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Analysis of corruption and business barriers between the public and private sectors in Montenegro

INTRODUCTION Raising the level of awareness about the importance of fighting corruption and encouraging more effective participation by citizens and institutions in countering this phenomenon is one of the priority tasks of the Directorate for Anti-Corruption Initiative. Carrying out the research on the extent, forms, causes and mechanisms of corruption is a part of the propaganda and preventive action within the competences of the Directorate. This is also one of the recommendations given by the Group of States against Corruption (GRECO), which, along with the Innovative Action Plan which is designed to implement the fight against corruption and organized crime, have become a continuous commitment for the Directorate. For the purpose of implementing recommendations by GRECO and the Innovative Action Plan, the Directorate for Anti-Corruption Initiative cooperates with both domestic and foreign partners. The research „Analysis of the presence of corruption and business barriers which occur between the public and private sector in Montenegro“ was carried out under the project entitled "Support for the implementation of international anti-corruption standards and instruments.” The project, funded by the Norwegian Government and the Directorate for Anti-Corruption Initiatives was implemented in cooperation with the International Management Group (IMG), whilst

the Center for Entrepreneurship and Economic

Development (CEED), based in Podgorica, conducted research in the field. This analysis provided a detailed insight into the level, forms and causes of corruption and business barriers found in institutions, both at local and national levels, from the perspective of the private sector in Montenegro. The results of the analysis served to define the measures and policies aimed at further improving the business environment, overcoming identified barriers and the prevention and combat of corruption in all institutions that influence the operation of the private sector. Findings and recommendations from this research will contribute to the overall efforts made at both national and selfgovernmental levels when it comes to elimintaing business barriers. The Directorate for Anti-Corruption Initiative, within its competences and in order to fulfill the recommendations from GRECO concerning the elimination of business barriers, has paid a great deal of attention to its partnership with the private sector. The „Analysis of the presence of corruption and business barriers which occur between the public and private sector in Montenegro“ will also provide basis for strategic planning and policy development for the efficient joint action of the private and public sectors in their fight against corruption and business barriers. Vesna Ratković, PhD Director of the Directorate for Anti-Corruption Initiatives

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Contents INTRODUCTION................................................................................................................... 1 AIM OF THE RESEARCH ....................................................................................................... 3 METHODOLOGY OF THE RESEARCH ................................................................................... 4 REVIEW OF LEGISLATION AND THE BUSINESS ENVIRONMENT IN MONTENEGRO............ 7 I. Introduction ........................................................................................................................................ 7 II. Institutional and Legal Framework................................................................................................ 7 III. Barriers to Business Development .............................................................................................. 11 IV. Possible Roots of Corruption .................................................................................................... 18 RESEARCH RESULTS........................................................................................................... 25 QUANTITATIVE SECTION: Private Companies................................................................................. 25 Results Analysis .................................................................................................................................... 25 QUALITATIVE PART: In-depth interviews: competent institutions and business associations .... 36 Analysis of interviews conducted ..................................................................................................... 36 RECOMMENDATIONS........................................................................................................ 54

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

AIM OF THE RESEARCH Within the democratic process in Montenegro, including reform activities in the political, economic and legislation systems, efforts regarding action against corruption have a strong presence. Montenegro has recognized the problem of the phenomenon of corruption and has undertaken a number of activities aimed at the prevention and repression of corruption. At the beginning of this century, Montenegro joined the most important conventions which tackle the problems associated with corruption: the United Nations Convention against Corruption (UNCAC) and two European Council conventions – the Criminal Law Convention on Corruption along with additional protocol, and the Civil Law on Conventions for Corruption. Joining these conventions means committing to fulfilling numerous new activities connected with legal, institutional and strategic plans, but also involving includung the civil society and media in all the efforts made in the fight against this negative social phenomenon, which in the majority of cases is a criminal act. In the context of the situation described, the Directorate for Anti-Corrpution Initiative (DACI), in cooperation with IMG, is implementing a project concerning international anti-corruption standards and instruments. The project has been funded by the Norweigan Government. The “Analysis of the presence of corruption and business barriers which occur between the public and private sectors in Montenegro� is based on research aimed at identifying business barriers both at national and local levels, as well as finding the potential causes of corruption. Findings and recommendations from the conducted research will serve to improve existing activities aimed at the prevention and repression of corruption and the improvemnt of the business environment in Montenegro. The research, requested by the Directorate for Anti-Corruption Initiative and the International Management Group, was carried out in 11 Montenegrin municipalities representing all three regions. It was conducted by the Centre for Entrepreneurship and Economic Development (CEED), which is based in Podgorica,. The team of CEED analysists was in charge of analysis and the report, in addition to its main findings, contains an analysis of the results with regard to: the most common barriers for private sector development, cooperation between the private sector and relevant institutions, the causes and forms of corruption, measures undertaken and methods used for an efficient fight against corruption and suggestions for its decrease and elimination.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

METHODOLOGY OF THE RESEARCH In order to carry out this research, the Centre for Entrepreneurship and Economic Development (CEED) developed a methodology for research activities based on corruption issues in the Montenegrin private sector. The primary aim was to: gain a better understanding of the extent of corruption, its forms and causes. The findings can also be seen as the baseline against which the progress of future strategies and policies will be monitored. The Center for Entrepreneurship and Economic Development (CEED) is experienced in conducting both qualitative and quantitative research based on interviews carried out with random samples or defined target groups. Therefore, this study will be based on a comprehensive combination of both research methods and will be an opportunity to collect data and information from all relevant stakeholders and target groups which could benefit from it or might be in a position to implement it. A short description of research techniques used for the implementation of this project is given below.

PHASE I – Desktop Research In recent years, the business environment in Montenegro has been significantly improved by reforms undertaken in key areas (financial sectors, fiscal policy, privatization, etc.). Despite the improvements achieved, the business environment still needs further enhancement to be stimulating enough for the growth and development of the private sector in Montnegro. The desktop research includes: •

An overview of the existing assessments of corruption in the private sector in Montenegro, as well as a review of all assessments connected with barriers experienced when doing business. The assumption is that barriers create triggers for potential corruption.

•

An assessment of laws and policies directly or indirectly relevant for the function, organization, independence and integrity of private sector entities in MNE, set against the background of the UN Convention Against Corruption, and other relevant Council of European Conventions and other international anti-corruption instruments and standards.

Based on the desktop review, key areas for possible corruption in the private sector are presented in this part. They include business start-up procedures, taxes and contributions, permits, inspections and labor regulations.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

PHASE II – Quantitative Research Based on the data base from the Central Register of the Commercial Court in Podgorica, a sample has been created which includes 311 companies from 11 Montenegrn municipalities. When designing the sample, in addition to demographic characteristics, company activities and the number of emloyees were taken into account, along with the aim that the questionnire would be answered by directors, owners or authorized company representatives. Sample structure by municipality % N Podgorica 28.0 87 Nikšić 11.6 36 CENTER 39.5 123 Bijelo Polje 8.0 25 Pljevlja 6.4 20 Berane 5.8 18 Rožaje 4.8 15 NORTH 25.1 78 Bar 7.4 23 Herceg Novi 6.8 21 Kotor 4.8 15 Ulcinj 6.8 21 Budva 9.6 30 SOUTH 35.4 110 TOTAL 100.0 311

The questionnaire, designed for the purpose of this research, contained 47 questions which were divided into three parts: •

Barriers to business development;

The presence of corruption and its manifestations and

Demographic characteristics.

The method used to collect data was direct interviews, and for that purpose 21 polltakers were hired after one-day training. This enabled them to obtain all the necessary instructions regarding the aims of the research, the content of the questionnaire, how to fill out the questionnaire and deadlines for completion. In order to have easier access with the defined target groups, CEED provided polltakers with authorization and acreditation in order to confirm their participation in the project. Data entry was performed on Microsoft Excel and the data processing, along with any necessary logistical controls, was carried out on the SPSS program (Statistical Package for Social Science and data analysis). Page 5


Analysis of corruption and business barriers between the public and private sectors in Montenegro

SPSS is a system for the management of data and its analysis. It is used for market research, educational institution research, etc.

PHASE III – Qualitative Research This phase of the research was conducted through in-depth interviews with representatives from relevant institutions and business associations in Montenegro whose activities are related to the private sector. In this part, 21 representatives were interviewed, 16 at a national level, 5 at the level of the capital city Podgorica and three were from business associations. Interviewed institutions Public Procurement Directorate Directorate for the Development of Small and Medium-sized Enterprises Construction Inspection Labor Inspection Land Use Inspection Institute of Accountants and Auditors Institute of Certified Accountants and Auditors Commission for the Control of Public Procurement Procedures Commission for Determining Conflicts of Interest Montenegro Business Alliance Tax Administration Chamber of Economy of Montenegro

Commercial Court Secretariat for Finance - Podgorica Secretariat for Municipal Affairs and Traffic - Podgorica Secretariat for Land Use and Environmental Protection Podgorica Secretariat for Entrepreneurship and Development - Podgorica Market Inspection Union of Employers of Montenegro Customs Administration Local Public Revenue Administration - Podgorica Police Department Directorate for the Prevention of Money Laundering and the Financing of Terrorism Urban Inspection

Institutional representatives were given the opportunity to express their attitudes and opinions regarding their cooperation with private companies, to point out the most common barriers, which, according to them, was a slow down in business development and to assess the presence of corruption and its manifestations. In-depth interview guidelines were created for carrying out this part of the research and were based on institutional activities and behavior, and contained the following topics:

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Cooperation with private companies;

Legal regulations;

Cooperation with other institutions;

Relevant institutional capacities;

Prevention of corruption;

Presence of corruption and

Fight against corruption.


Analysis of corruption and business barriers between the public and private sectors in Montenegro

REVIEW OF LEGISLATION AND THE BUSINESS ENVIRONMENT IN MONTENEGRO I.

Introduction

Until the nineteen nineties, studies on the impact of corruption on economic development were extremely rare, primarily due to a lack of unified data on the presence of corruption. Today, however, international organizations create and release public indicators showing the perceptions of corruption held by a large number of countries in the world, and this then becomes the benchmark for a country's position towards its perceived presence of the level of corruption. The most commonly used indicators to show the perception of corruption are the Index for the control of corruption by the World Bank and the Corruption Perception Index by Transparency International. According to the TI Index, Montenegro has improved by 15 places from 84th place in 2008 to 69th place in 2009. With an index of 3.9, Montenegro is better than Macedonia, whose index is 3.8, Serbia (3.5), Albania (3.2) and Bosnia and Herzegovina (3.0). For countries such as Montenegro that are involved in the international integration processes, it is especially important that indicators showing perception levels of corruption reflect how they are perceived by the international community, political partners, the analysts who assessed their credit rating, foreign investors etc.

II.

Institutional and Legal Framework

Beginning the fight against corruption Montenegro started it fight more intensely against corruption in 2000. Furthermore, in February 2000, Montenegro, as a full member, along with other countries in the region, signed the Agreement and Action Plan for the Anti-Corruption Initiative of the Stability Pact for South-Eastern Europe (SPAI). After accessing the anti-corruption initiatives of the Stability Pact in early 2001, the Agency for AntiCorruption Initiative (now the Directorate for Anti-Corruption Initiative) was established - the first state body to be dedicated by the authorities to propaganda-preventive actions against corruption, as well as coordinating a series of activities related to the harmonization of national legislation with international anti-corruption standards. During the process of fighting against corruption in Montenegro, two phases can be recognized. The first phase is the period from 2000 (the moment of accession to the Anti-Corruption Initiatives of the Stability Pact) to the adoption of the program to fight against corruption and organized crime in 2005. It is the Page 7


Analysis of corruption and business barriers between the public and private sectors in Montenegro

phase of setting up appropriate institutions and the creation and adoption of the first laws that made a framework for combating corruption. In the second phase, which represents a phase of intensive activities in the fight against corruption, the Government adopted a program to fight against corruption and organized crime in 2005 and an action plan to implement the program for the fight against corruption and organized crime in 2006. In February 2007, the National Commission for the Fight against Corruption and Organized Crime was established, and for the first time consisted of representatives from all three governing authorities, NGO and media representatives. During this period, a large number of new laws were adopted and existing laws in this area were modified and improved. Since June 2006, Montenegro has been a full member of GRECO (a group of countries from the European Council which fight against anti-corruption), through which the monitoring of the implementation of the European Council’s conventions for the fight against corruption has been performed. In 2006, Montenegro deposited with the UN Secretary-General the instrument for accession to the UN Convention against corruption. One of the obligations regarding this refers to the harmonization of Montenegrin legislation with the provisions of the UN Convention against Corruption. The parliament of Montenegro adopted the Resolution on Combating Corruption and Organized Crime (Official Gazette of Montenegro, no. 02/08) and so parliament, inter alia, expressed its willingness to engage its full capacity towards building national anti-corruption legislation and to establish closer international and regional cooperation in combating corruption and organized crime. At the same time, in accordance with obligations undertaken with the Regional Conference of Southeast Europe and GOPAKGlobal Organization of Parliamentarians against Corruption, parliament pledged to establish a national branch of Montenegrin parliamentarians in the fight against corruption, wherein representatives from all working bodies in parliament would be involved. Institutional framework Montenegro has been building institutional frameworks through the establishment of new special public bodies (the Directorate for Anti-Corruption Initiatives, the Directorate for the Prevention of Money Laundering and the Financing of Terrorism, the Public Procurement Directorate, the Commission for the Control of Public Procurement Procedures, the Commission for Determining Conflicts of Interest, the National Audit Institution) or special units within existing bodies (special departments for fighting corruption and organized crime in the Police Department, Customs Administration, the State Prosecutors Office, two departments in high courts in Podgorica and in Bijelo Polje).

