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Sevil Yahyayeva – Legal Manager of EKVITA and Specialist in Corporate Law. Sevil is a graduate of the Law Faculty at Baku State University. Her work experience in the legal sector is over 10 years. Company (LLC) registration in Azerbaijan (Innovation in registration of an LLC) Greetings, dear readers! As EKVITA, we provide services in multiple areas of law (corporate, labor, migration, tax, litigation, etc.), as well as accounting, audit, business development and accompany our clients starting from early stages of their businesses. In this regard, putting it simply, I would like to speak about “opening the company”. That is, what is the most appropriate organizational form for starting a business in Azerbaijan, its advantages, necessary procedures in the registration process and etc. As you know, there are several organizational forms for the establishment of a company in the legislation. However, today I would like to tell you about the Limited Liability Company (LLC), which is the most acceptable and simple one among the rest in terms of procedural and legal requirements. If we refer to the definition of LLC – a limited liability company means company established by one or more persons (natural persons and (or) legal entity), the charter capital of which is divided into shares, the sizes of which are specified by the charter. As can be seen from mentioned definition, the legislation does not set limits regarding the number of founders of the LLC. In other words, the founder can be one or more persons, including a foreign citizen. It should be noted that in the case of foreign citizens, the legislative or documentation requirements are the same as for Azerbaijani citizens, i.e. there are no additional or special requirements. Another benefit of the LLC is the absence of any restrictions regarding its charter capital in the legislation. In other words, there is no minimum or maximum limit, the charter capital may be settled in any amount. Therefore, in many cases, when establishing the LLC, the charter capital is formed in the amount of 10-100 manats. It also should be noted that the registration process of the LLC is notable for its simplicity, and it would be appropriate to emphasize the innovative policy pursued by the Ministry of Taxes in this sphere. Thanks to it, Azerbaijan has established itself in 9th place in terms of the “Starting a Business” indicator among 190 countries this year, according to the annual Doing Business Report of the World Bank. Considering the abovementioned, I would like to tell you about the innovative electronic procedure for registering an LLC without the need to visit any authority for its implementation. The procedure is very simple and by spending only 15-20 minutes you can register an LLC by yourself. It should be noted that this procedure is applicable only when creating a local LLC, i.e. you can use it if the founders are the citizens of Azerbaijan. Otherwise, you can apply to the relevant tax authority with the necessary documents. So, for electronic, i.e. for online registration, you just need to visit Internet Tax Office page ( https://login.e-taxes.gov.az/login/) and after selection the "Identity Card" section to enter the PIN (Personal Identification Number), which is indicated on your ID card, and then enter your mobile phone number. The number can belong to any mobile operator; the only requirement is that the number must be registered in your name. As a result, you will receive a confirmation SMS to access your electronic cabinet. Having selected the section “Electronic registration of L/E (legal entities)” on the page that opens, you should fill out the application form with the requested information. It is important to note that during the registration of a legal entity, you may simultaneously order a bank account, electronic signature "ASAN imza" and conclude an employment contract with the employee(s). Another advantage of electronic registration is the absence of a state fee (when registering in the usual manner, the amount of the fee is AZN 11) and the provision of a 3-month period for payment of the charter capital. Thus, after completion of filling the application for online registration, foundation documents of the LLC (Charter, extract from the registry, TIN certificate) will be sent by the Ministry of Taxes to your electronic cabinet. It should be noted that electronic registration documents are adopted by state bodies, banks and other institutions of the Republic of Azerbaijan without their prior notarization. Of course, in the aforementioned way, you can create a simplified LLC, the participants of which will be the citizens of Azerbaijan. However, in the case of an LLC with a foreigner or legal entity founder, in order to successfully establish relations between the founders, choose the right business model and, if necessary, conclude a shareholders’ agreement, I recommend consulting with a lawyer. It should be noted that in order to avoid problems that may arise subsequently, when establishing an LLC with the participation of large companies or with large investments, it is necessary to form relationships correctly in advance, i.e. at the stage of institution. It is preferable to reflect the obligations and rights of each founder or the establishment of the appropriate corporate structure to regulate relations between the shareholders, as well as the procedure for the settlement of disputes that may arise during the activities of the LLC in the shareholders’ agreement and / or the charter of the LLC. Although during the registration, which I mentioned above, the charter of the LLC has the simplest form and is generated by the electronic portal. In connection with mentioned above, EKVITA is ready to provide any legal support necessary for an entrepreneur to overcome existing difficulties or avoid them in the future. EKVITA is a company providing consulting services for about 20 years, with its professional team of 40 people. Our clients are a number of large global Fortune 500 companies. We also participate in many important government projects and work with international donor organizations like the World Bank. We are distinguished by the fact that we provide a range of professional services that combine the rich experience of doing business with general business consulting in the legal, financial and tax spheres. Thanks to this, we understand the basic needs of our customers and provide them with business-oriented, tailored and practical solutions. Our leading position in the market has been recognized by international ranking institutions and other relevant international standards. In conclusion, please feel free to contact us should you have any questions regarding the article. We will be happy to assist you in any legal matters. Keep following us!
