May 30, 2006
Embassy of the United States of America
Belgrade

Remarks by Ambassador Michael C. Polt at the Ekonomist Business Roundtable - May 30, 2006

Thank you for coming today. I applaud all panelists for agreeing to discuss these difficult topics of a fair judiciary. A frank dialogue among government and private institutions can only lead to the betterment of judicial institutions, and, most importantly, to increased public confidence in them.

The commercial court should be a symbol of your country’s commitment to fair play. It is a statement to the world that Serbia is open for people to do business, and that even-handed rules will be followed. It is what business people expect from courts in Serbia, in my country, and everywhere throughout the world.

This is why the commercial courts in Serbia must be seen to be free of corruption. Here, more than anywhere, a clear statement is needed, that Serbia is a clean place to do business.

Perception is as important as fact, for foreign investors will not seek to put their money in a country in which they believe that they will be at an unfair competitive disadvantage due to corruption. And I have said before: It is no coincidence that countries with stronger court systems have stronger economies.

The perception right now is that particularly the Commercial Court system in Serbia is corrupt.

We know from the press that there have been recent high-profile investigations of activity in the commercial courts. Given that a judicial procedure is underway, it would be inappropriate for me to comment on these cases. But we do expect that there will be a full and fair investigation in these cases, based on the rule of law and on the general principle that no one is above the law. Nor should rank or position determine the leniency or harshness of criminal penalties in matters of public corruption. Indeed, there is probably no stronger deterrent to corruption than harsh penalties -- including prison sentences -- for officials who have been tried and convicted in fair trials.

Of course corruption is not just a problem in Serbia. Vigilance is required in all systems, everywhere. In the US, for example, it may surprise you to know that there are over 2,000 public corruption investigations currently under way. According to FBI statistics, years 2004 and 2005 alone yielded more than 1,060 government employee corruption convictions, including 177 federal officials, 158 state officials, 360 local officials, and 365 police officers.

I give these examples because my country holds itself up to the same standard we expect of others: corruption will not be tolerated wherever it is discovered, at whatever level of government. Public corruption tears the fabric of a democratic society. You lose faith in public officials, it leads to cynicism, it leads to distrust in government. Efforts to combat corruption are not only worth the cost, they are the only option for a responsible, functioning society. It is a matter of social responsibility.

Through my government's commercial court reform project here in Serbia, we have especially focused on improving the courts' performance related to bankruptcy.

Recognizing the opportunities for criminal fraud in bankruptcy cases, the U.S. bankruptcy courts require trustees to undergo both FBI background investigations and periodic audits of their activity. Making a false statement in a bankruptcy case is a felony, punishable by up to five years in prison.

Having an effective bankruptcy system is especially important in a transition economy. The U.S. has provided technical assistance in the drafting of your new bankruptcy law, and we are now initiating a new 4 year, $10 million project focused on bankruptcy. This project will assist the privatization agency in handling the heavy volume of bankrupt socially owned enterprises that have been transferred to its care, and it will help the new Bankruptcy Supervisory Agency to carry out its new responsibilities. We continue to provide a high level of assistance in this area because we believe a sound bankruptcy policy can be a catalyst for economic growth in Serbia.

That is why I was particularly disappointed to hear that implementation of the new bankruptcy law has not been uniform in the commercial courts. As I understand the situation, somewhere between 1,000 and 1,500 old bankruptcy cases are still being handled under the provisions of the old law without the benefit of new, licensed bankruptcy administrators. While the law may permit this in some cases, it is apparent that relatively few of them have been transferred to the new licensed and better qualified administrators. Furthermore, the fact that many of the commercial courts have not been responsive in providing detailed information on this issue does not indicate that the courts are determined to implement this key anti-corruption reform.

These cases, many of which undoubtedly include significant amounts of valuable property, continue to be handled by trustees who are not currently licensed. Many of the safeguards of the new law were designed to help eliminate opportunities for corruption through stricter regulation of the administrators who control the property of bankrupt companies. Licensing is one of those safeguards. Without it, opportunity for corruption is rampant and public trust is undermined further.

Rapid implementation of the new law is a key component of revitalizing Serbia's economy and restoring trust in its commercial courts. So our assistance in future will be focused on those courts that have rapidly implemented the new bankruptcy law. We want to help those judges who have demonstrated by their actions that they are committed to removing any opportunities for corruption by using licensed administrators.

We will also be limiting our assistance resources in the future to courts that implement the new and more effective laws and procedures and do not engage in suspect practices. We will also highlight to U.S. investors our concerns before they have to come into contact with suspect courts.

To members of the business community attending this conference, we will continue to push for the level playing field you need and deserve. And we urge you to be active advocates for your own interests whenever you find that the legal system is not performing to your expectations.

I thank you for the opportunity to address you today. I wish you well in this very important discussion.

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