Category: Serbia

National Assembly of the Republic of Serbia adopted the Law on Alternative Investment Funds (“The Law”) which came into force on 19 October 2019 and which became applicable on 20 April 2020.

Reasons for passing the Law

The main purpose for adopting the new Law was harmonization of Serbian legal system with the legal system of the EU, the improvement of the capital market, as well as the need to provide a higher level of protection in case of risky investments of alternative investment funds and to define more closely and in more detail the rules that exist in relation to management companies of alternative investment funds.

What does the Law regulate?

Pursuant to the Law, an alternative investment fund is a fund which raises funds from the investors with the purpose of further investing in accordance with the determined investment policy and in favor of these investors.

The Law regulates establishment and management of alternative investment funds, the way of placing on the market, issuing and buying out of shares in the alternative investment funds, the affairs and duties of the depositary and the competence of the Securities Commission.

Requirements for management companies

Organizational requirements for management companies include rules of business conduct such as governance, fee policies, risk and liquidity management, valuation rules, delegation of business processes, as well as depositary activities and responsibilities.

Transparency requirements will include reporting obligations of persons managing the alternative investment fund to investors, the obligations of the management company to annually announce the investment strategy and aims of the fund when it acquires the control of the companies, as well as general information on the profitability of the company.

Types of Alternative Investment Funds (AIF)

The Law sets forth different types of funds and prescribes the types of assets into which alternative investment funds can invest raised funds. The Law distinguishes open-ended and closed-ended AIFs.

I   An open-ended alternative investment fund is a separate asset that does not have the status of a   legal entity and that is organized and managed by management company.

II  By defining a closed-ended alternative investment fund, the Law sets forth:

• closed-ended AIF which is not a legal entity;
• closed-ended AIF which is a legal entity established by the alternative investment fund management company and
• legal entity with the internal management – new type of closed-ended AIF introduced by the Law.

New type of closed-ended AIF manages its own assets by itself and not through AIF’s management company and therefore it simultaneously represents by itself the management company.

Securities Commission competence

Taking into account the current situation on the domestic market, the Law stipulates that it will be possible to delegate the safekeeping of assets to domestic and foreign banks in the period prior to accessing the EU, provided that the prescribed conditions are met and with the prior consent of the Securities Commission. By regulating delegation in that manner, a greater level of security, control and liability will be ensured, since the supervision will be exercised by both the National Bank of Serbia and the Securities Commission.

Application of the Law

Although most of the provisions are applicable as of 20 April, the application of the provisions relating to the cross-border operations of the alternative investment fund management companies and the delegation of depositary operations are delayed until the accession of Republic of Serbia to the EU, while the provisions relating to small investors and the public offers are postponed until 1 January, 2021.

This article is to be considered as exclusively informative, with no intention to provide legal advice.
If you should need additional information, please contact us directly.

By Milan Petrovic, Managing Partner, and Natalija Dukic, Associate, PR Legal

Ever since General Data Protection Regulation (Regulation (EU) 2016/679, “GDPR”) entered into force in 2018, companies around the world have put their best effort in achieving full compliance. Despite their best efforts, some companies have found themselves on the receiving end of enormous fines imposed by their national Data Protection Authorities.

Having in mind that the fines for violating GDPR could be as high as 20 million euros or 4% of the annual worldwide turnover for the preceding financial year (if that amount is greater), insuring your business for GDPR non-compliance may not be such a bad idea.

Consequentially, insurance companies took notice and immediately started to offer insurance products for GDPR related fines to the extent permissible by law (as will be explained in detail below).

Meanwhile, the Republic of Serbia adopted the Personal Data Protection Act (“PDPA”) in 2018, which was modeled after GDPR. However, upper thresholds for fines proposed by the PDPA are far lower than the ones set in GDPR. Additionally, Serbian Data Protection Authority i.e. the Commissioner for Information of Public Importance and Personal Data Protection (“Commissioner”) has yet to issue a fine or initiate a proceeding for violation of PDPA. This is likely the reason why insurance policies for such violations are not readily available at the moment in the Republic of Serbia.