Kanan Isgandarov works as a Financial Services Manager at EKVITA and he is a financial specialist. He has a work experience in the banking sector and top 10 International Audit companies. Kanan is a graduate of the faculty of Finance and Credit at Azerbaijan State Economic University. He has more than 15 years of experience in finance. Kanan has provided over 200 companies operating in various fields (financial sector, construction, logistics, ICT, agriculture, etc.) with services on taxes, involving financial resources, establishing internal inspection and internal audit systems, restructuring enterprises, developing strategic and financial plans. He has held many trainings for Small and Medium-sized Enterprises (SMEs), ABAD Families and Startups. Alternative funding tools of small and medium-sized enterprises 2018 Source -European Commission Categories of entrepreneurship entities based on their sizes The number of enterprises The number of employees Created added value Germany EU (28) Germany EU (28) Germany EU (28) Number Share % Share % Number Share % Share % Billion Euro Share % Share % Micro-entrepreneur 2,036,100 82.60% 93.10% 5,688,702 19.60% 29.40% 255.4 15.20% 20.70% Small business owner 257.651 14.50% 5.80% 6,749,152 23.30% 20.00% 309.9 18.40% 17.80% Medium business owner 58.878 2.40% 0.90% 5,863,981 20.30% 17.00% 342.2 20.40% 18.30% Total SMEs 2,352,629 99.50% 99.80% 18,301,835 63.20% 66.40% 907.5 54.00% 56.80% Large enterprises 11.379 0.50% 0.20% 10,651,385 36.80% 33.60% 773.5 46.00% 43.20% Total enterprises 2,364,008 100.00% 100.00% 28,953,220 100.00% 100.00% 1.681 100.00% 100.00% Small and medium business owners are the locomotive of the economy, their role in both ensuring employment and creating added value is irreplaceable. As seen from the table above, more than 60% of employment in Germany and European Union is provided by Small and medium-sized enterprises. Low Risk Low Risk Medium Risk High Risk Asset-Based Finance Alternative Debts Hybrid Instruments Equity Instruments Asset-based lending Corporate Bonds Subordinated Loans (Debts) Private Equity Factoring Securitized Debts Silent Participants Venture Capital Covered Debts Participant Loan Business Angels Private Placements Profit Participation Rights Specialized Platforms for Public Listing of SME-s Crowdfunding (Debt) Convertible Bonds Crowdfunding (equity) Bonds with Warrants Source: OECD (2013b). As seen from the table, there are more than 10 tools to fund Small and medium-sized enterprises. Financial tools used depending on the economic growth of the country are also various, especially the number of alternative financial tools and its users in developed countries are higher than in developing countries. "Strategic Road Map on the production of consumer goods at the level of small and medium-sized entrepreneurship in the Republic of Azerbaijan" was approved by the President of the country on December 6, 2016 in order to develop small and medium-sized businesses. The improvement of the financial opportunities of SMEs and the development of alternative financial tools (forward, futures, factoring, etc.) have been specified in details in the events planning part of the road map. Establishment of SME Agency A law on the registration of personal property has been passed and a registration portal has been created. A law on mediation has been passed and its implementation will begin in April, 2020. Mortgage and guarantee fund launching to operate Decree on the establishment of joint Agricultural Insurance Fund As mentioned above, many great works have been done and are still being done associated with funding SMEs in our country. The event Public-Private Dialogue was held on June 14, 2019 together with Ekvita LLC and the Commission on Business Environment and International Rankings of the Republic of Azerbaijan with the close support of the Small and Medium-sized Business Development Agency to keep these issues in mind. In the event, where more than 100 entrepreneurs, over 14 minister deputies and other senior state officials have participated, it was discussed that one of the biggest difficulties of SMEs is namely their need for financial resources. The growth in debtor debts and the increasing problem of non-payment issues have created a great demand for Factoring at the moment. Although there is a great demand for this product in the market, it has only been offered by several banks, and when it comes to the terms, it is not very affordable for SMEs. Another important alternative product is Financial Leasing. As a result of global processes in 2014, followed by the known devaluations in our country, the majority of leasing companies have stopped their operational activity. Leasing companies operating today fund construction engineering and motor transport means. Production equipment is needed the most today. As the company of Ekvita, based on the work we conducted with Small and Medium-sized Business Development Agency or Support to Family Business (ABAD) Public Legal Entity, and the clients to whom the company itself serves, we have determined that they need the following equipment most in Azerbaijan today. Equipment for milk processing Equipment for meat processing Equipment for forage processing For mini bakeries Refrigerated warehouses Farm systems The poor development of the securities market and the lack of interest of SMEs on this market show that the path in this area is still long. SMEs should establish corporative management of the enterprise in accordance with the requirements of the modern times before emitting securities. Unfortunately, the majority of SMEs don't want to do it today. Corporative bonds afford the majority of the financial needs of SMEs in developed countries. Only two companies have issued a corporative bond in our real sector today. One of them is METAK LLC and another is SOCAR. One of the tools having special place in the alternative financial tools is Islamic Financial tools. The importance of these products is quite necessary taking into account that the majority of the people in our country are Muslims. It is necessary to note that the fact of the interest being haraam in the Islamic world prevents some entrepreneurs from using traditional banking products. The winners of the grant project "Developing Legal Framework for Islamic Banking in Azerbaijan" by the Islamic Development Bank in 2018 are Ekvita and a consortium consisting of IFAAS (Islamic Finance Audit and Assurance Services). Although only suggesting amendments on the legislation of Islamic Banking was intended in the project, members of the consortium have proposed a road map analyzing the Islamic finance ecosystem in detail in Azerbaijan.
EKVITA appoints two new partners to its Legal Practice We are pleased to announce that Sharaf Asgarova and Fuad Gashamov will become Partners at Azerbaijan’s EKVITA with effect from this week. Fuad Gashamov Fuad received his bachelor degree in law from Qafqaz University in 2008 and his master degree from Baku State University, International Law Department in 2011. Fuad joined EKVITA in 2013 and before worked for a prominent local bank as a legal counsel and for a local consulting firm as an associate. At EKVITA Fuad will continue leading Dispute Resolution Practice Group along with Real Estate, Intellectual Property and Regulatory sectors and his advice is sought to address the most complicated questions on the analysis and interpretation of law. Fuad is the member of the Bar Association of the Republic of Azerbaijan since August 2014. Sharaf Asgarova Sharaf has received her bachelor’s degree and master’s degree in Commercial Law from Baku State University. Sharaf joined EKVITA as intern and legal assistant fresh from university. She left EKVITA for a short while to gain industry experience in oil and gas sector. After receiving her second LLM in Energy and Environment from Tulane University, USA as a Fulbright scholar, she returned to EKVITA. Sharaf will lead EKVITA’s Oil & Gas and Infrastructure Practice, along with Corporate and Labor/Migration
