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Predrag Catic is in charge of legal affairs at the Association of Serbian Banks – a voluntary, professional organization of banks and other types of organizations whose activities are related to the functioning of the banking system. Prior to joining the Association, Catic held Head of Legal roles with three banks: Banca Intesa (from 2007-2013), Societe Generale (2003-2007), and Zepeter Bank (2001-2003).

P.C.: First of all my entire education, including the legal one, was completed in Belgrade, where I finished Law School and passed the Bar exam. That means that I am educated to be oriented to the local market. After finishing university I started working in the telecommunication industry, first at the PTT traffic company, then at Telekom Serbia, the largest companies within their industries at the time here. 

My first job (and first love) revolved around litigation and insurance. The years I spent in litigation – around 8 years – trained me to understand that as an in-house lawyer/litigator I have my in-house clients and their needs and that I have to work a lot to understand their mindset and their way of understanding “business,” which was radically different from my own “legal” thinking. The “second half” of my daily work – insurance – helped me to get a deeper understanding of business books, logic, and the wonders of accounting. At that time in Serbia (in many ways as today) we had problems with debt resolution and, as a result, alongside litigation I started to negotiate ways of repayment of debt with my counterparts. My involvement in insurance paved the way to introducing new legal ways of debt resolution and, as curious as I am, that process led me to the banking sector.

P.C.: Three banks: three different, but at the same time, very common worlds. 

The main differences between them were obvious: shareholding capital origin, size, and business orientation, international, cross-border financing projects, number of employees, [and] almost everything. One big difference that affected my work was the size, as, in comparative terms, the last of the three was much bigger. All of a sudden, when I joined Banca Intensa, I was faced with managing a much bigger team than I was used to, which I quickly learned was a far more politically oriented role than a legal one. 

The main commonality thing was the special position that clients held in all of them. Everything was about clients, collateralization, and the ability to negotiate when things go wrong. 

P.C.: Well, I think it is something I derived from my education. Legal education in Serbia at that time, which I spoke a bit about already, meant gaining a wide scope of legal knowledge. That is something you need to have in the Serbian banking sector even today, when legal environment simplification and specialization are taking place. From family to international law you have to be able to support your colleagues on a daily basis, often quickly over the phone because the client is waiting in front of a bank desk. Excitement, adrenalin, involvement in everything, satisfaction of professional curiosity, all are aspects which no other industry could award you with to the same extent. Especially when you taste success. Banks are far more than just money – they are people, businesses, jobs, economic growth, new ideas – they are the heart of the economy. Therefore, it was a no-brainer: I pick the banking industry.

P.C.: My role is that of Coordinator of the Legal Committee of the Association of Serbian banks, which includes involvement in all areas in which banks are participating, both commercially and statutorily. That entails pure legal advice on both “general” and “particular” levels.

“General” means for us the aspects where we identify problems and suggest possible ways of overcoming them and initiate and participate in various initiatives in drafting new laws, thus adding our input towards the improvement of legislation at a national level. The “particular” level entails supporting banks in specific situations, which could range from usage of promissory notes to implementation of bilateral treaties Serbia has with other countries about something in focus (real estate, trade, arbitration awards, etc.). 

At the same time, as in-house lawyer I am in charge for all legal documents the Association signs, as with any other legal entity.

P.C.: We are not regulators, but we are directly involved in terms of expressing professional opinions when banking, or regulations that target the banking business, are on the agenda to be changed or introduced. Also, as I said, we are appreciated as an initiator of change in some of the relevant regulations.

As an example, recently Serbia changed its Mortgage Law, enabling the facilitation of already prescribed out of court foreclosure procedures. The new legislation is aimed at overcoming some deadlocks hidden in the previous wording of the Law, and we are very proud of the fact that the wording of the new Law passed by both the Government and the Parliament of Serbia relied on our solutions for those deadlocks.

My personal involvements are (a) organizing the banking legal community around open discussion of the regulatory framework; (b) drafting legal opinions regarding that framework with comments and suggestions; (c) participating in Government Working Group(s) for drafting legal frameworks for the valuation of real estate property, and participating in public debates on a new Law on Enforcement and Collateralization; and (d) supporting banks in the process of harmonizing their legal documents with newly introduced laws such as the Law on Protection of Customers of Financial Services, the Law on Payment Services, the Banking Law, the Law on Insurance of Deposits, and many others.

P.C.: Banking business in Serbia is generally all about two issues: collection of non-performing loans (NPLs) and accession to the EU.

At the moment the country is investing enormous efforts in pre-accession negotiations with the EU. We expect opening of the first chapters of the accession agreement soon. One of the most important chapters of that agreement for us is the one dedicated to financial services. With regard to it we are in good shape, let’s say, but we, as the banking sector, are pointing at the Enforcement Law as the one which has to be improved in terms of efficient collection of receivables. This law makes the above two issues into one and is closely linked to the legal certainty of undertaken business which, as a value in and of itself, has to be polished and further nurtured in the country.

The new law is in public debate, and we are facing clashes between two approaches to this law: a pragmatic one – related to supporting efficiency in enforcement of commercial deals – and another I would say more academic one, suitable for wealthier times in Serbia or to wealthier countries nowadays. But despite that clash – or maybe thanks to it – all involved experts are doing their best to deliver a good Law.

P.C.: Yes, yes of course! We engage external lawyers for two main reasons: one is litigation and another one is presenting their experience before the banking legal environment.

