legal

Law of the Republic of Uzbekistan “On international commercial arbitration”

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The President has signed the Law “On International Commercial Arbitration” (No. LRU-674, 16.02.2021). This is a big step by Uzbekistan towards the field of international arbitration, which makes it possible to effectively resolve civil disputes with the participation of a foreign element. A valuable aspect of the legal regulation of international arbitration as a peaceful settlement of private disputes is that international commercial arbitration is a special legal mechanism that reflects the principle of equality of parties in the processes, namely in economic relations between countries and organizations, regardless of their status and economic development.

Scope of application

The law is intended to regulate relations connected with international commercial arbitration in compliance with agreements in force between Uzbekistan and another state.

Disputes arising from all commercial relationships, both contractual and non-contractual, can be referred to international commercial arbitration by agreement of the parties.

Independence of the Arbitral Tribunal

Commercial arbitration is not part of the judicial system of the Republic of Uzbekistan, it is completely autonomous and independent. According to the Law, arbitration proceedings are protected from interference by courts of the judicial system, except in cases expressly provided by the Law. In the event that a claim is filed with the court, which is the subject of an arbitration agreement, if either of the parties requests this no later than the submission of their first statement on the merits of the dispute, the court must stay the proceedings and refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Arbitration agreement

The Law states that an arbitration agreement is an agreement of the parties to refer to arbitration all or certain disputes that have arisen or which may arise between them in respect of any defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

The arbitration agreement is concluded in writing. At the same time, an arbitration agreement is considered to be concluded in writing if its content is fixed in any form, regardless of whether the arbitration agreement or the contract is concluded or not, orally, based on the conduct of the parties or by other means. In addition, an arbitration agreement is deemed to be in writing if it is concluded through the exchange of a statement of claim and a response to the claim, in which one of the parties states that there is an agreement, and the other does not object to it.

The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference.

The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.

Number of arbitrators and arbitral immunity

The parties can specify the number of persons who will comprise the tribunal in the event of future disputes at their discretion. In the absence of such a determination, three arbitrators are appointed.

The arbitrators, experts appointed by the arbitral tribunal, the arbitral institution and its staff shall not be liable to the parties or other persons for any actions or omissions in connection with the arbitration proceedings, unless the act or omission is shown to have been in bad faith. They are also not obliged to give any explanation on any issue related to the arbitration, or may not be involved as witnesses in litigation or any other process arising from the arbitration.

Interim measures

An interim measure is any provisional measure, whether prescribed in the form of an award or in any other form, by which, at any time prior to the issuance of an award finally settling the dispute, the arbitral tribunal will order that one side or the other:

1) maintained or restored the situation that exists or existed before the resolution of the dispute;

2) has taken measures to prevent present or imminent harm, or harm to the arbitration itself, or has refrained from taking measures that may cause such harm;

3) provided funds for the preservation of assets at the expense of which the subsequent arbitral award can be enforced;

4) retained evidence that may be relevant to the case and be essential for the settlement of the dispute.

The interim measure prescribed by the arbitration tribunal shall be recognized as binding. In addition, the court can also order interim measures in connection with the arbitration, regardless of the seat of arbitration.

The seat of arbitration

The parties may, at their discretion, agree on the seat of arbitration. In the absence of such an agreement, the seat of arbitration is specified by the arbitral tribunal taking into account the circumstances of the case, including the factor of convenience for the parties.

However, unless the parties agree otherwise, the arbitral tribunal may meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents.

Language of the arbitration

The parties may, at their discretion, agree on the language or languages ​​that can be used in the arbitration.

Law applicable to the merits of the dispute

The arbitral tribunal shall resolve the dispute in accordance with such rules of law that the parties have chosen as applicable to the merits of the dispute.

Unless otherwise indicated, any indication of the law or system of law of any state should be interpreted as directly referring to the substantive law of that state, and not to its conflict of laws rules.

In the absence of any indication of the parties, the arbitral tribunal shall apply the law determined in accordance with the conflict of laws rules that it considers applicable.