Emil Bashirov is a senior lawyer responsible for intellectual property practice at EKVITA consulting company. He received a bachelor degree in law from the Academy of Public Administration under the President of the Republic of Azerbaijan in 2012 and LL.M degree in Commercial and Corporate Law from Erasmus University Rotterdam. Emil advised many local and multinational companies on various legal matters concerning intellectual property such as registration of intellectual property rights under national and international procedures, challenging and termination of registrations of competitors as well as dispute settlement on IPR registration or use. Emil is a member of Bar Association of the Republic of Azerbaijan since 2018 and thus, is entitled to represent both local and international clients in courts of all instances. It is not a secret that one of the main concerns of business, particularly regarding the marketing of imported products in Azerbaijan, is a large volume of counterfeit goods on the market as well as existence of goods imported via so-called parallel import. Despite the latter can be original products, such import is agreed with neither producers nor overseas trademark holders. Though such products might not have substantial differences from the original goods in terms of reliability and applicability, their availability on the market causes numerous problems for both business people and consumers. Foreign manufacturers and local distributors cannot predict the success of their commercial operations in the region which jeopardizes respective investments. As marketing of “the grey goods” does not entail extra cost like payment of royalty to the trademark holder, market promotion and service network maintenance, actual expenses are mostly lower than those for “the white goods” which is often the main factor that influences consumers choice in Azerbaijan. It is also worth noting that marketing of “the grey goods” on the Azerbaijani market may not be accompanied with manuals in the local language and information for Azerbaijani consumers on complaints to manufacturers. Considering the fact that there are very few companies that provide international warranty and the right for service in any country regardless of the point of purchase, a consumer might lose the right for warranty service of the purchased product. Currently, the legislation of the Republic of Azerbaijan does not envisage effective arrangements for the fighting parallel import, therefore, a large number of grey products easily enter Azerbaijan. The Customs Code of the Republic of Azerbaijan contains provisions that regulate maintenance of specific register of goods which include objects of intellectual property and establish related arrangements for fighting counterfeit products. This mechanism is based on the possibility of suspension of import if the goods raise doubts about their authenticity. Right holders are protected for up to five-year period upon inclusion of their goods in the register by the Customs Committee. This period may be extended for another five years based on the right holder’s application. The applicant can also provide the customs office with the confidential data to help identify pirated and counterfeit products as well as submit original and counterfeit product samples. At the recent meeting between the Intellectual Property Agency and State Customs Committee that discussed cooperation on IPR protection regarding imported goods in Azerbaijan, deputy chairman of the Customs Committee general-major Javad Gasimov noted that currently products of about 50 companies are already included in the relevant register to fight counterfeit goods. The meeting stressed the importance of cooperation and continued information sharing on the matter between the Customs Committee and the Intellectual Property Agency. Taking into account pressing issues of grey and counterfeit products import in Azerbaijan, they were discussed in the White Paper prepared by the American Chamber of Commerce in Azerbaijan in 2018 that included recommendations on improving the business environment and related legal framework in the country. This document suggested such recommendations on changes to the current legislation as prohibition of import of original products that lack the trademark holder’s permission and provision of the list of exceptions (e.g., for anti-monopoly reasons, in case of deficit of certain products, pricing manipulation, etc.). Obviously, legal framework on customs and intellectual property needs further improvements to adjust to the modern context and business requirements. Creation of effective arrangements to fight parallel import as well as strengthening control over counterfeit products import in Azerbaijan will certainly encourage sound business environment as well as protection of Azerbaijani consumers. Earlier in July this year with the support of EKVITA consulting company the Customs Committee of the Republic of Azerbaijan hosted a meeting with Azerbaijan-French Chamber of Commerce and Industry and Azerbaijan-Italian Chamber of Commerce that discussed business promotion issues. At the meeting, the first deputy chairman of the State Customs Committee major-general Ismail Huseinov informed about ongoing customs reforms and stated the need for strengthening cooperation between the business community and customs authorities. EKVITA consulting company can provide advice to your company on fighting counterfeit goods and procedure for inclusion of your products in the relevant customs register as well as provide your company with legal support for approaching the State Customs Committee. Lawyers and advocates of Ekvita can also represent your company in judicial cases on the suspension of counterfeit products import in courts of all instances. EKVİTA is a full-service legal, tax and management consulting company with circa 40 full time professionals. Its active clients include several Fortune 500 companies operating globally. The company have also been engaged in government projects as well as worked for international donor organizations such as World Bank. EKVİTA company delivers integrated professional services combining general business advisory support with very strong legal, finance and tax practice. The leading position of EKVİTA in the market has been recognized by international ranking institutions and other relevant international standards.
Cooperation Agreement was signed between Innovation Agency under the Ministry of Transport, Communications and High Technologies of the Republic of Azerbaijan, EKVITA, “AGRIBIOEKOTEX” LLC, “TRENDTECH” LLC and “FRUCTUS” LLC on 13th of February, 2020. The goal is to contribute to the agricultural industry, which directly affects the economy of the country and to carry out joint activities to introduce environmentally friendly, biological pesticides, minerals and other fertilizers on test fields. Innovation Agency will serve as a center of cooperation, EKVITA will provide both consulting and training services. Furthermore, “AGRIBIOEKOTEX”, “TRENDTECH” will provide organic mineral products for land enrichment, while “Fructus” will provide test fields. EKVITA is a full-service legal, tax and management consulting company with circa 40 full time professionals. Its active clients include several Fortune 500 companies operating globally. The company have also been engaged in government projects as well as worked for international donor organizations such as World Bank. EKVITA company delivers integrated professional services combining general business advisory support with very strong legal, finance and tax practice. The leading position of EKVITA in the market has been recognized by international ranking institutions and other relevant international standards.
Fuad Gashamov is an attorney and partner at EKVITA. Imamverdi Novruzlu is a legal assistant at EKVITA General information Recently, most of the services provided by the state authorities has become electronic and the communication between the officer and citizen has been minimized for the transparency purposes. To this end, the State Customs Committee also provides electronic services, as well as the service related to issue of import and export exemption certificate (the “Certificate”). Production sharing agreements (PSAs) and their respective protocols concerning import-export duties and taxes (the “Protocols”) are the main regulatory instruments with regard to the process of obtaining the Certificate. In accordance with the Protocols, each contractor party, its affiliates, operating company or a sub-contractor or their agent (“Registered Company”) have the right to import into, and re-export from Azerbaijan free of any taxes and restrictions in their own name the following: all equipment, materials, machinery and tools, vehicles, spare parts, goods and other supplies necessary according to the Contractor's reasonable opinion for the proper conduct and achievement of hydrocarbon activities.foodstuff (subject to compliance with applicable regulations pertaining to the import of foodstuff). In accordance with the Protocol, Contractor should give preference to Azerbaijani suppliers if it is able to compete with foreign suppliers in all important aspects in terms of price, quality and availability of goods. Each Registered Company and all of its employees and family members have the right to import into and re-export from Azerbaijan all furniture, clothing, household appliances, vehicles, spare parts and all personal effects (including foodstuff, alcohol and tobacco products as permitted to import free of customs duties under Azerbaijan customs legislation) for personal use by employees and their families assigned to work in or travel to Azerbaijan free of taxes and restrictions at any time. Obtaining the Certificate Each Protocol specifies the procedure for obtaining of the