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Europe & Central Asia

Serbia risk report

Updated:

Corruption is a problem in Serbia, and the prevalence of bribery exceeds the regional average. Foreign companies should be aware of conflicts of interest within Serbia’s state institutions. Government procurement, natural resource extraction, and the judiciary are especially vulnerable to fraud and embezzlement. The Serbian Criminal Code and the Anti Corruption Agency Act criminalize public and private sector corruption, attempted corruption, extortion, abuse of office, bribing a foreign public official, money laundering and active and passive bribery. Despite strong political impetus to fight corruption, enforcement and criminal prosecutions are largely ineffective. Even though facilitation payments and gifts are criminalized by law, they are common practice in the public and private sectors.

Judicial system Very high risk

There is a high risk of corruption in Serbia's judiciary. Bribes and irregular payments in return for favorable decisions are common (GCR 2015-2016). Over two-thirds of Serbians believe the judiciary is corrupt (GCB 2013). Serbian law provides for an independent judiciary, but in practice courts’ functions are restricted by corruption, nepotism and political influence (BTI 2016). Businesses have low confidence in the judiciary's independence and rate the efficiency of the legal framework for settling disputes and challenging regulations as poor (GCR 2017-2018). The judiciary suffers from an uneven distribution of workload, a lack of harmonization of jurisprudence, the absence of a proper merit-based recruitment system, and a burdensome case backlog (EUPR 2016). Judgments from foreign courts are generally enforceable in Serbia, based on the principle of reciprocity (ICS 2017). Enforcing a contract takes significantly longer and is considerably more expensive than the regional average (DB 2017).

Vladimir Vucinec, a former judge at Serbia's special court for tackling organized crime, resigned from his post in 2016, after he faced mounting pressure from within the judiciary and attacks in the media for taking a tough stance in a case against regional tycoon Miskovic (OCCPR, Mar. 2016). Miskovic stood accused of embezzling more than USD 39 million during the privatization of Serbia's highways; Judge Vucinec set bail at EUR 12 million, but immediately started facing pressure from his superiors to rescind the decision (OCCPR, Mar. 2016). Judge Vucinec has left the judiciary (OCCPR, Mar. 2016).

Serbia is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and it is a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Police High risk

There is a moderate to high risk of corruption when interacting with Serbia's police administration. Companies identify the level of crime, violence, and organized crime in Serbia to constitute a significant competitive disadvantage and report that police protection from crime is unreliable (GCR 2017-2018). Citizens perceive the police to be corrupt (GCB 2013). Political influence on the police force is widespread; there is a lack of independent and transparent oversight (EUPR 2016). Police integrity is limited because of inadequate human resources management, poor internal controls and politicization (EUPR 2016). Very high levels of corruption are found in the traffic police, border police, and economic crimes unit (GLI 2016). Of all the convictions for the crime of passive bribery, nearly half came from the public (police) sector (GLIS 2017). There are strong links between organized crime and corruption (GLI 2016). Impunity in the police is common; only a very small number of police officers is charged with corruption by the police's internal investigative forces each year (HRR 2016, EURACTIV, Dec. 2016).

Public services Moderate risk

There is a moderate risk of corruption when dealing with Serbia's public services. Companies indicate that bribes and irregular payments sometimes occur when dealing with public utility services (GCR 2015-2016). Around a fifth of companies perceive that bribes are commonly paid to local officials (UNODC 2013). A high degree of wastefulness in government spending and inefficient government bureaucracy are ranked among the most problematic factors for doing business (GCR 2017-2018). Starting a business in Serbia takes the same amount of steps as the regional average, but it is significantly faster than elsewhere in the region (DB 2017). Obtaining an electrical connection takes the same amount of steps as elsewhere in the region, but requires slightly more time (DB 2017).

In a recent anti-corruption effort, police arrested 53 people, including staff at the police force and the agricultural ministry in March 2017 (OCCRP, Mar. 2017).