We have intensive cooperation on a daily basis with external lawyers, therefore picking lawyers for something specific is maybe easier for us than for somebody else. Usually we go through a procurement procedure in which reliability is of greater importance than price for services. 

I will say, as a new trend, we, the general legal market, are working on developing and implementing IT applications which enable better reporting, exchanging of documents, and information. As a result, lawyers with improved software infrastructure and with readiness to accommodate to new demands of this kind are at some advantage. 

P.C.: Wow, several things, first and above all I’d say spending time with my family – my wife, daughter, and son – then when time allows: friends, photography, wine, books, and traveling.

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Betting on The Point of Entry

In an interview with CEE Legal Matters last year, Willibald Plesser, Co-Head of the CEE/CIS Region at Freshfields, attributed a considerable part of his firm’s success to the fact that Freshfields had been “the first Austrian firm to start branching out into CEE,” a strategy developed as a result of the increasing role of Vienna in funnelling investments towards the rest of the region. For Freshfields, the move two decades ago paid off since Vienna played a critical role as a beachhead for FDI into CEE countries.

It appears that, by opening offices in multiple Balkan jurisdictions, Serbian firms are making a similar bet about their country’s future role – at least in the former-Yugoslavian countries. But are their expectations justified?

Cross-Border Presences

Significantly, a number of Belgrade-based firms have built up multi-jurisdictional presences in the former-Yugoslavian/Balkan countries in recent years. Karanovic & Nikolic is now present in Serbia, Bosnia and Herzegovina, Croatia, Macedonia, and Montenegro, for instance, while BDK is in Serbia, Bosnia and Herzegovina, and Montenegro, and Harrisons is in Serbia and Montenegro. For its part, JPM Jankovic Popovic Mitic is spearheading a regional alliance – “TLA” – with members in Serbia, Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, and Slovenia.

At first glance, it seems that the high-profile deals taking place in the country – such as Mid Euro-pa investing in the Danube Foods Group and KKR investing in SBB Telemach (now known as United Group) – and with expectations that these will echo into investments into the rest of the region, would seem to justify this optimism. But the question remains if indeed Serbia is posi-tioned to play such a regional role in attracting FDIs or if such investments are instead merely one-off conversions of circumstance. 

In terms of hard numbers, while the Serbian Investment and Export Promotion Agency (SIEPA) claims that in 2011 “Serbia was the leader in CEE in attracting FDI with EUR 2.2 billion of inbound investments,” having succeeded in attracting over EUR 24 billion of inward foreign direct invest-ment since 2000, the numbers in subsequent years seem to have registered a drop. Santander reported the FDI Inward Flow in Serbia for 2012 at USD 1.29 billion (EUR 1.17 billion), for 2013 at USD 2.05 billion (EUR 1.84 billion), and for 2014 at USD 1.99 billion (EUR 1.78 billion). 

Perspectives of Market Participants

The opinions of the experts we spoke to ranges across the spectrum, from a strong belief in Ser-bian significance, to a belief that it has limited importance, to a dismissal of the concept entirely.

Patricia Gannon, Partner at Karanovic & Nikolic, is one who believes that Serbia does tend to be seen by foreign investors as a beachhead: “It is our experience that our clients have come into the Serbian market with an acquisition and then used its subsidiaries and ancillary companies as a platform for expansion into the region.” The feeling is seconded by Mark Harrison, Managing Partner of Harrison Solicitors, who adds that “foreign investors and in particular PE houses are viewing Serbia as a geographically central location and additionally probably the most opportunis-tic location for targets in the former-Yugoslav region.”

Nikola Djordjevic, Partner at Jankovic Popovic Mitic, however, suggests that investors may use Serbia as a launching pad for investment in some former Yugoslavian countries more than others, saying, “Serbia is often used for further investments in Bosnia, Montenegro, and Macedonia, but it is not used frequently for investments in Croatia and Slovenia.” He goes on to explain that, “On one hand, the Croatian and Slovenian markets are not fully opened for investments from Serbia, and, on the other hand, these two countries are already in the EU, so it is quite natural that foreign businesses establish their presence first in these two countries and afterwards in Serbia which is also less developed than Croatia and Slovenia.”

Finally, a Partner at a firm with a significant Balkan practice who requests anonymity claims that there has actually been more PE interest in Balkan countries other than Serbia in recent years, referring in particular to companies like Mercator (Croatia/Slovenia) Droga Kolinska (Slovenia), and Telekom Slovenia. He acknowledges that several deals have recently concluded in Serbia, but states, “really, the stars have aligned in order to permit a couple of investments in Serbia, but this does not reflect any particular strategy of using Serbia as a beachhead for investments in the Balkans.”

The Natural Choice?

Those who do believe in Serbia’s significance point to a variety of reasons. According to Harrison, for instance, Serbia is a natural point of entry in the region historically in light of “Serbia/Belgrade’s position pre the troubles, 25 years ago,” when “in Yugoslavia everything emanated and revolved around Serbia/Belgrade.” He says, “this is again being replicated.” 

Gannon also points to the country as a natural choice, but she refers primarily to the country’s size, pointing out that, “simply, Serbia is the largest market in the region and is logically the first choice for investors wishing to create a platform for market expansion.”