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

The National Commission for the implementation of the Program for the Fight against Corruption and Organized Crime as a control mechanism at a national level contributes significantly to the overall efforts that Montenegro is investing in its fight against corruption. Anti-corruption legal framework The legislative framework that applies to this area includes several regulations, amongst which we single out the following: •

The Criminal Code was adopted in December 2003, and the Law on Amendments and a supplement to the Criminal Law was adopted in July 2006 (Official Gazette of Montenegro, No. "47/06). The new Law on Criminal Procedures was adopted in July 2009;

The Law on the Liability of Legal Persons for Criminal Acts was adopted on December 27th, 2007 (Official Gazette of Montenegro" No. 02/07, 13/07). This law regulates the conditions of responsibility held by legal persons for criminal acts, criminal sanctions applicable to legal persons, as well as criminal proceedings in which these sanctions are pronounced;

The Law on the Prevention of Money Laundering (“Official Gazette of Montenegro” No. 55/03) adopted on September 24, 2003, and in December 2007 the Parliament of Montenegro adopted the new Law on the Prevention of Money Laundering and the Financing of Terrorism;

The Law on State Administration was adopted on the 25th of June 2003 (“Official Gazette of Montenegro”, No. 38/03), and the global concept of the law is a change in the role of public administration, primarily from regulatory and control-oriented, to being service-oriented management which is based on democratic foundations;

The Public Procurement Law was passed in July 2006. It set up the criteria for selecting the most favorable bidder, rights protection of participants in the tender process, as well as the decentralization of procurement;

The Law on State Audit Institution was adopted on the 21st of April 2004 (“Official Gazette of Montenegro" No.28/04);

The Law on the Systems of Internal Financial Controls in the Public Sector (November 2008);

The Law on the Prevention of Conflicts of Interest was adopted in June 2004 (Official Gazette of Montenegro" No.42/04), and the new text for the law came into force in January 2009.

However, despite significant efforts regarding the harmonization of legislation in the field of anticorruption policies, it is necessary to make constant efforts for the more effective implementation of regulations. This problem has been indicated in the progress report produced by the European Commission in 2008, as well as in reports from all relevant international institutions.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Criminal acts with signs of corruption The Montenegrin Criminal Code and Low on Courts, Article 18., describes several criminal acts with features of corruption such as: the abuse of office, receiving bribes, giving bribes, dishonest work in service, fraud whilst in service etc. Committing such criminal acts is punished by long-term imprisonment which may last up to 12 years. Abuse of office - when an official uses his position or authority to exceed the limits of official power, or does not perform his professional duty, thus obtaining benefit for himself or another person, harming other person or violating the rights of another. Depending on the form of a criminal act, prison sentences can range from 6 months to 10 years Dishonest work in service - the violation of law, failure of supervision and dishonest treatment by an official. Depending on the form of a criminal act, penalties range from fines to a 5-years prison sentence. Illegal charging and payment - when an official charges someone who is not obliged to pay or collects more than is required to be paid or when the official hands over or pays less. The prescribed sanction is a fine or a prison sentence of 3 years. Fraud whilst in service - when an official, in order to provide himself or someone else with illicit material benefit, submit false accounts, or misleads in some other way an authorized person to make an unlawful payment. Depending on the form of the criminal act, sentences range from 6 months to 10 years in prison Fraud - when a person, intending to provide himself or someone else illicit material benefit, misappropriates money, securities or any other movable asset that is entrusted to him in service. The prescribed sentence ranges from 3 months to 3 years. Embezzlement - the difference between fraud and embezzlement is that the official did not appropriate, but without authorization, used money or movable property entrusted to him. The prescribed sentence ranges from 3 months to 3 years. Illegal mediation - when a person receives a reward or any other benefit by using his official or social position or influence, or mediates for some official action to be made or not. Depending on the type of criminal act, prison sentences range from 3 months to 3 years. Receiving a bribe - when an official requests or receives a gift or any other benefit, or receives a promise of gifts or other benefits for himself or another person, to perform, within his official authorization, a professional service that should not performed or not to perform a professional service that should be performed. The prescribed sentence ranges from 2 to 12 years. Giving a bribe - when an official is given, offered or promised a gift or other benefit to perform the action he should not perform or not to perform the action he must perform within his authority, or when the official is a mediator in the bribing of an official. The prescribed punishment ranges from 6 months to 5 years imprisonment. Disclosure of official secrets - when an official without authorization communicates with others, delivers, or in any other way makes available data that represents the official secrets act, or if he obtains such information in order to deliver it to an unsolicited person. The prescribed punishment ranges from 3 months to 5 years imprisonment. Page 10


Analysis of corruption and business barriers between the public and private sectors in Montenegro

III.

Barriers to Business Development

Introduction In 2007 the Government of Montenegro adopted two very important documents for the development of SMEs: Strategy for the Development of Small and Medium Enterprises 2007 – 2010 and a program for the removal of barriers for the development of entrepreneurship in Montenegro. An analysis of the business environment was made within the program for the removal of barriers to business, and explicitly confirmed that entrepreneurship, irrespective of a large number of legislative and institutional reforms, is still burdened by a large number of business barriers. Business entities still encounter very complex procedures and regulations in the business start-up phase and in day-to-day operations, as well as in the closure of enterprises. Opting for a systematic approach to resolve this problem, the decision was made to adopt and implement operational plans for the removal of business barriers on an annual level. At the 4th session of the Council for the Removal of Business Barriers1 held on 4th September 2009, the action plan for the period from September to December 2009 was adopted. A decision was made to prepare a new operational plan for the removal of barriers to business after the publication of the “Doing Business� report (September 9th 2009). There are several different approaches to the process of research and assessment of business obstacles. One entails segmentation to start-up business obstacles and business barriers faced by enterprises during operations. The other approach divides administrative and regulatory barriers on one side, and nonadministrative market barriers on the other. However, the last approach includes non-administrative barriers to the development of companies which do not directly depend on regulatory and administrative institutions and, as such, cannot be direct triggers for prospective corrupt activities. The following structure of a business barriers presentation was found to be the most appropriate, bearing in mind the content of the presentation of data retrieved following quantitative research. It is a combination of these two approaches. Moreover, it contributes to better understanding and assessing the correlation between business barriers and relevant corrupt activities. Business start-up procedures The Law on Commercial Entities, adopted in 2001 (Official Gazette of Montenegro No. 006/02-1 and Official Gazette of Montenegro, No. 017/07-1 and 080/08-20), simplified the procedures for the initial registration of companies, reduced costs and eliminated bureaucratic obstacles for the registration of legal entities. As a matter of fact, the previous Law involved 38 steps, four agencies, nine physical The administrative body which manages the process of removing business barriers is headed by Vice Prime Minister and Minister of Finance Mr. Igor Luksic

1

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locations, at least 45 days and total costs of about $ 5,000. The adoption of the new law reduced the procedure to four steps, three days and 1 € costs. Under this law, the Central Register of the Commercial Court was founded and an online search for companies registered in Montenegro is now available. However, regarding the next steps concerning the conduct of business, the picture is quite different, and the situation is much more difficult and complicated. All relevant information in this area shows that the biggest barriers to business are reflected in local and state taxes, obtaining approval for conducting services, state and municipal inspections and regulations in the labor market. Taxes and levies a) State taxes and levies are relatively low. A favorable tax climate is one of the Montenegro’s main assets. For the past 10 years, Montenegro’s government has used tax policy as a major tool to attract and retain investment. Corporate income tax (Official Gazette of Montenegro No. 065/01-1; 012/02-3; 080/04-7 and Official Gazette of Montenegro No. 40/08-12): Corporate income tax is proportional and equals 9% of the tax base. Newly established entities and newly established business units carrying out production activities in economically underdeveloped municipalities are exempt from paying tax on profit for the first three years of their operations. The law prescribes the following three types of tax relief: •

For the employment of new workers - a taxpayer, who in a business year, hires new workers under an undefined contract and for at least 2 years, has his tax base reduced by the amount equivalent to the gross wage for those workers, plus corresponding contributions paid for compulsory social insurance paid by the employer. This relief is applied for one year from the date of employment of new workers.

For investments in securities - when the income from capital gains from securities is invested in purchasing new securities, this income is not taxed, given that it is reinvested within 12 months of its realization. Revenue from the sale of securities held by a taxpayer for more than two years in a portfolio is exempt from taxation.

For program activities of nongovernmental organizations - legal entities established as nongovernmental organizations are be exempt from income tax up to € 4,000, provided that any profit is used for the purpose of achieving the objectives for which they are established.

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Personal income tax: Proportional tax rate from 12% in 2009 to 9% in 2010. Zero percent tax rate is applied on income of 70 € per month or 840 € per annum. Monthly tax advances on personal income are calculated by applying tax rates to a tax base which is equivalent to the amount of gross personal income. This includes net income, tax paid from that income and contributions for mandatory social insurance liabilities to be paid by the insurer (in accordance with laws on specific types of compulsory social insurance), less the amount of monthly personal deduction (€ 70). Tax on personal income is calculated, paid and terminated by an employer, or payer of the income, each time the wage is paid to employees, by applying the prescribed tax rates to the tax base. Value added tax (VAT) (“Official Gazette of Montenegro” No. 065/01-11, 012/02-3, 038/02-8, 072/02-1, 021/03-2, 076/05 -9; 004/06-10 and Official Gazette of Montenegro, No. '016 / 07-10): The single VAT rate in Montenegro is 17%, but there are also reduced rates of 7% for tourism and 0 % for some basic food products. The law provides for special schemes for determining the level of VAT. Small entrepreneurs, who for the past 12 months have achieved sales of products or services not exceeding, nor likely to exceed, the amount of €18.000, are not obliged by law to register for VAT. If these persons choose to apply for VAT registration, they are then obliged to stay in the system for three years. Farmers (who are not VAT payers) are entitled to lump compensation at a level of 5% of the sale price of their products (for this amount a tax credit is given to the taxpayer who was responsible for the procurement of the agricultural products). Travel agencies and tour operators operating in their own name, but using the products and services of other taxpayers, may decide to confront the special VAT scheme. When determining tax liability, a travel agency has no rights regarding the deduction of VAT charged by other taxpayers in the delivery of products or services directly sold to customers. Brokers who buy or sell used products, works of art and antiques can calculate their VAT according to a special VAT scheme. The period of calculation for VAT can’t be shorter than 24 months, and the retailer must not reveal VAT on the accounts issued Law on Contributions for Mandatory Social Insurance ("Official Gazette of Montenegro", No. 13/07, 79/08) provides the reduction of contributions for pension and disability insurance from 21.6% to 20% (where the rate for 2009 is 20.5% and from 2010 on will amount to 20%), for health insurance, from 13.5% to 9% (rate for 2009 is 10.5% and from 2010 it will be 9%), whilst the contribution rate for unemployment remains unchanged - 1 %. Page 13


Analysis of corruption and business barriers between the public and private sectors in Montenegro

However, there are some unnecessary fiscal burdens for small and medium enterprises. For example, according to the Law on Amendments to the Law on Tax on Turnover in Immovable Property ("Official Gazette of Montenegro" No. 069/03-34 and Official Gazette of Montenegro, No. 17/07, Article 9), which has been in force since January 2008, the rate of sales tax has been increased from 2% to 3%. A large burden of the private sector is under an obligation to pay contributions to tourism organizations. Contributions for membership must be paid by all legal and natural persons engaged in activities related to tourism. These activities are divided into groups depending on the level of association with tourism revenue generated. Thus the first group includes activities whose generated income is most directly dependent on tourism and the last group includes those activities whose income depends least on tourism. Annual membership fees range between €50 and €10,000. b) However, local taxes and levies are much bigger problems. According to the Law on Self-local Government Financing (Official Gazette of Montenegro, No. 042/0315; 044/03-5 and Official Gazette of Montenegro, No. 005/08-26; 051/08-1) municipalities can generate revenues through: •

Local taxes (tax on property, consumption tax, games on chance tax, tax on firm or name etc);

Local fees (residence fees, administrative and communal fees) and

Contributions (contribution for construction land usage, contribution for usage of municipal roads etc).

Due to a lack of regular inflow (caused by the economic crisis and the removal of contributions for the usage of construction land by the municipal contribution system) during the course of 2009, most municipalities decided to raise utility taxes and other fees that were collected from the private sector in an attempt to service its own needs. In this situation, the private sector was faced with additional financial obligations at a local level. For example: -

In the municipalities of Berane and Andrijevica, annual tax was calculated and charged on machinery and equipment in the wood industry;

-

In the municipality of Rozaje, wood industry companies had to pay a new tax for roads (2 EUR/ m³ of wood mass). This was an additional burden because the Law on Forests already prescribes that 30% of concession fees will be allocated to local governments;

-

In the municipality of Niksic, fees for using billboards and other forms of advertising has increased from 250 to 800 EUR.