In all cases, the arbitral tribunal makes a decision in accordance with the terms of the contract and taking into account the commercial customary practices.

Arbitral award

The award must be made in writing. The arbitral award, regardless of the country in which it was made, is recognized as binding and is enforced when a written application is submitted to the court.

The recognition or enforcement of an arbitral award may be refused only:

1) at the request of the party against which it applies, if that party presents to the court in which the recognition or enforcement is requested, evidence of that:

–  one of the parties to the arbitration agreement was in any way incompetent;

– the agreement is invalid under the legislation to which the parties have subordinated this agreement, and in the absence of an indication of such legislation – under the legislation of the country where the decision was made;

– the party against whom the decision was made was not duly notified of the appointment of an arbitrator or of the arbitration proceedings, or for other reasons could not present its arguments;

– the arbitral award is made on a dispute that is not provided for resolution in arbitration, or does not fall under the conditions for applying to arbitration, or contains decisions on issues that go beyond the scope of the arbitration agreement;

– the composition of the arbitral tribunal or the arbitration procedure did not comply with the agreement of the parties or, in the absence thereof, did not comply with the legislation of the country where the arbitration took place;

– the arbitral award has not yet become binding on the parties or its execution has been canceled or suspended by the court of the country in which or in accordance with the legislation of which it was made;

2) if the court determines that:

– the subject of the dispute is not subject to arbitration under the legislation of the Republic of Uzbekistan;

– recognition and enforcement of this arbitral award is contrary to the public order of the Republic of Uzbekistan.

Appealing an arbitral award

An appeal against an arbitral award in court is possible only by filing an application for annulment of the award, in the cases provided for by the Law. At the same time, the court has no right to reconsider the award on its merits.

Confidentiality of arbitration

The arbitration proceedings and all documents prepared for and during the arbitration proceedings are confidential, except in cases where the disclosure of such information:

1) is the obligation of the party in accordance with the law;

2) is aimed at protecting or realizing the rights and legitimate interests of third parties;

3) is necessary for the execution or challenge of the arbitral award in court.

The Law comes into force upon the expiration of six months from the date of its official publication (August 18, 2021).

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Legal regulation of cryptocurrency in different countries

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This article examines the legal regulation of cryptocurrencies in different countries of the world, lucidly highlights the problems faced by states around the world when trying to create an optimal legal foundation for the cryptocurrency market. Due to the significant spread of cryptocurrency over the past six years, states face new challenges related to the problematic legal regulation of cryptocurrency transactions, the optimal use of the advantages of cryptocurrency, the introduction of cryptoinnovation into the current financial and legal systems.

The phenomenon of “cryptocurrency” is that until now there is no unified position on key issues of defining the essence of cryptocurrency, namely:

– What is it (electronic money or monetary surrogates, digital assets such as depository securities, intangible assets, property rights)?

– Is it a means of payment or exchange?

– To levy a value-added tax or from the turnover of cryptocurrency or any other tax or fee?

– Should the activities of cryptocurrency exchanges and other organizers, intermediaries, miners be subject to licensing?

The lack of answers to these questions creates additional problems in law enforcement. The policy of regulating cryptocurrency in different states, whether it is a ban or a permit, as well as complete disregard, is just a refusal to take responsibility. There is still no decent example of successful regulation in any country.

Meanwhile, it is impossible to ignore cryptocurrency for a long time, and it is stupid to resist.There is controversy regarding the future legal status of virtual currencies. But nevertheless, transactions and other operations with bitcoins are already being successfully carried out around the world. Business is already actively using cryptocurrencies, smart contracts and other blockchain developments, the world’s largest banks are not only learning but already implementing blockchain tools and their analogues. Only the lack of legal certainty does not allow these new technologies to fully unfold.

