Transparency of the Regulatory System
The main law governing foreign investment, the Montenegrin Law on Foreign Investment, is based on the national treatment principle, which is a basic principle of the General Agreement on Tariffs and Trade and World Trade Organization (WTO) that prohibits discrimination between imported and domestically produced goods with respect to internal taxation or other government regulation.
All proposed laws and regulations put forth by the government are published in draft form and open for public comment, generally for a 30-day period.
Regulations are often applied inconsistently, particularly at the municipal level. Many regulations are in conflict with other regulations, or are ambiguous, creating confusion for investors. As noted in the American Chamber of Commerce’s (AmCham) 2018 Business Climate Survey, many municipalities lack adequately detailed urban plans. While some municipalities have made efforts to simplify procedures in order to improve the business environment for investors, there is a high degree of inconsistency from one municipality to another. At the national level, there are fewer obstacles for investments and business activities; however, as many larger-scale projects involve both local and national authorities, it is often necessary to work with both administrations in order to complete a project.
AmCham members have expressed dissatisfaction with the duration of commercial court proceedings (76 percent disapproved) and unequal implementation of the laws (61 percent disapproved). Moreover, 73 percent of AmCham member companies believe that conditions for doing business when it comes to the duration of commercial court proceedings and unequal implementation of the laws have not changed over the past two years.
Foreign investors are subject to the same conditions as domestic investors when it comes to establishing a company and making an investment. There are no other regulations in place which might deprive a foreign investor of any rights or limit the investor’s ability to do business in Montenegro. The Law of Foreign Investments is currently fully harmonized with WTO rules.
In 2004, the Parliament established an Energy Regulatory Agency, which maintains authority over the electricity, gas, oil, and heating energy sectors. Its main tasks include approving pricing, developing a model for determining allowable business costs for energy sector entities, issuing operating licenses for energy companies and for construction in the energy sector, and monitoring public tenders. The energy law mandates that in the energy sectors, when prices are affected by monopoly positions of some participants, business costs will be set at levels approved by the agency. In those areas deemed to function competitively, the market will determine prices. The price of gasoline is set nationally every two weeks and is uniform across all petrol stations.
The Agency for Electronic Communication and Postal Services was established by the government in 2001. It is an independent regulatory body whose primary purpose is to design and implement a regulatory framework and to encourage private investment in the sector.
While there is a full legal and regulatory infrastructure in place to conduct public procurement, U.S. companies have complained in numerous cases about irregularities in the procurement process at the national level, and maintain there is an inability to meaningfully challenge decisions they believe were made erroneously. In multiple cases, the institution offering the tender adjusted the requested specifications for the tender just days before the submission deadline, putting U.S. companies at a significant disadvantage.
Public procurement is conducted jointly by the Public Procurement Directorate, the Ministry of Finance (as the main line ministry for the procurement area), and the State Commission for Control of Public Procurement Procedures in the protection of rights area. The Public Procurement Directorate began operations in 2007 while the State Commission for the Control of Public Procurement Procedures Control was established in 2011. The State Commission takes decisions in the form of written orders and conclusions made at its meetings. The decisions are made by a majority of present members. The State Commission’s Rules of Procedure specify the method for this work. The Law of Public Procurement entered into force in 2011. The Administrative Court oversees cases involving public procurement procedures.
The Montenegro State Audit Institution (SAI) is an independent supreme audit institution for verification of the entire government’s financial statements, including state-owned enterprises. The audits are made publicly available on the SAI’s website . Accounting standards implemented in Montenegro are transparent and consistent with international norms. In addition, there are various international companies that conduct accounting and auditing procedures are present in the country.
International Regulatory Considerations
Montenegro is a candidate country for membership to the EU, with accession negotiations launched on June 29, 2012. Out of 35 chapters, three are provisionally closed and it is expected that the final chapter will be opened in 2019. Montenegro is currently taking steps to harmonize its regulations and accepted best practices with those of the EU, as part of the negotiation process.
The government has not notified the WTO of any measures that are inconsistent with the WTO’s Trade Related Investment Measures (TRIMs), nor have there been any independent allegations that the government maintains any such measures.
Legal System and Judicial Independence
Montenegro’s legal system is of a civil, continental type based on Roman law. It includes the legal heritage of the former Yugoslavia, and State Union of Serbia and Montenegro. As of 2006, when the country regained its independence, Montenegrin codes and criminal justice institutions were applicable and operational. Montenegro’s Law on Courts defines a judicial system consisting of three levels of courts: Basic, High, and the Supreme Court. Montenegro established the Appellate Court and the Administrative Court in 2005 for the appellate jurisdiction in criminal and commercial matters, and specialized jurisdiction in administrative matters. The specialized Commercial Courts have first instance jurisdiction in commercial matters. Apart from those, there are also specialized Misdemeanors Courts.
The Basic Courts have first instance jurisdiction in civil cases and criminal cases in which a prison sentence of up to 10 years is possible. There are 15 Basic Courts for Montenegro’s 23 municipalities. Two High Courts in Podgorica and Bijelo Polje have appellate review of municipal court decisions. The High Courts also decide on jurisdictional conflicts between the municipal courts. They are also first instance courts for serious crimes where prison sentence of more than 10 years is specified. The Podgorica High Court has specialized judges and departments who deal with organized crime, corruption, war crimes, money laundering, and terrorism cases.
