Reporting a Code of Ethics Violation to the Court of Honor of the BIT Alliance
In the first part of this series, ‘The Balkan type of fraud on the IT scene in BiH’, we wrote about a case of business fraud within the IT sector in BiH: ‘the case of unsigned promissory notes’, when the director of a domestic IT company committed fraud against a business partner and Notary, giving notary unsigned bills of exchange as a “guarantee” that he would pay a significant amount to the business partner for the firm he had purchased and then, aware of the fact that the partner had no way of enforcing the collection of claims, decided not to pay him the agreed amount. Due to the astronomical amount of claims with unsigned promissory notes, this fraud is considered to be the largest fraud over a Notary in the last 20 years in BiH.
For the sake of universality of the message in the text, we did not present the names of the actors, but designated business partners under the pseudonym: Partner A (victim) and Partner B (committed fraud). At this link readers can recall the first text: here
In the continuation of this series, we will continue to address our business partners through pseudonyms, in order to avoid unnecessarily diverting the topic from the study of business phenomena in the BiH market to individual actors.
In order to investigate all the consequences of the fraudulent act made by Partner B, Partner A interviewed the deceived Notary, seeking to find out how it could have been possible to deposit unsigned promissory notes in a sealed envelope. The notary admitted he was careless and shocked when he realized the bills were not signed. He stated that Partner B introduced himself as a reputable businessman who came on the recommendation and could not think that he was a fraudster, so this was one of the main reasons for reduced caution. To the notary’s negligence contributed a clause in the contract to which Partner B obliged to submit new promissory notes at the invitation of the Notary in case of damage or insufficiency of the deposited promissory notes. Noting that the promissory notes were not signed, and believing it to be an unintentional omission, the Notary used this clause and invited Partner B to proceed to sign the promissory notes, which he verbally and in writing refused to do, confirming that this was well-thought out fraud and not a mistake in handing over bills of exchange unsigned to the Notary. The notary subsequently filed a criminal complaint against Partner B for fraud, initiating a serious process against him, however, the inactivenes and (in) efficiency of judicial institutions works in favor of Partner B, since the prosecution’s official actions can only be expected in at least a year.
Partner A has the opportunity to raise the issue of Notary’s liability in the sense of a complaint to the Ministry of Justice of the Sarajevo Canton, and to initiate the process of collection of insurance that every Notary must have by law. Apart from the fact that the statutory insured sum for Notaries is many times lower than the amount that Partner A is required to collect from Partner B, the very process of collection from the insurance company is time-consuming and uncertain because the system is inefficient in this regard as well. With the fraud committed against the Notary, Partner B unscrupulously compromised the license to operate of the Notary himself, but caused him potentially enormous financial damage, so the question is whether the Notary can ‘survive’ this situation in a business sense at all.
This is a school example that shows how an unethical player in the market can do untold damage to many other players through his or her behavior.
Fraud over Partner A and Notary, and material and reputational damage are not the only acts of Partner B. Thanks to the documents he fraudulently obtained from Notary, which he could only obtain on condition of depositing signed bills, Partner B was able to register as 100% owner of the company , which in itself is an additional offense for Partner B to face.
The picture of fraud and damage to Partner A and Notary by Partner B cannot be complete if the influence of the legal / judicial dimension is excluded. It is clear to all who live and do business in BiH that the justice system is very inert and inefficient, in a word unreliable, which makes any judicial process extremely long. We believe that it was this environment that prompted Partner B to try to profit by fraudulent actions, knowing in advance that Partner A and Notary’s lawsuits would drag in the courts for years.
Although we are all used to the ‘no rule of law’ phrase, many business people in Bosnia and Herzegovina are not at all aware of the business risks of the environment until they find themselves in a situation where someone deceives them, when they realize that the absence of rule of law actually means that one has to wait for justice for the next five to ten years.