Of the many options for legal regulation policy – from prohibition to the use of blockchain, the majority of states are limited only to focusing on the points of intersection of the unregulated crypto-economy with the conventional economy, mainly on the exchange of cryptocurrency and fiat, the use of cryptocurrency as a means of payment in the legal economy. So, countries can do without a separate law on cryptocurrency at the state level at all and regulate cryptocurrency within the framework of the main legislation against financial crimes, without risks to the quality of regulation.

Countries, depending on the policy applied to cryptocurrencies, are divided into two types: countries where the regulation of the cryptocurrency sphere is at the legislative level and countries that establish a complete ban on the circulation and use of cryptocurrencies.

Countries where cryptocurrency regulation is at the legislative level

Uzbekistan

To date, the circulation of cryptocurrency in Uzbekistan is regulated by Presidential Decrees dated July 3, 2018 “On measures to develop the digital economy in the Republic of Uzbekistan” and dated September 2, 2018 “On measures to organize the activities of crypto-exchanges in the Republic of Uzbekistan”.

In a decree dated February 19, 2018, President ShavkatMirziyoyev instructed the Central Bank of Uzbekistan and several other departments to develop a legal framework for the use of digital money in Uzbekistan by September 1, 2018.

The central bank in September 2017 expressed the opinion that it is inappropriate to allow transactions with cryptocurrencies due to the danger of terrorist financing and other criminal activities.

Following the Law on Combating Money Laundering, Financing of Terrorism and Financing the Proliferation of Weapons of Mass Destruction, the rules of internal control for organizations carrying out transactions with funds or other properties are developed and approved by the relevant regulatory, licensing and registration authorities. together with a specially authorized state body, and in the absence of such – a specially authorized state body.

At the same time, it is problematic that persons engaged in activities in the field of cryptocurrency turnover are not included in the list of organizations carrying out transactions with monetary funds or other property defined by this Law.

In this regard, it is proposed to supplement the draft amendment to the Law “On Countering the Legalization of Proceeds from Criminal Activity, Financing of Terrorism and Financing the Proliferation of Weapons of Mass Destruction” with cash or other property.

It is assumed that the adoption of the draft law obliges persons engaged in activities in the field of cryptocurrency turnover to comply with the requirements of the law and create a legal basis for the adoption and approval of internal control rules for persons operating in the field of cryptocurrency turnover.

The creation of a regulatory sandbox for the development of digital technologies “Uzbekistan Blockchain Valley” is also being discussed with the participation of the National Agency for Project Management (NAPM). Such an initiative is aimed at attracting foreign investment, creating favourable conditions for startups operating in the cryptocurrency industry, and regulating the turnover of cryptocurrency.Priority tasks include the implementation of e-government through the implementation of blockchain and smart contracts.

European Union

In November 2015, the European Court of Justice ruled that bitcoin, as the most popular type of cryptocurrency, must be considered a currency (means of payment), and not a commodity (in terms of taxation). Accordingly, transactions on the turnover of bitcoins instead of traditional fiat currency should not be subject to value-added tax. Prior to this decision, national governments treated the taxation of cryptocurrencies differently.

In the European Union, cryptocurrencies are not subject to the Directive “On Markets in Financial Instruments” in relation to electronic money and are not subject to financial regulation of the European Union.

At the same time, it is proposed to adopt several directives on the mandatory registration or licensing of cryptocurrency exchanges and crypto wallet providers, to create a central database of users of digital currencies.

USA

In America, cryptocurrency is classified as valuable property. Since 2014, a guide to taxation of cryptocurrency turnover has been used.

Among developed countries, the United States is less interested in the legal regulation of cryptocurrency than others. However, at the federal, agency and state levels, several current legislative trends and variations are being developed. The measures mainly concern cryptocurrency indirectly, as part of measures against money laundering, human trafficking, prostitution and terrorist financing.

China

In December 2013, the People’s Bank of China banned Chinese financial companies from conducting transactions with bitcoins on the grounds that bitcoin is not a currency.Financial companies are prohibited not only from direct transactions with bitcoins but also from the publication of quotes or insurance of financial products related to bitcoin. As for individuals, they can freely participate in Internet transactions at their own risk. Cryptocurrencies are viewed as commodities, not cash. On September 4, 2017, the People’s Bank of China declared ICO-related transactions illegal. The financial regulator ordered the termination of all ongoing ICO campaigns and banned the exchange of cryptocurrencies for fiat money.

