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  • PeliPartners and NNDKP Advise on Skanska’s Sale of Equilibrium 1 Office Building to Granit Asset Management

    PeliPartners has advised the Swedish Skanska Group on the EUR 52 million sale of the Equilibrium 1 office building in Bucharest. Nestor Nestor Diculescu Kingston Petersen advised Granit Asset Management-managed investment fund Grodiusz Private Equity Fund on the buy-side.

    Skanska is a real estate developer and builder.

    Granit Asset Management is a Hungarian institutional investor managing 24 investment funds with assets under management exceeding EUR 2.7 billion.

    According to NNDKP, Equilibrium 1, completed in 2019, features approximately 21,000 square meters of leasable space across 11 floors and 240 parking spaces.

    The PeliPartners team included Partners Oana Badarau and Madalina Fildan Raileanu.

    The NNDKP team included Partners Lavinia Ionita-Rasmussen, Vlad Tanase, Iurie Cojocaru, Senior Associates Flavia Petcu and Alexandru Ciambur, and Associates Bianca Isache and Iulian Ursache.

  • Tomasz Dabrowski Becomes Managing Partner at Cornerstone

    Dentones Partner Emeritus Tomasz Dabrowski has become the new Managing Partner of Cornerstone Investment Management.

    Cornerstone Investment Management, founded in 2001, is a private equity investment management.

    Specializing in Corporate/M&A, Dabrowski has been with Dentons since 1992, having originally joined its legacy firm Salans as a Lawyer. He made Partner in 2000 and in 2005 became the firm’s Poland and CEE Managing Partner as well as the Co-Head of the Europe Corporate group – a position he continued to hold at Dentons until 2014 before taking over as CEO of Dentons Europe. As of 2024, he has been a Partner Emeritus with the firm.

    Originally reported by CEE In-House Matters.

  • Pohla & Hallmagi Advises Karmsund Group on Acquisition of Production Plots from Flebu Properties

    Pohla & Hallmagi has advised Norway-based Karmsund Group on the acquisition of three production plots at Soodevahe industrial park as well as the Rail Baltic future maintenance center from Flebu Properties.

    Karmsund Group is an investment company focusing on the maritime industry and industrial real estate.

    According to Pohla & Hallmagi, the production plots are located next to the Tallinn Airport.

    Flebu Properties is part of Flebu, a producer and servicer of tailor-made fans.

    The Pohla & Hallmagi team included Partner Juri Ploom and Associate Kart Meri.

  • Georgia Waits For Environment to Stabilize: A Buzz Interview with Otar Machaidze of J&T Consulting

    Georgia’s political and judicial challenges are impacting lawyers, particularly with attempts to introduce FARA-style regulations in a way that could restrict their work, according to J&T Consulting Partner Otar Machaidze. Legal work is stagnating and businesses are waiting for stability while the new convention on lawyers offers a rare glimmer of hope.

    “The political situation in Georgia is extremely challenging, and it has a significant impact on lawyers’ daily work,” Machaidze explains. “The judiciary, in particular, is struggling, becoming increasingly aggressive and unwelcoming. Lawyers who participate in anti-government protests or represent protesters often face administrative charges, forcing them to balance their duty to defend their clients’ rights while also protecting themselves.”

    “the government appears to be manipulating the concept of the US FARA law, attempting to apply it not only to media and NGOs but to legal professionals,” he adds. “Under this approach, if a lawyer works on projects involving international clients, or engages in negotiations with the government or public officials, they would be required to declare it under FARA-like legislation.”

    “There have been troubling cases where judges annulled arbitration awards, undermining the credibility of arbitration as a dispute resolution mechanism,” Machaidze adds. “If a lawyer is a listed arbitrator at an arbitration institution, the courts of appeals have used that as grounds to invalidate arbitration agreements. This practice contradicts international legal standards, as well as a decision of the Georgian Supreme Court, but still, the Court of Appeal, has already ruled in at least three cases, making controversial decisions that have been widely criticized by the legal/arbitration community.” He further states that “the situation is even more difficult because the legal profession in Georgia is relatively small, and many lawyers who are also arbitrators are engaged in active discussions about these issues.”

    At the moment, Machaidze states, there is little optimism about the future. “The only piece of good news is that the Council of Europe has recently adopted a new convention on lawyers, but it remains uncertain whether the Georgian government will ratify it,” he notes. “In one recent case, a judge was considering fining lawyers who were actively defending their clients and protesting due process violations, but the Bar Association’s Ethics Commission refused to take disciplinary action against them, which was a rare positive outcome.”

    From a business perspective, Machaidze emphasizes that the legal market has been stagnant. “While law firms continue to provide services to their corporate clients, there have been no new projects in the past three to four months,” he points out. “Businesses are closely monitoring the situation, but they are unlikely to make any major decisions until the political and judicial environment stabilizes.”