Aware of Partner B’s willingness to do material and non-material harm to others with for his own benefit, and knowing that he is a member of the Board of Directors of the BIT Alliance, an association of IT companies that brings together over 90% of the IT industry in BiH today, and hides behind the reputation of the BIT Alliance and makes extensive use of this status to build his own image, Partner A decided to file a formal application to the Court of Honor of the BIT Alliance for breach of Code of Ethics by Partner B. In doing so, he wanted to call attention to Partner B’s fraudulent practices and to alert the Alliance of the reputational damage that Partner B, as a member of the Board of Directors, already does to both the association and all its members.
As a representative of one of the most advanced industries, the BIT Alliance seems like an association ahead of its time. This is one of the few professional associations that has adopted an exceptionally high quality Code of Ethics for all members of the association, which even provides for the establishment of a Court of Honor of the BIT Alliance for violations of the same, which determines whether any business conduct is contrary to the Code of Ethics, on the basis of which decides to impose sanctions, including measures to expel them from the association.
Interestingly, the BIT Alliance Code of Ethics treats members not only about sixty companies that are formal members, but the definition of a member who must comply with the rules of conduct is extended to association officers, regular and honorary members, even executives and all employees of member companies of the association. It is commendable that the Code of Ethics calls for ethical principles of business and expresses a strong commitment to preventing unethical behavior, and states strictly that a member must not, by his actions or inactions, harm the reputation of the association or other members of the association. In the West, the words business ethics and reputation protection have become a mandatory standard of business, and companies that do not adhere to these principles are exposed to draconian financial penalties and public condemnation.
The BIT Alliance’s Code of Ethics not only remained on the general ethical proclamations, but also elaborated standards of conduct, which is highly commendable. Article 6 of the Code of Ethics, in a section called Commitment and Integrity, states very clearly how members must behave: ” Members shall perform obligations to customers, business partners, cooperators, management of the association and other members of the association in accordance with your abilities and knowledge, with complete commitment, dedication, diligence, respect and integrity. A member will not encourage unrealistic expectations from the client”.
Among other articles, it is interesting to note the section of the codex called: ‘Obligations towards the public’, which is essentially a matter of reputation. There is Article 19. in this section of the Legal Obligation, where it is explicitly stated that members will act in accordance with applicable legal regulations and laws, or otherwise sanctioned by the BIT Alliance. Article 21. Professional reputation and protection of conflicts of interest specifies that each member will fully comply with all provisions of the Code of Ethics, thereby enhancing the reputation of the BIT Alliance. This article is very strong and resolute, which shows that the BIT Alliance did not intend to adopt a fictitious Code of Ethics, but states that every member must respect all members of the code without exception, and points out that such behavior contributes to the reputation of the BIT Alliance, which then logically means that a breach of the Code of Ethics constitutes a breach of reputation.
That the BIT Alliance is serious with its Code of Ethics are showing Articles 22 and 23, specifying that a Court of Honor is established in the event of a liability for knowingly violating the provisions of the Code, after which the Board of Directors may decide to sanction the perpetrator at its own finding, including giving a recommendation to the Assembly to take a decision on termination of membership in the association.
Bearing in mind that the BIT Alliance has such a high quality Code of Ethics, Partner A has decided to submit to the Court of Honor of the BIT Alliance a report on breach of the Code of Ethics by Partner B, who is also a member of the BIT Alliance Board of Directors, and to request that Partner B is at the very least expeled from the Board of Directors as unworthy of the function.
On two grounds, Partner A has requested BIT Alliance to remove Partner B from the Board of Directors, in violation of a number of provisions of the BIT Alliance Code of Ethics:
1. Reporting against a member of the Board of Directors of Bit Alliance Partner B, one of the founders and directors of a company that is a member of BIT Alliance, for conscious fraud against a business partner and then majority owner Partner A and Notary from Sarajevo;
2. Due to the failure of Partner B to withdraw from the BIT Alliance Board of Directors for being arrested in action code-named ‘Cooperative’, during which he was held in detention for almost a month for the judge’s assessment that him being free could affect witnesses and interfere with enforcement agencies of the law in collection of evidence, and because the investigation of the Prosecutor’s Office of Sarajevo Canton against Partner B is still open.