Certificate. Therefore, first of all, the company should determine which PSA applies to its operations. The Certificate may be obtained by either the contractor, its partner company, the operating company or the subcontractor or their agents. The contractor or subcontractor applies in written form to the State Customs Committee in order to obtain the Certificate. As noted, companies now can apply electronically for obtaining the Certificate, and this e-service is free. Under the Protocols, the following documents are required to obtain the Certificate: Application to the Customs Committee;A copy of the State Registration Certificate issued by the Ministry of Taxes;A copy of the Charter / Regulation;A copy of the Extract from the State Registry;A copy of the contract that relates to the respective PSA;List of goods to be imported under the contract during the relevant years;A copy of the previous expired Certificate (if you do not apply for the first time);A copy of the VAT exemption (zero-rating) certificate;Annex 3 to the Protocol (application for the certificate of exemption from import and export taxes);Appendix 4 to the Protocol (appendix to the application for obtaining the certificate of exemption from import and export taxes by subcontractors). Within 30 calendar days after receiving of the written application, the State Customs Committee issues the numbered Certificate to the applicant, valid from the date of receipt of the respective application. If the State Customs Committee refuses to issue the Certificate, it has to explain in writing to the applicant the reason for the refusal. In this case, the applicant may challenge the decision to refuse by filing an administrative and (or) judicial complaint. If the Certificate is obtained by a contractor or operating company, this Certificate will be valid for 5 years. If it is obtained by subcontractor, the Certificate will be valid for 1 year or during the term of the contract concluded with the subcontractor for less than 1 year. It should be noted that, the validity of the Certificate will be renewed by re-submitting the application in the manner prescribed above. When renewing the Certificate, the previous one must be handed over regardless of whether it has expired or not. The Certificate cannot be transferred or issued to another person and all current Certificates must be submitted to the State Customs Committee directly after the completion of the business activities regarding hydrocarbon operations. After the expiration of the Certificate, the Certificate holder may face certain issues until obtaining the new one. Therefore, the company must apply for the new Certificate before the expiration of the previous one. Obtaining the certificate does not exclude the requirements arising from the customs legislation during the import and export of goods. Thus, in any case, when importing, goods shall be declared and cleared in accordance with the customs legislation. Recommendation In practice, there are certain difficulties in obtaining the Certificate. This issue is mainly related to the requirement of indication of the commodity nomenclature (commodity codes) of foreign economic activity in the list of goods to be imported. Commodity codes are reflected in the Resolution of the Cabinet of Ministers No. 500 dated 17 November 2017 on Approval of the “Commodity nomenclature of foreign economic activity of the Republic of Azerbaijan, rates of import customs duties and rates of export customs duties”. We recommend to companies applying for the Certificate to make sure that the codes of the goods to be written in the list of imported goods are correct. For this purpose, it is advisable to consult experienced professionals regarding the codes. Otherwise, the State Customs Committee would refuse to issue the Certificate due to incorrect codes of goods. Re- applying for the Certificate may result in extra time loss. EKVITA is a full-service legal, tax and management consulting company with circa 50 full time professionals. Its active clients include several Fortune 500 companies operating globally. The company have also been engaged in government projects as well as worked for international donor organizations such as World Bank. EKVITA company delivers integrated professional services combining general business advisory support with very strong legal, finance and tax practice. The leading position of EKVITA in the market has been recognized by international ranking institutions and other relevant international standards.
The COVID-19 pandemic is a global issue and the fight against it is being conducted at the global level, in the form of various regimes (state of emergency, quarantines, etc.) announced by variety of affected countries. Sharaf Mammadova (Asgarova) is partner at EKVITA Gulchin Mammadova is a junior lawyer at EKVITA Azerbaijan has stepped up a number of restrictive measures by introducing a special quarantine regime (“SQR”) to tackle the pandemic and prevent its spread within the country. While SQR is introduced for the first time in Azerbaijan, it is worthwhile to mention that in the course of year 1992 and 1995, the state of emergency was repeatedly declared in certain regions of Azerbaijan. In 1993 the state of emergency was declared on the whole territory of the Republic for the period of 60 days. Due to increasing number of questions with regards to the similarities and differences of two regimes, we have prepared a comparative table to illustrate these.Considering all the above, SQR is in its legal nature similar to a state of emergency, but with much less scrutiny. The spread of the COVID-19 virus in the country was initially considered as a sanitary-epidemiological situation. Although the Law does not give a clear definition of the concept of a special quarantine regime, the announcement of a special regime on relevant regions of the country in case of a threat of the spread of infectious diseases has its own legislative basis (art. 25 of the Law). In fact, there is no clear restrictive measures in the framework of such a regime have been established in the law. Declared throughout the country, the SQR is regulated on the basis of Decisions of Cabinet of Ministers (“CabMin”), the Operational Headquarters under CabMin and Presidential Decrees that can be interpreted as "the preparation and adoption of laws, other regulatory acts on issues of sanitary-epidemiological health of the population of Republic of Azerbaijan (art. 4 of the Law - Powers of the highest state authorities and administration of the Republic of Azerbaijan in the field of ensuring sanitary and epidemiological health of the population). Article 4 of the Law sets among the powers of these bodies inter alia the establishment and cancellation of special educational, traffic, transport and labor regimes on the territory of Azerbaijan aimed at preventing the spread and elimination of infectious diseases among the population, what can justify restrictions on movement, suspension of educational institutions, state and other enterprises, departments and organizations, etc. within SQR. Having said this, restriction of constitutional human rights and freedoms is possible only in cases expressly provided for in Constitution (art. 112 of Constitutional Law on Regulation of the implementation of human rights and freedoms in the Republic of Azerbaijan). Quarantine, as a measure of restricting the movement of citizens, is provided for in the Constitution as part of a state of emergency. Constitution also establishes the conditions under which a state of emergency is declared, among which the fact of the onset of the epidemic is listed. World Health Organization calls the spread of COVID-19 a pandemic, and, accordingly, in our country this phenomenon has received a similar name. Based on all of the above, SQR creates all the necessary legal conditions to regulate the current situation in the country without the need to declare a state of emergency, which was repeatedly noted in the speeches of government officials. How countries worldwide combat against covid-19? The heads of neighboring states, for example, Kazakhstan and Georgia, declared a state of emergency on their territory, with very similar restrictive measures to SQR. Russia went according to a different scenario and various restrictive measures were introduced on the territory of the state, such as a self-isolation regime, an emergency regime, a high alert regime and quarantine, depending on the prevalence of the disease in a particular region. In Georgia, from 21:00 to 6:00 a curfew was announced. A movement via special SMS permission system is not provided in any of the above states. As the pandemic curve declines, the countries move to shift or lift strict quarantine measures. Per the Decree of CabMin, SQR has been prolonged although softened as of 4 May 2020, with a number of limitations lifted partially in main cities and largely in other regions of the country.
