Interview for Business Magazine: The CBBH implements the EU standards for prevention of corruption

The Central Bank of Bosnia and Herzegovina is one of rare institutions at the state level enjoying undivided support of the public in both Bosnia and Herzegovina Entities. In efforts to keep and additionally strengthen the confidence of citizens, the Central Bank introduced the function of compliance, focused on preventing conflict of interest, corruption and other risks which may result in financial loss or loss of reputation. Sanja Romić-Bajramović, Chief Compliance Officer of the Central Bank, explains for Business Magazine the main objectives of the implementation of compliance programme and all the included mechanisms.

BM: What was the motivation for introducing compliance function in the CBBH, especially taking into account the fact that companies introduce such mechanism only after suffering large reputational damage, such movement of the CBBH suggests it also faces some reputational challenges - are there bases for such conclusion?

ROMIĆ-BAJRAMOVIĆ: It is correct that large companies, operating in global market, most frequently introduce efficient compliance programmes after suffering some reputational damages, which is firstly motivated by the fact that they mitigate damages in such way and decrease amounts of financial penalties imposed by the regulator.

However, it is not the only reason for introducing a compliance programme. Some companies take over such good practice from their mother companies, and we have examples of organisations deciding to make this step on voluntary basis. The Central Bank of BH is one of such institutions, and I can proudly say that I am happy for the fact that the issues such as ethics and integrity have been recognised as values which need to be developed and strengthened.

All aspects of operations include some risks to higher or lower extent, those being either operational, financial or compliance risks. We are trying to accomplish adequate and proactive management of such risks.

BM: On the other hand, as the Central Bank operates on the basis of the concept different than companies competing for markets, the space for corruption and other activities which might endanger its reputation is much smaller, what are the main risks for its business ethics and integrity?

ROMIĆ-BAJRAMOVIĆ: We are not market oriented institution and we do not face the challenges associated with the market competition. However, as the institution which is the only authorised for monetary policy in BH and having the aim to achieve and maintain the stability of the local currency, which indirectly impacts the overall financial system of the country, reputation and public confidence in our work are exceptionally important for us. It is particularly visible in periods of crises, such as the pandemic, which is lasting unfortunately, making even the strongest economies suffer large shocks. More attention and stronger monitoring should be devoted to some processes in crises, in order to avoid misuses.

In challenging times, it is important that citizens trust institutions such as the Central Bank, which we can achieve only if we provide adequate assurance that we work professionally, responsibly and according to applicable regulations.

Speaking of compliance risks, they do not differ much from those in other organisations - those are always the risks of non-compliance with applicable laws which we need to adhere to in our operations, risks with negative effects on integrity and reputation, risk from occurrence of forbidden practices, risk of corruption, inadequate management of conflict of interest situations, fraud, theft and misuse of resources etc....

BM: What are the main provisions of Code of Ethics and By-law on Internal Reporting of Corruption and Other Irregularities in the CBBH (why and in which segments the By-law was changed)?

ROMIĆ-BAJRAMOVIĆ: These two regulations represent the basis of compliance programme in the Central Bank.

New Code of Ethics has been prepared in accordance with the highest professional standards, guidelines of the European Central Bank, respecting the recommendations of the International Monetary Fund mission provided through Safeguards Assessment of the Central Bank. It has been adopted by the Governing Board of the Central Bank on 27 July 2021.

The Code of Ethics established the highest standards of integrity and professional ethics that are important for independent and professional business operations and achievement of goals and tasks of the Central Bank, and represent one of the bases for ensuring its credibility and public trust. Some of the issues treated adequately for the first time in the Code of Ethics are the rules on avoiding conflict of interest, measures to prevent conflict of interest, proceeding with gifts and hospitalities, obligation of submitting data by the Governing Board members on their personal interests and interests of members of their households, including the data on owned real estate property, other income made outside the Central Bank, owned movable assets, debts, guarantees, co-debtorships, loans, data on ownership of shares or shares in other legal entities and also data on ownership of other securities. I think this is the first time that a public institution addresses and treats such important issues for integrity in such a way.

The rules such as prohibition of discrimination, respect of colleagues, respect of internal organisation, use of resources and information, appropriate communication, respect of visitors and third parties etc… have also been defined.

It is important to stress that we have defined an obligation for all employees to report any irregularities observed in their operations, and in order to provide freedom and comfort for them to feel protected and safe in this respect, we have implemented the Ethical line system.

Besides Code of Ethics, one of the most important activities focused on establishing an efficient compliance programme in the Central Bank is adoption of a new By-law on Internal Reporting of Corruption and Other Irregularities. This By-law has made a significant progress from what is a basic legal obligation under the Law on Whistleblower Protection in the Institutions of BH. The new By-law, in addition to the possibility of reporting corruption, provides for the possibility of reporting any other irregularities observed in the work of the CBBH, such as: conflict of interest, irregularities in procurements and disposal of the Central Bank assets, irregularities in employment or exercise of rights based on employment, breaches of the Central Bank regulations and discrimination on any basis.