  • Public-Private Partnerships in Healthcare: Global Models and Takeaways for Ukraine

    Public-Private Partnerships (PPPs) have become an essential tool for governments worldwide to develop and modernise healthcare infrastructure. By leveraging private sector investment, expertise, and efficiency, PPPs help bridge funding gaps, improve healthcare accessibility, and ensure the long-term sustainability of medical facilities.

    Ukraine faces significant challenges in healthcare infrastructure, including outdated hospital buildings, lack of modern diagnostic centres, and insufficient number of specialised medical facilities. Given budgetary constraints and competing priorities, PPPs offer a potential solution to accelerate the modernisation of Ukraine’s healthcare system.

    This article aims to explore different PPP models used in healthcare worldwide, identify key factors influencing their selection, and assess the most suitable approach for Ukraine. Given the complexities of integrating private-sector management into medical services, we propose focusing on infrastructure-only PPP models as the most practical solution for Ukraine.

    PPP Models in Healthcare

    Countries worldwide have adopted various PPP models to improve healthcare infrastructure and service delivery. These models can be broadly categorised as follows:

    1. Infrastructure-Only PPPs (DBFOM – Design, Build, Finance, Operate, Maintain)

    Under this model, the private sector is responsible for designing, financing, and constructing healthcare facilities, as well as maintaining them over a long-term contract period. However, the public sector retains control over medical service provision.

    UK’s Private Finance Initiative (PFI) should be viewed as an example of the said model. The UK has used PFI extensively to build hospitals, with private companies financing construction and being repaid over time through public sector payments. While PFI delivered modern facilities, high long-term costs led to a re-evaluation of the model.

    1. Service-Based PPPs (Full-Service PPPs)

    In this model, private partners not only build infrastructure but also provide medical services. This approach requires strong regulatory oversight to ensure service quality and affordability. An example of this mode is the Alzira Model used in Spain.

    • The private sector builds and operates hospitals, providing medical services under a contract with the government.
    • While the model reduced costs and improved efficiency, concerns arose regarding service quality and accessibility, leading to a partial rollback.
    1. Hybrid Models (Shared Responsibility in Infrastructure & Services)

    Some countries adopt a hybrid approach, where private entities manage hospital infrastructure while public healthcare professionals provide medical services. Canada’s Alternative Financing and Procurement (AFP) model used in Ontario involves private-sector participation in hospital construction and maintenance, but the public sector retains control over service provision. This model ensures high-quality infrastructure while preventing excessive privatisation of medical care.

    Each model has its own strengths and weaknesses, but success depends on how well it aligns with the country’s legal, financial, and healthcare systems.

    The choice of a PPP model for healthcare depends on several critical factors, which we aim to summarise below:

    Firstly, regulatory environment: a well-defined legal framework is essential for private-sector participation. Countries with clear PPP laws tend to attract more investment.

    Secondly, funding mechanisms: some models rely on direct public funding, while others involve user fees or international financing. Availability of funding influences model selection.

    Thirdly, risk allocation: the public and private sectors must clearly define responsibilities to balance financial, operational, and service delivery risks.

    Fourthly, healthcare system maturity: countries with well-developed public healthcare systems may integrate service-based PPPs, while others may focus on infrastructure-first models.

    Lastly, however, not the least important though, public perception and political will. If private-sector involvement in healthcare is politically sensitive, governments may opt for infrastructure-only PPPs to mitigate public resistance.

    Given these considerations, Ukraine must choose a PPP model that aligns with its regulatory, financial, and healthcare landscape.

    The Best-Suited PPP Model for Ukraine

    Ukraine’s healthcare sector faces structural challenges that make infrastructure-only PPPs the most viable option. Integrating private-sector medical service provision into PPP projects would be complex due to several factors. One of the most important aspects is that the current legislation lacks clear mechanisms for integrating private healthcare services into PPPs. On the other hand, full-service PPPs could face resistance from the public and medical community. Additionally, managing both infrastructure and medical services would require advanced funding models, which are currently underdeveloped.

    By focusing on PPPs for hospital construction, renovation, and maintenance while keeping medical service provision under public control, Ukraine can shoot many targets with the same bullet.

    TARGET A: acceleration of infrastructure modernisation. New hospitals, clinics, and diagnostic centres can be built faster and with better quality.

    TARGET B: leveraging of international funding. Organisations like the World Bank and EBRD could support projects with long-term financing and/or donor finance.

    TARGET C: ensuring public oversight by the government retaining control over medical service standards and affordability.

    TARGET D: reducing budgetary strain. PPPs allow private investors to share financial risks while ensuring long-term facility maintenance.

    Potential Pilot Projects for Ukraine

    Ukraine has recently announced a pilot healthcare PPP in the city of Zhytomyr where it is proposed to implement an infrastructure-only model to create a brand-new hospital designed to replace an outdated facility. This is a huge move towards potentially multiple projects across the country, where PPP can facilitate transformation of Ukraine’s medical services system primarily through (A) modernisation of regional hospitals by upgrading aging facilities to meet modern healthcare standards, (B) establishing of specialised medical and diagnostic centres (developing high-tech oncology, cardiology, and rehabilitation centres).