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Approval for performance activity In order to start to performing business activities, a newly set up enterprise must obtain, from the municipal or national authorized body, a license – a certificate which complies with requirements regarding technical capacity, safety at work, environmental protection and development, and other requirements. Unlike the registration procedure, a party is less informed about these procedures and in most cases, a party only becomes aware of the necessary documents and funds required after the process starts. The analysis which was performed showed that the majority company founders believed that by finishing the registration procedures they had completed all the necessary paperwork and were then able to immediately start performing their business activities. It is very difficult to include all of the necessary documentation. Additionally, this is different depending on the type of activity to be carried out. The key institution in the licensing process is the municipal administrative body in charge of economic affairs. To obtain a work permit, it is necessary to attach a minimum of 7 documents, without taking into consideration the initiation of similar necessary procedures with other institutions. However, the chain of procedures is not even finished here, as for almost all of these documents, it is necessary to visit other institutions, thus creating a maze from which one can hardly find the way out. There is no fixed timeframe for the completion of this procedure, but the period, as defined in the Law on General Administrative Procedures, is applied. As a rule, if the complete documentation is submitted, the party will obtain a certificate within 7 to 15 days. However, since a party is typically not familiar with the procedures and does not have all of the necessary documentation, he is obliged to refer himself to other bodies (the Secretariat for Utility and Housing Affairs and Environmental Protection, the Secretariat for Urban Planning, authorized institutions for technical control and examinations, the Electric Power Distribution Company etc). With regard to obtaining approval at a national level, several state administration bodies appear – Ministries of: Economy, Labor and Social Welfare, Health, Environment, Transport and Maritime Affairs, Tourism, Agriculture, Forestry and Water Management. All of these have been, according to the law adopted for that particular area, and are empowered to act on the processes. So far, there has been no clear review of all approvals which clearly indicates who is responsible for their conclusion, along with procedural reviews and costs paid by the party.

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By gaining insight into the action of these bodies, it has been observed that there is no equal treatment in terms of costs borne by the party. Additionally, there is also a lack of timeliness and organization in conducting the proceedings. Another problem lies in the fact that the procedures themselves are not conducted in full accordance with the rules and regulations in these areas. Inspections In Montenegro, market monitoring is carried out by ministries and other administrative bodies as well as by local self-government authorities. At the moment, at national level, there are 31 types of inspection. At a local level, there is one organized inspection – the communal police and local tax inspectors are organized through the Secretariat for Finance. There are a large number of laws, by-laws and other provisions that regulate the authorities who carry out inspections. However, it is very difficult to determine the level of overlap between them. For example, some of the activities carried out for quality control purposes, which are performed by Market Inspection, could be transferred to other inspection departments such as sanitary, medical or others. Laws governing inspections provide neither the specification for a criteria for the selection of companies that perform inspections, nor the frequency of their occurrence. From the standpoint of the private sector, inspections are huge, intrusive and take much time. A particular issue is that, according to businessmen’s complaints, inspections are very often directed at specific entities, i.e. controls are not conducted randomly. Other current problems include: the poor coordination of inspections, overlap and duplication of mandates and authorities, inspections that take too much time, along with a broad span of penalties for the same offence. Labor regulations Although the new Law on Labor (“Official Gazette of Montenegro”, no. 049/08-1; 026/09-39) represents a significant improvement, employers are still not satisfied. According to the opinions of the private sector, the law is a major legal act which comprises 180 articles, which define in detail the different aspects of labor relations including a number of penal provisions aimed at employers who are in breach of legal provisions. (Article 172 defines 36 situations in which the employer and company representative can be penalized. For Montenegro, penalties are pretty high and range from €550 to €16.500). Page 16


Analysis of corruption and business barriers between the public and private sectors in Montenegro

From the point of view of free entrepreneurship, there are significant numbers of provisions which confirm the interests of employees. The law contains limitations regarding the very nature of labor relations, trade union influence is emphasized along with minimum wage criteria, which is additionally protected and guaranteed by the General Collective Agreement. There is also provision for the compulsory payment of other compensation, and numerous other employee rights are defined, including those originating from international labor standards. Although the new Labor Law came into force a year ago, the new Collective Agreement has still not been adopted. This creates difficulties in implementation, since the provisions of the Labor Law and Collective Agreement are not compliant with each other. Construction of facilities The new Law on Spatial Planning and Facility Construction (Official Gazette of Montenegro, No. 051/081) caused a codification of this area to be carried out, since as a result of this law the Laws on Physical Planning and Development, Construction Land, Facility Construction and the Law on Urban and Construction Inspection all became obsolete. Such an approach significantly facilitated the private sector’s understanding of coping with regulations. In order to eliminate business barriers, the most important innovations against existing regulations inrelevant areas are related to simplifying and shortening administrative procedures in terms of technical documentation, audit and obtaining construction and use permits. Now the investor himself determines the auditor for technical documentation, obtains construction permits by carrying out one administrative procedure 15 days after submitting the request, and obtains a use permit by carrying out one administrative procedure 7 days after receipt of the report that the facility is suitable for use. The rights, but also liabilities and responsibilities of local self-governmental units have been increased, in that they are now in charge of issuing permits for facilities up to 3000m2 instead of the previous 1000m2. For the purpose of achieving the highest possible level of transparency, the law states that all data related to urban plans, parcels and issued construction and use permits must be located on the site of the competent body within seven days of their approval. However, the lack of urban plans containing urban-technical requirements erases all positive effects created by the reduction in procedures and deadlines required for obtaining construction and use permits.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

IV.

Possible Roots of Corruption

Introduction Each segment of business, which implies the existence of excessive state regulations and expanded bureaucracy, represents a possible source of corruption. A modern and efficient legal framework is a necessary component for an optimal business environment, as it assumes that rules are clear, that parties have easy access to information, that procedures are simple and cost-effective, that all participants receive equal treatment and, most specifically that they all have trust in the regulation system and are familiar with it to a reasonable extent. There is no doubt that the business environment in Montenegro has been significantly improved over recent years. A set of new laws, which are considerably better harmonized with EU standards, has been adopted and make a good framework for the establishment of a new economic system in Montenegro. In addition, institutional reforms have been carried out in key sectors such as: the fiscal system, financial sectors, payments system, privatization, company restructuring, etc. However, as was presented in the previous chapter, entrepreneurs are still facing a difficult business environment which contributes significantly to the complicated regulatory framework along with long and costly administrative procedures. A lot has been done regarding the adoption of legal regulations that support growth, but additional efforts are needed in order to make it functional in practice and to ensure that Montenegro meets the standards of a competitive market economy, the requirements of the EU integration process and continues to attract a wide scope of investments. These factors largely contribute to gravity, risk and the growth of operational costs in Montenegro, all of which makes them significant sources of corruption. Corruption in the processs of obtaining work permits In order for a newly established company to begin operating, it is neccesary for it to obtain approval either from a relevant municipal or state body – a certificate is issued on meeting requirements in terms of technical equipment, work protection, environmental improvement and other requirements. In addition to the fact that the procedure itself is, in the main, unfamiliar to the party and that it is rather expensive, complicated and decentralized, a special problem and possible source of corruption is the fact that this procedure is not conducted in the manner prescribed by the law. The Law on General Administrative Procedure (“Official Gazette of Montenegro�, No. 060/03-13), in the provision of principles, according to Articles 5, 6 and 13, bodies are required to provide parties with easier potential to exercise and protect their rights and legal interests during procedures and when resolving administrative matters. In other words, they should be provided with the opportunity to Page 18


Analysis of corruption and business barriers between the public and private sectors in Montenegro

sucessfully exercise their rights in a qualitative manner, without stalling procedures and with as few costs as possible for both parties and other participants. However, the situation is quite different in reality. Firstly, there is a negligably small number of municipalities which have publicly announced an overview of all necessary documents that a party is required to submitt when delivering a request for the issue of a work permit. In addition, in a large number of cases, a party is required to deliver proof which has no purpose in the regulations. A particular problem is the fact that parties are required to deliver proof for which there is no official record whatsoever, even though the body itself is obliged to collect these documents. In addition, parties are required to obtain documents that have no influence on the decisionmaking process for the matter concerned. For example, a decision on location, construction and use permits, proof of paid taxes and communal fees, electro-energy and other infrastructure certificates, proof of business competence, residence, health status, a certificate for turning residential property into business premises that are not in residential buildings or ceased to be residential a long time ago, etc. In both cases, the parties are burdened twice: -

They must pay to obtain those documents, bearing in mind that the issue of data from official records is charged separately,

-

They stall the procedure since it takes 15-30 days to obtain all necessary documents.

This leaves a great opportunity for corruption, since parties are ready to offer bribes in order to speed up the process and achieve their desired goals. Conversely, the body conducting procedures sometimes stalls the same procedure with the intention of acquiring unlawful material or some other benefit from parties. In addition to documentation, parties are burdened with unnecessary expenses for administrative procedures. Apart from local administrative and communal fees, which parties must pay, the issue of work permits is also burdened with illegal expenses. The issue of work permits is preceded by determining the fulfillment of minimal technical terms in the procedure. These terms are determined by commissions formed by the heads of relevant bodies (in some cases the president of a municipality) even though this has no purpose in the regulations. Namely, according to the provision of the Law on General Administrative Procedures, an official who conducts the procedure assesses which facts are to be established and defines the presentation of evidence. In case that the establishment of certain facts or circumsatnces requires direct observation, the official conducting the procedures will conduct the investigation (Article 188) and when an expert opinion is required, evidence will be presented by a relevant court expert (Article 177). When a commission establishes the facts regarding the fulfillment of minimal technical terms, parties are then excluded from procedures and have no opportunity to exercize their rights as prescribed by Articles 178 and 179 of the Law on General Administrative Procedure. This way of conduct often represents a source of corruption.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Corruption in the contruction of facilities The new Law on Facility Construction considerably simplifies spatial planning and development systems and facility construction in Montenegro. The Law on Spatial Planning and Facility Construction, which dates from September 2008, introduces a new generation of planning documents. These documents, for each urban parcel, must contain accurate data on location and manner of connection to the following services: electro-energy, water, sewage (fecal and atmospheric), telecommunications, radio broadcasting and traffic.

In this way, the request for additional urban-technical requirements and the obtaining of relevant approvals by public companies should be avoided, as controls for fulfilling project terms will be performed by an audit commission, which, together with the plans and designs, will be responsible for eventual omissions which appear during performance control. As a result of all this, investors seeking construction permits for facilities planned within a new generation of documented plans will be freed from requesting and obtaining terms and approvals on project documentation in four areas: -

electro,

-

water and sewage,

-

traffic and

-

Telecommunications and broadcasting.

One of the primary aims of this solution is to eliminate corruption in the spatial planning process. However, in this case, a problem of implementation has occurred. Namely, the deadline for the development of new generation documents, i.e. the deadline for harmonizing existing documents with the law, was one year after the Law on Facility Construction came into force (September 2008) and so far, no municipality has met this deadline. In this regard, investors depend to a great on intentions and actions promised by local self government bodies. In area of facility construction, the private sector has assessed the process of collecting the documentation necessary for obtaining construction permits as a source of corruption. The set of documents to be collected is not clearly defined by one legal act, but it is determined by several specific regulations, most often not known to parties. This is the reason why the list of necessary documents often contains the item “other documents�, which significantly aggravates the way small invetsors cpe with these procedures. This allows a huge power of discretion to persons working on issuing approvals. The process of issuing permits is very long and complicated since it requires the collection of numerous documents from several different national institutions that are very poorly coordinated. In addition, as has Page 20


Analysis of corruption and business barriers between the public and private sectors in Montenegro

been seen by the private sector, the costs of collecting documentation are considerably higher than the real costs. A use permit is obtained when it has been determined that the quality of performed works, i.e. built-in material, installations and equipment, is in accordance with the documentation on which the construction permit was issued, as well as with regulations, standards and technical and quality norms valid for the type of works concerned. One of the most common reasons for which a large number of facilities in Montenegro are not technically prepared and don't have use permits, is construction without a permit or that dimensions have exceeded those defined by the construction permit, both in floor area and with the number of floors, which could endanger the safety of the facility. The problem of law enforcement is also reflected in the issue of work permits for facilities that are not technically prepared. Namely, illegal builders or owners of business premises may obtain temporary decisions for performance activity in facilities whose status is not in accordance with the decisions anticipated by valid urban documentation or illegally built facilities. Even though this soulution can be observed as a way to help the owners of business premises, it represents a direct violation of the law which defines that facilities may not be used before obtaining use permits. This creates the opportunity for the selective issue of these permits and can be seen as protecting the interests of illegal builders. This significantly opens the door to potential corruption. Corruption in public procurement procedures Corruption in public procurement procedures is one of the most serious forms of corruption. Public procurement procedures include the two parties: the person ordering and the bidder. Both sides may significantly corrupt procedures at each stage. The most present forms of corruption by the person ordering are: •

the development of a specification for requested goods or services in such a way that it suits a specific bidder with whom a corrupt deal is made;

undertaking direct negotiations with only one bidder, with the explanation that due to urgency, a proper tender process cannot be carried out;

breaching rules on confidentiality of bids by opening delivered bids before the deadline date,

disabling potential bidders from participating by setting inappropriate terms and deadlines,

receiving bribes.