The way of proceeding and the authorities in charge of proceeding based on received reports on irregularities have been defined in details, channels for communication and receipt of reports have been introduced (a special phone line - the so-called integrity line, via the number 033 278 155 for reporting, email address [email protected], possibility of mail delivery or personal reporting), but I point out the Ehical line system as the most important communication channel.

BM: How does the Ethical line function, i.e. what is the way for considering anonymous reports of corruption and other irregularities (are they solved only within the CBBH or in some cases they can be solved outside, in competent judicial institutions)? Are they any reports already and what are they related to?

ROMIĆ-BAJRAMOVIĆ: Ethical line is an externally protected online system offering a possibility of anonymous reporting of corruption and other irregularities. The system Ethical line which is available 24 hours a day, 7 days a week and is free of charge for the reporting person, is accessed via the web site: www.cbbh.ba, by clicking the logo „Ethical line“.

Reporting through the system is completely anonymous, if the reporting person wishes so, and it is not possible to determine where from and by whom the report has been submitted, which provides security to the reporting person. The system is managed by an independent third party, which has no insight into the contents of internal reports and proceedings, but guarantees high technical standards of protection of the system from misuses or non-professionalism. It is not possible to manipulate the reports internally (deleting is made impossible, the deadline warning system has been developed, skipping the steps in the process of the By-law implementation is impossible, there is a memory of all the actions performed in the system).

The reporting person, after reporting by the Ethical line system, receives a spontaneously generated PIN code, by which it can follow up with the status of their report anonymously, which enables communication with the officer in charge of proceeding related to the report. This is very important, as in this way, the reporting person can become informed on the results of implemented process based on their report and adopted decisions.

Central Bank employees have been determined as authorities in charge of solving reports on irregularities. However, if someone submits evidence clearly showing there is a basis for suspecting a criminal activity in the specific case, the Bank employees naturally cannot proceed in such case, but the report is forwarded to competent institutions.

BM: To what extent the introduction of compliance function was impacted by the case of Sanjin Sinanović, a former employee of the CBBH, who claims that he was fired because of pointing out to corruption, and not because of serious breaches of his duties? Is his case isolated or are they additional examples of dismissing employees of the CBBH because of their underperformance, i.e. on the other hand, employees’ accusations that the reason was reporting of corruption?

ROMIĆ-BAJRAMOVIĆ: The Central Bank has introduced a compliance function because of the objective need to set up the so called second line of defence in the organisation. This was earlier indicated as needed in recommendations of external assessors, and reports on Safeguards Assessments of the Bank carried out by the IMF.

Through the development of compliance function in the Central Bank, we try to follow the principles established by the Basel Committee on Banking Supervision, taking into account other internationally recognized standards and good practices. One of the latest internationally recognised standards, published in April 2021 is ISO 37301 Compliance Management Systems, specifying the requirements and providing organisations with ”guidelines” to establish, develop, implement, estimate, maintain and improve efficient system of compliance management in the organisation”.

I had the honour and opportunity to be one of the first three persons in Bosnia and Herzegovina and the first seven persons from the entire region that received education and acquired certificate for this internationally recognised standard, and I am trying in my work to implement recommendations from this standard and to the maximum possible extent, meet the requirements defined in the standard.

The trend of establishing this function, both in private sector companies and public institutions, has been increasing very fast. In the neighbouring countries, there is already a legal framework defining the establishment of compliance function as an imperative, which is certainly waiting for us in the near future.

So, no specific case was the exclusive reason for introducing compliance function, as the need for its existence significantly exceeds individual cases. However, the establishment and development of efficient compliance programme can certainly prevent some deviations.

No specific case was the exclusive reason for introducing compliance function, Romić-Bajramović pointed out.

BM: A far worse for the CBBH reputation than “Sinanović case” was the theft of money from the vault, which was rather successfully “swept under the carpet”, and Nedžad Bajraktarević was declared the only one guilty and sentenced to several year long imprisonment, although it is quite clear that, having in mind vault procedures, it was not possible for him to carry out multiple thefts without internal assistants. Was there anyone else who was subject to at least internal sanctions because of the scandal and in which way were procedures which should guarantee the safety of currency deposited in the vault have been improved after that case (are such problems also in the competence of Compliance Office in the CBBH)?