“A highly educated work force, favorable geographic position, low operating costs, and financial incentives provided by the government” are other aspects, which, according to Djordjevic, play a considerable role in making Serbia an attractive investment ground. Djordjevic also points out that “due to the free trade agreements with countries such as the Russian Federation, Turkey, and Belarus, Serbia is a fertile ground for foreign companies to expand their business activities in the aforementioned countries.” He refers to the country’s Free Trade Agreement with Russia, signed in August 2000, which stipulates that goods produced in Serbia (or which have at least 51% value added in the country), are considered of Serbian origin and exported to Russian Federation customs free, and suggests that it is, “considered to be a very favorable factor for foreign companies that strive not to lose any additional profit due to the current political situation.”

Another aspect influencing the attractiveness of Serbia is the country’s potential EU accession, which Rob Irving, Dentons Partner and Co-Chair of the firm’s Global Private Equity Group, describes as “both a boon and a curse.” Djordjevic explains that, “due to the accession to the EU, the Republic of Serbia falls within the IPA funding programme. This is probably the reason why the main host countries of companies investing in Serbia are from the EU.” On the other hand, as Harrison notes, “there are advantages in doing business in a non-EU country: less restrictions on all areas of your business; less trade restrictions; less regulations and less stringent laws; and the ability to trade freely with other countries.”

The Flagship Deals

Most Partners who are optimistic about Serbia’s future role in the region point to a number of recently concluded deals, such as Mid Europa’s 2014 sale of the SBB/Telemach Group to Kohlberg Kravis Roberts & Co (KKR). Following that deal, Robert Knorr, a Senior Partner of Mid Europa, commented: “This transaction validates our long-held conviction that this region offers excellent growth opportunities and our ability to create value by building regional champions.” And, indeed, pursuing the opportunities Knorr referred to led a year later to SBB’s acquisition of EUnet (see page 59). According to Gannon, the Mid Europa portfolio sale is a clear example of a regional perspective on Serbian investments: “This is exactly what they did. With an acquisition, they entered the market and through a series of subsequent acquisitions they built the regional platform to a point where a global PE house was interested in acquiring and further developing it.” Gannon adds: “We expect to see KKR further develop this regional platform.” And referring to Mid Euro-pa’s 2015 acquisition of a controlling stake in the Danube Foods Group B.V. and Clates Holding B.V., Gannon claims that, “with Mid Europa’s latest acquisition, we can expect that they will follow suit with a similar plan for developing this FMCG platform.” Noting that the Danube Food Group has subsidiaries in Bosnia, Montenegro, and Macedonia, Djordjevic foresees the same likely pat-tern in the investment. 

“In previous years the most important acquisition of this kind was the acquisition of no.1 Serbian food retail chain Delta Maxi by Belgium’s Delhaize,” says Djordjevic, adding that the regional scope existed in that deal as well, as Delta Maxi had subsidiaries in Albania, Bosnia, Bulgaria, and Montenegro at the time.

And there is a considerable pallet of potential targets of acquisition in Serbia. Gannon says: “Aside from the Telecom / cable and FMCG sectors mentioned above, manufacturing has been a sector with large investments. We believe that this is mainly because of a favorable geographic position, near the EU but yet outside of it making it a cost effective place with a highly skilled labor force for investment.” Harrison points to agriculture as “one of the key areas, in addition to mining and natural resources and IT.” Djordjevic casts his net even wider, claiming that: “agriculture and food industry, energy, telecommunication, construction and infrastructure, and banking and finance are considered to be the most attractive Serbian sectors to invest in at the moment.” He continues: “The Serbian automotive industry recorded large investments, both in value and project numbers, showing that it is one of the most prominent sectors in Serbia, too. The pharmaceutical sector is also quite interesting to investors, especially when it comes to the Russian Federation, where Serbian pharmaceutical products are exported in significant scale.”

These opportunities are matched by “FDI widening in origin,” according to Harrison, who says: “Now instead of the old familiar faces of Italy, Greece, Germany, and Austria, we have the likes of India, China, and of course Russia. The most important active investor has to be the UAE and in particular Abu Dhabi.”

The “IFs” for FDI

The critical first step is to keep the FDI pipeline healthy, and Irving says that “the immediate areas where Serbia can attract FDI are (1) potential transactions by some of the Serbian domestic groups with Western multinationals, attracting investment into players with attractive market positions (much like Adris grupa has done in Croatia by selling its tobacco unit to British American Tobacco) and (2) the current privatization wave (Komercijalni banka, Telekom Srbije, Belgrade Airport, the energy sector, etc.), if the Serbian government can keep up momentum.”

“Some of these privatizations will be difficult and will require political commitment in the face of what may end up being lukewarm interest,” Irving concludes. “SEE may not the biggest priority for a number of the traditional strategic investors in industries such as telecoms and banking, and it will be interesting to see if the government can sustain its commitment to sell what are perceived to be ‘crown jewels’ to financial investors.”

Conclusion

While Gannon says that Karanovic & Nikolic’s expansion has primarily been fueled by regional corporate/M&A work, the firm’s optimism is not necessarily shared by all. Even if FDIs into Serbia do materialize, Djordjevic argues, there are still challenges to using Serbia as a beachhead: “In-vesting in other Balkan countries from Serbia is not developed yet, and a similar case is with in-vestments from other Balkan countries to Serbia.” The JPM Partner looks forward to an improving climate, however: “This is the field where an increase, hopefully, can be expected in the future.”