Singapore

In 2014, the tax office equated cryptocurrency with goods. The Monetary Authority of Singapore treats tokens as commodities and securities. Singapore has no capital gains tax and is subject to a territorial taxation principle. The advantage of this system is that it reduces the number of tax liabilities compared to other countries.

In January 2020, the Law on Payment Services was passed, providing companies engaged in cryptocurrency transactions with the opportunity to obtain licenses.This regulation has given the Monetary Authority of Singapore formal authority to oversee cybersecurity risks and control money laundering and terrorist financing with cryptocurrencies.

Also, the Singapore authorities have developed an international blockchain-based payment network Ubin.

Japan

The first country in the world to grant most cryptocurrencies legal tender status. Moreover, all cryptocurrency transactions must be registered and entered into the register of the Japan Financial Services Agency.Bitcoin has been a legal tender with the tax on purchases since 2016. The profit gained from the turnover of crypto-assets is equal to the profit from doing business, therefore, only capital gains are taxed.

Germany

In Germany, bitcoin is recognized as a currency of account, that is, it is assigned the status of private money. The use of cryptocurrency is considered legal. The amount of tax is different for users, miners, exchanges and businesses.At the end of August 2015, Germany made a statement that bitcoin cannot be classified as a foreign or electronic currency, but must be recognized as a multilateral clearing operation.

Great Britain

Cryptocurrencies are considered foreign currencies, taxation is carried out as with foreign currencies. To date, standards are being developed to regulate the activities of virtual currency exchanges.Since January 2020, the FCA – the financial regulator in the United Kingdom – has been involved in the fight against money laundering and terrorist financing, including controlling crypto assets in the UK.

Sweden

Bitcoin has been equated to currency. It is important to note that income from “bitcoin mining” is considered in Sweden to be income from employment, not business.

Israel

Since 2017, bitcoin has been assigned the status of the property by the currency regulation law, in which bitcoin cannot be a means of payment. Therefore, the sale of virtual currency is considered the sale of the property, and income is subject to taxes: VAT and income tax.

Luxembourg

The first country in Europe to start licensing the activities of cryptocurrency exchanges and exchanges. The rules of the National Commission for the Supervision of the Financial Sector have been adopted, which do not allow unregistered crypto companies to operate.But despite strict regulation, the status of the cryptocurrency has been determined: in April 2014, the Financial Sector Supervision Commission announced that the cryptocurrency is equated to regular currencies.

Estonia

One of the leaders in cryptocurrency regulation and crypto business development. A feature of the regulatory policy is the most stringent regulation that stimulates the development of exclusively “white” crypto business, providing the most “safe” services within the framework of strict requirements.

Spain

In 2014, the Spanish Parliament classified cryptocurrency as an electronic means of payment. Moreover, in 2016, the Spanish authorities obliged miners to go through a special registration procedure and pay taxes. Also, other draft legislative acts were submitted to parliament, which were supposed to impose additional taxes on operations with cryptocurrencies, but they were not adopted. At the moment, transactions with cryptocurrencies are exempt from VAT.

Russia

There is currently no legal regulation of cryptocurrencies in Russia. There is no prohibition on carrying out such operations in the legislative base of the Russian Federation. Back in early 2017, a conference was held in Moscow, which was dedicated to the status and regulation of cryptocurrencies. The Federal Tax Service of the Russian Federation classifies transactions for the acquisition and sale of cryptocurrencies as foreign exchange transactions.

In July 2020, the law on digital financial assets and digital currency was adopted and came into force on January 1, 2021. The adopted law defines the concept of cryptocurrency, establishes a ban on its use to pay for goods and services.