It could be expected that similar insurance products will appear on the Serbian insurance market as the activity of the Commissioner increases over time.

Insurability of regulatory fines

In many jurisdictions across Europe, the insurability of GDPR fines has become quite questionable. The main problem with creating and selling such insurance policies was related to regulatory limitations set by national law regarding the insurance of illegal actions. For example, in countries like France, Italy, Hungary, Ireland, and Germany, regulatory fines are not insurable as a matter of public policy, with very few exceptions. The legislators felt that enabling such insurance policies to exist would lessen the effect of fines and encourage more violations of the law.

Contracts and Torts Act of the Republic of Serbia, in contrast, prescribes three requirements which an insurance contract needs to fulfill in order to be considered valid. An insured event stipulated by insurance contract must be:

• a future event
• an uncertain event, and
• entirely independent of the contracting parties’ will.

This would indicate that regulatory fines are insurable in the Republic of Serbia, however, their enforceability may be questioned ex-post if the insured party acted with intent or gross negligence.

Form of GDPR/PDPA related insurance products

Where allowed and to the extent permissible by law, a multitude of insurance providers are offering insurance products that cover GDPR fines both in and out of the European Union. These insurance products may be offered as a part of a broader cyber-security insurance package or as a separate product. Furthermore, the exact wording of the insurance policy is what dictates its scope and nature within applicable regulatory requirements.

Some products offer coverage for all GDPR related breaches and financial consequences in relation to such breaches, while others cover only specific risks in connection to GDPR violations (e.g. fines for not implementing appropriate technical and organizational measures).

In the Republic of Serbia, classes of insurance are enumerated in the Insurance Act. Having in mind the nature of fines that could be issued on the basis of PDPA and GDPR, it is likely that these insurance products would be classified as financial loss insurances. This would depend, however, on the exact wording of the insurance policy and whether it is offered as a separate insurance product or as a part of another existing policy that would be amended to include coverage of PDPA and GDPR fines and/or related financial consequences.

Availability of insurance products that cover GDPR/PDPA fines

Although there are numerous providers of insurance products covering GDPR fines globally, insurance products covering PDPA fines are not yet available or at least not as a separate product in the Republic of Serbia. This may be due to amounts of PDPA fines being low, lack of demand caused by the absence of fines being issued, or lack of awareness on the part of interested actors.

Be that as it may, even companies that consider themselves to be fully compliant with both GDPR and PDPA may want to consider purchasing such insurance, as there is still uncertainty related to application and enforceability of PDPA. On the other hand, insurance providers have an opportunity to seize this area of the market and acquire additional clients in the process.

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

By Milan Samardzic, Partner, and Dragan Martin, Junior Associate, Samardzic, Oreski & Grbovic

On 23 December 2019, the National Assembly of the Republic of Serbia enacted the new Law on Public Procurement (hereinafter: the Law) and most of its provisions will start to apply from 1 July 2020.

Electronic application

The new legal solutions introduce significant reduction and simplification of procedures in the field of public procurement, notably by introducing electronic application through new Public Procurement Portal, which reduces administrative burden both on the side of bidders and on the side of procurers, and particularly as regards the reduction of bidding cost for small and medium-sized enterprises that may not have adequate administrative and professional capacities.

Electronic application also implies the submission of application for participation, e-catalogue and a possibility for procurers in public procurement procedure to require or allow bids to be submitted in the form of e-catalogue or to contain an e-catalogue in cases where electronic tools are used.

In this sense, by the proposed Law on Public Procurement the Republic of Serbia is harmonising with the requirements contained in the European Union Directives.

Obligation for bidders to adjust to the new law

Another novelty is contained in Article 111 of the Law, which stipulates the reasons why procurer may exclude an entity from procurement procedure. Therefore, legal entities registered in the Bidders’ Register of the Business Registers Agency shall be obliged, until 1 July 2020, to apply for issuance of certificate of non-existence of grounds for exclusion from public procurement procedure.