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

It’s been a long hot summer for much of the Balkans and Central Europe, and with more heat promised I wonder if we will see some of it in the legal markets too. Most top tier law firms talk of this being a very unusual summer in that they have a full work load.

As a short background, I am an Irish lawyer living in Belgrade and working in all the markets of the former Yugoslavia for 20 years now. The resilience of the region never ceases to amaze me. Although we face daily reminders of the recent past and frustrations when opportunities are missed or investments lost, it is clear that this is still an emerging part of Europe full of potential which many investors are looking at more closely.

The work that I do allows me a birds’ eye view of a number of these markets, and there certainly are trends to observe. In Slovenia, for example, we have seen a relaunched privatization program and some successful sales over the past 2 years. The recent failure to sell Telekom Slovenia is hopefully not the beginning of a trend. The restructuring of major local companies and sale of NPL portfolios makes Slovenia one of the hottest markets in the region at the moment. Croatia, on the other hand, has been a sluggish market since its EU accession, and despite some offshore oil and gas tenders and PPP projects there is market concern that it’s underperforming. Bosnia and Herzegovina continues to be challenged by its political situation and limited investment opportunities for larger deals. Montenegro provides our firm with a constant flow of work, particularly in infrastructure and energy/renewable projects, although, being a small market, it is often overlooked by other service providers. Macedonia has more infrastructure projects on the radar and still attracts some interesting investors in automotive and other industries.

Serbia remains our powerhouse market, however, as our team of 80 lawyers here provides full service to a wide diversity of clients. We have recently been involved in the largest transactions in the Balkans and observe a trend of more and more cross-border acquisitions. Clients such as Mid Europa and KKR lead the way as they consolidate in certain sectors such as cable and FMCG companies. The small size of the former Yugoslav markets and their complexity has put off many investors, and we hope that with extremely positive exits we will see more PE houses come to the market. We have noticed that PE clients are looking to acquire a substantial asset here and then look at add-on opportunities in nearby markets. This is not a trend that we have seen too much between countries such as Romania and Bulgaria or the Czech Republic and Slovakia for example, and I think this points back to the fact that the former Yugoslavia was one market, and there is still a deep understanding of the region’s brands and products. 

In September, we will again participate in the SEE M&A and Private Equity Conference which drew over 200 participants last year – a number that a only a few years ago would be considered high. 

I have always been a strong advocate for the role of Private Equity in emerging markets. I am really happy to see more and more investors come and at least explore the region better. It’s still early days for the levels of growth that they expect, but we hope that as long as the region is stable politically that there will be room to grow economically. A recent trend has been the number of small funds coming from Central European countries such as the Czech Republic, Poland, and Lithuania, in addition to the global players. 

Notably, Serbia will see the sale of Telekom Serbia this autumn. The companies that have submitted non-binding bids included 5 PE houses, which reflects a big shift since the last time the Government tried to privatize it. This is a new dynamic to the process and, in my view, a welcome one, as the asset will require large-scale investment and internal restructuring. 

I believe there are many more diverse and exciting deals of substance coming along in the next few years which truly merit investigation by players who have been in CEE for years already and hope to expand their business. Global players from the Middle East, China, Russia, Turkey, and Azerbaijan all lend a more international flavor to the local business community.

In summary, over 20 active years in the former Yugoslavia I can say that there’s never a dull moment. Opportunity is everywhere, and helping clients to achieve their business plan is what we do and still enjoy.

By Patricia Gannon, Senior Partner, Karanovic & Nikolic

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Turkey is among the most active countries in the area of Technology, Media, and Telecommunication (TMT). According to several studies, Turkey’s online audience is one of the world’s largest and most engaged, with one of the highest webpage consumption rates per day.

Similarly, social media usage is prevalent in Turkey, which is said to be among the top ten countries in terms of the number of Facebook users. According to at least one report, as of the last quarter of 2014, 52% of the Turkish population were active social media users.

Online applications are also popular in Turkey. For example, in the banking sector, according to a survey published in 2015 by ING Group NV, Turkey is the only country in Europe where more than half the population say they have used mobile banking services, compared to a European average of one-third. Application development and usage have picked up significantly, creating room and opportunities for start-ups, entrepreneurs, and investors. 

Naturally, the Government is trying to catch up with the high-speed pace of change in the Turkish TMT market. Recently, new laws have introduced changes in the e-payment services, telecommunications, e-commerce, and Internet sectors. Eliciting the most chatter in the TMT field, though, are the recent changes made to Law No. 5651, commonly known as the Internet Law, and the enactment of the long-awaited e-Commerce Law. 

Since February 2014, amendments to the Internet Law have increased government control and supervision of the Internet, burdening content, hosting, and most of all, Internet service providers (“ISPs”) with stringent compliance obligations. 

Some ISPs have claimed they are not able to comply with the onerous new rules as their operations may not have the scale to justify the investment required. Also, the information flow between ISPs and the regulatory authorities may be interrupted, causing miscommunication or delays in compliance. These arguments, however, do not always serve as valid justifications for noncompliance; sector players must comply without regard to the size of their operations or problems they face. 

An important change in the Internet Law has been the introduction of a mechanism for individuals to directly demand access-blocking orders from administrative bodies as an alternative to the courts. One of the grounds that individuals may use to obtain a blocking order is that the content infringes on their privacy. Although applying directly to the regulators instead of the courts may be easier for individuals, critics argue that this eliminates – at least at the initial stages – the judiciary’s supervision of privacy claims, potentially leading to restriction of free speech by a governmental organization, rather than by the Parliament or courts. 

