As the public sector conducts business with private-sector entities, certain corruption risks are generated, particularly in cases when any individuals with a private interest regarding the engagement in the business activity are involved. Public funds must be protected from being spent in ways motivated by private interest, and restrictions on business activities and prohibitions thereof represent one of the measures provided by the legislator as a possible means of protecting said funds.

This measure is primarily intended for preventing corruption but it also ties in with the due avoidance of the conflict of interest. Pursuant to the Integrity and Prevention of Corruption Act (IPCA), the legal institution of the restriction on business activities and prohibition thereof is applicable solely to the business activities on the part of public-sector bodies and organisations in which an official holds an office, and the entity in which the said official or their family member is involved. In other words, only those public-sector bodies and organisations in which officials hold an office may be subject to restrictions on business activities.

The IPCA differentiates between two categories of business activities:

 Paragraph 1 of Article 35 of the IPCA stipulates that a contracting authority (any public-sector body or organisation) required by law to conduct a public procurement procedure may not conduct business (order goods, services, or construction works) with any entity in which the official who holds an office in the contracting authority, or a member of their family serves as a manager, member of management, or legal representative, or holds a 5% or greater share in the founders’ rights, management, or capital either directly or through other entities. This prohibition is also applicable to procedures granting concessions or other forms of public-private partnership, as well as to procedures granting special or exclusive rights. Pursuant to Paragraph 2 of Article 35 of the IPCA, the prohibition also applies to conducting business between the contracting authority and the official or a member of their family as a natural person, while Paragraph 4 of Article 35 extends the prohibition also to smaller parts of a municipality, i.e. village-, local- and quarter communities with own legal personality inasmuch the municipal official holds a membership in the relevant smaller part of the municipality or if the business activity in question may only be entered into with their consent.

If the criteria laid out in Paragraphs 1, 2 and 4 of Article 35 of the IPCA, the prohibition on business activities applies to conducting business between the contracting authority and all entities regardless of their status and organisation, and of contract value. The law does not provide any exceptions, which makes the prohibition on business activities absolute. Not even the Commission may approve or allow the engagement in the business activity, even if this constrains the contracting authority to ordering the service from an entity not located in the municipality or from a less cost-effective provider.

Written statement

Paragraph 5 of Article 35 in the modified IPCA-C introduces the obligation of a natural person or business entity to provide a written statement in any procedure granting concessions or other forms of public-private partnership or any public procurement procedure, or, in cases when the public procurement procedure was not used, prior to the conclusion of the contract with a public-sector body or organisation, confirming that the natural person or business entity is not associated with the official nor with a member of their family to the best of their or its knowledge in any manner laid out in Paragraph 1 of Article 35.

Legal consequences of breaching the rules on the restrictions on business activities and prohibitions thereof

Paragraph 9 of Article 35 of the IPCA clearly states that a contract as well as any other manner of obtaining means in breach of the provisions of Article 35 are null and void. Nullity therefore applies:

  • when a business activity is engaged in despite the applicability of the absolute prohibition (absolute prohibition on business activities);

  • when a business activity is engaged in or means are obtained in another manner in which an official with an obligation of excluding themselves due to a conflict of interest formally or informally took part or exercised influence (conditionally permitted business activities).

Restrictions on business activities after the termination of office

Paragraph 1 of Article 36 of the IPCA stipulates that a former official may not act as a representative of a business entity that has established or is about to establish business contacts with a public-sector body or organisation in which they held their office until two years have elapsed from the termination of the said office. This is not a case of a restriction on business activities but a restriction on representation, a prohibition of the so-called revolving-door practice, which is increasingly regulated also by legislations of other states and is required by the practice of the Council of Europe and the OECD.

According to Paragraph 2 of Article 36 of the IPCA, the public-sector body in which the holder of the office discharged their office may not engage in business activities with an entity in which the former public office holder holds more than a 5% share in the founders’ rights, the management or capital, either by direct participation or through the participation of other legal persons, until one year has elapsed from the termination of office.

NOTIFICATION OF THE RESTRICTIONS OF BUSINESS ACTIVITIES BY THE OFFICIAL

Paragraph 6 of Article 35 of the IPCA requires officials to notify the public-sector body in which they discharge their function of the entities in which themselves participate or a member of their family participates as a manager, member of management or legal representative, or themselves hold or a member of their family holds more than a 5% share in the founders’ rights, the management or capital, either by direct participation or through the participation of other legal persons within one month after taking office (and thereafter no later than within eight days of any change occurring).

Notification by a public-sector body or organisation

The public-sector body is required to forward the information received by officials to the Commission within 15 days of having received it (this applies also to all notification of changes on the part of officials). The forwarding is to be done by means of electronic forms on the Commission’s website.

The public-sector body is also required to notify the Commission within 15 days of any entities to be struck off the list of entities to which restrictions on operation apply.

List of business entities subject to restrictions on operation

The list of entities prohibited from engaging in business activities or permitted to engage in business activities on condition that the officials strictly observe the provisions on the due avoidance of the conflict of interest is primarily important and useful to the public-sector body obliged to observe the restrictions on business activities or prohibition thereof. The list is maintained by the Commission on its website and in application ERAR, and may be used for reference only.