The request for issuance of certificate of non-existence of grounds for exclusion from public procurement procedure shall be submitted by a registered representative of a legal entity or a person authorised by such representative for submitting the request. The request shall be accompanied by certificate of non-conviction issued by relevant courts, as well as certificate of competent tax authorities on settlement of tax liabilities, which prove the non-existence of reasons for exclusion.

Legal entities registered in the Bidders’ Register which fail to provide the stated documents by 1 July 2020 shall be deleted from the Bidders’ Register ex officio.

The Regulation on the application of deadlines in administrative proceedings during a state of emergency which prescribes the extension of deadlines that have expired during a state of emergency, does not apply to the obligation of bidders to submit requests by 1 July.

Public procurements instituted before the application of the new Law

The public procurement procedures instituted before the new Law starts to apply (before 1 July 2020) will be completed in line with the regulations under which they were instituted, and the same regulations will also apply to the bidders’ rights protection. In all such cases, the status of registered bidder after 1 July 2020 will be proved by certificate issued by registrar of the Bidders’ Register stating that the bidder concerned is registered in line with the Law on Public Procurement and that fact will also be verifiable on the BRA’s website.

This article is to be considered as exclusively informative, with no intention to provide legal advice.
If you should need additional information, please contact us directly.

By Jovana Milic, Senior Associate, and Natalija Dukic, Associate, PR Legal

Karanovic & Partners have advised Serbian IT company 3Lateral on its EUR 7.7 million acquisition of a 6,500-square-meter lot from the City of Novi Sad.

Karanovic & Partners’s team was led by Senior Partner Marjan Poljak and Senior Associate Ana Lukovic.

Last year, Karanovic & Partners advised Epic Games on its acquisition of 3Lateral (as reported by CEE Legal Matters on February 4, 2019).

Pursuant to the Law on Prevention of Money Laundering and Terrorist Financing (“Official Gazette of RS”, No. 113/2017 and 91/2019), the National Bank of Serbia shall keep a Unified Register of Payment Service Users for Remittances (hereinafter: the Register). The National Bank of Serbia started keeping this Register from June 1, 2020.

Remittances (personal monetary transfers) represent a payment service, in which the payment service provider receives the payer’s funds without opening a payment account for the payer or the payee, solely to make those funds available to the payee, or to transfer those funds to the the payee’s payment service provider. The legal definition of remittances itself implies that this is a transfer of monetary funds which is done without the payer’s and payee’s bank accounts, and this is a service that is mostly provided through global money transfer services.

Therefore, the monetary transactions in question include payment service users (payers and payees) and payment service providers.

The Register contains data on all users of the payment service for the execution of remittances, which include payers, ie. persons who send the monetary funds (in the country and abroad), and recipients, ie. persons receiving the funds (in the country and from abroad). Hence, the data in this Register refer to the users of this payment service regardless of whether they receive or send funds, but it does not apply to citizens who receive funds from abroad via payment accounts in banks, on the basis of pensions and salaries, social assistance, etc. Also, the Register contains only data with regards to the users of remittances (name and surname of the user, ID number, or passport number for foreign citizens / registration number of foreigners in the Republic of Serbia determined by the competent state authority, and user’s address of residence), while the Register does not contain data on specific monetary transactions and the amounts of those transactions.

The payment service for the execution of remittances in international payment transactions is provided by banks, payment institutions, and the Public Post Office in the Republic of Serbia, as those are authorized payment service providers for monetary transfer, using the Western Union system, MoneyGram International Inc. and RIA Money Transfer. 

The National Bank of Serbia keeps this Register in electronic form, based on data submitted by the payment service providers. The latter have the obligation to regularly submit data to the Register and are responsible for the accuracy of the submitted data. The National Bank of Serbia is responsible for the identity of data received from payment service providers with the data in the Register. 