This new mechanism may, however, serve as an equivalent to the EU’s so-called “right to be forgotten.” Even though Turkey astonishingly has no data protection law or court precedent recognizing the “right to be forgotten,” the Internet Law now lays grounds for its exercise, allowing individuals to have information, videos, or photographs of themselves deleted from Internet records so they cannot be found online. 

Again, Turkey has no umbrella data protection law addressing privacy concerns on a parliamentary level. Still, the recent enactment of the E-Commerce Law is an important step forward, not only for online shopping and marketing but also in terms of data protection legislation. 

The long-awaited E-Commerce Law, which entered into force on May 1, 2015, regulates direct marketing and e-commerce activities, parallel to its EU counterpart. Among many other new rules, the E-Commerce Law regulates the use of individuals’ personal information in direct marketing. Now, commercial messages for direct marketing, including emails and phone calls, can be sent to a consumer only if the consumer has given prior approval. 

The E-Commerce Law also prohibits companies and intermediaries from transferring personal data to third parties without consumer consent, or using data for purposes other than what it was primarily collected for. Companies are now required to protect their customers’ personal data and take security measures to prevent data breaches. Although introduction of these rules is a significant development, the absence of an umbrella data protection law still leaves substantial legal gaps. 

Technology attracts not only entrepreneurs and the general public but also regulators seeking to govern all interested parties’ rights and obligations, and to ensure that legislative activity keeps up with the unprecedented pace of the Turkish peoples’ ever-growing appetite for technology. In addition to the Internet Law and the E-Commerce Law, there are new rules and laws in the areas of e-payment services, telecommunications, and media. While not always considered a step forward, Turkey’s legislative activities in the TMT market are nevertheless important, and both established companies and entrepreneurs should keep a vigilant eye on them. 

By Dan Matthews, Partner, Baker & McKenzie, and Hakki Can Yildiz, Senior Associate, Esin Attorney Partnership, a member firm of Baker & McKenzie

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Development of technologies is a never-ceasing process, and in line with the increased possibilities offered by technologies our daily life is irreversibly changing, though sometimes seemingly slowly and imperceptibly. The technology development processes in Latvia have not remained intact, and there have been several changes introduced in the area of TMT which influence everyday life in Latvia.

Electronic Signatures 

Although the possibility to sign documents using a safe electronic signature has existed in Latvia for almost 10 years, many in the country have been slow to adopt this convenient and efficient tool. The situation may change rapidly in the near future, as there has been a strong push for change. Latvia has adopted material amendments to the procedure of registration of mortgages and commercial pledges by providing for wider use of electronic signatures during the procedure of registration and cancellation of pledges, while banks have been instructed to sign all documents related to the cancellation of mortgages electronically. Previously, the law required signatures on the documents to be submitted for registration, amendment, and cancellation of mortgages and commercial pledges to be certified by notary, and the accompanying expenses were completely assumed by borrowers. Owing to these changes, the expenses related to registration and cancellation of pledges and the time borrowers have to spend preparing and submitting the necessary documents have decreased considerably.

Another positive change is the introduction of a new format of electronic signature developed in accordance with the regulatory requirements of the European Union, which provides for signature and verification of electronic documents by the electronic identification cards of all three Baltic States (i.e., Estonia, Latvia, Lithuania). Those changes are essential, since there is a significant number of companies in Latvia with officials or owners from Estonia and Lithuania. As a result, in the past, obtaining signatures of ordinary corporate documents frequently caused incommensurably high costs, since the official or owner of the company had to come to Latvia in order to provide them. This change will facilitate economic cooperation and strengthen ties among the three Baltic States.

LMT and Lattelecom – Will There Be a Merger? 

The potential merger of Lattelecom and LMT has become one of the most significant and discussed issues in the area of telecommunications in Latvia. Lattelecom is one of the largest information and communications technology companies in the country, offering the widest range of fixed telephony communications, Internet, and television operator services. LMT, in its turn, is the first and one of the largest mobile communications operators in Latvia. The largest shareholders of both companies are, either directly or indirectly, the State of Latvia and the Swedish company TeliaSonera. Rumors of the potential merger of these companies have been common for several years, but they have become stronger now, since both the representatives of TeliaSonera and the representatives of the government of Latvia have engaged in discussions of the topic and have expressed their opinions. Although none of the leading political parties of Latvia has yet expressed its explicit support to any of the potential merger scenarios, several representatives of the government have confirmed their readiness to engage in further discussions and assessment.

The company that would result from this merger would actually have no equivalent competitors in Latvia, considering the range of offered services. On the one hand, a merger would provide material efficiency benefits for both companies, and, at least in the short-term, might allow customers to receive a full range of services from one company for a potentially lower price. On the other hand, there is a risk that in the long-term the merger would have the adverse effect of decreasing competition in the telecommunications market. The Competition Council will, inter alia, have to assess those factors when deciding whether and on what conditions to permit a merger of those companies, should it come to pass. We assume that this issue will remain topical for a long time, and a fast solution may not be likely due to the complexity of the transaction.

Only by looking back into the past and lingering in our memories are we able, sometimes, to understand the scope of change we have actually experienced, and to objectively assess its significance. The previous changes and trends allow for the hope that the ongoing development in the area of TMT in Latvia is aimed at expanding the options offered to inhabitants and improvement of the quality of their lives.

