barriers and corruption

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

Page 1

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 self-

governmental 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


Page 2

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


Page 3

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.


Page 4

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.


Page 5

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 6

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

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:

• Cooperation with private companies;

• Legal regulations;

• Cooperation with other institutions;

• Relevant institutional capacities;

• Prevention of corruption;

• Presence of corruption and

• Fight against corruption.

Public Procurement Directorate Commercial Court Directorate for the Development of Small and Medium-sized Enterprises

Secretariat for Finance - Podgorica

Construction Inspection Secretariat for Municipal Affairs and Traffic - Podgorica

Labor Inspection Secretariat for Land Use and Environmental Protection - Podgorica

Land Use Inspection Secretariat for Entrepreneurship and Development - Podgorica Institute of Accountants and Auditors Market Inspection Institute of Certified Accountants and Auditors Union of Employers of Montenegro Commission for the Control of Public Procurement Procedures

Customs Administration

Commission for Determining Conflicts of Interest Local Public Revenue Administration - Podgorica Montenegro Business Alliance Police Department Tax Administration Directorate for the Prevention of Money Laundering and the

Financing of Terrorism Chamber of Economy of Montenegro Urban Inspection


Page 7

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.

I I . 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 Anti-

Corruption 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 8

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 GOPAK-

Global 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).


Page 9

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 anti-

corruption 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.


Page 10

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 11

I I I . 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 non-

administrative 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

1 The administrative body which manages the process of removing business barriers is headed by Vice Prime Minister and Minister of Finance Mr. Igor Luksic


Page 12

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 non-

governmental 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.


Page 13

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 14

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. 042/03-

15; 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.


Page 15

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.


Page 16

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 17

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. 051/08-

1) 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.


Page 18

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 19

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 decision-

making 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.


Page 20

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 21

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 22

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.


Page 23

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 24

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 €2.750 to €16.500 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.


Page 25

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

0.0 5.0 10.0 15.0 20.0

Collection of receivables

Local taxes and levies

Complicated administrative procedures

Local inspections

State taxes and levies

State inspections

15.3

12.0

12.0

11.3

10.9

9.1

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 26

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

Labour Inspection 81.4

Tax Administration 78.5

Market Inspection 72.0

Tax Inspection 66.9

Communal Police 60.1

Sanitary Inspection 45.3

Labour Licensing 42.1

Customs Administration 34.1

Commercial Court 24.4

Public Procurement Directorate 14.8

Construction Inspection 13.2

Department for Issuing Construction Permits 11.6

Urban Planning 11.9

Spatial Planning 9.3

Judicial Authorities 9.0

Department for Obtaining Concessions 3.5

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

0.0 5.0 10.0 15.0 20.0

Tax Administration

Communal Police

Market Inspection

Tax Inspection

Commercial Court

Judicial Authorities

Spatial Planning

Each of the above

Don't know/No answer

17.210.7

9.89.4

7.86.9

6.34.34.3

2.22.0

0.90.7

1.68.5

1.36.0


Page 27

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.


Page 28

Graph 3: The level of corruption present

0.0 10.0 20.0 30.0

Not present at all

2

3

4

Very present

8.4

18.8

28.9

22.5

21.5

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.

Table 2. Institutions with the largest presence of corruption

Institution Level of corruption Market Inspection Custom Administration

4 – present 27.4% 17.6% 5 – very present 17.1% 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.


Page 29

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

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Non-professionalism/ incompetence

Something else

Complexity of procedures

High cost of services

Overwork

Lack of transparency

Don't know/no answer

27.7

17.7

16.4

13.8

8.0

4.5

11.9

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 30

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

0.0 5.0 10.0 15.0 20.0

Yes

Mostly Yes

No

Don't know

22.0

13.3

19.7

45.0

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 31

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.

Graph 6: Levels of knowledge regarding company rights and obligations in the following areas

4.0

2.22.0

3.7

3.8

2.02.6

0

1

2

3

4

5

Tax rul

es

and

pro

cedur

es

Obta

inin

g

cons

truc

tion

perm

its

Pub

lic P

rocu

rem

ent

Te

nders

Insp

ect

ion

superv

isio

n

Colle

ctio

n of

rece

ivable

s

Sta

rtin

g b

anc

ruptc

y

pro

cedur

e

Registr

ation

of

bus

iness

pre

mises

in

Cadast

re

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.


Page 32

Table 3. Average rating regarding the level of corruption in the following public service

Montenegro Center North South

Customs Administration 2.9 3.0 3.1 2.9

Directorate for Public Procurement 2.6 2.3 2.6 2.8

Tax Administration 2.4 2.5 2.2 2.5

Issuance of Construction Permits 3.2 3.3 3.1 3.2

Urbanism 3.1 2.9 2.9 3.3

Spatial Planning 2.9 2.8 2.9 3.1

Issuing Labor Permits 2.5 2.7 3.1 2.2

Construction Inspection 3.1 3.1 2.8 3.3

Market Inspection 2.8 3.5 2.2 2.5

Communal Police 2.5 2.5 2.7 2.4

Labour Inspection 2.4 2.7 2.2 2.2

Sanitary Inspection 2.4 2.5 2.1 2.5

Tax Inspection 2.4 2.6 2.2 2.4

Department for Obtaining Concessions 2.8 1.8 3.3 2.8

Judicial Authorities 2.6 2.7 2.4 2.6

Commercial Court 2.2 2.3 1.8 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


Page 33

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?

0.0 10.0 20.0 30.0 40.0 50.0

Not once

1-2 times

3-5 times

5-10 times

More than 10 times

8.8

41.2

29.4

8.8

11.8

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.


Page 34

Graph 8: How did companies act in situations where bribes/corruption were expected

0.0 10.0 20.0 30.0 40.0 50.0

Offered a gift/bribe

Did not offer a gift/bribe

Don't want to answer

20.8

41.5

37.7

According to the opinion of respondents, the most common form of bribery was either cash or contra-

service (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

0.0 10.0 20.0 30.0 40.0 50.0

Officers who are in direct contact with

parties

Higher officers in institution/departments

Parties (management or employees in the

companies)

Someone else

46.8

10.9

35.5

6.8

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 35

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

0.0 10.0 20.0 30.0 40.0 50.0

Electronic and print media

Bilboards

Brochures

Friends/relatives

DACI Campaign

48.3

13.9

13.5

12.2

12.2

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

0.0 10.0 20.0 30.0 40.0 50.0

Yes

No

Don't know

32.9

26.7

40.5


Page 36

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;


Page 37

• 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 38

• 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 39

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 40

• 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 41

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 42

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 .


Page 43

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 44

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


Page 45

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.


Page 46

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


Page 47

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 48

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.


Page 49

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 50

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.


Page 51

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 52

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.


Page 53

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.


Page 54

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;


Page 55

� 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.


Page 56

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.


Page 57

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;


Page 58

� 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.

Documents

barriers and corruption