Bosnia and Herzegovina risk report

Updated: Thursday. November 5, 2020

Corruption is a serious obstacle for business operating in Bosnia and Herzegovina (BiH). Almost all sectors of the economy suffer from rampant corruption and most particularly public procurement. The same applies to the public administration where nepotism and patronage networks are widespread practices. The Criminal Code in BiH criminalizes several forms of corruption; including passive and active bribery and the bribery of foreign officials. Nonetheless, the government did not enforce the relevant laws effectively and prosecutions of corruption offenses have been selective and officials engaged in corruption with impunity. The offering and demanding of bribes and gifts are criminalized in BiH, however, these practices are widespread.

Judicial system

Very high risk

The judiciary carries a high corruption risk for businesses in BiH. Irregular payments are bribes are often exchanged in return for favorable judicial decisions (GCR 2015-2016). Public trust of the judiciary is low (NiT 2015). More than two-thirds of households consider the judiciary to be corrupt (GCB 2013). Furthermore, the independence of the judiciary is limited by pressure exercised by the executive and political parties, and court verdicts are perceived to be politically influenced (NiT 2015). One example is the corruption case of Ĺ˝ivko Budimir, the President of the Federation of Bosnia & Herzegovina, who was arrested in 2013 for allegedly taking bribes from convicted criminals seeking early release and for abuse of office (NiT 2015). Ĺ˝ivko Budimir was released after one month in custody (Denevi Avaz, Feb. 2016). Despite that the Prosecutor's Office had filed an indictment against Budimir, the Court of BiH declared incompetency in the case, which is now handled by a Municipal Court in Sarajevo (Denevi Avaz, Feb. 2016).

The law enforcement's capacity to prosecute corruption is weak; this is mainly attributed to poor cooperation between the police and prosecution services and lack of specialization in corruption crimes. The government has established specialized departments within the Federation's Prosecutor's Office and Supreme Court, however, these entities are not operative creating a legal vacuum for the prosecution of corruption cases above a certain threshold (EUB&H 2015).

Businesses perceive the judiciary to be inefficient in settling disputes and challenging government regulations (GCR 2015-2016). The courts suffer a huge backlog (NiT 2015). The inefficiency of the judiciary is attributed to the absence of a single state supreme judicial body in BiT instead of the current four separate court systems, with each one having their own judicial systems with constitutional and supreme courts (NiT 2015). The separation of the courts has also often led to conflicts over jurisdictions (NiT 2015). Enforcing contracts in BiH is more time-consuming and more costly than the regional average, taking 595 days (DB 2016). Bosnia & Herzegovina is a member of the International Centre for Settlement of Investment Disputes (ICSID) and is a signatory to the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Police

Very high risk

The police pose a high corruption risk for business. Almost two-thirds of surveyed households believe the police is corrupt (GCB 2013). The government has established effective mechanisms to monitor corruption and abuse among the ranks of police officers, however, political pressure has often impeded the effective implementation of these mechanisms (HRR 2014). There have been several reports of police impunity during 2014 (HRR 2014). The recruitment and promotion process of police officers, particularly senior police officials lack transparency (EUB&H 2015). Business executives find the police to be fairly reliable in protecting them from crime and enforcing the law (GCR 2015-2016). Nonetheless, almost half of surveyed businesses pay for security in BiH (ES 2013).

Public services

Very high risk

The public services sector carries high corruption risks for companies. Few businesses expect to give gifts to 'get things done' (ES 2013), nonetheless, bribes and irregular payments are common when applying for public utilities (GCR 2015-2016). The public administration in BiH suffers widespread bribery, nepotism, conflict of interest and favoritism (NiT 2015). Also, there is a large informal economy in BiH (BTI 2016). Starting a business in BiH is less costly and less time-consuming compared to neighboring countries, taking only 6,5 days on average (DB 2016).

Land administration

Moderate risk

The land administration carries a moderate corruption risk for business. A small percentage of companies expect to give gifts to companies to obtain a construction permit (ES 2013). Businesses may own property and are not discriminated against compared to BiH citizens (BTI 2016). Registering property is reported as an obstacle for businesses dealing with the development of real property and mortgage markets (ICS 2016). Registering property takes 66 days and costs 7% of the property value (DB 2016).