According to the Law on Courts, there is just one Commercial Court based in Podgorica. The Commercial Court has jurisdiction in the following matters: all civil disputes between legal entities, shipping, navigation, aircraft (except passenger transport), and disputes related to registration of commercial entities, competition law, intellectual property rights (IPR), bankruptcy, and unfair trade practices. The High Court hears appeals of Basic Court decisions, and High Courts’ first instance decisions may be appealed to the Appellate Court. The Appellate Court is a second instance court for decisions of the Commercial Courts. The Supreme Court is the third (and final) instance court for all decisions. The Supreme Court is the court of final judgment for all civil, criminal, commercial, and administrative cases, and it acts only upon irregular (i.e. extraordinary legal remedies). There is also the Constitutional Court of Montenegro, which checks constitutionality and legality of legal acts and acts upon constitutional complaints in relation to human rights violations.
The Commercial Court system faces challenges, including weak implementation of legislation and confusion over numerous changes to existing laws; development of a new system of operations, including electronic communication with clients; and limited capacity and expertise among the judges as well as a general backlog in cases. Local businesses often complain about inconsistencies in application of the law as well as long delays in the Montenegrin commercial court system.
Over the last several years, the adoption of 20 new business laws has significantly changed and clarified the legislative environment. Recently adopted legislative reforms are expected to improve the efficiency and effectiveness of court proceedings, a trend which is already visible through the introduction of the Public Enforcement Agents.
Laws and Regulations on Foreign Direct Investment
In order to attract foreign investment, the government established the Montenegrin Investment Promotion Agency (MIPA) (www.mipa.co.me ), the Privatization and Capital Investment Council (www.savjetzaprivatizaciju.me/en ), and the Secretariat for Development Projects (www.srp.gov.me ). These organizations aim to promote Montenegro’s investment climate and opportunities in the local economy, with particular regard for the tourism, energy, infrastructure, and agriculture sectors.
Competition and Anti-Trust Laws
In 2013, the Agency for Protection of Competition was established as a functionally independent entity.
Expropriation and Compensation
Montenegro provides legal safeguards against expropriation with protections codified in several laws adopted by the government. There have been no cases of expropriation of foreign investments in Montenegro. However, Montenegro has outstanding claims related to property nationalized under the Socialist Federal Republic of Yugoslavia. A number of unresolved restitution cases involve U.S. citizens. The cases are in various stages of adjudication and have languished for over a decade. Despite Embassy engagement, the Government of Montenegro has not made adequate progress in resolving these cases.
At the end of 2007, Parliament passed the new Law on Restitution, which supersedes the 2004 Act. In line with the law, three review commissions have been formed: one in Bar (covering the coastal region); one in Podgorica (for the central region of Montenegro); and one in Bijelo Polje (for the northern region of Montenegro). The basic restitution policy in Montenegro is restitution in kind, when possible, and cash compensation or substitution of other state land when physical return is not possible.
In addition, Montenegro provides safeguards from expropriation actions through its Foreign Investment Law. The law states that the government cannot expropriate property from a foreign investor unless there is a “compelling public purpose” established by law or on the basis of the law. If an expropriation is executed, compensation must be provided at fair market value plus one basis point above the London Interbank Offered Rate (LIBOR) rate for the period between the expropriation and the date of payment of compensation.
ICSID Convention and New York Convention
Montenegro ratified its ICSID Convention membership on April 2013, and the country fully enforces the Convention.
Investor-State Dispute Settlement
There are a number of individual American investors involved in public procurement and construction cases that are in various stages of dispute resolution with the government.
International Commercial Arbitration and Foreign Courts
Dispute resolution is under the authority of national courts, but it can also fall under the authority of international courts if the contract so designates. Accordingly, Montenegro allows for the possibility of international arbitration. Various foreign companies have other bilateral and multilateral organizations providing risk insurance against war, expropriation, nationalization, confiscation, inconvertibility of profit and dividends, and inability to transfer currency; these are the Multilateral Investment Guarantee Agency (MIGA of the World Bank), U.S. Overseas Private Investment Corporation (OPIC), UK Exports Credit Guarantee Department (ECGD), Slovenia Export Corporation (SID), Italian Export Credit Agency (SACE), French Export Credit Agency (COFACE), and Austrian Export Financing Group (OEKB). In 2012, Montenegro became a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).
Montenegro has taken steps to improve court-system inefficiencies, which frequently result in long and drawn-out trials. Procedural laws have been amended in the last few years to improve efficiency of the proceedings in line with the standards of the European Convention of Human Rights. It should be noted that most complaints that go to the European Court of Human Rights against Montenegro concern Article 6 of the Convention – the right to a fair trial in a reasonable time. Civil appellate procedures have been simplified as part of an effort to eliminate the possibility of long appellate procedures, which was common in the past. (There is now just one possibility for cancelling the first instance court judgment and sending the case for retrial by the second instance court.) In addition, Montenegro has passed the Law on the Protection of the Right to a Fair Trial in a Reasonable Time, which enables the court to award compensation for an excessively long trial and introduces a series of controlling mechanisms during the trial itself.
In 2011, Montenegro adopted the Law on Public Bailiffs, which subsequently improved the procedure to enforce civil judgments.
The Bankruptcy Law, adopted in 2011, mandates that debtors are designated insolvent if they cannot meet financial obligations within 45 days of the date of maturity of any debt obligation.
However, the law still offers some latitude for restrictive measures and discretionary government interference. Bankruptcy is criminalized in Montenegro and a responsible officer in a business entity who caused bankruptcy and damage to another person by irrational spending of assets or their bargain selling, by excessive borrowing, undertaking disproportional obligations, recklessly concluding contracts with insolvent entities, negligence in collecting claims on time, by destroying or concealing property or by other acts which are not in compliance with prudent business practices shall be punished by a prison term from six months to five years.