Canada

In this country, cryptocurrencies are viewed as valuable assets. Taxation depends on the purpose of using the virtual currency: for buying, selling or as an investment. Canada allows cryptocurrencies, however, they are not considered legal tender in Canada, which is only the Canadian dollar. The IRS defines cryptocurrency as a commodity, and notes that using cryptocurrency to pay for goods or services should be considered a barter transaction. Otherwise, transactions with cryptocurrencies are subject to Canadian tax laws and regulations, including the Income Tax Act.

Australia

Cryptocurrencies in Australia are not considered a financial product and therefore this activity is not licensed. A Code of Conduct for players in the digital currency industry was adopted, which regulates the relationship between participants in the cryptocurrency business in the country. The main feature of the Australian tax system is double taxation on all operations with cryptocurrency, when exchanging fiat money for cryptocurrency, and in the process of paying for goods and services with cryptocurrency, tax is charged. However, when using cryptocurrency as an investment, the capital gains tax is not paid.
Companies that work with virtual money must keep a mandatory record of all transactions by content and dates. Tokens received as payment are equal to regular income and are valued in Australian dollars.

India

India has announced that they are trying to work out a stance on cryptocurrencies and are warning potential users of the high risks of investing in cryptocurrencies due to high volatility. There is no official ban.

Countries where cryptocurrencies are prohibited:

Bangladesh – punishment: prison term;

Bolivia – ban on circulation;

Indonesia is not a legal payment instrument;

Kyrgyzstan is not a legal instrument of payment;

Lithuania is not a legal payment instrument;

Ecuador – a ban on circulation similar to other electronic currencies;

Iceland – It is forbidden to buy bitcoins on exchanges, but you can mine them. In this country, an analogue of bitcoin was developed – Auroracoin;

Romania – The Central Bank has ruled that cryptocurrency transactions are illegal;

Kyrgyzstan – Using virtual currency is considered illegal.

Also, cryptocurrencies are prohibited in Taiwan, Vietnam.

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PPP: planned changes to the law

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On May 10, 2019, the Republic of Uzbekistan adopted the Law “On Public-Private Partnership”.

 After the adoption of the Law on Public-Private Partnership of the Republic of Uzbekistan (Law No. 537 of May 10, 2019), amendments are planned to be done by the Law “On Amendments and Additions, as well as invalidation of some legislative acts of the Republic of Uzbekistan in connection with the improvement of the Law on public-private partnership”. At present, the Law “On amendments and additions, as well as invalidation of some legislative acts of the Republic of Uzbekistan in connection with the improvement of the legislation on public-private partnership” has been approved by the Senate of the Republic of Uzbekistan and is awaiting final approval by the President. The amendments provide a full and specific explanation related to the implementation of public-private partnership projects, contrary to previous version of law, that caused misunderstanding in the application of legal norms in practice. 

The Law “On Public-Private Partnership”defines the core conceptions and principles of public-private partnership (hereinafter “PPP”), determines procedures for the development and incorporation ofPPP projects, provides for financial support mechanisms for the major participants of PPP projects, including concessions.

Public-private partnership is…?

PPP is a “legally arranged cooperation of public partner and private partner for a definite period based on merging their resources for incorporation of a public-private partnership project”. A significant requirement for PPP projects is that they should be aimed at resolving economic, social and infrastructure issues. Another remarkable point is that the law does not specify spheres in which PPP projects may be implemented, which suggests the possibility of implementing PPP projects in any sphere, which is the subject to the requirement of being aimed at resolution of the aforementioned issues, namely: transport, tourism, agriculture, telecommunications, education, healthcare and others. The law defines that property, property complexes, public infrastructure, works (services) and innovationsmay be objects of PPP.

The Republic of Uzbekistan is defined as the public partner, represented by state bodies and other organizations, authorized by the Cabinet of Ministers, as well as their associations. Commercial entities registered in Uzbekistan or abroad and their associations may act as a private partner.