    Successful implementation of these projects would provide a strong foundation for scaling up PPPs in Ukraine’s healthcare sector.

    By Roman Stepanenko, Partner, Asters

  • Charging Ahead: Hungary’s Newly Introduced Rules Fuel Co-Located BESS Expansion

    The expansion of renewable energy sources, particularly photovoltaic (PV) systems, has been a cornerstone of Hungary’s strategy to diversify its energy portfolio and achieve sustainability objectives. However, the inherent variability of solar power generation presents challenges for maintaining grid stability and ensuring a reliable electricity supply.

    To address these challenges, the development of battery energy storage systems (BESS) co-located with solar power plants (i.e. cable pooling) has become increasingly important. Until now, however, the co-located BESS systems have been under-regulated and the numerous divergent and grey-zone practices have created uncertainty in the market, hindering the development of such systems. The changes introduced last week finally clarify and establish key steps for such developments.

    Historically, Hungary’s regulatory framework did not provide clear guidelines for the integration of co-located BESS projects. This lack of specific regulation created uncertainty for investors and developers, hampering the widespread adoption of these energy storage solutions. While the concept of electricity storage was introduced into Hungarian law earlier, comprehensive policies to support the deployment of co-located BESS systems were lacking. Recent regulatory developments, particularly the amendments to the Hungarian Electricity Act and the subsequent updates to the Hungarian Transmission System Operator MAVIR’s Operational Code, have now established a more accommodating framework for the deployment of these systems. These regulatory advancements provide much-needed clarity and support for the development of co-located BESS projects. This approach not only enhances grid stability but also maximises the utilisation of renewable energy, contributing to a more resilient and sustainable energy system.

    Key regulatory developments

    The Hungarian Electricity Act was amended in early 2025 to include regulations concerning the shared use of producer lines and grid connection points by multiple power plants or BESS systems, each with a nominal capacity of at least 0.5 MW and owned by different entities. These rules mandate that such entities must establish an agreement governing the shared usage of the producer line and the grid connection point. However, the detailed regulations governing such usage – particularly the connection of generation or BESS assets owned by different entities to the same grid connection point – were not adequately addressed, leaving a grey area in the regulatory framework.

    To address this, last week MAVIR, introduced amendments to its Operational Code to facilitate such co-location arrangements. These amendments allow third-party entities to connect generation or BESS assets to the grid using the grid connection point and feed-in capacity allocated to the original grid connection point owner. This co-located grid connection procedure is structured along the following key steps:

    (a) Concluding a grid connection sharing agreement: The parties must enter into an agreement regarding the use of the shared producer line and grid connection point. The duration of such an agreement must be a minimum of 5 years and the law specifies the minimum content requirements for agreements regarding such shared use.

    (b) Notifying HEPURA of the conclusion of the grid connection sharing agreement: The parties must notify the Hungarian Energy and Public Utility Regulatory Authority (HEPURA) of the conclusion of the agreement by submitting it to HEPURA. In the grid connection procedure, this notification must also be verified.

    (c) Method of the system usage fee allocation: The parties must decide how the system usage fees will be allocated and paid. The fees can be settled between the parties themselves or the two separate entities may each settle independently with the relevant network operator based on the metering installed at the grid connection point.

    (d) Method of capacity utilisation: The parties must outline how the available capacity at the grid connection point will be jointly utilised, taking into account any feed-in capacity limitations.

    (e) Preparing a single-line diagram: A schematic, including the interface point (in Hungarian: “kapcsolódási pont“) of the BESS asset and the shared grid connection point, must be submitted to the competent network operator. This schematic must be suitable for the preparation of the technical-economic information sheet (in Hungarian: “műszaki-gazdasági tájékoztató“).

    (f) Declarations from the operator: If the operator of the shared producer line and the grid connection point differs from the entity entitled to the available feed-in capacity, declarations confirming the operator’s awareness of the co-location request and the safe operability of the shared infrastructure following the implementation of the BESS asset are also required.

    Implications for stakeholders

    In summary, the foregoing changes are extremely important for the development of BESS systems, as they aim to clarify the previously divergent practices and uncertainties and establish a procedural framework that supports – and give a boost to – their development. This is especially important for maintaining grid stability, as these systems store excess energy produced during peak sunlight hours and release it during periods of high demand or low generation, thereby smoothing out fluctuations and enhancing the dispatchability of renewable energy.