General information As it is known due to the rapid spread of Coronavirus infection (COVID 19) around the world, most countries have taken serious measures, air and land borders between countries have been closed and trade relations have been limited. Many companies suspended their activities and have applied to remote working. A special quarantine regime has been applied in Azerbaijan as well, the movement of people has been restricted and most companies have been suspended their activities. At the same time Azerbaijan has closed its air and land borders with neighboring countries. As a result of the measures taken within the framework of the special quarantine regime, some companies may have some difficulties in connection with the fulfillment of their obligations. Therefore it is necessary to clarify whether the special quarantine regime is a force majeure or not. Azerbaijani Legislation First of all, let's clarify definition of "force majeure". The literal translation from French means "greater force". The legislation of Azerbaijan does not use a single term related to “force majeure” institution. For example, the term of "force majeure" clause is not used in our Civil Code at all. Nevertheless, the term "irresistible force" of the same nature has been used. Let’s view provisions related to force majeure / irresistible force in our legislation: Article 448.4 of the Civil Code – “The debtor shall not be liable for the violation of the obligation, if he proves that the violation was caused by the circumstances beyond its control and that he was not able to take into account thereof at the time of the conclusion of the contract or to expect until he can exclude or eliminate the said circumstance and its consequences....” Article 557.1 of the Civil Code – “If as a result of an act adopted by a state or municipal body, the performance of the obligation is completely or partially impossible, the term of performance of the obligation is extended, then the obligation shall be totally or relevantly terminated...” Article 1.0.9 of the Custom Code - “force majeure - emergency situations, natural disasters or social and political events which are in advance unpredictable and prevent and slowdown individuals from performance of their obligations as a result of the impossibility of avoidance them in appropriate conditions”. Sample of the “Procurement contract for goods (works and services)” (Article 21.2) approved by the Resolution No.34 of the Cabinet of Ministers dated 28 February 2003 – “Impacts of irresistible force include events that are not controlled by the Customer and Contractor, do not occur as a result of their fault or negligence, and are unpredictable. These include wars or revolutions, floods, epidemics, epizootics, quarantines, embargoes, state and governmental decisions, and other related cases. ” Article 6 of the “Model Form of the agreement on payment of earmarked funds from the state budget to public legal entities established on behalf of the state” - “The parties shall not be liable for failure to perform their obligations, if force majeure effects the execution of the contract. Force majeure is the events, which are beyond the control of the contracting parties and are not occurred as a result of their fault or negligence and are unpredictable. These include wars or revolutions, epidemics, epizootics, quarantines, floods, earthquakes, other natural disasters and emergency situations, embargoes, also significant changes in the legislation affecting the terms of the contract, decisions of state bodies (institutions).” In particular, we would like to emphasize that in the Civil Code, “irresistible force” is mainly reflected as a case(s) that stops the flow of time, excludes liability, and the basis for termination of the contract. Let’s consider the following articles of the Civil Code: Article 379.1.1 – as a case that stops the flow of the claim period; Article 588.2 – as a case that excludes the seller's liability for quality guarantee; Articles 813 və 831.3 – as a case that respectively excludes liability of commission agent and owners of the hotel or restaurant; Article 847.1 – as a basis for termination of the contract by carrier or passenger; Articles 1108.1, 1111.2 və 1131 – liability is excluded if it is proved that the damage was caused by irresistible force. Along with the Civil Code, the term “irresistible force” was used in the Merchant Shipping Code, Law on Environmental Protection, Law on Transport, Law on Motor Transport and Rules of trade, catering, household and other services in the Republic of Azerbaijan. Additionally it is referred to the term of “force majeure” in the Law on Post (Art.17.4.1), Law on Energy (Art.25), Law on Electricity (Art.11), Law on Subsoil (Art.18), Law on Electricity and Heating Stations (Art.7) and Law on Patents (Art.20). Similar definitions We noted that definitions of “irresistible force” and “force majeure” have the same nature. However, there is a definition of “significant change of circumstances” in the Civil Code, which is sometimes mixed up with the definition of “force majeure”. But these definitions are different. This issue is reflected in the Decision of the Plenum of the Constitutional Court dated 7 September 2018: “We should distinguish significant change of circumstances from irresistible force (force majeure event). Thus, while irresistable force makes performance of the contractual obligations impossible, a significant change of circumstances leads to the performance of obligations under extremely difficult conditions and does not eliminate the possibility of its performance. In this case, the execution of the obligation is possible. But such an execution becomes economically loaded for the one party or all the parties as result of significant change of circumstances that existed at the time of the conclusion of the contract. Significant change of circumstances means change of the economic, legal and other factors in the country which existed at the time of the conclusion of the contract and are independent from parties.” Agreement on production sharing Agreements on production sharing, which are widely used in the oil and gas industry, also contain a "force majeure" clause. The provisions governing force majeure are the same or similar in almost all agreements. For example, according to the Article 21.1. of the Agreement on the Exploration, Development and Production sharing for the Shafag - Asiman offshore block in the Azerbaijan sector of the Caspian sea “Non-performance or delays in performance on the part of any Party of its obligations (or any part thereof) under this Agreement, other than the obligation to pay money, shall be excused if occasioned or caused by Force Majeure. “Force Majeure” means any event which prevents, hinders or impedes Petroleum Operations and is beyond the ability of the affected Party to control such event or its consequences using reasonable efforts, including without limitation, extraordinary events, natural disasters (for example lightning and earthquake), wars (declared or undeclared) or other military activity, jurisdictional change with respect to the Contract Area, fire, labour disputes, insurrections, rebellions, acts of terrorism, riot, civil commotion, and laws, treaties, rules, regulations, decrees, orders, actions or inactions of any governmental authority which prevent hinder or impede Contractor’s conduct of operations or which substantially impairs or threatens Contractor’s rights under this Agreement ...” Private international law According to the Article 7.1.7 of the UNIDROIT Principles of the International Commercial Contracts, non-performance by a party is excused if that party proves that the nonperformance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract. The Publication No. 650 of the International Chamber of Commerce also discusses “force majeure” and “significant changes in circumstances”. For additional information you can use the following link: https://iccwbo.org/content/uploads/sites/3/2017/02/ICC-Force-Majeure-Hardship-Clause.pdf Practical problems, solutions and recommendations As you can see force majeure situation is not regulated in detail in the legislation of Azerbaijan. There is a need to improve the legislation in that part, to generalize the judical practice on force majeure and to interpret Articles 448.4 and 557.1 of the Civil Code by the Constitutional Court. As explained, the lack of a clear definition of "force majeure" in the legislation can lead to disputes. If a dispute arises between the parties over which force majeure circumstances are considered, of course, you must first pay attention to the contract. In general, in order to avoid such a dispute, we recommend that the force majeure situation be regulated in detail in the contract. If the contract does not regulate the force majeure in detail, then we will have to refer to the above-mentioned provisions. A party facing difficulties in fulfilling its obligations under the quarantine regime and wishing to rely on force majeure shall be obliged to prove the followings: The violation arises from the act that the party is not responsible; The inability of the party to take this into account at the time of the conclusion of the contract; The inability of the party to overcome this situation and eliminate its consequences; Informing adverse party about current situation in compliance with the notice period (otherwise, the liability of the parties for non-performance and damages is not excluded). In other words, the party must prove that the reason for non-performance of the obligation under the contract is directly related to the application of a special quarantine regime. The introduction of quarantine regime itself (automatically) does not entail force majeure circumstances. The party should use all reasonable endeavors for performance of its obligation and make every effort to mitigate the risks and losses. Thereafter, the party may refer to the occurrence of force majeure. If the force majeure events last for a long time (this period may vary depending on the nature of the contract. From the perspective of the International Chamber of Commerce, this period is defined as 120 days) the parties may terminate the contract by considering the notice period. In addition, we note that in the event of force majeure, the parties may benefit from alternative dispute resolution methods (mediation, arbitration) by mutual agreement. We also recommend that in the event of a dispute over force majeure, a professional lawyer be engaged at an early stage. Because sometimes the problems are so complex that even when you engage a lawyer, it becomes not that useful. Biography of co-authors: Fuad Gashamov received his bachelor degree in law from Qafqaz University in 2008 and his master degree from Baku State University, International Law Department in 2011. He is a partner at EKVITA and leads Dispute Resolution Practice Group along with Real Estate, Intellectual Property and Regulatory sectors. He is the member of the Bar Association since 2014. Farida Jabrayilova received her bachelor degree in law from Baku State University in 2015 and her Master of Law (LL.M.) degree from Friedrich Schiller University Jena (Germany) in 2016. She is a lawyer at EKVITA.