Conversely, the bidder may: -work in collaboration with the person ordering in order to set a bid price, -assist in creating discriminatory technical specifications, -affect the work of members of a commission by opening and evaluating bids, and -offering a bribe. Page 21


Analysis of corruption and business barriers between the public and private sectors in Montenegro

Anti-corruption rules exclusively treat Article 13 of the Public Procurement Law (“Official Gazette of Montenegro”, No.46/06), which goes as follows: “All contracting authorities, tender parties and other participants in public procurement procedures shall undertake efficient and effective measures to prevent corruption, the misuse of official positions, the conclusion of agreements for the purpose of deceiving third parties, the provision of false data when submitting tenders, a conflict of interests, a lack of impartiality and transparency in the conduct of public procurement procedures and, to that end, shall promote high standards of transparency, efficient internal audit systems, and open public competition and in determining objective criteria for selection and decision-making. The contracting authority shall reject a tender, cancel a public procurement procedure or withdraw from the conclusion of contract if it determined or he has reasonable doubt to believe that the tender party has tried to exert influence on, or has tried to give or has given or has agreed to give, directly or indirectly, to the public procurement officer, member of the commission for opening and evaluation of tenders, or any employee with the contracting authority or any other person, a reward or benefit in any form or any other value with respect to the decision or the conduct of the public procurement procedure, in order to exert influence the contents of activities and the making of a decision by the contracting authority regarding the tender, as well as in the case of actions regarding the concealment or misrepresentation of data. In the cases referred to in paragraph 2 above, the contracting authorities shall notify the tender party and the administrative authority in charge of public procurement thereon in writing. The contracting authorities shall provide access and adequate information on the organization of decision-making and processes in public procurement procedures to all interested parties”. The integrity of the system is based on the premise that control will be carried out by participants in the system: bidders who have a personal interest in providing fair and competitive procedures/ Bidders who believe that the process has been jeopardized may first file a complaint to the contracting authority, and if they are not satisfied with the response they receive, to file the complaint to the Commission for the Control of Public Procurement Procedures. If they are still not satisfied, they should apply to the Administrative Court. This model puts the burden of responsibility on the bidder and requires a high level of knowledge and capacity in the bidder in order for it to work efficiently. However, in this way it is not possible to control procedures before the submission of bids, where a contracting authority has the exclusive responsibility to define the terms for tender, which could be biased in favor of a certain bidder. The data shows that during the last year, the majority of complaints by the private sector referred to procedures regarding the evaluation of documentation, which is a direct consequence of the pre-arrangement of terms for tender.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Number complaints based on complaints in last 12 months

On public procurement notice - 69 On tender documentation - 72 On public opening of bids - 43 On evaluation of bids - 184 On decision - 77

Source: The Commission for the Control of Public Procurement Procedures

Regarding the complaint status for last year, data from the Commission for the Control of Public Procurement Procedures showed that 19 complaints were discarded, 139 were rejected, and 76 complaints were accepted. The efficiency of the public procurement system is also based on high level administrative capacity in a contracting authority. One of the main current system weaknesses lies exactly in the lack of bidders, along with a lack of public procurement officers and other participants in the system. Furthermore, there is a need to dedicate additional attention to the risks of corruption in other phases of the procurement process, especially in the negotiation phase which is particularly liable to manipulation through the Agreement Annexes, which enable additional “unexpected expenses” and manipulation of the penalty mechanism. Corruption in other areas From the private sector’s point of view, corruption is most widely spread in the customs department. However, Customs Administration is one of the rare bodies that have processed a certain number of corruption cases. It seems that closure of this system, as well as unfamiliarity with regulations which define custom procedures, whether about imports, exports or transport, significantly affects the perception of corruption. In addition, there is wide spread opinion on corruption in inspection bodies. From that point of view, actions taken by Market Inspection have been mentioned as the major problem. This is actually a consequence of the fact that 80% of small and medium-sized enterprises in Montenegro are registered for trade activity. Indeed, it seems that the performance of Market Inspection does not have a regulatory institute – i.e. to identify deficiencies and leave appropriate deadlines for their removal. Almost every visit by Market Inspection ends with fines, no matter whether the problem identified was due to intention or a lack of awareness of regulations. Page 23


Analysis of corruption and business barriers between the public and private sectors in Montenegro

A broad spectrum of fines may be pronounced for the same infringement, which leaves a large space for a series of corrupt actions. For example, according to the Law on Internal Trade, a fine of fifty or three hundred times higher than the minimum wage in Montenegro can be imposed on a commercial entity or other legal entity or entrepreneur, if they fail to keep their records in the way prescribed by the law. Thus, the inspector has the power of discretion to write fines ranging from â‚Ź2.750 to â‚Ź16.500 for the same offense. The complaint procedure is practically never applied. According to the private sector, it is absolutely useless and it is not recommended to file a complaint to a secondary level body. Namely, a secondary level body would be the ministry under whose jurisdiction the inspection falls. This only confirms the previous decision, and the person who files a complaint most often becomes the subject of constant harassment in inspections. The new Law on Inspection Supervision is in the process of being adopted. The bill concerned anticipates the possibility that certain inspection tasks will be delegated to the private sector. This system, with adequate control, could give very good results. However, there is a lot of resistance to this solution and its adoption is still uncertain.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

RESEARCH RESULTS QUANTITATIVE SECTION: Private Companies Results Analysis Barriers to Business Development In accordance with the consequences of the global economic crisis, the collection of receivables over the past 12 months was the main obstacle to business development (15.3%). Also, taxes and duties at municipal and national levels caused certain problems, in addition to complicated administrative procedures and state inspections. According to the respondents' answers, the least number of problems was experienced with the procurement/acquisition and transfer of ownership of buildings and land. Graph 1:

The main obstacles to business development over the last 12 months 15.3

Collection of receivables Local taxes and levies

12.0

Complicated administrative procedures

12.0

Local inspections

11.3

State taxes and levies

10.9 9.1

State inspections 0.0

5.0

10.0 15.0 20.0

According to the opinions of representatives, companies from the central region had the most difficulties with state inspections, the collection of receivables and complicated administrative procedures. It is significant that the procedures for licensing at a municipal level, state taxes and duties, along with labor regulations, are generally recognized as business barriers in municipalities in the south of Montenegro. Companies in the north stated that licensing at a national level is a obstacle. A detailed insight into the structure of responses from municipalities showed that busines barriers were identified as the lowest percentage by private sector representatives in Berane. Therefore it can be concluded that the private sector is satisfied with the business environment in that municipality. Based on the data obtained, it can be concluded that private companies, within their ordinary business activities, most often establish contacts with Labour Inspection (81.4%), Tax Administration (78.5%) and Market Inspection (72.0%). Page 25


Analysis of corruption and business barriers between the public and private sectors in Montenegro

On the other hand, private companies have the least communication with the Institution for the Award of Concessions (3.5%), judicial bodies(9.0%) and Spatial Planning (9.3%). Table 1.

Communication with relevant institutions / departments Yes 81.4 Labour Inspection 78.5 Tax Administration 72.0 Market Inspection 66.9 Tax Inspection 60.1 Communal Police 45.3 Sanitary Inspection 42.1 Labour Licensing 34.1 Customs Administration 24.4 Commercial Court 14.8 Public Procurement Directorate 13.2 Construction Inspection 11.6 Department for Issuing Construction Permits 11.9 Urban Planning 9.3 Spatial Planning 9.0 Judicial Authorities 3.5 Department for Obtaining Concessions According to comments made by company representatives, we can conclude that companies establish contacts with certain agencies and institutions depending on the types of activities and business activities they undertake to achieve their business goals. Companies which were interviewed usually only had contact with Inspection Services (tax, trade, labour and sanitary services) every six months. However most companies generally had contact with officials from Tax Administration on a monthly basis. Representatives from interviewed companies achieved the best levels of cooperation with Tax Administration (17.2%), Labour Inspection (10.7%) and the Communal Police (9.8%). Graph 2:

Institutions with which companies have the best cooperation Tax Administration Communal Police Market Inspection Tax Inspection Commercial Court

2.2 2.0 0.9 0.7 1.6

Judicial Authorities Spatial Planning Each of the above

4.3 4.3

1.3

Don't know/No answer

0.0

Page 26

5.0

10.7 9.8 9.4 7.8 6.9 6.3

17.2

8.5 6.0 10.0

15.0

20.0


Analysis of corruption and business barriers between the public and private sectors in Montenegro

The fact that companies are satisfied with the levels of cooperation achieved with responsible institutions confirms that every fourth company representative (25.4%) said that there had not been any bad cooperation with any institutions. Companies who had had bad experiences mostly said that these had been with Market Inspection (19.9%). However, 46.8% of companies did not specify the reasons for such a response, which suggests that if they do have comments about the work of Market Inspection, they do not take the opportunity to point this out to try to improve the level of cooperation. The most common causes of poor cooperation with this institution are sentencing for “minor offences" and controls on a too regular basis. A number of companies stated complicated procedures, corruption and a lack of professionalism from officers in this Institution as reasons for a negative level of cooperation. To a lesser extent, companies stated that they had poor levls of cooperation with Labour Inspection, the Communal Police, Tax Administration, Tax Inspection and the Service for Licensing Labour Permission. Comparing respondents' answers, we came to the conclusion that other negative effects are present and which represent business barriers from the perspecrive of the private sector in Montenegro. Amongst the most negative effects present is inefficiency. Respondents are of the opinion that inefficiency is the most prevalent in judicial bodies (12.5%). A lack of transparency was most often stsed as being a characteristic of Market Inspection (13.0%) and the Communal Police (13.0%). The largest percentage of company representatives (24.5%) believed that complicated procedures and regulations exist when issuing licenses for labour permission. The greatest lack of professionalism, in their opinion, is present in the Communal Police (18.6%) and in Market Inspection (16.3%). High service prices are endemic in Tax Inspection and corruption, in their opinion, is the most present in Market Inspection (21.9%). The Presence of Corruption and its Forms Company representatives defined corruption, in 36% of cases, as a bribe, assuming the acceptance of the aforementioned bribe, the proffering of such a bribe or both the receipt and proffering of such a bribe. According to every fifth respondent, corruption represents the abuse of an official position. In most cases, respondents recognized that the most commonly manifested form of corruption is money, whilst every sixth respondent believed that bribes often take the form of a gift. When asked to assess the level of corruption in institutions within the system and which affects the operational efficiency of the private sector, the largest percentage of respondents (44.0%) believed that corruption is present and is actually very present. Taking into account the answers from all respondents on a scale of 1-not present at all to 5-very present, the average view of the presence of corruption was 3.3.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Graph 3:

The level of corruption present

8.4

Not present at all

18.8

2

28.9

3 22.5

4

21.5

Very present 0.0

10.0

20.0

30.0

Those respondents who rated corruption with a high mark generally cited Customs Administration and Market Inspection when asked about the work of services in which corruption is most common. One in four respondents believed that corruption is very present in system institutions, and stated that Customs Administration is the service where corruption is most evident.

Level of corruption 4 – present 5 – very present

Table 2. Institutions with the largest presence of corruption Institution Market Inspection Custom Administration 27.4% 17.1%

17.6% 25.7%

The fact that respondents are prone to characterize these two services as the most corrupt is also proof to the answer of the question: “In which services is there the greatest opportunity for corruption?” Most responses referred to Customs Administration (10.9% or 34 respondents), followed by Market Inspection (9.3% or 29 respondents). Of the institutions listed, in which the level of and an opportunity for corruption should be assessed, the Commercial Court was only mentioned by one respondent. In identifying the reasons why these two institutions were characterized as the most corrupt, the problem of non-professionalism/incompetence of their officers was recognized as a major issue. In the case of Customs Administration, the phenomenon was recognized by 38.7% of respondents, whilst in the case of Market Inspection, the relative percentage of respondents was somewhat higher and amounted to 44.8%. According to respondents, although the non-professionalism/ incompetence of officers is a burning issue, and should certainly not be neglected, the high cost of services and the complexity of procedures, namely in the case of Market Inspection, along with a lack of transparency in the work of Customs Administration are significant problems.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Generally speaking, the non-professionalism/incompetence of officers was identified, by nearly two sevenths of respondents, as the main reason for the presence of corruption which affects the operation of the private sector in system institutions. Respondents who were asked about the most important reason for the presence of corruption cited some other reasons other than those put forward in the questionnaire as possible answers. The most frequently stated reasons were that officials are in a position to take bribes (24.1%), the fact that officers have low salaries and also the fact that personal benefit is more important to them and come before fairness when considering work performance (20.7%). Graph 4:

The most important reasons for the presence of corruption which affects the operation of the private sector in system institutions Non-professionalism/ incompetence

27.7 17.7

Something else

16.4

Complexity of procedures

13.8

High cost of services 8.0

Overwork 4.5

Lack of transparency

11.9

Don't know/no answer 0.0

5.0 10.0 15.0 20.0 25.0 30.0

Every third respondent gave reasons for the presence of corruption based on personal experience, whilst the experiences of family/friends/relatives were also crucial in forming the attitudes of three tenths of respondents. Further analysis of the responses that formed their opinions regarding the reasons for the presence of corruption, based on their own personal experiences, led to the following conclusions: 21.8% of respondents stated that during the past 12 months their company had given a gift / bribe to an officer. The frequency of bribery in these cases was rare, often, or every time when it was necessary to achieve a right that the company has by law, or to get a service provided by a competent authority. 36.1% of respondents said that their company expected to offer bribes/illegal payments. When asked to assess in which of the listed system institutions, with which they cooperate, they have the highest level of trust, the largest percentage of respondents cited Tax Administration (12.5%) and the Commercial Court (11.3%). Taking into account that the estimated level of corruption in the two aforementioned institutions/services was the lowest, it is possible to conclude that enterprise representatives tend to indicate more confidence in the system institutions in which corruption is estimated at the lowest level. Page 29


Analysis of corruption and business barriers between the public and private sectors in Montenegro