By Linda Strause, Partner, and Raivis Znotins, Associate, Tark Grunte Sutkiene

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Introduction

Many cloud providers are based in countries that are not members of the European Economic Area (EEA) and have lower privacy standards. An Austrian organization using services offered by cloud providers is responsible for its decision to process personal data and acts as the controller, so Austrian data protection law applies.

This paper describes the implications of cloud computing that need to be considered in light of the Austrian Data Protection Act (DSG), the decision practice of the Austrian Data Protection Authority, and the latest developments around Safe Harbor.

Safe Harbor

Pursuant to the DSG, which was enacted in 2000, the transfer of personal data to service providers between EEA member states requires no permission. The transfer of data to service providers in countries outside the EEA requires permission from the DSB unless there are exemption regulations or the service provider is a U.S. organization that holds Safe Harbor certification.

Safe Harbor is a decision of the European Commission (EC) allowing for a self-certification of US companies to comply with the EU Directive 95/46/EC on the protection of personal data. Safe Harbor should prevent accidental information disclosure or loss.

The Safe Harbor principle of Onward Transfer as laid out in Commission decision 2000/520/EC permits transfer of data to other organizations that follow adequate data protection principles and the use of subcontractors as well. The transfer of personal data to subcontractors that are based outside the EEA and hold no Safe Harbor certification is only permissible if the Safe-Harbor-certified main service provider contractually obliges its subcontractors to comply with the Safe Harbor principles.

Safe Harbor against the Backdrop of Recent Developments

Although Safe Harbor is currently in force, the EC said in a recent statement that it reserved the right to change or even suspend that framework. A suspension of Safe Harbor would remove the legal basis from many data transfers. This scenario is particularly sensitive in view of the latest revelations about the NSA’s clandestine PRISM surveillance program. Privacy authorities, especially in Germany, are calling for a stricter examination of Safe Harbor compliance, because it cannot be verified whether the Onward Transfer of data to third-country organizations, over which the Federal Trade Commission (FTC) has no jurisdiction, complies with the principles. Moreover, these authorities argue that the U.S. government’s right to access this data undermines the Safe Harbor principles.

Thus, the reference for a preliminary ruling exercised by the High Court of Ireland before the European Court of Justice (ECJ) in July 2014 poses a threat to the existence of the Safe Harbor framework. The ECJ is requested to decide, with regard the Charter of Fundamental Rights, whether privacy authorities must in any case recognize the Safe Harbor Framework or whether they would be entitled and perhaps even obligated “in light of actual developments” to launch their own investigations into the permissibility of data transfers and disclosures. A ruling is yet to be made.

1.2.The Position of the Austrian Data Protection Authority (DSB)

The DSB has so far avoided taking a stand on the permissibility of data transfers as per Safe Harbor which suggests that it currently feels no need to take action, as long as the Safe Harbor Framework is in force and data is only transferred to organizations over which the FTC has jurisdiction. In the opinion of DSB officials, passing the data on to subcontractors in the cloud but outside the jurisdiction of the FTC would require permission. However, giving permission to all cloud subcontractors is impossible because it is unclear which data are transmitted to which subcontractors. Besides, the DSB takes a very long time to process requests. Therefore Austrian organizations try to additionally commit Safe-Harbor-certified cloud providers to the EC’s standard contractual clauses (SCCs).

This creates the contractual basis for an Onward Transfer outside Safe Harbor, because the SCCs also provide for an Onward Transfer, which differs in that subcontractors arguably do not have to be subject to the jurisdiction of the FTC.

Some DSB officials consider this a practical approach. If the request concerns a case involving a cloud provider based and certified in the U.S., the DSB, for a lack of jurisdiction, would have to reject the request for an authorization of the SCCs. But the advantage is that, unlike the use of SCCs in Austria, which is subject to approval, this solution would at least provide some justification for starting data applications without awaiting approval. This would only constitute a regulatory infringement for failing to obtain the appropriate approval.

Conclusion

If data is to be transferred to U.S. cloud providers, it is highly recommended that organizations additionally stipulate the SCCs, which permit an Onward Transfer even if the subcontractor is not subject to FTC jurisdiction. As a precaution, organizations may file a request for the approval of the use of SCCs and may start the data applications with the justification that the DSB does not even have the authority to approve Safe Harbor cases.

Editorial Note: This article was written for and published in the August 2015 issue of the CEE Legal Matters magazine — well before the European Court of Justice’s significant decision in Case C-362/14 Maximillian Schrems v Data Protection Commissioner, declaring the US Safe Harbour Decision invalid. Accordingly, this article was written during and contains analysis of the legal regime existing before the ECJ’s decision, and should be read in that context.

By Johannes Juranek, Partner, and Johannes Scharf, Associate, CMS

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Croatia introduced fiscal incentives for investing in audio-visual production work in 2012. Following Croatia’s accession to the European Union (“EU”) on July 1, 2013, this already-existing fiscal incentives program was reviewed by the European Commission (“EC”) under procedures specified by the Treaty on the Functioning of the European Union (“TFEU”).

According to the TFEU, any aid granted by a Member State which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

The EC then examined the fiscal incentives program’s compatibility with the internal market, and in particular the general purpose principle, which includes the assurance of respecting the principles of non-discrimination on the grounds of citizenship, free movement of goods, free movement of workers, freedom of establishment, freedom of services, and free movement of capital.