    Additionally, integrating BESS systems with renewable energy projects presents stakeholders – including developers, investors, utilities and local communities – with a range of operational, financial and regulatory considerations. For developers and investors, co-location can improve project economics by utilising existing grid connections and optimising land use, potentially reducing capital expenditure. However, this approach necessitates detailed planning to address technical challenges, such as ensuring compatibility of electrical connections and managing the complexity of grid-sharing agreements when multiple entities are involved. These agreements must clearly define responsibilities for maintenance, capacity usage and liability allocations, in order to prevent disputes and ensure smooth operations. Furthermore, developers must navigate regulatory requirements, including securing the appropriate licenses and adhering to evolving legislation governing energy storage and grid integration.

    Therefore, while these developments present significant opportunities, they also introduce complexities. The novelty of the regulations and the presence of unresolved issues necessitate careful navigation. Stakeholders must adapt to a rapidly evolving regulatory landscape, where recent amendments have introduced new requirements and procedures that can be challenging to interpret and implement. These changes, along with the evolving nature of the regulations and the presence of certain grey areas, highlight the importance of informed legal guidance. We remain available to offer tailored assistance to stakeholders as they navigate this evolving regulatory environment, helping them to understand and comply with these new requirements and supporting the smooth implementation of their projects.

    By Adam Lukonits, Senior Associate, and Virag Locsei, Associate, Wolf Theiss

  • Partners Vote in Favor of Linklaters’ Warsaw Office Transfer to Addleshaw Goddard

    Partners at Addleshaw Goddard and Linklaters have voted in favor of the transfer of Linklaters’ Warsaw office to Addleshaw Goddard.

    The office transfer was announced earlier this year (as reported by CEE Legal Matters on February 18, 2025).

    “We are delighted that our partners have approved the addition of the Warsaw office and are excited to welcome our new colleagues,” commented Addleshaw Goddard Managing Partner Andrew Johnston. “The news of our entry into Poland and the CEE region has created real excitement amongst our clients and we are already discussing how we can support them in new ways across a wide range of opportunities. We remain on course to complete the transfer of the Warsaw office to AG on  April 30, making Warsaw our 20th office with effect from May 1, 2025.”

  • Dive Into the Latest Competition Law Updates in Romania

    April 2025 – In the first quarter of 2025, the Romanian Competition Council (“RCC”) published several significant decisions, launched new investigations, and imposed fines in cases involving abuse of dominant position, price coordination, and other anticompetitive practices.

    1. New FDI Guidelines

    In February the RCC published the draft FDI guidelines (the “Guidelines”), which were up for public consultation until mid-March. The Guidelines aim to clarify the method for the calculation of the investment value in different types of transactions, such as share deals, share capital contributions, multi-jurisdictional transactions, or in case of a loan or financing by an investor.

    Furthermore, the Guidelines clarify that it is possible to file based on a preliminary agreement, such as a Letter of Intent or a Memorandum of Understanding, provided that the agreement clearly shows the parties’ intention to carry out the investment.

    Additionally, the Guidelines also aim to define the concept of “control” in the context of foreign investments, aligning it with the definition used in merger control proceedings.

    2. Mergers & acquisitions

    The RCC published nine decisions authorising economic concentrations across various sectors, including insurance, DIY products, automotive retail and power generation, transmission and distribution. Additionally, the RCC approved the transaction under which the oil company OMV Petrom outsources certain transport services along with related personnel.

    3. Investigations

    Investigation into LPG port operating services market

    In January, the RCC initiated an investigation into a local company active in the liquefied petroleum gas (LPG) port operating services market (i.e., Octogon Gas S.R.L. and its parent company, NSS Oil & Gas S.R.L.) for alleged abuse of dominant position by refusing to provide services to a client without any objective justification. The RCC carried out dawn raids at the headquarters of both companies.

    Investigation into the residential construction services market

    In February, the RCC announced the launch of an investigation into three companies operating on the construction services market, focusing on potential bid-rigging activities in tenders organised by the National Housing Agency (Agentia Nationala pentru Locuinte). The companies may have coordinated their actions in order to divide the market. Should the RCC identify a breach of competition rules, the companies could face fines of up to 10% of their turnover.

    Fine for abuse of dominant position in the COPD medication market

    The RCC has fined pharmaceutical company Boehringer Ingelheim RCV Gmbh & Co KG roughly EUR 26 million for abusing its dominant position in the market for medications treating chronic obstructive pulmonary disease (COPD). Between 2017 and 2021 the company restricted market access to the cheaper generic version of a specific drug. The investigation was initiated following information received through RCC’s whistleblowing platform.

    Fine for price coordination in the cement market

    The RCC has imposed a total fine of approximately EUR 44 million on three companies active on the cement market (i.e., Holcim Romania S.A., Romcim S.A., and Heidelberg Materials Romania S.A.) for coordinating pricing policies. The three cement producers exchanged sensitive information through their clients, including future prices, discounts, payment conditions and volumes. This information was then used to coordinate pricing policies, reducing competition and leading to higher cement prices compared to neighbouring countries.

    By Luiza Bedros, Associated Partner, Catalin Graure, Counsel, Cristina Costin, Junior Associate, Kinstellar

  • Attracting International Workforce: EoR, the New Panacea?