A mistrust of each of these institutions is present amongst 8.4% of respondents, whilst 5.8% of respondents indicated that they had confidence in all of the institutions. When asked to state with which of the listed system institutions, with which they cooperate, they have the lowest levels of trust, the largest percentage of respondents (12.5%) stated Market Inspection, whilst a third of respondents refused to answer this question. Somewhat more than a third of respondents said that system institutions give different treatment to different private companies, whilst the largest percentage of respondents (45.0%) was not aware of this habit in the work of institutions. Graph 5:

Differences in treatment given to different private companies

22.0

Yes

13.3

Mostly Yes

19.7

No

45.0

Don't know

0.0

5.0

10.0

15.0

20.0

According to respondents, the difference in treatment given by institutions is most present in Inspection Services (communal, trade, sanitary, etc.) as well as in licensing services. Company representatives had the opportunity to state how differences in treatment were generally reflected by system institutions. On the basis of their responses, it could be concluded that in a third of cases the difference of treatment is manifested through the speed of the performance of the job. Also, in 30.9% of cases, respondents cited that size, and thus economic power, are the motive for differentiating treatment by state institutions. Acquaintances, an important factor which is also culturally expected and accepted by the society (company representatives and system institution representatives), is, according to three out of ten respondents, the basis for differential treatment. A further analysis of the responses made by respondents who stated that system institutions differentiate between the treatment of private companies, resulted in the conclusion that this attitude, formed by one part of respondents, had been formed due to a lack of knowledge regarding their rights and obligations in certain segments of the work of state institutions. In fact, three fifths of these respondents were not at all familiar with procedures relating to public procurement tenders, and approximately the same number of respondents possessed a weak knowledge regarding starting bankruptcy proceedings. About three Page 30


Analysis of corruption and business barriers between the public and private sectors in Montenegro

sevenths of these respondents, a minimal number, had a weak knowledge of the rights and obligations present in the process for obtaining construction permits. For assessment purposes regarding the validity of responses to questions concerning the work of state institutions, respondents were asked questions on the basis of what could be assessed in terms of their level of familiarity regarding their rights and obligations. This resulted in the following conclusions: In the field of tax rules and procedures, and partly in the field of debt collection, respondents were fairly well acquainted with their rights and obligations Company representatives were least familiar with their rights and obligations in bankruptcy procedures, along with the procedures required for public procurement tenders Not one respondent mentioned that he was not at all familiar, nor indeed was very familiar with his rights and obligations in the aforementioned fields. Levels of knowledge regarding company rights and obligations in the following areas 5 3

4.0

3.8 3.7

2.6 2.0

2.0

2.2

Obtaining construction permits

4

Public Procurement Tenders

Graph 6:

2 1

Tax rules and procedures

Inspection supervision

Collection of receivables

Starting bancruptcy procedure

Registration of business premises in Cadastre

0

Companies, on the basis of their experiences, marked the level of corruption in public services with various indicator values. According to their opinions, on a scale from 1- not present at all to 5-extremely present, the most corrupt departments are the Department for the Issuing of Construction Permits (3.2), the Department for Urbanization and Construction Inspections (3.1). Customs Administration and the Department for Spatial Planning were given a medium level mark of 2.9. On the other hand, company representatives believed that corruption is least present in the Commercial Court (2.2). When comparing the results by region, the level of corruption present in the process of obtaining concessions is rated much lower in the central region (1.8) than it is in the northern (3.3) and southern (2.8) regions.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Table 3.

Average rating regarding the level of corruption in the following public service Montenegro Center North South

Customs Administration Directorate for Public Procurement Tax Administration Issuance of Construction Permits Urbanism Spatial Planning Issuing Labor Permits Construction Inspection Market Inspection Communal Police Labour Inspection Sanitary Inspection Tax Inspection Department for Obtaining Concessions Judicial Authorities Commercial Court

2.9 2.6 2.4 3.2 3.1 2.9 2.5 3.1 2.8 2.5 2.4 2.4 2.4 2.8 2.6 2.2

3.0 2.3 2.5 3.3 2.9 2.8 2.7 3.1 3.5 2.5 2.7 2.5 2.6 1.8 2.7 2.3

3.1 2.6 2.2 3.1 2.9 2.9 3.1 2.8 2.2 2.7 2.2 2.1 2.2 3.3 2.4 1.8

2.9 2.8 2.5 3.2 3.3 3.1 2.2 3.3 2.5 2.4 2.2 2.5 2.4 2.8 2.6 2.4

In order to realize the rights granted to them by law, or in order to get services, the majority of companies (88.7%) did not give presents/ bribes to officers. On the other hand, 6.1% of respondents indicated that they rarely, while 4.5% indicated that they had often offered bribes to competent authorities over the past 12 months. Of the total number of companies that had given bribes, six companies stated that they had given bribes to customs officers and to Market Inspection officers. The highest value bribe offered to a customs officer was €300, whilst the highest amount that a Market Inspection officer was offered was €500. The usual benefit of bribery, according to every third respondent who gave a bribe, is the speeding up of procedures. Following that, the most usual benefit was to avoid responsibility (offense, fault) and also to achieve the reduction of outstanding liabilities. The value of the present / bribe to obtain such services was mainly up to €100, but also ranged between €100 and €500. Table 4.

Benefits obtained as a result of giving presents/bribes % Faster processing of procedures 32,4 Lower tariffs/ payment of required services 8,1 Obtaining services for which the company does not meet conditions 5,4 Decreasing due obligations (taxes, duties, fees, etc.) 16,2 Avoiding responsibility (misdemeanor, criminal, etc.) 27,0 There was no other alternative way 8,1 Other reasons 2,7

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

When asked how often they had the opportunity to give a present/bribe, 40% of companies that gave bribes stated that the opportunity had arisen once or twice, and 30% said that it had arisen three to five times. Every second company that had given a bribe mentioned that the most recent case of bribery had been in the past six months, and every fourth respondent mentioned the previous month. Graph 7:

How often companies had the opportunity to give a bribe?

8.8

Not once

41.2

1-2 times 29.4

3-5 times 8.8

5-10 times

11.8

More than 10 times 0.0

10.0

20.0

30.0

40.0

50.0

Of the total number of companies covered in survey, almost none of the respondents reported incorrect work carried out by institutions. However, ten companies reported incorrect work carried out by institutions. Two companies mentioned Construction Inspection, whilst all respondents mentioned: the Directorate of Public Procurement, Tax Administration, the Communal Police and the Water and Sewage Systems Service. Companies most often reported irregularities to the competent body governing the institution. Following reports, there was usually no reaction, and out of this number only five companies emphasized that their complaint had been rejected as ungrounded. Most companies (82.4%) did not find themselves in a position where they were expected to offer a bribe, compared with 17.6% that did find themselves in this situation. In two fifths of cases, these companies believed that they should offer a bribe/illegal payment to Market Inspection. As might be expected, companies from the central region were most often those to be in a position to offer bribes. Companies concluded that they are expected to give a bribe / illegal payment based on delays encountered in procedures and on the conduct of civil servants (31.6% and 26.3%). When company representatives were asked to list how they had acted in a given situation, 41.5% of them emphasized that they did not offer a bribe, whilst one in five did. However, the fact should not be ignored that even 37.7% of respondents did not want to answer this question.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Graph 8:

How did companies act in situations where bribes/corruption were expected

20.8

Offered a gift/bribe

41.5

Did not offer a gift/bribe

37.7

Don't want to answer

0.0

10.0

20.0

30.0

40.0

50.0

According to the opinion of respondents, the most common form of bribery was either cash or contraservice (70.3% and 19.3%). In the case of giving a bribe, the act is usually initiated, according to company representatives, by officers who are in direct contact with the parties (management and company employees) (46.8% and 35.5%). The most common form of bribery, as expressed by the majority of respondents (73%) was money, 19.3% stated contra-service, whilst only 6.4% stated that it was some in-kind benefit. According to the opinions of companies included in the sample, less than half believe that officials who are in direct contact with the relevant parties were the ones to initiate corrupt actions regarding the demand for bribes, whilst every third company believes that the parties themselves initiated the action, and only 10.9% stated that higher officers in institutions and departments initiated bribery. Graph 9:

Who usually initiates the act of payment/bribery

Officers who are in direct contact with parties

46.8

Higher officers in institution/departments

10.9

Parties (management or employees in the companies)

35.5

6.8

Someone else 0.0

10.0

20.0

30.0

40.0

50.0

According to the results of the research, more than half of the company representatives refused to give gifts/bribes if their company found itself in this position. An awareness of the harm caused by corruption is most present amongst companies in the central and northern regions, whilst respondents in the north were in some doubt about what they would do in such a situation. Page 34


Analysis of corruption and business barriers between the public and private sectors in Montenegro

The largest number of respondents (67.8%) was knowledgeable about how to report corruption, whilst this was mostly underlined by respondents from the central region, when compared with the national average. The most common reason for not being knowledgeable was, in 40.6% of cases, that until the occasion had arise, they had had no need, and a certain number of respondents said that they did not show any interest (37.7%). Viewed on a region by region basis, respondents from the central region also stated lack of time as a reason. Respondents gave information about different sources which are possible ways of reporting corruption. According to the results obtained, almost half (48.3%) of respondents obtained information through electronic and print media. Graph 10: Sources of information on ways of how to report corruption

48.3

Electronic and print media Bilboards

13.9

Brochures

13.5

Friends/relatives

12.2

DACI Campaign

12.2

0.0

10.0

20.0

30.0

40.0

50.0

Company representatives were not able to assess whether the activities undertaken to fight corruption could provide specific results. According to the opinion of every fourth respondent, media reporting gives the best results. A significant effect is also achieved by starting criminal offence proceedings, various information and educational campaigns, as well as by arresting suspects. Graph 11: Effects of the activities undertaken to fight corruption

32.9

Yes

26.7

No

40.5

Don't know

0.0

10.0

20.0

30.0

40.0

50.0

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

QUALITATIVE

PART:

In-depth

interviews:

competent

institutions

and

business associations Analysis of interviews conducted In order to gain insight into the results achieved, in order to eliminate business barriers and to fight towards the prevention of corruption, the survey covered all relevant system institutions. With the intention of gaining insight into perceptions regarding the presence of and types of business barriers along with corruption, from the angle of these institutions, a set of questions was processed with the aforementioned fields. The findings of these discussions are presented in the next two chapters. Barriers to business development Concerning the fight to remove business barriers in Montenegro, it is important to point out that the project Removing barriers to entrepreneurship development has been launched and it is being led by a mission which aims to achieve: a systematic review of all business regulations related to companies in order to eliminate all surplus, dysfunctional and outdated material; to shorten deadlines on which administrative bodies act to facilitate requests made by parties; and to reduce cost burdens on parties. Within the efforts made to continue listing the various barriers faced by entrepreneurs, the Directorate for the Development of Small and Medium Enterprises, in cooperation with GTZ (German Organization for Technical Assistance and Cooperation) has developed a web site which will allow existing and potential companies, along with others, to report the barriers that they are encountering, and to consequently get help and information regarding ways to solve these. The Council for Removing Business Barriers of the Government of Montenegro is currently managing, controlling and ensuring the implementation of a program and operational plan which are designed to remove business barriers, and in particular: •

Proposes to the Government of Montenegro that it should adopt and modify regulations relating to the removal of business barriers;

Proposes to the Government of Montenegro certain plans relating to the removal of business barriers;

Considers the relevant dynamics to ensures the implementation of the program and operational plan to remove business barriers;

Carrying out amendments to the program and operational plan for the removal of business barriers;

Reports to the Government regarding the implementation of the plan for removing business barriers every three months;

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Analysis of corruption and business barriers between the public and private sectors in Montenegro •

Establishes necessary contacts with international institutions, foundations, etc. in order to improve the program to assist the removal of business barriers;

Provides publicity and transparency throughout the entire process.

The attitudes of system institutions regarding the presence of and types of business barriers are elaborated in the questions that follow. The most common forms of cooperation/communication experienced with private companies Almost all system institutions have some form of direct cooperation with private enterprises. In addition to jurisdiction that is specific to each institution and which is related to the main activity for which the institution is established (all of which are listed in the section where each individual institution is represented), cooperation between institutions and enterprises is most frequently manifested through: •

The provision of advisory services;

The issuing of information materials and publications and

The organization of seminars

It is evident that all these activities are conducted in order to inform companies on procedures which are the responsibility of institutions who are responsible for those businesses. They are also conducted to inform companies on the rights and obligations of enterprises in relation to those aforementioned institutions. In this sense, system institutions play an important role in educating and familiarizing companies with procedures which are relevant to their business, which is certainly in the interest of both sides. In Tax Administration, it has been stated that good cooperation with taxpayers is of mutual interest, primarily to increase financial discipline which should cause taxpayers to perform their obligations in a timely manner, thus avoiding the application of sanctions. Taxpayers have been enabled to resolve dilemmas regarding the implementation of tax regulations, to obtain tax registration forms free of charge, and to obtain instructions and advice regarding the creation and submission of these in all the regional units, and to gain direct contact with advisers. In fields where companies are poorly informed about their rights and obligations, competent institutions are very involved in the field of consultation. For example, the Directorate of Public Procurement receives about 100 requests for various types of consultation on a monthly basis. According to the institutions which were interview, private companies usually ask for the following: •

In the domain of public procurement related to a public process, in terms of errors in procedures, questions are raised on the eligibility of bidders, the preparation of reports connected with the public procurement, etc. (Directorate of Public Procurement); Page 37


Analysis of corruption and business barriers between the public and private sectors in Montenegro

•

In the domain of labor, regulations which relate to the creation of a labor contract (Labor Inspection);

•

In the domain of financial support related to obtaining a loan, information regarding any marketing and financial services that may be required in the company (the Directorate for the Development of Small and Medium Enterprises).

