The case of unsigned promissory notes
Around the fast-growing IT industry in BiH, there is a aureole of modernity, success, entrepreneurship, innovation and business in line with Western market principles. Especially on these principles insist those domestic IT companies that cooperate with world IT giants such as Google, Apple, Uber, etc. The working conditions at these companies are much better than the average in other BiH industries, not only when it comes to the amount of pay, but also to the overall work atmosphere in which employees can play table tennis while working, relaxing in massage chairs , have flexible working hours but also eat healthy foods at the expense of the company.
This kind of IT industry in BiH is driven mainly by young visionaries, driven by cutting-edge technical knowledge who understand how the modern world works and is proof that BiH has young people who can pull the whole economy forward. When this potential is compared to the alternative of current leaders in Bosnia and Herzegovina, who mostly come from the mix of socialist-nationalist mentality, burdened with corruption in the transition period, then even more young entrepreneurs from the IT sector are gaining importance as our country’s potential future and hope.
However, as itis often the case with us, the Balkan culture in which we all grow up and live takes a toll on those business leaders who successfully collaborate with the largest technology companies in the world on a technical level. Balkan business culture is not exactly characterized by trust, professionalism, respect for the given word and commitments, fair play, honesty towards business partners, etc. Whether the Balkan (non) culture of individuals will succeed in endangering the entire industry, including the majority holding to business ethics and integrity, depends largely on the decisive attitude of the entire IT scene, which should, through self-regulation, define high standards of business ethics for all individuals and companies in the industry and fence off such ‘rotten apples’.
BiH public knows about the case of apple growers who have suffered financial losses several times because of the sanctions imposed by Russia on BiH, and all because of several producers who tried to cheat Russia by importing apples from Poland, repackaging and presenting them as home-made BiH apples. Failure to recognize and fence off similar cases may someday cause software exporters in BiH, especially as most BiH companies export software to America and Western Europe that rigorously punish market fraud, corruption, false declarations, etc. .
The fraud case we will present here illustrates how the IT industry in BiH must urgently develop a business ethics concept aligned with international business standards, or else it will quickly come under attack by Western regulators.
For the sake of universality, the message of this text will not represent the names of the actors, and all information provided is evidence-based.
These are two Business Partners who for many years have been collaborating to develop a domestic IT company in BiH that grows into a true giant with respectable clients in the demanding US market. One partner is the majority owner of the company, whom we will call Partner A, and the other partner is the long-time first associate and minority owner, who we will call Partner B. Since the company was founded in 2000, Partner A is 100% owner, and Partner B is the first director until 2003. year. Subsequently, in 2003, Partner A assumed a directorship position, and Partner B became a Deputy Director without restriction and in the same year became the owner of 36% of the company. In 2009, Partner B’s ownership share increased to 47%. Things worked that way until 2015, when Partner A decided to move abroad to start new businesses there, where both partners would also share ownership.
Then Partner A appoints Partner B as the director of the firm, and he moves with his family abroad. However, Partner A realized very quickly that Partner B was increasingly refusing to take his opinion as majority owner, and that staying abroad and distance from day-to-day business were slowly de facto slipping away the company from his hands. Then conflicts and debates start, culminating in mid-2017. Partner A comes to the company and as majority owner tries to resolve the situation. Even though he is the majority owner of the company and is formally and legally in a position to relieve Partner B of his duties, it is not so simple in IT companies. The absence of Partner A in the day-to-day operations of the company resulted in Partner B taking control of all the processes entrusted to him and then refusing to pass on process information when requested by Partner A as the majority owner. Partner A as majority owner no longer had an idea of what was going on in the company.
Partner A then estimates that his departure abroad has left a lasting impact on his position in the company, that further deepening of the conflict and splitting the hairs would destroy the company, and that it would be most rational for him to sell his 53% stake to the Partner B. It turns out that the one who rules the processes in the company is actually the owner of the company, no matter what the paper says.
Partner B then purchases 53% of the ownership from Partner A and they go to a notary to sign the contract. Then Partner B deceives not only Partner A but also the notary. The agreement was Partner B pays ¾ of the price immediately, and to deliver the bills of exchange to the notary as a guarantee that the remaining part would be paid to Partner A by 30.04.2019. Considering that the company is very profitable with almost 3 million KM of reported profit in 2018 alone, ¼ the remaining debt is a very significant amount of money, and since the notary was scammed for the same amount, this fraud is considered one of the largest frauds against notaries in BiH ever.
After paying the first ¾ of the debt and handing over blank bills of exchange, Notary was obliged to deliver to Partner B notarial documents with which he could be registered in court as 100% owner of the company. Partner A confirmed to the notary that payment of the first ¾ of the amount had been made, after which Partner B came to the notary, signed the bill of exchange and submitted the bills of exchange. On that occasion, the notary made a record of taking over the bills of exchange, recording the serial numbers of the bills of exchange in the record, after which the bills were packed in a sealed envelope and deposited in a safe with the notary. Partner B thus took over the notarized documents and with the same in court, we will later realize, through fraud, entered himself as 100% of the owner.