The current amendments implemented in the PPP legislation expressly envisage application of institutional PPP mechanisms, i.e. incorporation of special project companies by the public partner and private investor for the purposes of incorporation of a PPP project. Thus, the lawprovide the opportunity to use a special project company (SPV), i.e. the company incorporated by the bidder (or consortium), which will execute and perform the PPP agreement in case of winning the tender, registered in accordance with the legislation of the Republic of Uzbekistan.

Moreover, the current Law provides for the announcement of the tender a month before its start in the media, websites of state bodies, the process of determining the circle of stakeholders to participate in the tender. This very circumstance in most cases was the reason for the delay in the tender process for a month. Now, based on domestic and international practice, such concepts as “concession”, “project of public-private partnership”, “applicant” are introduced into the Law, and they are defined. In order to establish provisions corresponding to the mechanisms of market operation, other basic concepts used in the Law are also concretized.The norm of guaranteeing the rights of a private partner is also concretized. In particular, if the subsequent legislation of the Republic of Uzbekistan worsens the conditions for investing in a public-private partnership object, then the private partner has the right to demand a compensatory increase in the payment for the availability of the public-private partnership object and (or) payment for use, as well as to demand from the public partner of a one-time compensation payment and (or) making appropriate changes and (or) additions to the agreement on public-private partnership. Local executive authorities, within the framework of a public-private partnership agreement, are empowered to identify facilities at their disposal, identify factors and problems that impede the timely and effective implementation of public-private partnership projects, including projects with the participation of foreign investors, as well as taking measures to eliminate them. The implementation of this Law in practice will contribute to the harmonization of the legal framework of this area with international practice, ensuring the implementation of uniform rules and requirements in the development and implementation of public-private partnership projects. This will also lead to a reduction in expenditures allocated from the State budget for the development of the economic and social spheres, an increase of the investment environment and the country’s attractiveness, the attraction of direct investment in the industry and the creation of new jobs as a result.

  1. Process of formulation of a PPP project

The process of PPP project formulation consists of following stages:

  1. Project initiation of PPP

The public partner or private party (legal entity or sole entrepreneur) may initiate the PPP project. The concept of PPP project is the principal document at the initiation stage, regardless of whether the PPP project is initiated by the public or private party. The concept of PPP project is developed by the initiator and containsthe cost of the project, the source of financing and the profitability of the project, which includes a justification of the effectiveness and relevance of its implementation. 

In the case of the project being initiated by the private person, the concept should be submitted to the potential public partner, which shall within 30 days decide on the implementation of the project based on such a concept. Furthermore, the law provides a limited list of grounds for refusal to incorporate the PPP project proposed by the private party.

The concept of PPP project can be approved, amended or supplemented by various bodies depending on the total value of the potential PPP project:

  • a relevant government authority — if the project total value is up to US$1 million;
  • a relevant government authority by agreement with the PPP Agency — if the project total value is from US$1 million to US$10 million inclusive;
  • the Cabinet of Ministers of the Republic of Uzbekistan— if the project total value exceeds US$10 million.  

Following the approval of the concept of the PPP project and its inclusion in the register, a public partner should adopt a decision on the development of the PPP project and proceed with the private partner selection procedure.

  1. Private partner selection

The tender is the principal mechanism for the selection of a private partner.

The tender may be:

  • a single-stage process – if the PPP project value less than US$1 million

ü two-stage process – if the PPP project value exceeds US$1 millionexcept for the cases specified in article 17 of the law.

The public partner is responsible for the development of the tender documentation, including the draft PPP agreement and establishment of a tender commission, by agreement with the PPP Agency and the Cabinet of Ministers respectively.

In addition, the law allows for execution of the PPP agreement without tendering, based on direct negotiations, in cases:

  • of ensuring the defense capability and security of the state;
  • where a certain person has exclusive rights to the results of intellectual activity, other exclusive rights, land, another real estate object and other property, which is an indispensable condition for the implementation of the project;

ü of enactment of the relevant decree or resolution of the President, as well as by decrees of the Cabinet of Ministers.