When it comes to communication between companies and the Commercial Court, it can be concluded that disputes are most often initiated because of a failure to meet contractual obligations, the non-payment of an agreed price for completed works and the delivery of services concerning the transfer of goods and issues concerning unresolved status. These disputes usually last between 3 and 6 months, depending on the type of dispute, and, in some cases, due to the complexity of procedures or the irresponsible attitude of parties, disputes can last longer than a year. In this regard, an adequate fee policy and the resolution of disputes through extrajudicial procedures could influence a reduction in the duration of court cases. The Montenegro Business Alliance (MBA) emphasize that they have everyday communication, primarily with their members, regarding concerning obtaining information about various procedures, legislation, interpretation of regulations and the like. MBA also has a practice of asking questions and seeking the opinions

of

system

institutions

(Tax

Administration,

ministries)

on

behalf

of

its

members.

Institute of Accountants and Auditors of Montenegro states that it only has communication with a small number of companies, because, under the regulations that define the profile of the companies that are subject to revision, it leaves very little space for their activities. Institute of Certified Accountants and Auditors of Montenegro is not achieving direct cooperation with private companies, but through membership, in the sense that the accountants who work in the companies are also members of the Institute. The most common problems experienced by private companies in cooperation with institutions / departments, the causes of these problems and ways to overcome them The most common problems experienced by private companies when dealing with the institutions are due to unfamiliarity with procedures and laws. With regard to this, most institutions said that when carrying out their responsibilities whilst working with companies, certain difficulties do occur. However, most institutions are attempting to provide the requested information for companies in order to quickly and effectively enable them to realize their rights. Thus, for example, the Secretariat for the Entrepreneurship Development of the municipality of Podgorica, within the framework of administrative proceedings, is issuing a decision on meeting the minimum technical Page 38


Analysis of corruption and business barriers between the public and private sectors in Montenegro

conditions required to start conducting business and, in cases where the business permit applicant is not sufficiently well informed, information and guidance will be given. It is a well known practice that temporary permits are issued before all the necessary documentation has been collected. The Secretariat for the Spatial Planning and Environmental Protection, offers investors consulting services. In the cases where certain requirements are not met, they now have a new deadline for the correction of any mistakes, usually 8-15 days. Although it is not the obligation of the secretariat to do so, it will in any case give suggestions to company representatives who need to meet additional requirements. It will thus ensure that, upon receipt of documentation, applications will not be rejected and subjected to additional costs in terms of the re-engagement of architects to finish solutions. The Secretariat for Spatial Planning and Environmental Protection provides assistance to enterprises so that they can extend the deadline for the payment of fees, or in the case of a cash payment, a discount of 20 or 30% is offered. Regarding problems faced by system institutions when working with companies, the following information has been concluded: •

Construction Inspection, difficulties stated about collecting communal fees.

Inspection of Urbanism creates a barrier in work due to misunderstandings between inspectors and investors.

Labor Inspection stated that there are times when they receive notification about an employee not having a labor contract in a certain company, and that due to the fear of negative consequences; the employee does not appear during the inspection visit.

Market Inspection indicated that during company inspections it usually comes across the following irregularities: the company has no work permission, does not meet the minimum technical requirements, there is no supporting documentation to go with products etc. Companies which are engaged in trade have problems updating their trade books, and either accidentally or deliberately doesn’t record certain items.

The Commercial Court stated that the most common problems with private companies are abuse of processes with the intention to delay court cases and to distract or disable the execution of legally binding court decisions. The cause of such behavior is a lack of professional conscience and "bona fides" attitude towards court proceedings, a lack of appropriate sanctions and inadequate legal solutions, especially in administrative proceedings. These problems can be overcome by changing legal and procedural regulations, by strengthening the disciplinary process and the penalty policy, as well as the affirmation of responsibility for damages due to the unconscious actions of participants during court proceedings.

Customs Administration indicated that whilst working with private companies, it often faced situations where people have an insufficient knowledge of customs regulations. Page 39


Analysis of corruption and business barriers between the public and private sectors in Montenegro

Tax Administration’s biggest problem is a disregard for tax laws by private companies. Disregarding tax regulations primarily relates to the avoidance of registration, the untimely submission of tax registration, delays in paying tax obligations, closing legal entities who owe taxes, difficulties in establishing contact with responsible persons in certain cases, and other problems that make the work of the tax authorities very difficult. Tax Administration operates in a way which starts official proceedings and takes measures in accordance with the law when dealing with taxpayers who are irregular in their payment of tax obligations.

The Secretariat for Communal Affairs and Transport usually has a problem with incomplete documentation provided to them by companies. This significantly increases the number of cases that need to be solved, because by law they are not entitled, due to lack of documentation, to reject the case, but only to prolong the deadline period, and the same case is then consequently processed several times. It was stated that the document that is usually missing is the Labor License. The reason for submitting incomplete documentation in order to gain more time to suit legal entities may result from a lack of information or is perhaps due to intentional abuse.

The Directorate for the Development of SMEs said that the problems experienced by private companies, in general, included: debt creditor relationships; business barriers; a lack of "available" money; a lack of spatial plans; labor permits and administrative barriers.

Appeals, complaints made about the work of institution officials/ services Information was received from most of the institutions stating that they are not familiar with complaint cases made about the work of their officers, and in cases where it went to appeal; it was usually as a result of ill-founded complaints. For example, most complaints regarding the Directorate for the Development of Small and Medium Enterprises were made on the basis of granting credit lines, even though the bank makes the final decision on the approval of credit funds. It is alleged that, on this basis, there were a few complaints regarding the work of the Directorate, but that they had been resolved in the favor of the Directorate. Institutional representatives often explain that due to the nature of their work, there is no room for the abuse of office by any of their employees on any basis or that this manifestation is likely to appear in a small number of cases due the precision of legal provisions. The Commercial Court, for example, stated that bearing in mind the function of the court, the organization of work and procedural rules, the authority and supervision of employees, the potential for abuse by employees has been reduced to a minimum. However, the following text states that there were a few complaints regarding the work of court officials relating to inefficient performance during court cases, and that after achieving efficiency and respecting deadlines, complaints were addressed to condemn the Page 40


Analysis of corruption and business barriers between the public and private sectors in Montenegro

authority because of accelerated procedures "on the basis of intervention" from the opposite side. There are also remarks regarding disability concerning the exercise of rights in executive and bankruptcy proceedings, neither of which is usually the result of judicial conduct. Representatives from certain institutions have reported some examples of complaints that have been sent to them by companies complaining about the work of officials in other institutions with which they have had contacts. The Public Procurement Directorate stated that complaints are sent to the address of the Commission for the Control of Public Procurement, and that very often it sees that one company sends the same complaint many times. Companies send complaints to the same address given in their communication with the Institute of Accountants and Auditors because of selective treatment. The Commission for the Control of Public Procurement, when asked to comment on the existence of complaints regarding the work of their officials, stated that was not possible to make complaints a part of their decision, but that it was possible to initiate an administrative dispute regarding the Administrative Court within 30 days of the start of the public procurement procedure. It stated that the number of disputes was insignificant in comparison with the number of decisions issued by the commission, and that in most cases, claims were rejected and the Administrative Court confirmed the decision of the commission. Examples of complaints regarding the work of officials were justified by some institutions that complained about the workloads in their jurisdictions. It is usually the case with inspections that employ, on average, 3 to 5 inspectors. The Secretariat for Spatial Planning and Environmental Protection stated that they had been confronted with real problems, namely the inability to perform the required scope of work, taking into consideration the fact that an inspection employs only a few construction inspectors. For this reason, it is possible to speculate that inspections are avoiding controlling certain facilities and other visits, but the fact is that they are not able to do everything. The Institute of Accountants and Auditors described the same problem. It stated that one accountant has 20 companies to run, which evidently creates cause for concern regarding their efficiency. Certain institutions, usually during inspections, stated that they had received complaints about the work of their employees, even when they acted in accordance with the law. For example, Market Inspection tries to achieve the correct level of cooperation with companies on one side, and on the other to protect costumers and eliminate unfair competition, until everything is working in accordance with the law, so such companies should not receive complaints regarding the work of their employees. So far, there were no written complaints, even anonymous. There was only some speculation that there was no basis for complaints and that they were often the result of “hearsay� (rumors) Page 41


Analysis of corruption and business barriers between the public and private sectors in Montenegro

The Secretariat for Spatial Planning and Environmental Protection said that there are complaint cases regarding their work, but that these usually relate to the unfulfilled wishes of investors in cases when they have not been in line with the urban spatial plan. What are usually required are more floor levels than have been prescribed. This is certainly not feasible, except in cases of very minimal deviation, when this can be tolerated and has no great influence on the amount of communal fees due. However, the secretariat looks at the requests of investors in those cases which do not meet certain conditions. They are then given a deadline for correction, usually 8-15 days. When asked whether this always happens with the same clients, the secretariat gave a negative response. In order to achieve a more efficient and reliable performance in activities, Market Inspection introduced a model for the rotation of inspectors. Namely, in smaller towns where the population knows each other, there is the potential for the selective treatment of individual companies. For this reason, inspectors in the same field are sent from one city to another. Regarding complaints from companies regarding the work of inspectors, these are mainly not solidly founded complaints. It is of great importance that inspectors perform their jobs well, and although the number of controls previously was important, (50 per month), the emphasis is now on quality. Inspectors are faced with instructions to control legal and not illegal entrepreneurs. However, we can say that there are less such entrepreneurs because it is no longer safe to operate is this way. There are controls over their work, and it can be concluded that the percentage of decisions which are rejected in secondary proceedings (inspectors’ mistakes) are insignificantly small. Administrative and field controls have been implemented, and in some cases where there were some failures which occurred in their work, due to a lack of knowledge regarding certain procedures, this is tolerated. In this way, efforts are made to further educate officers. Legal regulations and operational procedures The perceptions of institution representatives regarding knowledge about private companies and the legal regulations and procedures relevant to their business, varies from institution to institution. Whilst the Commercial Court and Labor Inspection consider the level of familiarity to be low, the Commission for Public Procurement is satisfied with the knowledge of business representatives regarding regulations in this area. Tax Administration also believes that companies possess a solid level of knowledge about tax regulations. Based on the analysis of interviews with representatives from state institutions, one might conclude that those institutions, which make significant efforts in the field of information and education on procedures related to their jurisdiction, can boast a strong level of knowledge about companies with whom they have contact, and that through this they achieve more successful cooperation .

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

The Commission for Public Procurement pointed out that a solid level of knowledge regarding the public procurement system is the result of extraordinary cooperation between the commission and the Directorate of Public Procurement, in addition to their commitment to raising awareness about this system and the education of all members who directly, or indirectly, participate in the decision-making process. To this end, a publication named the Protection of the Rights of Applicants in public Procurement Tenders is issued. Here it is explained, in an easy and acceptable manner, how to protect your rights during any stage of proceedings in public procurement. Tax Administration also indicated that it was highly engaged in the field of the education of taxpayers which, according to its own words, it performs every day. The Union of Employers of Montenegro, also in the framework of its activities, prepared information, explanations and answers to requests from members about what, amongst other things, relates to the notification of adopted amendments to legislation, about new laws and by-laws in order to help to adjust business operations regarding legal procedures. Concerning legal procedures, the most frequent problems are seen to be unclear regulations, a complexity of procedures and regulations in the initiation stage of a business and its daily operations, a large number (unnecessary, non functional and out-of-date) of applicable legislative acts, long-term deadlines for acting on requests, and high costs for procedures. The Montenegro Business Alliance regularly informs its members about recently adopted legislation and has adopted amendments to laws and other acts at state and municipal levels. The MBA has registers of all applicable regulations in Montenegro and can help its members regarding clarifying the meaning of certain acts, procedures that are covered by it, or institutions that are responsible for its implementation. The MBA emphasizes that the biggest problem is due to the large number of regulations that burden company operations. Regarding insufficient information about a company and its operating procedures, the Commercial Court, in particular, emphasizes that companies are least familiar with procedures related to bankruptcy proceedings. Apart from estimating the level of company familiarity with regulations, institutional representatives had the opportunity to comment about their level of satisfaction with legislation. For example, the Directorate for the Development of SMEs said that private companies constantly make remarks about some legal regulations. Regarding this, institutions are of the opinion that companies should become more engaged in the field of following legislative rules that cover their business operations, and that if they are dissatisfied with some regulations, they should take the opportunities which are provided in public debates. However, while this process is very transparent in the way that decisions are published in daily newspapers, and that public debates last at least 15 days, it was noticed that there was not a significant interest from company Page 43


