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Comply or Die: The Rise of Compliance in the Balkans

Comply or Die: The Rise of Compliance in the Balkans

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When it first appeared, the compliance field seemed little more than “regulatory” in new clothes – a fancy name for making sure a company stayed within the ambit of provisions set out in the laws of a country. As time passed, however, more and more companies started treating compliance as a practice in its own right, and as a field of law … that is much more than just law. Compliance became an area of interest not only to seasoned lawyers, but also to scholars, consultants, and in-house counsels – all levels of legal practice became aware of its significance.

Today, compliance is mostly tackled on two levels: first, it means ensuring that the company meets and satisfies all applicable external rules and regulations, and second – and perhaps more importantly – it means devising and implementing internal systems for educating employees and controlling the level of harmonization with those externally-imposed rules.

In other words, no longer is it expected that compliance simply means “ensuring that work is done in accordance with the provisions of the law” or that it is a mere renaming of the regulatory practice. And the awakening to compliance that has swept through much of Europe has happened in the Balkans as well.

The Balkanization of Compliance

New legal trends often get a mixed response from legal practitioners and general counsels in the Balkans – a unique combination of countries inside and outside the EU, each of which moves at a different pace. However, on the subject of compliance, it appears that most of the core Balkan countries are in sync – the field arrived at the same time, and in similar ways, and legal counsel have embraced it in a similar manner.

First, it’s worth remembering that compliance involves more than a simple conformity with the law. “The legal dimension of compliance is just one of the planes it manifests itself in,” says Milos Tanjevic, Head of Compliance with UniCredit Bank Serbia in Belgrade. “When you start assessing certain risks to the company you most often do start with a legal provision, but it frequently grows beyond it.” According to Tanjevic, as a first step it is “important to assess if this legal provision entails a certain technical standard be met, if the employees of a company are all aware of it, and if company projects are run with this in mind, etc.” 

In other words, Tanjevic says, compliance is becoming “more and more technical” and it requires expertise in “many fields other than law – for example, IT, economy, and management,” in order to provide adequate risk assessment for the company while keeping client satisfaction in mind.

“Compliance should really be a crown on top of all the work put in,” suggests Ina Medunic, Head of Compliance with Partner Bank Croatia in Zagreb. Medunic says she has worked “in courts, law offices, and corporations,” all of which she credits with giving her a broad overview of both the EU and the Croatian legal systems. This overview, she says, allows her to “easily locate the legal provision with which to begin further analysis and locate any potential problems.” In her opinion, this is precisely what “compliance is all about: determining implications of actions and understanding their full impact.“ And to do this effectively, she says, understanding various perspectives is critical.

Medunic suggests that Croatia may be a step ahead of some of its Balkan neighbors in recognizing the importance of the compliance function due to its membership in the EU. “It was thrust upon us, in a way – but not a bad way,” she says. “The EU realized about a decade ago that companies, and credit institutions in particular, require a position that would have an overview of the entire business operation,” she says, maintaining that this includes “being ahead of the curve, sensing in which direction the regulations may move next, and planning accordingly.”

In contrast, Tanjevic suggests the arrival of the compliance function in Serbia may have come about “as part of a natural process.” According to him, “given that a lot of the relevant legal provisions are not unified in a single act in Serbia, most norms were implemented pro forme until a while ago, with a lot of companies having an optimism bias, but this is not the case anymore.” Tanjevic reports that the change was first felt in companies that operate in highly regulated industries such as finance, tobacco, and pharmaceuticals. He hopes that this will, in time, help other companies realize that sometimes “the abstract value of being prepared for all risks,” may lead to the “real value” of not having to suffer consequences in the form of fines … or worse.

Challenges in Adoption

Whether arriving via EU membership or sua sponte, compliance in the Balkans faces challenges – mostly because many in the region have yet to become fully aware of it. “People are still getting to grips with what it means, especially if they never had any contact with it,” says Medunic, about Croatia. “The compliance officer position is developing, in a way, along the lines of a similar path that internal auditing has.” She says that there aren’t “a lot of qualified professionals in Croatia in this field right now, which may very well be due to the fact that the regulators aren’t sure what they want yet, but the general trend is definitely expanding compliance beyond the regulatory element.”

In Serbia, things are not much different. “We’re in a prime position to attract investors with a ‘woke’ compliance practice, especially if the economy continues to recover and grow,” says Tanjevic. However, he reports that “not a lot of legal professionals are aware of the significance of compliance” and that people in general do not realize how serious the impact of sensitive legal provisions can be. 