Tax administration

Very high risk

Businesses are presented with high corruption risks when dealing with the tax administration. Irregular payments and bribes are often exchanged when meeting with tax officials (GCR 2015-2016). According to the director of the BiH tax office, the country has lost more than USB one billion between 2006 and 2011 due to the illegal actions of the tax office employees (Organized Crime and Corruption Reporting Project, Jun. 2014). The former head of the BiH Indirect Taxation Authority, Kemal Causevic, was arrested in 2013 for corruption (NiT 2015). Causevic had allegedly bought nine apartments and commercial space and 20 acres during the seven years he was in office for USD 1,251,870; assets his salary would not allow him to buy (Organized Crime and Corruption Reporting Project, Jun. 2014).

Customs administration

Very high risk

The customs administration carries a high corruption risk for businesses. Transparency of the border administration is moderate (GETR 2014). Bribes are widespread in the process of importing and exporting in BiH (GCR 2015-2016). Customs procedures are reported to be burdensome (GCR 2015-2016). Trading across borders is less costly and less time-consuming than the regional average (DB 2016).

Public procurement

Very high risk

The public procurement sector is particularly vulnerable to corruption, and thus presents business with a high corruption risk (EUB&H 2015). Bribes are prevalent and are very often exchanged in order to secure a public contract (GCR 2015-2016). Businesses report that public funds are often diverted due to corruption and believe that favoritism is widespread among procurement officials (GCR 2015-2016). Procurement procedures within state institutions are opaque and recipient organizations do not submit financial reports (NiT 2015). Only half of all tenders in 2014 had a prior notice published and a less transparent procedure governed the attribution of almost half of the total procurement values, yet still within the framework of the pre-2014 procurement regulations (EUB&H 2015).

BiH has a comprehensive legal anti-corruption framework, however, enforcement is poor. The Criminal Code criminalizes attempted corruption, extortion, active and passive bribery, accepting or demanding gifts, the bribery of foreign officials, embezzlement and abuse of office. Gifts of a symbolic nature are acceptable, yet must not exceed the value of EUR 102 (GRECO 2015). Illicit enrichment is not criminalized in BiH (EUB&H 2015). Money laundering is criminalized under the Law on Prevention of Money Laundering and Financing of Terrorism. Government officials are subject to codes of conduct for civil servants and rules on the incompatibility of office (EUB&H 2015). Penalties for corruption offenses are described as an insufficient deterrent against corruption (EUB&H 2015). Government officials engaged in corruption with impunity (HRR 2014). Political parties are formed on the basis of ethnicity, however, this has often been used to cover up practices of nepotism and patronage (BTI 2016). The general perception of investigations initiated against public officials is that they are politically motivated (NiT 2015). Around 65% of the 158 investigations initiated into state-level financial crimes and corruption were closed in 2014 (EUB&H 2015). Between October 2014 and July 2015, however, 304 indictments and 209 convictions were confirmed, most of which were related to embezzlement in office (EUB&H 2015). The political will to enforce and reform the country's anti-corruption laws is absent; by the end of the timespan for country's Strategy for the fight Against Corruption (2009-2014), the country had only implemented 9,8% of planned measures (NiT 2015). The government has adopted a new anti-corruption strategy and action plan for the years 2015-2019 (EUB&H 2015). Laws in BiH provide for the protection of whistleblowers, however, only covers the State-level public sector (BTI 2016, EUB&H 2015). Bosnia & Herzegovina has signed and ratified the UN Convention against Corruption and is party to the OECD Anti-Bribery Convention.

In law, freedom of speech and press are protected, however, in practice the government has been increasingly ineffective in implementing these provisions (HRR 2014). Journalists face retaliation when investigating government corruption. In 2014, the police raided the offices of BiH's most popular news website, after it had published an audio recording alleging high-level political corruption within the Republika Srpska (SK) - one of the two constitutional and legal entities of BiH (FotP 2015). The government later dropped the charges against the news outlet (HRR 2014). The website's editors and journalists were summoned for questioning by the police about the source of the recordings (FotP 2015). Freedom of Access of Information Act provides for public access to government information, nonetheless, these provisions were not adequately implemented in practice (EUB&H 2015). The media environment in BiH is described as 'partly free' (FotP 2015).

Freedom of assembly is guaranteed under the law and the government generally respected these rights in practice (HRR 2014). BiH does not have strong civil society traditions (BTI 2016). Setting up NGOs is subject to a lengthy and cumbersome process (BTI 2016).