Analysis of corruption and business barriers between the public and private sectors in Montenegro

representatives. Only the Secretariat for Spatial Planning and Environmental Protection and the Secretariat for Communal Affairs and Transport were satisfied with the attendance of company representatives at public debates in related fields. The most frequent reasons for companies not showing an interest in public debates are probably due to the attitudes of company representatives who cannot significantly influence decisions. However, practice denies this position, taking into consideration that there are examples where certain proposals have been corrected. The Secretariat of Finance mentioned cases where entertainment park and cafe owners had had their suggestions accepted for the improvement of the system of local communal fees. Still, the most frequent comments regarding legislative decisions come from those companies that have not previously participated in public debates related to these solutions. This indicates a lack of correctness and interest of companies which participate in the legislative decision-making process. When remarks about legal arrangements are in question, most companies have objections to high level tax rates, although, in general, it can be said that Montenegro’s tax rates are not a burden to businesses and investment, and that for certain taxes there are significantly lower rates in comparison with other neighboring countries. Regarding legislation concerning public procurement, the Directorate of Public Procurement said that compared with the rest of the region, we lead in a regulatory sense and we manage data very well. Elements which are problematic in this field certainly include communal services, where there is a monopoly. This begs the question regarding the possibility to apply for directives from Brussels in this field. The Secretariat for Spatial Planning and Environmental Protection stated that as a result of the new law regulating this area, procedures would significantly be simplified for obtaining licenses and that in some segments these procedures would even be shorter than in the EU (the procedure of obtaining ecological approval). However, this new law is not yet fully implemented, bearing in mind the fact that many cases which were open at the time when the old law was in force, and must be therefore be finished with the old law. Although the new changes have been adopted in a law which aims to shorten procedures, they are still quite long. The Secretariat for Entrepreneurship is satisfied with the provisions of the new law on internal trade, especially the part which relates to starting activities, which, in their part, has been reduced to one single report. The Secretariat for Communal Affairs and Transport made certain comments regarding regulations governing this area, starting from the fact that it cannot charge parking in the city center zone, and

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

moving to provisions regarding the law on condominiums, and the codex of conduct that should be prescribed for taxi drivers. The Institute of Accountants and Auditors believe that regulations in the domain of defining the criteria of subject to audit companies should change. Namely, they wish to introduce a compulsory review of business operations for all companies. Market Inspection believes that the legislation which regulates their jurisdiction has room for improvement. In that sense, in the case of controlling the sale of cigarettes, a measure of decree is not exactly the best concept. There is evidently room for action on a discretion basis. Also, the law foresees that inspection visits should give advance notice. The control itself would then become pointless because this situation offers the opportunity to correct irregularities. The Commission for Determining Conflicts of Interest has made suggestions regarding regulations related to conflicts of interest, and believes that although it is quite accurate, there is still room for some minor improvements. For example, the Law on Local Self-Governments prescribes the same sanctions for those officials who perform important functions as well as for officials, usually in smaller municipalities, who are formally appointed. It could be concluded that our Law on Preventing Conflicts of Interest is amongst the most transparent in the region. Representatives of the Commercial Court shared a general attitude that it should work on the simplification of procedures because the problem is, in general, concerned with resolving requests by the competent authorities. Cooperation with other institutions Opinions of system institutions are varied concerning mutual cooperation and the need to carry out responsibilities. Representatives of the Commercial Court stated that cooperation with other relevant institutions met the needs and principles of a procedural economy and efficient trials, whilst the delivery of court invitations and other documents through the regular mail represented the only problem. The same opinion regarding a good relationship with key institutions was shared by the following: the Commission for the Control of Proceedings in Public Procurement, Tax Administration, Customs Administration, the Directorate for the Development of Small and Medium Enterprises, as well as the Institute of Accountants and Auditors of Montenegro.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Institutions that mostly complain about the poor relationship with relevant institutions are inspections. The Department for the Inspection of Spatial Planning claimed that inspection monitoring should be performed with a police presence in order to avoid direct contact between inspectors and clients. In addition to this institution, Inspections considered that there should be a constant level of cooperation with the Ministry of Justice and the Cadastre Administration. Representatives of the Commission for Determining Conflicts of Interest stated that the whole process of monitoring public officials made it considerably more difficult that the various institutions are unrelated, in the sense that they do not inform each other about relevant information. The Commission, while performing its activities, is largely backed-up by tip-offs, even anonymous, because they point to direction where the action is required. Moreover, such connection with Tax Administration and Real Estate Directorate would be of a great use, because the Commission would be regularly informed about possible tax evasions, or hiding of property public officials really possess. MBA representatives stated that they had a good level of cooperation with almost all institutions at a national level, whilst cooperation with local governments could be better, although there is mostly a fair cooperation. The MBA signed an agreement on cooperation with Tax Administration and this will enable all requests to receive quickly by this institution. Also, the MBA has a good level of cooperation with all relevant ministries which enables the active participation of representatives from the MBA in the enactment and amendment of legal regulations concerning business. Therefore, the result is a better informed private sector because the MBA informs and include its members in all of these activities. Representatives of the Local Public Revenue Administration believe that adequate cooperation with Tax Administration would significantly facilitate certain activities. Representatives of the Institute of Certified Accountants and Auditors, recognize poor cooperation and coordination between institutions as a deficiency in our system in the sense that different institutions simultaneously seek the same documentation from different fields. For this reason, accountants are greatly burdened because the same information is sent to each institution individually. They consequently suggest that the existence of this data in one centralized institution, such as the Central Bank, would save both time and money. Representatives from the Secretariat of Finance suggested, at system level, the creation of a unique database shared by the Secretariat, Communal Service, the Water Board, the Electricity Board and other similar institutions. As a suggestion for conducting these activities more easily, the Secretariat for the Development of

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Entrepreneurship put forward the idea of networking with related institutions such as Tax Administration, Customs Administration, Cadastre and the Commercial Court. When it comes to coordinating action in the fight against corruption, the attitude of the representatives of the Public Procurement Directorate is that key institutions are generally poor in their communication. It was proposed that it would be more effective if these institutions met on a monthly basis to exchange information on actions undertaken. The civil sector should not be excluded as it is a good partner in this area. As an example of quality cooperation on an institutional level, the relationships between Tax Administration, the Ministry of Tourism, the Ministry of Labor and Social Welfare, the Ministry of Interior and Police Administration, the Ministry of Economy, the Department for the Prevention of Money Laundering, the State Prosecutor and other bodies and organizations, was highlighted. Also, a good example of cooperation is the Agreement on Mutual Cooperation regarding the integrated administration of the State Border, signed in early 2009 between the Ministry of the Interior and Public Administration, Police Administration, Customs Administration, Veterinary Administration and Phytosanitary Inspection. The Union of Employers of Montenegro is one of the institutions which have the strongest connections with system institutions. The union signed protocols on cooperation with numerous state bodies and institutions and set up a coordination body which discussed issues of importance regarding the daily operations of business entities: an agreement on cooperation with the Chamber of Commerce of Montenegro, the Directorate for SMEs, the Institute of Accountants and Auditors, the Municipality of Danilovgrad, the Municipality of Bar, the Municipality of Podgorica, the University of Montenegro; coordination bodies with Customs Administration, Tax Administration, the Ministry of Economic Development, the Ministry of European Integration, the Directorate for Anti-Corruption Initiatives and other institutions. The capacity of trained officers within institutions that affect the operation of the private sector All representatives from interviewed institutions expressed satisfaction with the level of knowledge demonstrated by their colleagues to implement activities that the institutions they work for are responsible for, and stressed the need for further professional education. When the number of employees is considered, with the exception of inspection times, institutions generally share the opinion that their services employ an adequate number of staff to scope with their responsibilities. Representatives of the Union of Employers of Montenegro still believe that over staffing, inefficiency and low productivity are evident in both local and national administration, and that employers often face the Page 47


Analysis of corruption and business barriers between the public and private sectors in Montenegro

problem of being inadequately trained, uninformed or that officers are seen to have a low level of knowledge, so there is consequently no need to further improve their education and training. The Inspection Department is facing the problem of an insufficient number of staff available to conduct inspections, and it is often the case that some of the inspections fail to meet all the requirements of their jurisdiction. This opens the possibility for speculation about the selective treatment of inspectors. They are, in this respect, in a very unenviable position. If the complexity of the work they do into is also considered, along with the required competencies, it is not surprising that there is a lack of inspection staff. There is a similar situation with staff engaged in public procurement. They also perform extremely responsible and complex work and are inadequately paid. It is therefore often the case that they stay in their positions for a very short time because they are responsible for any financial omissions on a criminal basis. It is also often the case that these officers are fired without even having made any omissions, and therefore the Directorate of Public Procurement advocates to abolish this practice and suggest the necessary introduction of certification for these functions. When it comes to the competence of personnel, it was emphasized that in almost every institution in which interviews were conducted, considerable efforts were made in the field of professional training for the staff. Dissatisfaction with staff professionalism was mentioned regarding the Institute of Accountants and Auditors of Montenegro. It was stated that there were increasingly more and more cases where accountants had established independent agencies for accounting without certification, and that this represented a degradation of the profession. In certain institutions, it is particularly emphasized that there is a level of sensitivity concerning performance levels of staff. It was suggested that some specific mechanisms could be introduced to protect employees. Thus, for example, since July 2009, the Professional Manual for the Protection of Police Officers who works to fight corruption was enforced. Something similar would be desirable both in the case of inspectors and the Institute of Accountants and Auditors of Montenegro. It was also stated that accountants should have some legal protection, taking into account the nature of the work they deal with. The presence of corruption and its forms from the perspective of system institutions Recognizing the importance of a comprehensive and effective fight against corruption and the necessity of combating this criminal phenomenon, whose adverse consequences threaten the legal, economic and institutional systems of a country, Montenegro, in February 2000, signed an Agreement and the Anticorruption Action Plan of the Initiatives of the Stability Pact for South Eastern Europe (SPAI). Since then it has been engaged in implementing anti-corruption activities, both at national and regional levels.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Attitudes of system institutions have been detailed in the following questions (below) regarding the presence of corruption and its various forms. Susceptibility of certain institutions/services to corruption When asked to assess their level of susceptibility to corruption, few institutions stated that, considering the nature of work they do, public perception suggested corruption in their own field. The Directorate of Public Procurement said that, despite efforts undertaken in the field of anti-corruption activities, the prevailing opinion was still that the sector of public procurement is one of the most susceptible to corruption, particularly when taking into consideration the fact that the annual turnover is around half a billion Euros. Also Inspection of Spatial Planning said that the fact that the large authorities they possess opens up the possibility for speculation regarding inspectors’ abuse of official positions along with possible corruption. The Commercial Court claimed that, regardless of the results of studies that showed that courts and inspections are the institutions that are most inclined towards corruption, practice showed the opposite. The negative attitude of the public regarding the work of the courts is formed due to the dissatisfaction of parties with the outcome of certain court proceedings, especially in the areas of bankruptcy and executive procedures for settling claims and the realization of other rights. It is not because the court has abused its authority, but due to a lack of resources, inadequate and delayed legal protection measures and a lack of understanding regarding the position of the court in these proceedings in general. The Accountant and Auditors Institute consider that corruption is, in general, where there are poorly paid employees. It suggested activities to increase the level of salaries of officials as a measure to suppress corruption. Activities undertaken to reduce and prevent the appearance of corruption Most often activities carried out by system institutions in the fight against corruption are, in most cases, designed to motivate employees to act ethically and in accordance with the general principles of the institution that represent, as well as finding ways to report corruption cases involving their employees. As mechanisms for reporting corruption, the most commonly used are complaints boxes, a book of impressions and special phone lines. Improvement in this field allows institutions to send their employees to seminars on corruption topics, and, through various forms of informative material, to influence the raising of awareness of citizens on the harm done by corruption and to encourage people to report corruption when they see it. Also, a significant Page 49


Analysis of corruption and business barriers between the public and private sectors in Montenegro

number of institutions noted the usefulness of internally controlling the work of officials, as a preventive activity against corruption. Only a small number of institutions within the field of reducing corruption have implemented large-scale measures. The Directorate of Public Procurement is as contribution towards fighting against corruption, uses various promotion means (flyers, brochures, public appearances etc.) in order to influence the awareness of citizens regarding the harmfulness of corruption. Corruption cases in public procurement can be reported to this institution by using a special phone line. Tax Administration has established good cooperation with tax payers and the public in general as one of its main ways of fighting corruption. It is based on the following principles: •

Improving the work of Tax Administration which will contribute towards eliminating potential conditions for corruption;

Identifying the possibility for corruption within the organization;

Establishing organization systems for activities and tasks that can minimize the potential for corruption;

Establishing a system of internal controls for the work of officers and organizational departments;

Cooperation, information exchange and joint actions with other state bodies;

Cooperation with associations of taxpayers in order to introduce the tax discipline and to improve the work of the tax authorities;

Establishing an efficient system of control at all levels and in all organizational departments.