Regarding the purpose of keeping this Register, the National Bank of Serbia explains that the main goal of this Register is to improve the efficiency of the system for the prevention of money laundering in connection with the execution of payment transactions. Namely, with the Law on Payment Services, the Unified Register of Accounts has been expanded to include not only the accounts of legal entities and entrepreneurs, but also the accounts of all natural persons, in order to improve the efficiency of the fight against criminal activities. Since, with the implementation of the new Law on Payment Services, licensed payment institutions which provide the service of transferring funds without opening a special account (remittance) have also started operating, there is a need to expand this record to remittance users, given the prevalence of the network of financial institutions that provide these services and the scope of these transactions. In this way, no additional rights are given to the authorities involved in the fight against criminal activities (prosecutors, courts, police and the Anti-Money Laundering Directorate), nor will they be provided with significantly different data from the existing ones regarding criminal prosecution, but this Register will enable facilitated and faster access to data on remittance users, when it is necessary to detect criminal activities, because there will be no need for these bodies to address all payment institutions, ie. to each payment institution individually (which entails untimely actions and appropriate risks), since the data will be kept centrally. At the same time, the IT solutions related to the safety of data kept in the Register entail strict control of persons who will be authorized to access this data and inspection of legal basis for access to the data in each individual case.

The National Bank of Serbia shall provide the bodies and persons authorized to inspect the data from this Register exclusively through a special application solution, based on the received request signed with a qualified electronic signature. These data may be provided to courts and other competent bodies through a special application decision and on the basis of a written request.

The data from this Register will not be publicly available and the provisions of the Law on Payment Services (“Official Gazette of RS”, No. 139/2014 and 44/2018) relating to the business secret, as well as the provisions of regulations governing the protection of personal data, shall be applied to this matter.

When it comes to cross-border transfer of money in physical form, pursuant to the Law on Foreign Exchange Operations (“Official Gazette of RS”, No. 62/2006, 31/2011, 119/2012, 139/2014 and 30/2018), personal transfer of funds represents a monetary transfer from the Republic of Serbia to abroad or from abroad to the Republic of Serbia, which is not based on the performance of work, but on the basis of gifts and assistance (including assistance to a family member), inheritance, rent, settlement of immigrant debt and funds carried out by emigrants, and this tranfer is performed between a resident – a natural person and a non-resident. On the stated grounds, the citizens of the Republic of Serbia can transfer funds of up to 10,000 euros per month abroad without restrictions, and in a larger amount by showing the appropriate documentation. With regard to payments for goods and services abroad, citizens, in principle, can make all payments abroad on the basis of appropriate documentation.

Statistics also speak about the importance of remittances – According to the World Bank report, remittances sent to Serbia make up 8.56 percent of the gross domestic product and are an important factor in reducing poverty in the country. Since 2004, the inflow of money into Serbia has been estimated at between 2.2 and 3.7 billion euros a year. In 2018, Serbia was ranked as the 37th country in the world in terms of received remittances, with most remittances sent from Germany. National bank of Serbia states that, in 2019, the total inflow on the basis of remittances from abroad amounted to 3.516 billion euros, which is circa  8% of GDP, while the share in the stated amount of those remittances from abroad whose users will be registered in the Register amounted to about 482 million euros.

By Stojkovic Attorneys

JPM has helped Gastrans d.o.o. Novi Sad draft the Natural Gas Transmission System Network Code, which, with the consent of the Energy Agency of the Republic of Serbia, entered into force on May 30, 2020.

According to JPM, “this Network Code is the first transmission system network code in the Republic of Serbia aligned with the Energy Law of the Republic of Serbia, Final Exemption Act dated 5 March 2019 rendered by th Energy Agency of the Republic of Serbia and the Commission Regulation (EU) 2017/459 of 16 March 2017 establishing a network code on capacity allocation mechanisms in gas transmission systems and repealing Regulation (EU) No 984/2013 (CAM NC) and the Commission Regulation (EU) 2017/460 of 16 March 2017 establishing a network code on harmonised transmission tariff structures for gas.”