Təcrübədə ezamiyyə zamanı çəkilən məsrəflərin gəlirdən çıxılan xərclərə aid olub-olmaması, işçilərə ezamiyyə ilə əlaqədar ödənilən məbləğlərin işçinin vergi tutulan gəlirlərinə aid edilib-edilməməsi, habelə ezamiyyə xərci normalarının tətbiqi ilə bağlı məsələlər ətrafında müəyyən suallar yaranır. Mövzunu EKVİTA şirkətinin vergi məsələləri üzrə məsləhətçisi Meyxanım Ələkbərova şərh edir. Dövlət orqanının, müəssisə, idarə və təşkilatın rəhbərinin sərəncamı (əmri) ilə işçinin daimi iş yerindən müəyyən olunmuş müddətə başqa yerə xidməti tapşırığı yerinə yetirmək üçün getməsi xidməti ezamiyyət sayılır. Diqqət yetirməli olduğumuz həssas məqam isə budur ki, daimi işi yolda keçən və gediş-gəliş xarakteri daşıyan, növbə metodu ilə işləyən və çöl şəraitində çalışan (gündəlik iş vaxtı başa çatdıqdan sonra öz daimi yaşayış yerinə qayıtmaq imkanı olmayan) işçilərin xidməti gedişi ezamiyyət sayılmır. Vergi Məcəlləsində ezamiyyə məsrəflərinin gəlirdən çıxılmasını tənzimləyən müddəalar yer alır ki, bu müddəalara əsasən, faktiki ezamiyyə xərclərinin müvafiq icra hakimiyyəti orqanının - Nazirlər Kabinetinin müəyyənləşdirdiyi normadan artıq olan hissəsi gəlirdən çıxılmır. Ezamiyyə xərcləri gəlirdən çıxılması məhdudlaşdırılan xərclərə aid edilir. Yəni ezamiyyə xərclərinin norma daxilində gəlirdən çıxılmasına heç bir məhdudiyyət yoxdur. Eyni zamanda, qanunvericilik müəssisəyə işçilərinin ezamiyyə xərclərinin müəyyən olunmuş normadan artıq ödənilməsinə də heç bir məhdudiyyət qoymur. Yəni müəssisə işçinin ezamiyyəsi zamanı çəkdiyi xərclərin normadan artıq hissəsini öz sərbəst mənfəəti hesabına ödəyə bilər. Yalnız normalar daxilində müəyyən edilmiş ezamiyyə xərclərinin məbləğlərinin müəssisənin gəlirindən çıxılmasına icazə verilir. Digər tərəfdən, Vergi Məcəlləsinin 98.3-cü maddəsinə əsasən, faktiki ezamiyyə xərclərinin əvəzinin ödənilməsi gəlirə daxil deyil və işçiyə qanunvericiliklə müəyyən edilmiş norma daxilində ödənilən ezamiyyə xərclərinin məbləği gəlir vergisindən azaddır. Faktiki ezamiyyə xərclərinin əvəzinin ödənilməsi müvafiq sənədlərlə təsdiq edildyi halda, işçinin gəlirlərinə daxil edilmir. Nazirlər Kabinetinin müvafiq qərarına əsasən, Azərbaycan Respublikasının ərazisində ezamiyyə xərclərinin bir günlük norması müəyyən edilir. Azərbaycan Respublikasının ərazisində ezamiyyə xərclərinin müəyyən edilmiş bir günlük normasının 20 faizini gündəlik xərc təşkil edir. Gündəlik xərcə yemək, rabitə, şəhərdaxili nəqliyyat və digər xidmətlər üzrə xərclər daxildir və işçiyə ezamiyyətdə olduğu müddətdə hər təqvim günü üçün (yolda olduğu müddət nəzərə alınmaqla) ödənilir. Gündəlik xərclər üçün hər hansı təsdiqedici sənəd tələb olunmur. İşçiyə ezamiyyətdə olduğu müddətdə hər təqvim günü üçün (yolda olduğu müddət nəzərə alınmadan) ödənilən ezamiyyə xərclərinin bir günlük normasının 80 faizini mehmanxana xərci təşkil edir və müvafiq təsdiqedici sənədlər əsasında tam, təsdiqedici sənədlər təqdim edilmədiyi hallarda isə ezamiyyə xərclərinin bir günlük normasının mehmanxana xərcləri üçün müəyyən edilmiş hissəsinin 50 faizi miqdarında ödənilir. Bu yazıda isə mənzərə daha aydın olsun deyə ezamiyyə zamanı çəkilən xərclərin gəlirdən çıxılması, habelə işçilərə ezamiyyə ilə əlaqədar ödənilən məbləğlərin işçinin vergi tutulan gəlirlərinə aid edilib-edilməməsi ilə bağlı məsələlər müxtəlif hallar üzrə müvafiq misallarla izah edilir. Birinci hal: İşçiyə ezamiyyə ilə bağlı norma daxilində avans verilib a) İşçi normadan az xərc çəkib Gəncədən Sumqayıt şəhərinə 1 günlük ezam edilən işçiyə ezamiyyə xərci kimi 70 manat vəsait verilir. Nazirlər Kabinetinin "Ezamiyyə xərclərinin normaları haqqında" 25 yanvar 2008-ci il tarixli 14 nömrəli Qərarına (sonrakı əlavə və dəyişikliklər nəzərə alınmaqla) əsasən, Sumqayıt şəhərində ezamiyyə xərclərinin bir günlük norması 70 manat müəyyən edilib. İşçi ezamiyyətdən qayıtdıqdan sonra təqdim etdiyi avans hesabatında müvafiq təsdiqedici sənədləri təqdim etmək şərtilə 60 manat vəsaiti istifadə etdiyini göstərir. Bu vəsaitin 46 manatını mehmanxana xərci, 14 manatını isə gündəlik xərc təşkil edir. Bu halda, müəssisənin işçiyə verdiyi 60 manat işçinin vergi tutulan gəlirinə daxil deyildir. İşçiyə faktiki ödənilmiş xərc qanunvericiliklə müəyyən edilmiş normadan artıq olmadığı üçün müəssisənin gəlirdən çıxılan xərclərinə aid ediləcəkdir. Müəssisənin işçiyə ödədiyi 10 manat isə müəssisə tərəfindən işçiyə bağışlandığı təqdirdə Vergi Məcəlləsinin 98.2.4-cü maddəsinə əsasən, onun muzdlu işlə əlaqədar əldə etdiyi gəlir sayılacaq və gəlir vergisinə cəlb olunacaq. b) İşçi normadan artıq xərc çəkib Bakıdan Gəncə şəhərinə 1 günlük ezam edilən işçiyə avans olaraq 70 manat ödəniş edilir. İşçi ezamiyyətdən qayıtdıqdan sonra təqdim etdiyi avans hesabatında müvafiq təsdiqedici sənədləri təqdim etmək şərtilə 120 manat vəsait xərclədiyini göstərir. Bu vəsaitin 106 manatını müvafiq sənədlərlə təsdiq olunmaqla mehmanxana xərci, 14 manatını isə gündəlik xərc təşkil edir. Bu halda, sənədlərlə təsdiq olunmasına baxmayaraq normadan artıq məsrəflərin əvəzi işçiyə ödənilmir. Bu xərc müəssisənin öz sərbəst vəsaitləri hesabına qarşılana bilər. Lakin müəssisə üçün də, işçi tərəfindən sərf olunmuş bütün vəsaitin işçiyə