Customs Administration, from October 2003, started the implementation of the project “Development of Integrity in the Customs Service of Montenegro”. The project coordinator is the Department for Internal Control, whose task is to manage, organize and synchronize the activities of organizational departments in the implementation of the aforementioned action plan. This program includes identifying structures and procedures that are at risk of abuse and establishing procedures and standards that improve the integrity of the Customs Service whilst at the same time reducing the risk of corruption. Also the endorsed Codex of Conduct for Customs Officers and Employees, (Article 15) defines responsibilities regarding the conduct of customs officers when offered bribes or money or any other form of corruption. The Police Department in its fight against corruption acts through 21 branches in county departments (units), which is equal to the number of municipalities in Montenegro. The Institute of Licensed Accountants has no prescribed procedure for cases when they come to corruption. However, they claim that the existence of the codex is sufficient to prevent this phenomenon. In situations where the existence of corruption is presumed, they consider that the easiest way is to stop engagement.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Cases of corruption reported regarding institutional officials When asked to list whether any cases of corruption had been registered against the institutional officials, almost all institutional representatives gave a negative response. However, Police Administration representatives said that they had received various reports on corruption by both individuals and legal entities, and that they were overwhelmed with cases. Reports of corruption range from a few tenths of a EUR to millions of EUR, but all of them, in terms of processing, receive the same treatment. In Administration a couple of examples of corruption were referred to, including a case of selling land and real estate in the south of Montenegro, which was accompanied by corruption which involved individuals, construction companies and the cadastre. Representatives of Customs Administration stated that, during 2009, cases of corruption were reported, and that they were adequately checked out. When there was a sufficient base for further investigation, those cases were passed on to competent national bodies. Appeals for abuse of official position were submitted against a number of judges from the Commercial Court, whilst in the proceedings of two cases proceedings were initiated to determine responsibility. One judge was suspended from court until the completion of court proceedings and the determination of any responsibility, and one judge has ceased to be employed due to retirement. Also, two appeals were submitted against two officers from the Central Register of Legal Entities. These were also due to the abuse of official power, but the process has been suspended awaiting a decision by the competent authority. Regarding the reporting of cases of corruption involving officials in public procurement, the Directorate of Public Procurement stated that remarks often come from the civil sector, but it pointed out that there were no serious complaints. However, it was stated that things that do not fall within the scope of the activities of the directorate, along with violations of public procurement procedures found whilst executing tasks, are forwarded on to the competent institutions. The commission responsible for controlling the public procurement process argues that there is no preferential treatment given to bidders in public procurement procedures. According to data from Tax Administration, there were no reports of corruption that were submitted by legal entities. Also, irregularities regarding the supervision of administrative and inspection procedures were not determined in such a way to indicate corruption involving tax inspectors or other employees. However, internal controls showed that in three cases tasks and duties had not been performed in a Page 51


Analysis of corruption and business barriers between the public and private sectors in Montenegro

conscientious manner and that in order to determine the actual facts of the case against these officials, criminal proceedings were initiated to determine whether the acts had indeed been associated with corruption. Two cases from the previous period are still in progress. The Secretariat of Finance urged that principles which achieve job satisfaction don’t leave room for corruption. A similar attitude was expressed by the Secretariat for Spatial Planning and Environmental Protection. It argued that the fact that as the implementation of procedures in their authority included several officials, such as architects, surveyors, electricians, statisticians, traffic experts, and others, it was very unlikely that parties would be able to succeed in involving each of the aforementioned personnel in corruption. Union of Employers of Montenegro representatives stated that they did not have any information about reports on corruption involving public officials, mainly because anonymity was guaranteed for reporting in order to provide security and to eliminate opportunities for revenge. However, employers pointed out the existence of a number of reasons for not reporting corruption, such as distrust in the institutions responsible for fighting against corruption, the open nature of reporting corruption and various other reasons. The most effective ways to fight against and prevent corruption The control of employees, compliance with laws and transparency in the workplace are, in the opinion of institutional representatives, the most effective ways to achieve their struggle against corruption. Accordingly, Tax Administration representatives noted that an appropriate mechanism for controlling staff had been established, and that as a result, any possible appearance of corruption had been reduced to a minimum. However, it was stated that there is always the possibility that individual cases of corruption do occur, despite all preventive measures, but that such situations cannot be regarded as negative phenomena in the work of state bodies, but rather as a tendency of certain individuals to exercise prohibited actions. Employers recognized the most effective measures for fighting corruption, according to Union of Employers of Montenegro representatives, to be clear sanctions and penalties, a good legislative framework and its effective implementation, along with high quality anti-corruption strategies at a national level. Regarding recommendations for system institutions and for more active participation by the private sector in the fight against corruption, it is unequivocal that the education of employees, the awareness of the harm done by corruption along with reporting corruption cases, are the best ways of combating the fight against corruption.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

A proven way of doing business is not characterized by corruption; companies are advised to follow legal regulations to the letter, whilst a few institutions believe that recently prescribed procedures are actually a cause of corruption. MBA representatives believe that simple and clear procedures, institutional transparency and an adequate system of sanctions, represent the best way to fight corruption. Also, public-private partnerships represent a basis for effectively fighting corruption. Representatives from the Directorate for the Development of SMEs said that it is necessary to create the best communication possible between the private sector and governmental institutions, as a way to achieve more successful cooperation, which will in turn remove any need for corruption. Customs Administration representatives noted that companies from the private sector should: • Know and follow bylaws by which affect their activities, • Ensure that responsible persons and company employees are aware of their legal responsibilities and obligations, • Establish, independently or through their associations, good relations between each other and, through direct communication, indicate irregularities and report any abuse to the governmental authority where the officer is employed or to an authorized state body, • Adopt a code of conduct in which they include basic anti-corruption provisions and to make sure that all employees know that they must follow those provisions, • Support the national anti-corruption program, and actively engage in activities that implement initiatives from the Directorate for Anti-Corruption Initiatives, either directly or through their associations. Representatives of the Union of Employers of Montenegro noted that companies should be in partnership with the state in the fight against corruption, because corruption has a direct impact on competitiveness, investments, operating costs, the business environment and economic growth and development in general.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

RECOMMENDATIONS This research was conducted with the aim of identifying the possible manifestations, causes and levels of corruption, and barriers to business development, from the perspective of the private sector in Montenegro. The results obtained from the analysis were used for defining specific recommendations for the further improvement of the business environment, overcoming identified barriers and the prevention and combat of corruption in all institutions that affect the operation of the private sector. Also, the research results will be importnat for further strategic planning and policy development that focuses on the effective joint action of the private and public sectors in the fight against corruption and business barriers. The Directorate for Anti-Corruption Initiatives will deliver both the text and recommendations of this research to all relevant institutions in order to provide them with the possibility to get familiar with the findings and recommendations of this research. The Directorate for Anti-Corruption Initiatives intends to repeat this research in two years in order to compare the findings, i.e. the level of progress. Legislation and business procedures In recent years the business environment in Montenegro has been significantly enhanced by the implementation of significant reforms in key sectors (financial sectors, fiscal system, privatization, etc.). Also, the numerous laws have been adopted which comply in the main with the standards of the European Union. However, despite significant progress, the private sector in Montenegro is still facing complicated legal and administrative procedures. All of these contribute significantly to the increase of costs and risk in the private sector. However, the business environment is still not favorable enough for businesses development. All of these circumstances are of importance when searching for the possibility of corruption behavior in the private sector and in general. Institutional representatives have, in most cases, expressed satisfaction with the legislation within the areas of their own competences. However, on the other hand, the private sector still suggests that there should be further changes and a simplification of existing legislation. The research results, which aim to improve operations, to eliminate business barriers and possible causes of the appearance of corruption, indicate the necessity of undertaking the following activities: Clear definition of authorization, responsibilities and mandate of inspection services in order to eliminate existing overlaps and a wide range of penalties for the same illegal actions;

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

To specify existing legislation, especially in the area of inspections, monitoring and control, in order to eliminate the possibility of different interpretations and the enforcement of existing regulations; Within the competences and actions of inspections services, it would be very useful to use the preventive action principle, to emphasize shortcomings and to define appropriate deadlines for their removal; To consider the expediency of legal provisions relating to the statutory notice of inspection controls of legal entities; To precisely define the criteria for the selection of entities that will conduct specific inspection tasks and ensure that certain inspection services are entrusted to the private sector (e.g. product quality control); To eliminate the discrepancy between the Law on Building Construction and the fact that buildings cannot get temporary permission for conducting business activities whilst their status is not in accordance with current regulations specified in this area; To precisely define and release, in public, a list of necessary documents for obtaining solutions, permits, certificates, etc. (e.g. working permits, building permits, etc..), and possibly not use the option "other documents" which, in practice, often involves a larger number of documents than the basic ones required; To improve the implementation of the Law on Physical Planning and Construction of Buildings in such a way that the existing documentation complies with this law, because no local government has yet complied with the deadlines for drafting new documents; To define the appropriate fee (tariff) policy for court procedures and to promote the resolution of disputes through extra-judicial procedures; To decrease the excessively highly defined criteria for compulsory audits on doing business in Montenegro (the average number of employees in the year for which annual report is submitted ranges from 50 to 250, total annual revenue - from €10.000 to €50.000 and total assets from €10.000 to €43 .000) and thus include a larger number of companies in the audit (Law on Accounting and Audit, “Official Gazette of Montenegro“ No.69/05 and No.80/08); To reduce the dependence of private companies on actions and intentions of local governments by determining the optimal level of taxes, fees and other charges stipulated by local governments. Cooperation of system institutions and private companies The level of cooperation between system institutions and the private sector varies from institution to institution. For this reason, institutional and company representatives agree that there is room for improvement and that it is necceary to make additional efforts in order see the results from this cooperation in the efficient functioning of both sides.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

As a result of analyzing responses, interviewed institutions and private sector representatives suggested the following measures: That institutions, within the scope of their competences, should continue with good educational practice and with providing information to companies on procedures relevant to their business. Also, it is necessary to strengthen consulting services in companies based within institutions, which have either not experienced this principle in their practice before, or its implementation has been at a low level; To encourage companies to use counselling and consultation with relevant institutions to a greater extent. This would lead to a better implementation of the regulations, a reduction in costs and time required for compliance with these regulations To increase the interest of private companies by emphasizing the need for the enhancement of legislation to relevant bodies, as this will have impact on their operations, and most important of all, to be more active in participating in public discussions. That relevant institutions, in cooperation with private sector associations, should improve their activities for increasing the level of awarness in companies regarding their importance and role during the creation and implementation of regulations, as well as in updating the functionality of relevant institutions. To encourage companies to use information technology and the advantages of electronic communications in their own work and in communication with relevant authorities to a larger extent; To increase the promptness of the private sector in terms of payment reagrding obligations as defined by law; To improve the quality of competent authorities, which will contribute to their efficient and effective performance of activities within their own competences. It has also been suggested that it is necessary to improve the level of promptness achieved by judicial bodies and the Department for the Issuing of Work Permits. Market Inspection and the Communal Police should increase their level of transparency and professionalism/expertise when performing their duties; The Service for Issuing Work Permits to simplify its procedures for issuing these permits; To promote dialogue through private-public partnerships in such a way that the private sector becomes more intensely involved in discussing and resolving issues that are important for its growth and development.

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Cooperation at an institutional level Cooperation and communication at an institutional level is defined by law, but is based on suggestions made by interviewed representatives of relevant bodies, both at national and local levels It is necessary to strengthen this cooperation through the following measures: The development of a unique data base for all institutions, which would contribute to the increase of promptness and the efficiency of work carried out by institutions, and would also, to a significant extent, decrease costs and time needed for obtaining the necessary documentation in order to exercise defined rights; To improve the mutual exchange of information on relevant company data along with any changes within competences in each institution; To encourage the use of modern communication technology and the empowerment of joined up information at an institutional level; To improve the coordination of work between inspection services; To enhance cooperation between: o Inspections for Spatial Development with the Police Department and the Directorate for Real Estate; o The Commission for Establishing Conflicts of Interest with Tax Administration, the Real Estate Directorate and the Police Department; o Local Public Revenue Departments with Tax Administration; o The Secretariat for Entrepreneurship Development with Tax Administration, Customs Administration, the Real Estate Directorate and the Commercial Courts; o Municipal services (the Secretariat for Finance, the Public Company Cleanliness, state water supply, etc.) the Energy Company of Montenegro (EPCG) and other similar institutions. Capacities and qualifications of institutional employees The research has shown that representatives of interviewed institutions believe that they have enough qualified employees with sufficient capacity (who are able) to be able to meet the requirements of the private sector. Conversely, company representatives pointed out that there is an evident excess and inefficiency of administration, as well as an insufficient level of employee qualifications. Based on the results of the research, the basic recommendations refer to the following measures: Relevant bodies need to improve their education programs for employees in various areas in order to make them able to perform the tasks assigned as qualitatively as possible and to make administration function more efficiently;

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Analysis of corruption and business barriers between the public and private sectors in Montenegro

Providing protection for employees performing jobs with a certain level of risk, which particularly refers to inspectors, public procurement officers, accountants, etc.; Anticipating, through laws, stimulant measures for the positions of inspectors, which could influence the decrease in this area of personnel. The most efficient ways of repressing and preventing corruption Based on obtained responses, it is obvious that interviewed representatives of relevant bodies claimed that there is a low level of corruption in Montenegro. However, on the other side, the perception of company representatives denies such an attitude to a significant extent. The research, however, shows a far lower percentage of personal involvement from company representatives in corruption cases. To efficiently combat the elimination and prevention of corruption includes the application of the following recommendations: The improvement of cooperation with the private sector through better communication and more transparent work; Considering the possibilities of simplifying procedures at a system level, since they are, to a significant extent, considered to be the cause of corruption; Providing ways of pressing charges against institutional employees who have been involved in corruption; A consistent enforcement of the law, as well as the Code of Ethics, and an insistence on the application of principles of integrity by employees and authorized bodies; Conducting internal controls of employee performance; Raising the level of awareness of employees and private companies regarding the harm caused by corruption, its manifestations and stimulating the reporting of corruption through cooperation with the Ministry of Internal Affairs and Public Administration, the Directorate for Anti-Corruption Initiatives, the Human Resource Department and other institutions, along with participation of the non-governmental sector and the media; Promoting the importance of recognizing and reporting corruption to the relevant authorities; Continuing with efficient measures in fighting corruption: o Arresting suspects; o Starting criminal proceedings; o Bringing sentenced corruption cases into the public arena (through printed and electronic media); Adopting the Code of Conduct in all institutions, both at national and local levels, which, within their competences, cooperate with private companies. It is necessary to improve the implementation of the Code of Conduct in institutions which have adopted it.

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barriers and corruption  

between public and private sector 2009

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