JPM’s team helped Gastrans d.o.o. Novi Sad draft the Network Code, assisted during the public consultation process, helped prepare the final draft, and with the adoption and consent-obtaining processes. The firm’s team consisted of Senior Partner Jelena Gazivoda, Partner Nikola Dordevic, and Senior Associate Marko Mrda.

On 26 May 2020, Republic of Serbia ratified the Protocol to the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, (CETS 223, “Protocol 223”). This makes Republic of Serbia the fourth country to ratify the Protocol 223 out of 38 signatory states.

Novelties introduced by the Protocol 223

The Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (“Convention 108”) was adopted by the European Council on 28 January 1981 and has since been amended only once in 1999. The Convention 108 was the first international binding instrument of its kind, seeking to ensure protection of personal data on the global scale, as it was open for signing to both state-members of the European Council and non-members alike. However, vast technological advancements of the previous two decades coupled with adoption of General Data Protection Regulation (Regulation (EU) 2016/679, “GDPR”) by the European Union warranted a need for another update.

The Protocol 223 was adopted and opened for singing by the European Council on 10 October 2018 as a welcome amendment to the Convention 108. The main goal of the Protocol 223 is to facilitate protection of personal data in relation to new information and communications technologies, as well as strengthen mechanisms for its implementation.

These amendments include:

• stronger requirements regarding the proportionality, transparency, data minimization principles and lawfulness of the processing;
• genetic and biometric data, trade union membership and ethnic origin are categorized as sensitive data;
• obligation to declare data breaches;
• new rights for the data subjects in an algorithmic decision-making context (particularly relevant in connection with the development of artificial intelligence);
• stronger accountability of data controllers;
• requirement that the “privacy by design” principle is applied;
• application of the data protection principles to all processing activities, including for national security reasons, with possible exceptions and restrictions, and in any case with independent and effective review and supervision;
• clear regime of transborder data flows (transfer of personal data to other countries);
• reinforced powers and independence of the data protection authorities and enhancing legal basis for international cooperation.

The Protocol 223 shall enter into force on 11 October 2023.

Connection to GDPR

GDPR consists of the original text and the Recitals aimed at providing additional information and clarity where it is needed. Recital no. 103 of GDPR states that the Commission of the European Union (“EU Commission”) may decide with effect for the entire European Union that a third country, a territory or specified sector within a third country, or an international organization, offers an adequate level of data protection. In such cases, transfers of personal data to that third country or international organization may take place without the need to obtain any further authorization.

Criteria for determining which country possesses an adequate level of data protection are set forth in the Recitals no. 104 and 105 accordingly. One of those criteria is accession to the Convention 108 and the Protocol 223. This means that the countries outside of the European Union or European Economic Area that were not yet determined as a third country providing an adequate level of data protection (“Adequacy decision”), have higher chances of achieving such a status if they sign and ratify both the Convention 108 and the Protocol 223. 

Importance to Republic of Serbia

Republic of Serbia signed and ratified the Protocol 223 on the initiative of the Commissioner for Information of Public Importance and Personal Data Protection from 18 March 2019. The initiative was addressed to the Ministry of Justice, explaining the importance of the Protocol 223 and the effects it would have on Serbian personal data protection legislation.

Even though the Serbian Data Protection Act has been modeled after GDPR, Republic of Serbia has not yet become a subject of the Adequacy decision of the EU Commission (Republic of Serbia is not a member of the European Union or European Economic Area). Ratification of the Protocol 223 could potentially bring Republic of Serbia closer to negotiations regarding its status in this capacity, along with strengthening existing personal data protection mechanisms. 

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

By Milos Velimirovic, Partner, and Dragan Martin, Junior Associate, Samardzic, Oreski & Grbovic

Karanovic & Partners has helped the Serbian subsidiary of Korea’s Kyungshin Cable Co. Ltd. to obtain the approval of Serbia’s State Aid Control Commission for its acquisition of state-owned land in Smederevska Palanka, Serbia.