    Employer of record (EoR) services are becoming increasingly popular for companies looking to expand rapidly internationally. This allows a company to enter a market and recruit workers in another country quickly, efficiently and at lower cost without setting up a subsidiary. As with any panacea, however, it is important to be careful.

    What exactly is EoR?

    Under the EoR service, the EoR service provider provides a workforce in a particular country for its client. The EoR service provider will be the employer of the workers recruited abroad, and the local legal and administrative obligations related to the employment will be borne by the EoR service provider. EoR services typically include recruiting workers, conducting background checks, onboarding workers, drafting and concluding employment contracts, administrative tasks related to payroll and taxation, administrative management of benefit packages and termination of employment.

    For whom and why is the EoR service good?

    In most cases, entering a foreign market is time-consuming and costly: finding the right legal form, setting up the company, renting offices, recruiting and training employees, setting up the administrative background all take time. This is where EoR helps, as it allows for virtually instant market entry, as a company wishing to serve a given market does not need to go through any of the above stages.

    The EoR service is of particular interest in the tech world, for start-ups and other growth entities where there is either no definitive vision of entering and establishing a presence in a given market, or an urgent need to recruit people with knowledge of that market, for example because of a new project opportunity. Using the EoR service in such cases will not only make it easier and cheaper to start up the service, but also to potentially terminate it at a later stage.

    What should be considered when designing the structure?

    The EoR service is essentially based on a contract between the service provider and the customer. On the other hand, the EoR provider will conclude an employment contract with the employees concerned. In some cases, there may be a tripartite contract between the parties involved, or even a multi-country framework contract between the EoR provider and the client’s parent companies for the provision of such services.

    An important question in the design of EoR services is who has the power to instruct, manage and supervise workers and how the possibility of termination of employment is developed. In these areas, it is particularly important to define the liabilities of the parties. For example, it is often the case that the EoR provider is forced to rely on the grounds for termination provided by the client. If, however, a claim is subsequently made against the EoR provider for this reason, it is appropriate to shift the responsibility for this back to the client.

    The application of certain provisions protecting the economic interest of the client is also important. For example, the customer may require that an employee employed through the EoR accepts a confidentiality or non-competition obligation. As the customer does not have a direct contractual relationship with the employee, the enforceability of this must also be ensured by the contract with the service provider.

    Where are the dangers?

    The biggest problem with EoR services is that they can be reclassified as temporary agency work, depending on the rules of the jurisdiction. Temporary agency work is a regulated service, the entities providing it are usually subject to registration, there is additional administration, authorities have increased control, and service providers are typically required to provide financial security. Furthermore, some countries’ rules impose time limits on the possibility of temporary agency work. Therefore, EoR providers generally want to avoid that their activity slides into temporary agency work.

    The dividing line between the two types of service should be examined on a country-by-country basis. In most cases, it is a question of how deeply the foreign employee is integrated into the client’s organisation. The stronger this integration, the greater the risk that the contract can be reclassified as temporary agency work.

    A number of other considerations may also be relevant to the question of reclassification. In particular, from whom and how the employee receives instructions, how similarly the employees perform their work compared to other employees of the client, who provides the work equipment. But equally important may be the extent to which the remuneration for the service is aligned with the client’s wage costs: if it is essentially determined by the parties on a cost-plus basis, this would be an argument in favour of the temporary agency work nature of the agreement.

    It is not all the same from a tax point of view

    In addition to the reclassification as temporary agency work, the scheme may also carry tax risks. Even if the client does not want to establish a permanent establishment in the country of employment, the use of the service may give rise to a tax establishment. In such a case, the profits from the activity may be taxable in the country of employment abroad. This risk may arise in particular if the foreign employees are employed at a fixed place of business or if the foreign employees play a significant role in the employer’s contracting with foreign customers.

    Where does it work?

    The extent to which an EoR service works well in a particular country is mostly determined by the economic and market conditions in that country, the regulatory approach and the weight of the risks involved. For example, within Europe, the market for EoR services is thriving in some countries, such as Denmark, Finland, Sweden or the Netherlands, where the legal risks involved are low. In other European countries (e.g., Germany, Spain, Italy, the Czech Republic and Poland), the need for caution and prudence is much greater and the options are therefore more limited. EoR services are also becoming increasingly attractive in a number of economically important countries outside Europe, in particular Australia, China, Singapore, Hong Kong and the United Arab Emirates.

    By Zoltan Tarjan, Senior Associate, Jalsovszky

  • Right of Business Entities to a Bank Account

    Conduction of business activities is not possible without possessing a bank account. Business entities[1] are required to open bank accounts, manage all funds through these accounts, and make all payments via these accounts[2], with banks being the only authorized institutions to open and maintain bank accounts[3].