Tanjevic suggests that part of the problem may simply be that different people have different understandings of what the word means. “Compliance should first have an agreed-upon definition before we can talk about any qualifications for it,” he says, noting that the fact that compliance experts operate “sometimes on their own, sometimes in teams of 15,” indicates the diverse understandings different companies have of its significance. In addition, lawyers from big law firms aren’t always sufficiently up to speed on the importance of compliance either. According to Tanjevic, they often “lack the necessary perspective for expert compliance work – they are on the outside looking in, and they simply can’t grasp all the non-legal dimensions of it.”

“Well, to be honest, compliance wasn’t a big thing in the region until a few years ago,” says Nevena Perovic, Head of Legal and Compliance at Lidl Serbia. “With the increase in the number of large international corporations, like Lidl, compliance kind of trickled down to the Balkans, which is why most of the experts in this field are to be found in-house, rather than in law firms.” Perovic believes that “compliance differs significantly from other legal practices. It is much more than having the legal department provide an answer to a question – it’s about creating a mindset of compliance, which is a much broader thing.”

Perovic thinks that “to ensure the growth of compliance, the market should attract more young people to compliance as a field of legal practice. The educational sector, be it mainstream or alternative, must continue with conferences, gatherings of professionals, and training courses that aim to raise awareness of compliance and offer insight into how one might grow professionally within this field.”

How Will It Grow?

Reflecting the relative novelty of the function, there’s still significant overlap with simple regulatory oversight. “It mostly depends on the corporate environment,” says Medunic. “However, it comes down to what are they doing, essentially.”

But in her opinion, the compliance function – as something above and beyond regulatory – is extremely important. “The problem is that the current legal framework, both in EU and in Croatia, is in a state of development,” she says. “This is precisely why a compliance officer must be much more than a lawyer – this person needs to know how the entire system works, not just the legal aspect of it. It’s a bit like with specialist doctors – a good cardiologist still needs to understand how the whole body system works in order to be good at his job.”

Still, Medunic points to the growth of the field in recent years – and predicts even more growth to come. The markets in the region, she says, are “still doing some soul searching, and new functions and positions are being defined, and compliance does not lag behind.” According to her, “if legal professionals wish to become compliance experts, they need to broaden their views and fields of interest. It goes beyond just the regulatory scope which most lawyers may currently equate with compliance. When the business owners themselves realize this, there is no doubt that compliance will be more invested in, and then we’ll see it blossom.”

“Small companies in the market, be it the Balkans or Serbia, are in an unfavorable position for efficient compliance uptake,” says Perovic. “What is definitely true is that installing a compliance function possesses the potential to better a company’s reputation, which may lead companies to invest in its growth sooner.” In other words, Perovic says, this “reputational” motivator may be just as strong as a more “reactionary” one, which sees companies investing in compliance to avoid suffering a negative event they have seen happen to one of their competitors.

Perovic also believes that investing in compliance for positive image reasons, in order to instill faith in a company’s customers, will prove to be a strong motivator as well. “If a company has a strong compliance culture then it is ahead of the curve. This sends a clear, positive signal to its partners, clients, and customers – both real and potential.” 

Milos Tanjevic, on the other hand, is a little less optimistic. He believes that “the path compliance has before itself is a very thorny and painful one, but one that must happen.” In the meantime, he believes that compliance officers will struggle with insufficient institutional support and recognition until companies, legal consultants, law offices, and the academic community realize the “importance of compliance and take an interest in commenting on it and investing in its development further in the Balkans.” Still, he believes that, once this path takes hold, more and more “lawyers will get in on the action and will wish to take part in creating new services that they could offer to their clients.” Ultimately, he says, companies will have to “evolve to comply – or die in the process.”

Tanjevic reports that Serbia will soon get its first Compliance Association to serve as a cross-industry hub both for lawyers and professionals from other highly regulated industries such as the pharmaceutical industry, telecommunications, tobacco, and the like. He says that the Association will focus on “business ethics as the underlying factor of efficient compliance,” and that it will “further the sharing of know-how, as well as its improvement by exchanging best practices,” and “spread the awareness of compliance among both professionals and the general public.”

It appears that, although the road to further acceptance may not be smooth and fast, compliance in the Balkans is growing as a legal practice. More and more legal professionals are waking up to its importance and more companies are attempting to get in on it early – rather than waiting until it’s too late. For these countries compliance may have started as “simply following trends” but it is evolving beyond that, to following best practices that are much wider, all in order to nurture forward thinking and help compliance officers prevent the worst. 

In following the lead of those companies with dedicated compliance functions, other companies in the Balkans may want to – dare we say it? – comply. 

This Article was originally published in Issue 6.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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