According to Karanovic & Partners, “the granted aid concerns the allocation of 61,534 square meters of state-owned land for the investment in a new factory for the production of electrical and electronic equipment for cars. in the town of Smederevska Palanka located in central Serbia. The estimated worth of land provided to Kyungshin amounts to EUR 254,350.79, while Kyungshin committed to investing at least EUR 20 million in new fixed assets by the end of 2022 (whereas at least a quarter of that money must come from the company’s funds, free of any state aid) and provide employment for 700 workers on an indefinite term.”

Kinstellar advised Kyungshin on matters related to the construction of the factory itself (as reported by CEE Legal Matters on June 3, 2020).

Karanovic & Partners’ team included Senior Associates Bojana Miljanovic and Veljko Smiljanic.

As a negative social phenomenon, corruption is present everywhere in the world and is often the topic of legal, sociological, political and philosophical debates. One of the most comprehensive definitions of corruption was offered by the economist Vito Tanci, who believes that corruption exists if there is a deliberate violation of the principle of impartiality in decision-making in order to gain some benefit.

On the other side, in the Republic of Serbia, “corruption” is defined by the Corruption Prevention Act, as abuse of office or social status and influence, in the public or private sector, with the aim of acquiring personal benefits for oneself or another.

The institutional framework for fighting corruption consists of several competent bodies such as Anti-Corruption Council, Ombudsman of Citizens, Commissioner for Information of Public Importance and Personal Data Protection, as well as various non-governmental organizations. The two most important state authorities are the Anti-Corruption Agency and Public prosecutor.

By the Criminal Code of the Republic of Serbia (“Code”), criminal acts, which are by definition synonyms for corruption, are defined as giving of a bribe and soliciting and accepting bribes. The Code distinguishes several types, which may differ from each other according to actions in connection with the type of bribe accepted or given.

• soliciting and accepting bribes – we can distinguish among (i) accepting a bribe in order to perform an illegal official action, (ii) accepting a bribe in order to perform a legal official action, and (iii) accepting a bribe after performing an official action. The maximum penalty for soliciting and accepting bribes is 12 years in prison for the official.
• giving of a bribe – we can distinguish when (i) an official is given, offered or promised a gift or other kind of benefit/compensation in return to commit an illegal act, (ii) an official is required to perform a lawful act, (iii) an official mediate in giving a bribe, which means any act by which another person is involved in actions of promising, offering or handing gifts or any other kind of benefit. The maximum penalty for giving a bribe is 5 years in prison for an individual.

Additionally, abovementioned acts can be done by the legal entities in the course of business activity, which can be sanctioned, as follows:

• the maximum penalty for giving a bribe is a monetary fine up ranging between RSD 1 and 2 million;
• the maximum penalty for soliciting and accepting bribes is a monetary fine up to approx. RSD 5-10 million;
• forced winding up of the legal entity – if the business activity of the legal entity in its entirety or in significant part was in the function of committing criminal acts.

Common to all these forms is acquiring gifts (it can be any property value, i.e. it does not have to be money, but can also be a valuable painting) or other benefits (e.g. promotion, unjustified receipt of credit funds), or in accepting or making promises of gifts or other benefits. Naturally, an accepted or a given bribe will be expropriated.

In practice, these criminal acts are very difficult to prove and the reason for that should be sought in the legislator’s determination to sanction both the recipient and the person who offers a bribe.

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

By Milan Samardzic, Partner, and Katarina Askic, Junior Associate, Samardzic, Oreski & Grbovic

NKO Partners has advised Lola Real Estate on its EUR 7 million acquisition of 9,376 square meters of land in a public tender procedure from the Belgrade Land Agency, then advised Lola Real Estate sole shareholder Loran Soco on the sale of the company to the Czech Republic’s UDI Group. Sole practitioner Aleksandra Nedeljkovic advised UDI on the latter deal.

According to NKO Partners, both transactions closed in the last 30 days.

The NKO Partners’ team was led by Partner Djordje Nikolic and Senior Associate Marina Nikolic.