ödənilib-ödənilməməsindən asılı olmayaraq, yalnız qanunvericiliklə müəyyən edilmiş norma daxilindəki məbləğ, yəni 70 manat gəlirdən çıxılan xərclərə aid edilə bilər. İşçinin ezamiyyə zamanı çəkdiyi normadan artıq xərc müəssisə tərəfindən ona ödənildiyi halda isə aradakı fərq məbləği (50 manat) təsdiqedici sənədlər mövcud olduğu üçün onun vergi tutulmayan gəlirinə aid ediləcəkdir. Çünki Vergi Məcəlləsinin 98.3-cü maddəsinə əsasən, faktiki ezamiyyə xərcləri vergi tutulan gəlirə aid edilmir. Bu nümunədə işçi çəkdiyi 120 manat məsrəfin yalnız 90 manatının (fərz edək ki, 14 manatı gündəlik xərc, 76 manatı isə mehmanxana xərci) təsdiqedici sənədlərini təqdim etdiyi və müəssisənin işçiyə 120 manat ödədiyi halda isə 30 manat məbləğin sənədi olmadığı üçün həmin məbləğ işçinin muzdlu işdən əldə etdiyi gəlir sayılacaq və gəlir vergisinə cəlb olunacaq. İkinci hal: İşçiyə ezamiyyə ilə bağlı normadan artıq məbləğdə avans verilib Lənkərandan Bakı şəhərinə 1 günlük ezam edilən işçiyə Bakıda mehmanxana xərcləri yüksək olduğuna görə avans olaraq normadan artıq – 110 manat ödəniş edilir. İşçi ezamiyyətdən qayıtdıqdan sonra təqdim etdiyi avans hesabatında mehmanxana xərcləri haqqında bütün təsdiqedici sənədləri təqdim etmək şərtilə 110 manat vəsaiti istifadə etdiyini göstərir. Nazirlər Kabinetinin "Ezamiyyə xərclərinin normaları haqqında" 25 yanvar 2008-ci il tarixli 14 nömrəli Qərarına (sonrakı əlavə və dəyişikliklər nəzərə alınmaqla) əsasən, Bakı şəhərində ezamiyyə xərclərinin 1 günlük norması 90 manat müəyyən edilib. Yəni müəssisə yalnız qanunvericiliklə müəyyən edilmiş normaya uyğun məbləği - 90 manatı gəlirdən çıxılan xərc kimi göstərə bilər. İşçinin çəkdiyi xərc isə qanunvericiliklə müəyyən edilmiş normadan artıq olsa da, təsdiqedici sənədlər mövcud olduğu üçün onun vergi tutulmayan gəlirinə aid ediləcəkdir. Üçüncü hal: İşçiyə heç bir avans ödənişi edilməyib a) Təsdiqedici sənədə əsasən, çəkilən xərc normadan artıqdır Lənkərandan Bakı şəhərinə 1 günlük ezam edilən işçi ezamiyyətdən qayıtdıqdan sonra mehmanxana xərcləri barədə müvafiq təsdiqedici sənədlərlə birlikdə təqdim etdiyi avans hesabatında 100 manat vəsait istifadə etdiyini göstərir. Nazirlər Kabinetinin yuxarıda qeyd olunan müvafiq Qərarına əsasən, Bakı şəhərində ezamiyyə xərclərinin 1 günlük norması 90 manat müəyyən edilib. Bu halda, sənədlərlə təsdiq olunmasına baxmayaraq, normadan artıq çəkilmiş məsrəflərin əvəzi işçiyə ödənilmir. Bu xərci müəssisə öz sərbəst vəsaitləri hesabına qarşılaya bilər. Müəssisə üçün də işçi tərəfindən sərf olunmuş bütün vəsaitin işçiyə ödənilib-ödənilməməsindən asılı olmayaraq, yalnız qanunvericiliklə müəyyən edilmiş norma daxilindəki məbləğ, yəni 90 manat gəlirdən çıxılan xərclərə aid edilə bilər. İşçinin ezamiyyə zamanı çəkdiyi normadan artıq xərc müəssisə tərəfindən ona ödənildiyi halda isə aradakı fərq məbləği (10 manat) təsdiqedici sənədlər mövcud olduğu üçün onun vergi tutulmayan gəlirinə aid ediləcəkdir. Qeyd edilən bu misalda əgər işçi mehmanxana xərclərini təsdiq edən sənədləri təqdim etməsəydi, bu halda, müəssisə tərəfindən işçiyə yalnız 54 manat (90×20%+(90×80%)×50%) ödənilməli idi və həmin məbləğ müəssisənin gəlirdən çıxılan xərclərinə aid ediləcəkdi. Çünki gündəlik xərc üçün hər hansı sənəd tələb olunmamasına baxmayaraq, mehmaxana xərcini təsdiq edən sənədlər təqdim olunmadıqda mehmanxana xərci normasının yalnız 50 faizi işçiyə ödənilir və eyni zamanda müəssisənin gəlirdən çıxılan xərclərinə aid edilir. Hər hansı təsdiqedici sənədin olmadığına baxmayaraq sərf olunmuş 100 manat məbləğinin hamısının müəssisə tərəfindən işçiyə ödənilməsi qərara alındığı halda 46 manat (100-54) işçinin vergi tutulan gəlirinə əlavə olunmalıdır. b) Təsdiqedici sənədə əsasən, çəkilən xərc normadan artıq deyil Lənkərandan Bakı şəhərinə 1 günlük ezam edilən işçi ezamiyyətdən qayıtdıqdan sonra müvafiq təsdiqedici sənədlərə əsasən, 80 manat vəsait istifadə etdiyini bildirir. Bu halda, ezamiyyə xərclərinin 1 günlük normasının 90 manat olduğuna baxmayaraq işçiyə 80 manat ezamiyyə xərci ödənilir. Müəssisənin işçiyə verdiyi 80 manat pul vəsaiti onun muzdlu işdən əldə etdiyi gəlirə daxil deyildir və gəlir vergisinə cəlb olunmur. Müəssisə də, ezamiyyə xərclərinin 1 günlük normasının 90 manat olmasına baxmayaraq, bu halda, çəkilən xərc normadan az olduğu üçün 80 manatı gəlirdən çıxılan xərc kimi göstərməlidir.
Historical background into FCPA In 1977, following the infamous Watergate political scandal, the U.S. Congress enacted FCPA, unleashing series of corrupt practices on an international scale to prohibit and condemn such a form of illicit activity. The U.S. congress rightfully asserted that the wide-spread phenomenon of corruption to be harmful to the integrity of U.S.