    Although possessing a bank account is a prerequisite for conducting business activities, the right to a bank account is not explicitly guaranteed by imperative rules. The Constitution of Bosnia and Herzegovina („Constitution of BiH“) and the European Convention for the Protection of Human Rights and Fundamental Freedoms („European Convention“) do not regulate the right of business entities to a bank account.

    It is undeniable that denying a business entity the right to a bank account[4] can result in damage for such a business entity. This damage can be particularly severe if every single bank refuses to open an account for the business entity – in such a case, the business entity is prevented from conducting its business activities and generating profit, i.e., acquiring assets. Thus, by denying the right to a bank account, legitimate expectations of the business entity to acquire assets may be disrupted. The European Court of Human Rights in Strasbourg („European Court“) includes the “legitimate expectation to acquire assets[5] under the property rights protected by the European Convention – this leads us to the conclusion that denying the right to a bank account could violate the business entity’s property rights protected by the European Convention.

    In practice, there are frequent cases of denial of the right to a bank account based on regulations stipulated in the Law on Prevention of Money Laundering and Financing of Terrorist Activities („Official Gazette of Bosnia and Herzegovina,” No. 13/2024) („AML Law“), regulations adopted based on the AML Law, including internal acts of banks („AML regulations“).

    This review analyzes the justification of denying the right to bank account to business entities from the perspective of AML regulations, as well as the potential violations of property rights that business entities may suffer as a result. 

    The Bank’s Right to Deny a Business Entity the Right to a Bank Account from the Perspective of AML Regulations

    A bank is not allowed to open a bank account for a client (including a business entity) or must close an already opened bank account if it cannot perform the identification and monitoring measures required by the AML Law. This obligation of the bank arises from Article 14, Paragraph 4 of the AML Law. 

    A bank may decide to close an already opened bank account if it determines that it cannot efficiently manage the money laundering and terrorist financing risk in relation to the client („AML risk“). This right of the bank arises from Article 14, Paragraph 5 of the AML Law.

    When assessing its ability to manage the AML risk concerning a client, the bank must act in accordance with the principle of good faith and fairness as prescribed in Article 12 of the Law on Obligations of the Republic of Srpska[6]  („RS Law on Obligations“), respectively Article 12 of the Law on Obligations of the Federation of Bosnia and Herzegovina[7] („FBH Law on Obligations“). Efficient management of the AML risk depends on various factors that should be determined in each specific case. One bank may be able to manage AML risks for a particular client effectively, while another bank may not be able to do so. For example, one bank may already have a risk management system in place for a specific group of clients, including the particular client, while another bank may not.

    In the event of a dispute regarding the bank’s right to close a client’s bank account due to its inability to effectively manage the AML risk, the burden of proof would be on the bank to demonstrate that it could not manage the AML risk effectively. Such a dispute would almost certainly arise if the client requests compensation for damages caused by the closure of the bank account. If the client proves that damages resulted from the closure of the bank account, the bank, in order to defend itself, would have to prove that the damages occurred without its fault – this is clearly outlined in Article 154 of the RS/FBH Law on Obligations, which stipulates: “Anyone who causes harm to another is obliged to compensate for it unless they prove that the harm occurred without their fault.” In this regard, the bank could be relieved of liability if it can demonstrate that it acted in good faith (Article 90, Paragraph 2 of the AML Law). Acting in good faith implies proactive engagement by the bank and using available resources to manage the AML risk effectively. The question arises as to how many resources a bank is required to use to ensure effective management of the AML risk. Acting in good faith requires the bank to use the resources that are typically used to manage AML risks in relation to the “average bank client” or “average group of bank clients.” The question is whether the bank can close an account if it determines that it can effectively manage the AML risk, but such management would impose an excessive burden on the bank because, for example, it would require significantly more resources than those the bank uses for managing AML risks concerning the “average bank client” or “average group of bank clients.” In this regard, the AML Law grants the bank the right to close a bank account if the bank assesses that it cannot manage the AML risk. Since the AML Law does not grant the bank the right to close a client’s bank account if effectively managing the AML risk would be uneconomical for the bank, the bank could not close the bank account for this reason alone. However, the bank may protect itself through a contract with the client by reserving the right to terminate the bank account agreement and close the bank account if: (i) managing the AML risk becomes uneconomical for the bank; and/or (ii) the client refuses to provide additional resources to effectively manage the AML risk. An alternative could be for the bank to pass the “additional” cost of managing the AML risk onto the client through the contract. 

    Violation of Property Rights as a Result of Denying a Bank Account 

    As already mentioned in the introduction: (i) business activities, and thus the acquisition of assets, are not possible without possessing a bank account; (ii) denying the right to a bank account can undermine the legitimate expectations of the business entity to acquire assets, which in itself may result in a violation of property rights protected by the European Convention.

