stakeholders and to engage in joint initiatives of the public sector, private sector and civil society;
• All companies operating on the Serbian market and Serbian companies operating abroad should establish and publish clear and comprehensible formal policies to prevent corruption that may arise in their relations with the public sector, as well as corruption that occurs in the relations between different companies and their employees. These policies should focus in particular on areas not fully regulated or elaborated in the law (conflict of interest, political and charitable contributions, sponsorships, gifts, hospitality and expenses, collusion);
• Anti-corruption programmes of companies should rely on best international standards and good practices but should also address specific challenges of the local context, and to emerge from internal consultations involving all stakeholders;
• The implementation of anti-corruption programmes of the private sector should be monitored by the Chamber of Commerce and other company associations and encouraged by the activities of the Anti-corruption Agency, Ministry of Economy, international and national financial organizations and civil society;
• Companies should provide stakeholders with information about implementation of their anti-corruption programmes and periodically review these programmes and their effects;
• The discussion on implementation of whistleblower protection rules in the private sector should be organised in order to identify best practices along with major concerns and obstacles. Discussions should cover all aspects of potential whistleblowing and similarities and differences of this concept with other coexisting mechanisms, such as compliance procedures, consumer protection, protection of company trade secrets and reputation, protection of labour rights, measures for the protection of public interest from corruption and collusion, environmental protection and food safety mechanisms;
• There should be a legal mechanism in place at the national level to track the implementation of whistleblower protection rules in the private sector. Monitoring the implementation of these rules should include not only the protection of whistleblowers as individuals but also the protection of the public interest by investigating the concerns voiced by whistleblowers;
• Companies and the public authorities should both consider rewarding whistleblowers when they helped protect financial and other legitimate interests of companies or the public interest;
• Companies raising awareness about corruption or collusion should be protected from any retaliation by having the case effectively investigated, as well as through compensation for the incurred damages;
• The role of corporate lawyers in combating corruption that affects private sector or occurs in the private sector should be strengthened both in the law and through internal anti-corruption policies of companies;
• Companies should encourage their business partners and subsidiaries to adhere to the same anti-corruption policies that they promote;
• The engagement of companies in multi-stakeholder anti-corruption initiatives should be promoted by public authorities, the media, civil society and business associations;
• Companies and business associations should more actively promote anti-corruption initiatives of the private sector. The government (ministries) and the parliament should foster such initiatives by organising open debates and public hearings about the implementation of legislation that affects business sector. Such discussions should focus on compliance with the rules in areas where public-private sector interaction is most common, such as inspections, licensing and contracting with the state authorities;
• Business associations should further develop their support mechanisms for companies facing potential corruption;
• Business associations should be transparent about their lobbying activities and this issue should be regulated more precisely by law;
• Legal requests when it comes to the transparency of the operations of companies and reporting should be more detailed in order to cover the elements that are currently missing;
• The Business Registers Agency should make information about beneficial ownership in companies available within the general company register

Recommendations for civil society

• Civil society should cooperate with the business sector and other potential donors and build its capacities in the field of business integrity;
• Civil society should enhance its activities in the field of research and monitoring of business integrity, identifying and promoting best practices and advocating for the adoption of related national policies and laws;
• It is necessary to strengthen civil society capacities to monitor business sector operations through capacity development, joint projects, strategic alliances or coalition building with other stakeholders, business associations and consultancy agencies active in this field;
• In cooperation with experts and partners from the business sector, civil society organisations should develop and implement advocacy programmes for strengthening business integrity;
• Civil society organisations should cooperate more broadly with the business sector and in particular with small and medium enterprises in identifying the major obstacles they face, the effects of corruption and weaknesses of state oversight mechanisms;
• The media should actively promote integrity in the business sector and report on good practices in order to create a public demand for ethical behaviour;
• Budget support should be provided for media programmes of public interest covering specific cases, the types and damageable effects of corruption and collusion, as well as the effectiveness of state oversight mechanisms; such budget support should not be provided to media that do not respect professional standards;
• Media and journalists associations should draft and adhere to their own codes regarding the relations with the private sector and potential conflicts of interest.

[1]This project is funded through financial means received from the European Bank for Reconstruction and Development (EBRD). Findings and recommendations are the sole responsibility of Transparency Serbia and can in no way be taken to reflect the views of the EBRD.