ROMIĆ-BAJRAMOVIĆ: Speaking about the theft in the vault, I have to stress that for this criminal deed, the mentioned officer was sentenced by a valid court decision and that the investigation clearly showed that no other Bank employee participated in this criminal action in any way. Naturally, disciplinary procedures were carried out within the institution and appropriate disciplinary sanctions were imposed, but what was the most important and what was useful for us in this event is the fact that all internal procedures and rules went through strict controls and estimates, they were reconsidered and significantly improved.

This is actually the purpose of existence of efficient compliance programme - it does not necessary serve for imposing disciplinary sanctions, but its primary effect is adequate prevention in discovering any irregularities (weaknesses in internal procedures, lack of regulation of some business procedures and similar), recognising risks in time, managing them in accordance with the level of impact of such risk on organisation, when irregularity is discovered, it is estimated which preventive measures are adequate to prevent re-occurrence of such events, and as the last option, when a proceeding has features of a breach of duty, disciplinary activities are conducted.

BM: In BH state institutions at all the levels (and in public companies), one of the largest sources of corruption is the employment process, as it is a well-known fact that one can be employed only on the basis of political party or family connections - how are things in the CBBH in this respect (how is this issue treated in the By-law, Code and portfolio of Compliance Officer)?

ROMIĆ-BAJRAMOVIĆ: The issue of employment has been recognised as a process bearing some risk, and certainly represents one of compliance risks.

According to the By-law on Internal Reporting of Corruption and Other Irregularities in the Central Bank, a special irregularity which can be reported is an irregularity related to employment and exercise of rights arising from employment. This is naturally the subject always mentioned in public in negative context, and, as you said, due to the “generally known fact” on employment process in public sector, it is assumed that this is almost a rule.

However, I have to tell you that I am very proud and happy to have the opportunity to be a part of the team in which excellent professionals and experts work who are certainly competent to do the jobs entrusted to them. In the situation of mass emigration of young, educated and qualified workers, especially if we observe it from the perspective of the Central Bank which needs experts from specific areas such as foreign exchange reserve investment, banking, financial stability, vault operations, payment systems, IT, risks, statistics and many other, it is very difficult to keep good quality people, being at the same time under constant pressure of the media and the public that are interested in the number of employees, amounts of wages or other benefits that our employees might have.

No one is thinking about consequences of such staff leaving the Central Bank in large numbers. So we are facing serious challenges related to human resources.

According to official data of our Human Resources Department, in the period of approximately last three years, the average age of employed person was 37 - mainly people with excellent competences and work experience, coming mainly from commercial banks and real sector.

BM: To summarise, what will be priority activities of Compliance Officer in the following short-term and medium term period and which organisational setting is necessary for the CBBH to fully adjust to the EU standards in this area?

ROMIĆ-BAJRAMOVIĆ: The Central Bank currently is carrying out activities on preparing implementation anticorruption regulations (guidelines and procedures) which will operationalise the process of avoiding and managing conflict of interest situations, and proceeding with gifts, hospitalities and their registration.

I have to use the opportunity to mention that in the activities of establishing and developing this function, we received great help from our partners through USAID FINRA project and programme of bilateral assistance and capacity building of central banks in cooperation with Swiss Secretariat for Economic Affairs (SECO), so, I would like to thank them for support and assistance on my personal behalf and on behalf of the institution. Cooperation with SECO will be continued in the future period to my great pleasure.

We are currently revising the existing regulations and trying to improve them as much as possible. The period ahead will certainly be focused on further strengthening and developing of this function in every respect.

Speaking of the EU standards, I have to mention that this very communication channel which we introduced -Ethical line, represents the introduction of channel for reporting and communicating with the reporting persons according to the highest international standards, requirements and the EU Directive on protection of persons reporting breaches of the Union law, which has taken effect on 17 December 2021 in the EU member countries and is mandatory. In what we are doing, we are trying to be three steps ahead of the rest.

Political attacks

BM: What can Compliance Officer do regarding deliberate misinformation on the CBBH operations aimed at deteriorating its reputation coming from the highest level of state authorities (most frequently from the member of BH Presidency Milorad Dodik) - how much has such campaign been harmful for the reputation of the CBBH in the domestic public?

ROMIĆ-BAJRAMOVIĆ: In very complicated conditions and operating environment, the Central Bank manages to meet its legal mandate, although it is often a subject of daily political statements of some politicians and ungrounded attempts for deterioration of its reputation. I do not only refer to the politician whom you have mentioned, there are also others, even at the local level. In such situation, we try to use arguments and deny the statements publicly presented.

I believe that such campaigns cannot seriously jeopardise the reputation of the Central Bank as we work and have achievements to be proud of. This is most often recognised by our partners, persons that we cooperate with on daily basis, but also foreign financial organisations and institutions.

Our work and results have been recognized by expert and general public, which we have often been rewarded for, which is recorded in reports of may international organisations.