The EC carried out an examination of the incentives’ compatibility with the Communication on Cinematography and concluded that the incentives program did constitute state aid under the terms of the TFEU and is compatible with the internal market. In accordance with the Communication on Cinematography, Croatia was required to ensure that incentives focused on products were in line with the national criteria and culture, and also to establish an effective control mechanism for granting aid. 

According to the same EC decision, the incentives program can be used in Croatia until December 31, 2019.

Some of the Terms for Receiving Incentives

Croatia has adjusted its laws and regulations relating to these incentives to the EC-approved program measures and has assigned the means, terms, time limits, criteria, and other terms for receiving these incentives.

Qualification Test

Incentives can be granted only to projects that reach an assigned number of points through a qualification test. The test determines the cultural value of the work, contribution of the human potential of the Republic of Croatia and of other states of the European Economic Area (the “EEA”), and the utilization of Croatian production potential.

Soap-operas, situational comedies (“sitcoms”), and productions that promote violence, racism, and similar anti-social tendencies are expressly excluded from the right to these incentives.

Aid is not permitted for special production activities, except for writing screenplays, production development, content distribution, or advertising.

The qualification test also considers the location of the shooting and the employment of staff (such as actors and other employees engaged in the production phase), including citizens of other EEA states.

Financial Terms

Since this type of aid is non-refundable, the criterion for receiving aid is attached to the cost of production in Croatia, which can be no less than HRK 2 million (approximately EUR 261,000) for feature films, HRK 300,000 (approximately EUR 39,000) for a documentary, HRK 500,000 (approximately EUR 65,000) for an animated movie, HRK 1 million (approximately EUR 130,000) for a television movie, and HRK 750,000 (approximately EUR 98,000) per episode of a television series.

The intensity of the aid amounts to 20% of the justified production cost of each audio-visual work incurred in Croatia but cannot exceed HRK 4 million (approximately 520,000 EUR), except in exceptional cases assigned by law.

Aid Beneficiaries

An aid beneficiary can be any entrepreneur registered for audio-visual production in the Republic of Croatia, except those in bankruptcy or liquidation or with financial difficulties. Aid cannot be given to an entrepreneur who has failed to meet the legal requirements imposed by the Croatian government. 

The Importance of Audio-Visual Industry Incentives for Croatia

According to data presented by the Croatian Audio-Visual Centre (the “HAVC”), the Croatian audio-visual industry is comprised of 358 companies employing approximately 1,000 workers, and it constitutes about 0.8% of the state budget.

According to research by The Institute of Public Finance, the Croatian audio-visual sector is efficient and profitable in terms of European and world standards, but it is also insolvent and in debt. The estimated direct added value of the audio-visual business is relatively small in terms of total Croatian GDP (around 0.1%), but there is a favorable growth trend of the industry.

In the 3 years since the HAVC began administering the incentive system for investments in audio-visual production, local production revenues have increased from EUR 3.2 to EUR 10.8 million.

In the last 3 years, Croatia has managed to collaborate with the producers of the popular “Game of Thrones” television series, which was shot in several locations in Croatia, as well as with producers of television series such as “Borgia”, “Christmas in the Sun”, “Jonathan Strange & Mr. Norrell”, and “Dig.”

These types of measures are an incentive for film tourism and are useful for national PR, as they directly stimulate economic development and profitability not just for the film business but for all related industry branches such as tourism, production, and transport.

By Aleksandra Raach, Attorney at Law/odvjetnik in cooperation with Karanovic & Nikolic.

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Cloud computing is key to stimulating growth and creating jobs in Europe, but it requires a single cloud market, clear policies, and cloud standards.

Currently, obstacles stemming from diverging national sales law rules result in a conflicting set of rules for contracting parties. In September 2012, the European Commission adopted a strategy for “Unleashing the Potential of Cloud Computing in Europe.” One main aim of this cloud computing strategy is to develop model contract terms that would regulate issues such as data preservation after termination of the contract, data disclosure and integrity, data location and transfer, ownership of the data, direct and indirect liability, change of service by cloud service providers (CSPs), and subcontracting. According to the Commission, identifying and disseminating best practices in respect of model contract terms will accelerate the take-up of cloud computing by increasing the trust of prospective consumers. 

The First International Cloud Privacy Standard

On July 30, 2014, the International Organization for Standardization (ISO) adopted ISO/IEC 27018 – a voluntary international standard customized for cloud services, governing the processing of personal data by CSPs. It is expected that by providing a uniform and widely accepted standard of practice, ISO 27018 can help CSPs comply with Europe’s rigorous privacy standards and implement state-of-the-art controls for protection of personal data stored in the cloud.

The standard was developed in consultation with contributors from 14 countries and five international organizations and builds on the well-established ISO 27001, a comprehensive international security standard for implementing and maintaining an information management system. Until the adoption of ISO/IEC 27018, there was no international standard defining a set of controls and best practices deemed appropriate by industry and regulators for the processing of personal data in the cloud. 

What Does the New Standard Mean for Cloud Services?