    It is crucial to determine whether the denial of property rights resulting from the denial of the right to a bank account aligns with the permissible limitations on property rights as stipulated by the European Convention. There is no known practice of the European Court that provides a clear answer to this question. However, there is case law from the European Court that could indirectly examine this issue[8]

    According to Article 1 of Protocol 1 of the European Convention, the right to property may be restricted only in the public interest and under conditions prescribed by law and general principles of international law. Through its case law [9], the European Court has developed a “test” for examining whether a violation of property rights has occurred by evaluating the following three principles contained in Article 1 of Protocol 1 of the European Convention (it is sufficient to determine a violation of any of these principles to establish a violation of property rights):

    1. Principle of legality. This occurs when the restriction on property is contrary to national laws. It is expected that this violation will generally be rectified by national courts. The principle of legality also presupposes that the provisions of domestic law are sufficiently accessible, precise, and predictable in their application.
    2. Principle of legitimate aim in the public/general interest. Any interference with the enjoyment of property rights protected by the European Convention must have a legitimate goal. According to the protection system established by the European Convention, it is the obligation of national authorities to make an initial assessment regarding the existence of a public interest problem and determine the measures necessary to apply in relation to the exercise of property rights, including the deprivation or control of property. In this regard, national authorities have broad discretion. The European Court has stated that it will respect the legislature’s assessment of what constitutes “public interest,” provided that such an assessment is not manifestly unfounded[10].
    3. Principle of fair balance. Interference with the peaceful enjoyment of property and the restraint from taking action must achieve a fair balance between the needs of the community’s general interest and the requirements of protecting the fundamental rights of individuals under the European Convention. In every case where there has been a violation of the property rights protected by the European Convention, the European Court must determine whether the individual has had to bear an disproportionate and excessive burden as a result of the state’s (non)action.

    AML regulations in certain cases grant banks the right to deny access to a bank account (as detailed in section I. above). Thus, in this specific case, the principle of legality is respected as long as AML regulations are clear, precise, and predictable – this could be problematic because banking activities are highly regulated, and in some cases, it is not entirely clear how a particular issue is regulated. Additionally, in practice, certain internal acts of the bank are often inaccessible to clients, which could result in a violation of the principle of legality. 

    The goal of all AML regulations is the prevention and detection of money laundering and terrorist financing. Therefore, in practical terms, the violation of the principle of legitimate aim in the public interest is excluded.

    A potential violation of property rights could, in many cases, be proven through the violation of the principle of fair balance. It is reasonable to conclude that denying access to a bank account is justified in certain cases – for example, when a (potential) client requests the opening of anonymous bank accounts. However, the situation is more complicated when it comes to high-risk clients (e.g., due to the country of origin, business activity, etc.) who do not violate any regulations and are even able to comply with all the requirements the bank set to meet its obligations under the AML regulations. Practically speaking, in such a case, the property right is restricted solely due to the “fear” of AML risk arising, and it could be argued that the fair balance has been disrupted to the detriment of the business entity’s property rights, thus violating the property right protected by the European Convention. 

    The Bank’s Autonomy to Decide with Whom to Enter into a Business Relationship – Complete Freedom? 

    The general rule is that anyone, including a bank, has the right to freely decide with whom they wish to enter a contractual relationship (Article 10 of the RS/FBH Law on Obligations). This general rule has exceptions when someone is legally required to conclude a contract (Article 27 of the RS/FBH Law on Obligations). These exceptions typically apply to the provision of public services, such as the delivery of electricity, heating, water, etc. However, such an exception is not explicitly provided for banks, at least not when it comes to bank accounts for business entities.

    Nevertheless, it must be noted that banks are the only institutions where it is possible to open a bank account from which deposits can be made and withdrawn, and without which activity, practically speaking, there is no free enterprise. In this regard, we could talk about a kind of “monopoly” of banks in providing services related to bank accounts and the potential abuse of the bank’s right to refuse to open a bank account (Article 13 of the RS/FBH Law on Obligations “Prohibition of Abuse of Rights“) – especially when the refusal to open a bank account has no explicit legal basis. 

    Furthermore, denying the right to a bank account to an individual who does not violate any legal provisions, solely because of certain characteristics of the individual (e.g., the individual is engaged in cryptocurrency-related activities), may result in discrimination. Such discrimination is prohibited by Article 1 of Protocol 12 of the European Convention and Article II/4 of the Constitution of Bosnia and Herzegovina.

    On the other hand, the bank has the right and obligation to adopt internal AML programs, policies, and procedures that, among other things, define which clients are acceptable to the bank[11]. Such regulation opens the possibility for the bank to categorize certain individuals as unacceptable clients. It is reasonable to question whether such regulation aligns with the European Convention, which takes precedence over all laws in Bosnia and Herzegovina under Article II/2 of the Constitution of Bosnia and Herzegovina.

    Additional Protection of Foreign Business Entities in the Republic of Srpska

    Article 57, Paragraph 3 of the Constitution of the Republic of Srpska[12] guarantees the right of foreign entities to engage in business or other activities and enjoy the rights related to their business under conditions that cannot be changed to their detriment. 