Land administration Very high risk

There is a high risk of corruption in Serbia's land administration. Of all bribes paid by business, around ten percent go to land registry officers (UNODC 2013). Of all the convictions for the crime of passive bribery, a quarter is related to the construction sector (GLIS 2017). A third of Serbians believe the land administration is corrupt (UNDP 2015). Foreign investors enjoy full private property ownership rights, yet, have insufficient confidence in the protection of these rights in practice (ICS 2017, GCR 2017-2018). Serbia has an adequate body of laws for the protection of property rights, but enforcement of these rights can be extremely slow (ICS 2017). Restitution claims, unlicensed construction, limitations on property rights and title fraud, among other issues, may complicate property titles (ICS 2017). Companies are advised to thoroughly investigate any land issue before making an investment (ICS 2017). Any 'right of use' issued under the old socialist system may be converted into ownership rights after paying a market-rate fee (ICS 2017). In the case of expropriation, Serbian law requires compensation to be paid in the form of similar property or cash (ICS 2017). The number of steps and time required to register property in Serbia are in line with regional averages (DB 2017).

A recent case showing the extent of corruption in Serbia can be found in the "Svamala case". In April 2016, local government officials, real estate developers, and the police colluded to close off a street and bulldoze the majority of private properties on the street in order to allow the construction of a government-backed private real-estate project (FitW 2017). Police illegally detained people in the area and refused to respond to calls from the area; showing the high levels of corruption in the country's land sector (FitW 2017). The Police Directorate of the Ministry of Internal Affairs has completed its investigation into the case and has forwarded it to the prosecutor (B92, Jun. 2017).

Tax administration Very high risk

Corruption risks in Serbia's tax administration are high. Bribes and irregular payments when meeting with tax officials are fairly common (GCR 2015-2016). Business activities are hampered by frequent direct interactions with the public administration during tax inspections, exposing companies to extortion risks (UNODC 2013). Two out of five Serbians believe the tax administration is corrupt (UNDP 2015). Tax rates and regulations are mentioned by businesses as being among the most problematic factors for doing business (GCR 2017-2018). Deficiencies in the tax administration have enabled the informal economy which is estimated to be worth around 20-30% of GDP (EUPR 2016). The tax agency remains understaffed (EUPR 2016). Companies have to make thirty-three tax payments annually, which is double the regional average (DB 2017).

Serbia's richest man, Miroslav Miskovic, was arrested on charges of abuse of office and tax evasion in 2013. He was convicted to a five-year prison sentence for aiding his son in evading USD 3 million worth of taxes (OCCRP, Jun. 2016). He was also fined an additional USD 73,000 and USD 45 million of his assets were frozen abroad (OCCRP, Jun. 2016).

Customs administration Very high risk

There is a high risk of corruption in Serbia's customs administration. Irregular payments when exporting or importing goods to/from Serbia are common (GETR 2016). Businesses report that considerable time is needed to clear goods at the border and the transparency of the customs process is poor (GETR 2016). Customs officials have a poor reputation among Serbian citizens; most survey respondents believe customs authorities are corrupt (UNDP 2015). However, perceptions of customs officers have been improving in recent years (UNDP 2015). The time and costs required to comply with import regulations are far below the regional average (DB 2017).

In April 2017, seventeen customs officers were arrested over alleged involvement in a scheme that allowed local companies to import goods without paying the required taxes, costing the Serbian state around EUR 11.5 million (Business Insider, Apr. 2017). The customs officers accepted fraudulent documentation indicating the goods were destined for embassies and international organization which are exempt from the taxes (Business Insider, Apr. 2017).

Public procurement Very high risk

The risk of corruption in Serbia's public procurement sector is high. Companies indicate that bribes and irregular payments are commonly made when obtaining a government contract (GCR 2015-2016). Diversion of public funds, as well as favoritism in decisions of government officials, is perceived by businesses to be common (GCR 2017-2018). Corruption is pervasive in the public procurement sector (ICS 2017). Foreign investors should note that even though they are welcome in Serbia's privatization process and current investors find the investment climate acceptable, government treatment has at times favored domestic investors (UNODC 2013). However, the tender-issuing agency is required to pick a domestic party if the domestic party's price is less than five percent higher than the foreign supplier's price (ICS 2017). Serbia increased its procurement oversight capacity by hiring 958 new procurement officials in 2015, but public procurement oversight still lacks significant capacity and the sector remains vulnerable to corruption (EUPR 2016). Data shows that less than sixty percent of public procurement processes use the most transparent "open procedure", the non-transparent "negotiation procedure" is often invoked because of "technical and artistic reasons" (SELDI 2014). The non-transparent procedure allows entities to directly hire a specific company, although other companies have eight days to appeal this decision; something most companies often seem to be unaware of (SELDI 2014).