ISO 27018 is “advertising-free.” CSPs complying with ISO 27018 cannot use customer data for such purposes as advertising or marketing without the customer’s express consent. Moreover, the CSP must not require consent to advertising as a condition of the use of the cloud service. As a best practice under ISO 27018, the CSP should establish a retention period after which customer data will be permanently returned or deleted and removed from all services. ISO 27018 also guides CSPs to disclose the identities of any sub-processor they engage who processes personal data. And, if anything changes, the CSP should inform customers promptly to give them an opportunity to object and terminate their agreement. Customers can be confident that an ISO/IEC 27018-compliant CSP will reject any requests for the disclosure of customers’ personal data that are not legally binding. And if it needs to comply with a legally binding disclosure request (e.g. in relation to criminal investigations), the CSP must always notify the customer, unless prohibited from doing so by law. ISO 27018-compliant CSPs must specify how quickly they will notify customers of an unauthorized disclosure of personal data and how they will help customers fulfill their notification obligations. ISO 27018 also requires CSPs to record the type, timing, and consequences of any security incidents, the person to whom the incident was reported, the steps taken to resolve the incident, and so on – creating a record that will in turn assist customers in meeting their reporting obligations. In order to be certain of ISO 27018 compliance, CSPs must go through an assessment process and, to remain compliant, must undergo yearly third-party reviews.

Practical Aspects of a CSP’s Adherence to ISO/IEC 27018 Controls

By following ISO 27001 and the code of practice embodied in 27018, a CSP can ensure that its privacy policies and procedures are robust and in line with the highest standards. The ISO/IEC 27018 standard incorporates the input of multiple regional regulators and the use of cloud services that comply with it demonstrates support for the requirements of many local data protection authorities. The standard brings a welcome degree of uniformity to the industry, and adds needed protections to improve data security and compliance in an increasingly cloud-based information environment. This is particularly important for government customers, or those in industries with greater regulatory requirements, who are often subject to stricter obligations to protect information in their care.

Using Cloud Computing Technologies in Hungary

In the recent years, several big companies in Hungary have been using cloud computing technologies, in particular for their e-mail systems. For example, at the end of 2012, MKB Bank (at that time, a Hungarian subsidiary of Bayerische Landesbank) launched a pioneer pilot project, focusing on outsourcing and cost mitigation. The Microsoft Office 365 service package was chosen. The banking and insurance sector must comply with more rigorous privacy and data security requirements, and therefore the bank’s cloud-based solution – used by more than 3,000 members of its staff – had to be completely risk-free. Ensuring compliance required lengthy legal discussions, but the final contract turned out to be satisfactory for all participants. MKB Bank’s pilot project can be seen as a real pioneer, and its success may provide a green light for the further application of cloud computing and an endorsement of a possible common platform for law and data security in the Hungarian banking world.

By Dora Petranyi, Partner, and Marton Domokos, Senior Associate, CMS

This Article was originally published in Issue 2.4. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Dentons has announced that corporate lawyer Takura Kawai has agreed to join the firm as Partner in Warsaw. Kawai joins from CMS Cameron McKenna, where he was responsible for the firm’s Japan Practice in the CEE region. He will join Dentons’ Global Corporate Group and will strengthen the firm’s Japan Desk.

Takura specializes in FDI and state aid (investment incentives and EU structural funds) and corporate matters. He has advised on projects in the automotive, electronics, and chemicals industries throughout CEE, advising — among others — Hitachi group companies, Sumitomo Corporation, Marubeni Corporation, Fujitsu General, Toyota, and Mitsui & Co.

Takura has a truly global background, having attended high school and university in New Zealand, South Africa, and Mongolia. He obtained his JD from the University of Washington in the United States in 1997, then followed that up with an LLB from the University of Leeds in 1999. He also earned an LL.M. from the University of Leuven in Belgium in 2001, then received an MAs from King’s College London in 2014. He began his legal career as an Associate at Allen & Overy in 2004, then moved in September 2008 to CMS, where he stayed until this recent move.

“Takura will work together with the partners in the Japan Desk in London, Germany, Russia, Turkey on the development of the Japanese client base across Europe, Russia and CIS countries,” said Tomasz Dabrowski, Chief Executive Officer, Dentons Europe. “We already have a very active Japan Desk and Takura’s addition will further develop our long term relationships with Japanese clients across Europe, enabling Dentons to position itself as the go-to firm for Japanese clients in Europe.”

“The arrival of Takura who is an experienced and recognized lawyer is aligned with our long-term growth strategy of offering clients premium counsel in all of their sectors and practice areas,”  said Arkadiusz Krasnodebski, Dentons’ Warsaw Managing Partner. “Takura brings a great value by expanding our current corporate offer.”

Avellum Partners has advised Bayer AG on corporate, contractual, and employment issues related to the global spin-off of Bayer MaterialScience AG, which now operates under the Covestro AG brand as an independent entity.  

Covestro is one of the world’s largest producers of polymers and high-performance plastics. On October 6, 2015, the company debuted on the Frankfurt Stock Exchange with an IPO qualifying as Germany’s largest in more than eight years (the raised financing reached EUR 1.5 billion). The share price rose as much as 12.5% on the first day of trading.  

Avellum Partners advised Bayer AG on structuring the transfer of employees, appointing the CEO of the new Ukrainian entity, structuring employment relations, and transferring fringe benefits. the firm also advised on issues related to the transfer of contracts and assets and general corporate issues within the transaction.  

The Avellum Partners team on the project was led by Managing Partner Mykola Stetsenko, with significant support from Associates Yuriy Zaremba and Andriy Gumenchuk.

Image Source: covestro.com