Following this event, Partner A peacefully waited on April 30, 2019 to be payed the remaining ¼ of the 53% stake.
However, Partner B employs attorneys and, on 19.04.2019 (11 days before the due date of the debt), submits to the Sarajevo Municipal Court a motion for a judicial security measure together with a proposal for a temporary security measure requesting the court to prolong the obligation to pay the debt and that the court prohibit the notary from handing the bills mentioned above to Partner A. The court reacts quickly and on 23.04. rejects Partner B’s application for an interim measure, stating that Partner B’s request and rationale are unfounded. For the general public, it is important to explain the difference between a temporary and a court security measure. If the court finds that the requested interim measure is well-founded, it may bring it without first hearing the other party. Unlike an interim measure, the court is required to hear the other party’s argument before adopting a court measure. Immediately after rejecting the provisional measure, Partner B informs the court that it has withdrawn from seeking a judicial measure and that it essentially does not wish to address Partner A.’s arguments. Since the court informed him that a request for a judicial measure had been filed by Partner B, Partner A few days before the payment deadline expires, learns for the first time that Partner B is trying to avoid the obligation to pay his debt.
Then came the April 30, 2019, but payment by Partner B was still not made.
Partner A on May 3, 2019 sends his attorneys to the notaries to take bills of exchange, in order to collect their claims from the banks. However, when opening the sealed envelope, it was found out that the promissory notes were not signed at all by Partner B and were therefore unusable. Realizing this, the notary calls on Partner B’s phone to come and sign the promissory notes, which the latter refuses to do. The notary then decides to contact Partner B in writing and does so on 7 May 2019, when he informs him that the signing of the promissory notes is his contractual obligation, and that any refusal to sign the promissory notes will be considered a fraud against Partner A, but also against the notary himself. Partner B answers on 08.05. and falsely informs the notary that he is in dispute with Partner A (although the court denied the requested interim measure after which Partner B terminated the dispute before the court and did not file a lawsuit, as we have already clarified this situation above, so that there was no dispute at that point , but only Partner B’s obligation to pay the remaining ¼ debt). After notifying notary that he was in dispute with Partner A, he unscrupulously instructed him to contact his attorneys, avoiding to provide any explanation as to why he had forged unsigned bills of exchange.
Although visibly deceived, with all the material evidence on his side, due to the slowness of our prosecution and the judiciary, Partner A will wait for the next 4 to 5 years to resolve the legal case that was forced to initiate it. Inefficient judiciary and prosecution often give individuals and organizations additional incentive to commit various frauds.
In the West, such situations are unthinkable, first of all because of the efficiency of the courts that resolve them much faster, but also because of the reputational risk that would be exposed to all individuals or organizations prone to fraud.
Unfortunately, in BiH, it is a very common occurrence that persons without integrity such as Partner B in this case actually count in advance the slowness of the judiciary and the weakness of the rule of law, and then intentionally push business partners and associates into exhausting lawsuits. This behavior contributes to a toxic atmosphere in a market where no one should or can trust anyone, although the issue of trust is a key issue in a good business climate anywhere in the world.
It is clear that Partner B directly undermined Partner A’s legitimate interests through fraudulent acts, but it also unscrupulously endangered the position of notary public, that may also have significant consequences because it was not sufficiently careful in taking bills of exchange. We believe that, being overshadowed by the modernity and success of a young IT businessman, who has a business relationship with major US IT giants, the notary assumed that he had high moral principles and did not pay due attention to thoroughly review the documents submitted.
In support of the fact that fraudsters generally do not care for the meansthat they take to achieve their goals and that they rarely stop at doing the fraud just once, it is also indicated that Partner B, immediately after acquiring a stake from Partner A, promised a group of employees a stake in the company, not mentioning them that he had already mortgaged 95% of the property without signing any formal documents with them. On this occasion, we do not want to claim or classify Partner B as a fraudster in terms of criminal law, as this is the job of the competent authorities, but in the field of business ethics such contentious and harmful practices must be timely alerted and sanctioned through industry codes.
It is obvious that awareness of the importance of reputation and the risks of lacking it are sometimes not present with us even in serious business people. The Western, developed world is grounded in truth. Reputation built over the life of every individual or organization is the key that opens or permanently closes all doors.
The case of honest apple growers in BiH who did not react when they observed that individuals violate business ethics standards and use fraud in business, shows that in every industry, those who follow fair play rules must be separated from those unscrupulous. If an industry is unable to do so when one of their members makes a fraud, it immediately spills over to the entire industry
We hope that the IT sector will have the strength and wisdom to distance itself from fraudulent practices that clearly do not bypass this for BiH advanced industry as well.
* Net Consulting d.o.o. monitors and analyzes business processes and practices, disputed business relationships, administrative and judicial procedures, and identifies irregularities to the detriment of clients’ legitimate business interests. This text was published with the consent of Partner A as the injured party in this situation. Net Consulting d.o.o. made sure all the allegations in the text were true through an insight into the documentation and other material evidence.