Legislation

Serbia's anti-corruption legislation is found in numerous laws. Serbia's Criminal Code, Anti-Corruption Agency Act, Law on the Prevention of Money Laundering, Law on Conflict of Interests 2004 and Law on the Criminal Liability of Legal Entities for Criminal Offences criminalize public and private sector corruption, attempted corruption, extortion, abuse of office, trading in influence, bribing a foreign public official, money laundering and active and passive bribery. Serbia's National Assembly adopted a new draft law that is set to overhaul Serbia's corruption fighting agencies by creating a number of specialized units; it is scheduled to enter into force in March 2018 (HRR 2016). Companies should be cautioned that many provisions of the Anti-Corruption Agency Act are imprecisely defined (EUPR 2016). If found guilty, individuals face up to 12 years of imprisonment, and companies face fines and cessation of the legal entity. Facilitation payments are forbidden (GLIS 2017), and banks and other financial institutions are required to gather data on legal persons who perform electronic money transactions and to monitor irregularities. Gifts are prohibited, but under the Anti-Corruption Agency Act, officials are allowed to accept a non-monetary gift if the value does not exceed five percent of his/her average monthly net salary in Serbia (GLIS 2017). Serbia has corporate criminal liability for acts of corruption; having a compliance program in place may serve as mitigation when facing prosecution (GLIS 2017). Companies may be exonerated from punishment if it detects and reports the criminal offense before learning that criminal proceedings have been instituted, or when it removes incurred detrimental consequences on a voluntary basis without delay (GLIS 2017). Serbia's Public Procurement Act regulates procurement and aims to enhance transparency and to curb corruption and conflicts of interest in the procurement sector. Deferred plea agreements (DPAs) exist; the perpetrator has to accept an obligation; for example, indemnify the damage caused (GLIS 2017). The Law on the Protection of Whistleblowers seeks to protect freedom of expression and to protect individuals who report suspicions of corruption in either the private or the public sector. Companies are required under the law to implement various measures to facilitate whistleblowing (Lexology, Jun. 2015). Additional corruption-related legislation includes the Law of Free Access to Information of Public Importance and the Law on the Financing of the Political Parties. Serbia is party to the United Nations Convention Against Corruption (UNCAC).

Even though there is a strong political impetus to tackle corruption and several high-ranking officials have been investigated in recent years, insufficient control over the public administration and widespread corruption in agencies responsible for implementing legislation continues to result in weak implementation of the law (EUPR 2016). Out of the 3,000 indictments for corruption-related acts issued between 2013 and 2015, only half of those end in convictions of which the vast majority consist of fines with suspended sentences (OCCRP, Mar. 2017).

Civil society

The constitution and law provide for freedoms of speech and press in Serbia. In practice, the environment is not conducive to exercise this right (EUPR 2016). Threats and violence against journalists remain common (EUPR 2016). As defamation is an offense, journalists often practice self-censorship concerning issues like corruption, organized crime and links between business tycoons and political parties (FotP 2016). The pressure of losing advertising contracts due to critical reporting has led to further self-censorship (FotP 2016). Journalists have voiced concerns over confusion in the judiciary when it comes to the implementation of Serbia's media laws, particularly, ignoring a law that holds that journalists may not be penalized for publishing or paraphrasing government statements (FotP 2016). Serbia's media environment is classified as 'partly free' (FotP 2016).

Freedoms of association and assembly are constitutionally protected in Serbia, and the government generally respects these rights (HRR 2016). Civil Society organizations (CSOs) successfully advocate social agendas (BTI 2016). Many of Serbia's CSO continue to depend on foreign funding (BTI 2016). The relationship between the government and CSOs has grown more confrontational due to the government's populist and authoritarian characteristics (BTI 2016). Civil society faces problems with the misuse of public funds for political party financing and partisan preferences from politicians that only work with a select few CSOs (BTI 2016).

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