We asked Partner A what were the motives behind his report to the BIT Alliance, since the removal of Partner B from the BIT Alliance Board of Directors would not solve any of the problems that Partner B has produced to business partners.
Partner A gave a very interesting answer: “I know, I am aware that reporting to BIT Alliance will not solve the essential issue of billing, but when someone you ate from the same plate yesterday cheats you and then begins to make false statements about you to falsely justify their fraud, it hurts you as a person. Suddenly you find yourself in a situation where you not only think about the money you are fooled for, but you start worrying about the fact that lies are spreading of you. You start to notice people want to ask you something about that, but you see they don’t know how to start the conversation. It especially hurt me when mutual acquaintances started asking me if it was true that I was unfair to my partner. Then I realized that it was not enough for Partner B to commit fraud, but to try to spread falsehoods, falsely preserving his reputation and ruining my reputation. In those moments, emotions and anger take you, so you realize that it is more important for you that truth comes to the surface than you to collect your claim. Sooner or later the claim will be charged, no doubt about that, but I am determined to point out, wherever I can, the fraudulent actions of Partner B. In addition to making the truth apparent to me and my family, I consider myself helping BIT The Alliance and the entire industry, because the sooner the BIT Alliance’s Board of Directors is released from those who behave unethically, the more its position in society will remain cleaner and stronger. The BIT Alliance is already suffering damage from international organizations in BiH because Partner B is a member of the Board of Directors, since it is unheard of in the west that persons who are being seriously investigated can be so highly positioned in sectoral associations. ”
When asked the question why he decided to include in the BIT Alliance report the unworthiness of Partner B to be a member of the Board of Directors on the basis of arrest and detention in the police action ‘Cooperative’, and why he did not dwell solely on the issue of bills of exchange, Partner A replied that he wants to make it easier for the Court of Honor of the BIT Alliance and make them aware that Partner B is already unscrupulously harming them.
Partner A goes on to say: “Being under such heavy accusations by the judiciary, for money laundering and tax evasion, and not feel the need to resign before the trial ends and the BIT Alliance loses its reputation, only demonstrates the fact that an unethical person, blinded by his own egoism, does not think at all about whether or not he or she will threaten the reputation of all 60 BIT Alliance member companies. We all make mistakes. We all know that the tax system in BiH is destimulative and difficult for business, and that many companies are trying to find an alternative way to maintain business, but when the ‘Cooperative’ has already happened, we must all take responsibility for our actions and we must not involve other actors in the problem”.
This whole case and the allegation of violation of the Code of Ethics, submitted by Partner A to the Court of Honor of the BIT Alliance, shows that the issue of ethical principles of business began to slowly emerge in Bosnia and Herzegovina. It is well known that the biggest problem of business in BiH is not the lack of resources, but only poor business culture and lack of ethical standards of behavior, both in the private and public sectors. Investments and market development in modern times are proportional to the degree of development of ethical business culture and trust building in business relationships. Obviously, recent public sector developments and scandals in BiH have attracted a great deal of public attention and resentment, especially because of the stubborn refusal of some high-ranking public officials to resign after being ‘caught’ in unethical situations. The issue of resignation has become one of the most controversial issues in BiH, because unlike in the western civilized world where resignations are submitted for the most minor offenses, this ethical gesture is still reluctant to practice it in BiH.
The ongoing process before the BIT Alliance Court of Honor is a clear sign that the issue of resignation or dismissal for breach of the Code of Ethics is becoming a reality for the private sector in BiH, and not just for the current bureaucracy in Bosnia and Herzegovina, especially bearing in mind that there is companies among BIT Alliance members established in Western European countries or working closely with developed markets, and because of their own reputation, cannot afford to be associated with unethical market players.
We are announcing the continuation of this series and the publication of the third sequel to the story of Partner A and Partner B for August 15, 2019, in which we will present a report on how the BIT Alliance Court of Honor handled the violation of the Code of Ethics.
* 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.