    Since business activities cannot be conducted without a bank account, denying the right to a bank account to a foreign business entity could also result in a violation of the above-mentioned right protected by the Constitution of the Republic of Srpska.

    Conclusion 

    Denying the right to bank account can result in a violation of the property rights guaranteed by the European Convention, and consequently, the bank may be required to compensate the business entity for the damage caused by this denial. In this regard, it is important to keep in mind the following:

    • The AML Law authorizes banks to close a client’s bank account if the bank cannot effectively manage the AML risk. This inability must be objective for the bank, and in the event of a dispute, the bank must prove the existence of such inability. Otherwise, the bank risks being obligated to compensate the client for damage caused by the closure of the account.
    • AML regulations provide banks with broad discretionary powers to deny business entities the right to a bank account by categorizing them as unacceptable clients. However, denying the right to a bank account is solely because the bank considers a particular individual “high risk” according to AML regulations and thus “unacceptable to the bank” can result in a violation of the property rights of that individual, and the bank may be liable to compensate for damages. In such a situation, the bank may even act according to AML regulations and still be responsible for damages – this could occur if the court concludes that the AML regulations are contrary to the Constitution of BiH and the European Convention.

    Context of the Notice

    All the above represents an overview of legal issues related to the right of business entities to a bank account. Nothing in this document constitutes legal advice, and we do not accept any responsibility for actions taken based on the above.

    [1] Article 3, paragraph 2 of the Law on Domestic Payment Transactions of the Republic of Srpska („Official Gazette of the Republic of Srpska”, Nos.: 52/2012, 92/2012 – corr., 58/2019, 38/2022, and 63/2024) defines business entities as commercial companies, public enterprises, republic administrative bodies and bodies of local self-government units, banks and other financial organizations, other forms of legal entities whose establishment is registered with the competent authority or established by law, as well as natural persons who independently perform registered business activities. A nearly identical provision is contained in Article 2, paragraph 3 of the Law on Domestic Payment Transactions of the Federation of Bosnia and Herzegovina („Official Gazette of the Federation of Bosnia and Herzegovina”, Nos.: 48/2015, 79/2015 – corr. and 4/2021).”

    [2] This obligation arises from Article 8, paragraph 1 of the Law on Domestic Payment Transactions of the Republic of Srpska, respectively from Article 6, paragraph 1 of the Law on Domestic Payment Transactions of the Federation of Bosnia and Herzegovina. 

    [3] This undisputedly arises from Article 4, paragraph 1 of the Law on Banks („Official Gazette of the Republic of Srpska”, Nos.: 4/17, 19/18, 54/19, and 63/24), which stipulates the following: “No one other than a bank can engage in accepting deposits or other repayable funds, granting loans, and issuing payment cards within the territory of the Republic of Srpska without a license from the Agency in accordance with this law.” A practically identical provision is prescribed in Article 4, paragraph 4 of the Law on Banks (“Official Gazette of the Federation of Bosnia and Herzegovina”, No.: 27/17).

    [4] Whether by the bank’s refusal to open a bank account or by closing an already opened bank account due to the unilateral actions of the bank.

    [5] European Court for Human Rights, case: Pressos Compania Naviera S.A. v Belgium, paragraph 31 and case Tre Traktorer v Sweden, judgement dated 7 July 1989.

    [6] „Official Gazette of SFRJ“ Nos.: 29/78, 39/85, 45/89 and 57/89, „Official Gazette of Republika Srpska“ Nos “: 17/93, 3/96 and 74/04. 

    [7] „Official Gazette of SFRJ“ Nos.: 29/78, 39/85, 45/89 and 57/89, „Official Gazette of RBH“ Nos.: 2/92, 13/93 and 13/94, and  „Official Gazette of FBH“ Nos.:  29/03 i 42/11).

    [8] Judgement of the European Court for Human Rights, dated 3 November 2009, Case Suljagić v Bosnia and Herzegovina, application No. 27912/02.

    [9] Judgement of the European Court for Human Rights, dated 3 November 2009, Case Suljagić v Bosnia and Herzegovina, application No. 27912/02.

    [10] Judgement of the European Court for Human Rights, dated 3 November 2009, Case Suljagić v Bosnia and Herzegovina, application No. 27912/02.

    [11] Article 15, paragraph 4 of the Decision on Managing the Risk of Money Laundering and Terrorist Financing („Official Gazette of the Republic of Srpska”, no.: 22/24 and „Official Gazette of the Federation of Bosnia and Herzegovina”, no.: 79/24) 

    [12] „Official Gazette of the Republic of Srpska”, NoS. 21/92 – consolidated text, 28/94, 8/96, 13/96, 15/96, 16/96, 21/96, 21/02, 26/02, 30/02, 31/02, 69/02, 31/03, 98/03, 115/05 and 117/05.

    By Djordje Dimitrijevic, Counsel, Dimitrijevic & Partners