  1. Execution of a PPP agreement

A PPP agreement between a public and private partner is concluded for a period of between three and 49 years. The law also lists the mandatory data and provisions to be contained in the PPP agreement:

  • the grounds and procedure for its termination or amendment;
  • the procedure for transferring property and land to a private partner, as well as the procedure for transferring ownership of the PPP object.

In particular, the requirement for mandatory inclusion of provisions concerning the transfer of ownership of a PPP object to the state or to a private partner allows the implementation of PPP projects within the framework prescribed by the law based on different schemes.

Notably, the law does not contain compulsory rules providing that PPP agreements should be governed exclusively by Uzbek law. At the same time, the law establishes that disputes in the field of PPP are subject to resolution in accordance with current legislation. Based on this provision, it can be concluded that parties to PPP agreements have access to both judicial and arbitral methods for resolving disputes.

III. Private Partners guarantees of rights

The law establishes guarantees for stability of the legislation for 10 years from the date of the PPP agreement’s execution. At the same time, the private partner has a discretionary right to apply regulatory provisions that improve PPP project investment conditions or not to apply them (i.e. it is not necessary to constantly update PPP agreements in line with the legislation in force).

  1. Transparency and monitoring

The law provides for the PPP Agency to establish a publicly available registry of PPP projects containing information on ongoing PPP projects. Moreover, the law establishes that the concepts of PPP projects, information on the criteria for selecting a private partner, the main provisions of the PPP agreements, as well as other information should be published on the websites of the PPP Agency and the public partner.

The PPP Agency monitors the implementation of the PPP agreement by both private and public partners. To this end, the private partner should provide the agency with access to the PPP facilities, and the public partner should provide a report to the agency on the implementation of the PPP project every six months.

Enactment of the law is a logical step in the context of the interest of the Republic of Uzbekistan in the development of public-private partnerships in order to stimulate economic growth and improve infrastructure.

  1. Financing of PPP projects

The law provides that organizations financing a PPP project may be parties to a PPP agreement. A PPP agreement may provide for lenders’ step-in rights, which can be exercised by removing or replacing a private partner or the management of a private partner. Additionally, the law expressly prescribes that a private partner is entitled to provide any kind of security to its creditors, including those related to the rights and assets of the PPP project.

Under a PPP agreement, financial support may be provided to a private partner, including in the form of subsidies, budget loans, loans, grants, government guarantees, tax benefits and other kinds of benefits. A PPP agreement may also provide for the implementation of various types of payments, including payments for use and payments for availability.

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Overview: personal data

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On July 2, 2019, the Republic of Uzbekistan adopted the Law on Personal Data No.547 (The Law), which provides for several legal obligations for individuals whose activities involve personal data – that is actually all legal entities.

Personal data is…?

Personal data is any information related to a specific person or that makes to his/her identification possible and that is recorded on electronic, paper and/or other material object.

Furthermore, stricter requirements apply to biometric or genetic data, as well as to special personal data (i.e. data on racial or social origin, political, religious or ideological beliefs, membership in political parties and trade unions, concerning physical or mental health and privacy, criminal record).

Field of application

The Law clearly defines the scope of its action and covers relations arising from the processing and protection of personal data, regardless of the processing tools used, including information technology.

At the same time, this Law does not apply to relations arising from:

  • processing of personal data for personal, household purposes and not related to his professional or commercial activities;
  • using archival documents containing personal data;
  • processing of personal data that classified as information constituting state secrets;
  • processing of personal data obtained in the course of operational-search, intelligence and counterintelligence activities, the fight against crime, the protection of law and order, as well as in the framework of combating the legalization of proceeds from criminal activity.

Data Protection Authority

The State Personalization Center under the Cabinet of Ministers of the Republic of Uzbekistan is appointed as the authorized state body in the field of personal data and has the following powers:

  • issues a certificate of registration of the personal data base in the State Register of personal data bases;
  • exercises state control over the compliance with the requirements of data protection laws;
  • makes compulsory instructions for eliminating violations of data protection laws;
  • determines the required level of personal data security;
  • analyzes the volume and content of processed personal data, the type of activity and the possibility of threats to the security of personal data. 