-based companies. If such criminal activity was outlawed internally, it surely had to be prohibited internationally. In retrospect, the first edition of the Foreign Corrupt Practices Act Resource Guide (the “Guide”) was released back in November of 2012, in comparison, the second edition offers and covers new and updated FCPA related enforcement actions and legal changes. FCPA updates In its second edition, the FCPA’s scope was enlarged to (1) include payments made to secure “any improper advantage”; (2) reach certain foreign persons who commit an act in furtherance of a foreign bribe while in the United States; (3) cover public international organizations in the definition of “foreign official”; (4) add an alternative basis for jurisdiction based on nationality; and (5) apply criminal penalties to foreign nationals employed by or acting as agents of U.S. companies. Further, the FCPA offers clarification to the definition of “foreign official” to include “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.”. Hence, the term “instrumentality” under the FCPA, has been elaborated and updated in relation to the recent decision of the case the United States v. Esquenazi. and has been incorporated in order to classify foreign officials” under the anti-bribery provisions. According to FCPA’s second edition, the term “instrumentality” is a broad and adaptable concept. It may include state-owned or state-controlled enterprises that employ people with business titles lice vice-president and director, instead of government titles like minister or secretary. U.S. Court of Appeals for the Eleventh Circuit issued a ground-breaking decision in which an appellate court defined for the first time the term “instrumentality” of a foreign government as it is used in the definition of a “foreign official” under the FCPA. Based on the Court’s postulate “an instrumentality must perform a government function at the government’s behest”… But, what functions count as the “government’s business”? Further, the Court decided to use its stature as the first case deciding this issue to provide a list of factors to help future courts decide if the government controls an entity, i.e. the following indicators for the instrumentality, amongst which are: The foreign government’s formal designation of that entity; Whether the government has a majority interest in the entity; The government’ ability to hire and fire the entity’s principals; The extent to which the entity’s profits, if any, go directly into the governmental fisc; The extent to which the government funds the entity if it fails to break even; and The length of time these indicia have existed. Corporate Compliance programs under the FCPA The Second Edition of FCPA elaborates on the hallmarks of effective compliance programs. It is important to note that compliance programs have been granted somewhat flexibility in how they decide to execute compliance within their organizations. In essence, compliance programs shall be tailored to the needs of the company, and by no means employ a “check the box” approach. Given that, the second edition offers a new hallmark “Investigation, Analysis, and Remediation of Misconduct.”, It stipulates, that in order to evaluate the efficiency of a compliance program, the company’s response to certain misconduct must be documented. Following, derived from the incident, the company must document and make appropriate changes to policies, training, and controls in efforts to prevent and alleviate risks in the future. Tips to reduce risks In case of a corporate merger, or acquisition FCPA offers precautionary steps that may be followed to reduce and alleviate risks. Option A is to obtain an opinion from the Department of Justice on a potential acquisition. However, it should be noted that companies taking part in acquisition and mergers shall consider the following according to FCPA’s second edition: Conduct comprehensive risk-based FCPA and anti-corruption due diligence on potential new business acquisitions; Certify that the acquiring company’s code of conduct and compliance policies and procedures regarding the FCPA and other anti-corruption laws apply at the earliest possibility to newly acquired companies; Assure appropriate training of the directors, officers, and employees of newly acquired businesses or merged entities. Following that, train agents and business partners upon relevant FCPA guidelines, internal procedures, and policies; Organize an FCPA oriented audit of all newly acquired or merged businesses as quickly as possible; Uncover any corrupt payments exposed as part of its due diligence of newly acquired entities. In conclusion, the second edition offers a rather insightful and expand guidance due to gained experience since the preceding edition. It is important to understand that the FCPA resource guide is non-binding, however, it steadily remains to be the key guidance for companies in relation to anti-corruption compliance programs. Sources: The United States. Dept. of Justice. Criminal Division. A Resource Guide to the U.S. Foreign Corrupt Practices Act. Washington D.C.: U.S. Department of Justice: U.S. Securities and Exchange Commission, 2020 Jon Jordan, U.S. v. Esquenazi: U.S. Appellate Court Defines “Instrumentality” Under the Foreign Corrupt Practices Act for the First Time Doug Cornelius, What is an “Instrumentality” under the FCPA? (www.compliancebulding.com)
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The Foreign Corrupt Practices Act (FCPA): Second edition at a glance
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