The curious case of Bosnia and Herzegovina’s government structure is a direct product of U.S. involvement in the Dayton Peace Agreement which ended the war there in 1995.
The Clinton Administration had a large influence on the Agreement itself, including Annex 7 which remains the Constitution of Bosnia and Herzegovina to this day.
The constitution provides for a “compromise” solution for the ethnic divisions within the country, which resulted in a complex government structure which consists of the state, entity, cantonal and municipal level. Each of these layers of government have their own legislative, executive and judicial branches.
The U.S. government probably did not anticipate their involvement in the peace process would have a negative impact on U.S. investments in Bosnia and Herzegovina. However, today any U.S. investor contemplating a presence in B&H, as it’s sometimes called, is entering a minefield of potential FCPA violations.
Bosnia and Herzegovina’s overly-complex business registration and licensing process is particularly vulnerable to corruption. The multitude of state, entity, cantonal and municipal administrations, each with the power to establish laws and regulations lacks transparency and opens opportunities for corruption. With the large number of levels involved, there are multiple opportunities to demand “service fees.”
Bribes are paid to obtain necessary business licenses and construction permits, or to expedite the approval process. Although the FCPA allows grease payments, they are only a “welcome fee” at the entrance of a maze of dark corridors where blue envelopes with cash are delivered for favorable treatment and consideration.
It is nearly impossible to avoid corrupt officials at any step of the registration or investment process. The areas of public procurement and taxation are also high risk factors for investors. Corrupt activities of tax officials have cost B&H more than $1 billion between 2006 and 2011.
Further, the directors and managers of most publicly traded companies which are potential partners to U.S. investors are also active members of political parties and are regularly nominated for local elections. Such persons are considered “foreign officials” under the provisions of the FCPA.
B&H has a healthy anti-corruption legislature at the state level and it is a signatory of the UN Convention against Corruption and is party to the OECD Anti-Bribery Convention, although their enforcement is unsatisfactory. Many corrupt acts which would violate the FCPA are not regulated at all government levels.
Even redress to a B&H court could lead to FCPA violations by U.S. investors, considering the pervasive corruption and political control over the judiciary.
There have been many efforts from the international community to improve anti-corruption efforts in B&H which have not yet yielded any results. It remains to be seen if the United States will continue supporting anti-corruption efforts in B&H and provide relief for the benefit of the country itself, as well as for U.S. investors, by defusing the FCPA minefield it currently presents.
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Fahira Brodlija is an LLM graduate of the University of Pittsburgh School of Law and a graduate of the Sarajevo Faculty of Law. Her main fields of interest are anti-corruption law, international arbitration and commercial law which she developed through the International Vis Moot competition in Vienna where she was involved both as a participant and coach. She was also involved in the legal analysis leading to the development of the ACCOUNT anti-corruption action plan for B&H. She’s currently working as an intern at the Ethics and Compliance department of Alcoa Corp. She can be contacted here.
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