Requirements for processing of personal data

The Law sets the legal framework for processing personal data and for the relations between participants in this process: the data subject (the person to whom the data relates), the database owner (state body, individual and (or) legal entity that has the right to own, use and dispose of the personal data base) and the operator (the person performing the processing).

The Law provides for the following requirements for processing personal data:

  • Lawfulness of purposes and methods. Personal data processing can only be carried out with the consent of the data subject. Personal data can be used by employees of the database owner and / or operator, as well as a third party, only in accordance with their professional, official or employment duties. Personal data should be destroyed if the data subject withdraws his/her consent to process the personal data or upon expiration of the term for processing data as allowed by the consent of the data subject.
  • Data minimization. The database including personal data is formed by collecting personal data to the extent necessary and sufficient to achieve the set objectives. The scope and nature of the processed data should match the purposes and methods of their processing. The duration for processing personal data should not exceed the term allowed by the data subject’s consent.
  • Purpose limitation. The objectives of the processing of personal data must comply with the objectives that are stated at the time of their collection, as well as with the rights and obligations of the database owner and/or operator. In case the purposes of processing changes, it is necessary to obtain the consent of the data subject to process the data in accordance with the changed purpose.
  • Storage limitation. Personal data must not be kept in a form that permits the identification of data subjects for longer than is necessary for the purposes for which the data is processed. Upon reaching the purpose of processing, personal data should be destroyed by the database owner and/or operator, as well as by a third party.
  • Accuracy and fairness. Personal data must be accurate and reliable, and, if necessary should be modified and supplemented. The data should be modified and supplemented by the database owner and/or operator (a) no later than three days if requested by the data subject and (b) without undue delay if the data is not true.
  • Confidentiality and security. Persons who have access to personal data are obliged not to disclose or distribute personal data without the consent of the subject. The personal data can be used provided that the necessary level of security is provided. The obligation to protect personal data arises from the moment of collecting personal data and remains until the moment of their destruction or depersonalization.

Making decisions based on automated processing

A decision based solely on the automated processing of the data subject’s personal data can only be accomplished by the data subject’s explicit consent.

The database owner and/or the operator must explain to the data subject the procedure of making decisions based on automated processing and the possible legal consequences of such a decision.

Form of the data subject’s consent

The consent can be expressed in any form that allows verifying the fact of its receipt.

Rights of data subject

The data subject has the right to receive information concerning the processing of his personal data, including:

  • confirmation from the database owner as to whether or not the database owner processes personal data;
  • grounds and purpose of processing personal data;
  • implemented methods for processing personal data;
  • information regarding individuals who have access to personal data or who may disclose personal data on the basis of an agreement concluded with the database owner and/or operator, or on the basis of the Law;
  • the composition of the processed personal data related to the relevant data subject and the source of their receipt;
  • the processing time of personal data, including the storage period;
  • information on the performed or intended cross-border transfer of personal data.

The data subject also has the right to require from the database owner and/or operator to suspend the processing of their personal data if the data is incomplete, outdated, inaccurate, illegally obtained or not necessary for processing purposes.

Registration of databases containing personal data

The requirement to register personal databases in the relevant registry of the authorized body is introduced. There are several exceptions to this requirement; in particular, registration is not necessary if the database contains data that is processed in accordance with labor legislation or without the use of automation facilities.

In addition, the database owner and/or operator must determine the structural unit or responsible official for the work related to the processing and protection of personal data and ensure its operation in accordance with the model procedure for processing personal data (not approved at the date of publication).

Cross-border data transfers

The personal data can be transferred over the border provided that the foreign states to which the data is transferred provide adequate protection of the data subjects’ rights.

There are exceptions when the cross-border transfer is possible without adequate protection, for example, if the data subject agrees to such cross-border transfer.

Liability

Along with the adoption of the Law on Personal Data, the Administrative Liability Code and the Criminal Code have been amended. Liability measures also come into force on October 1, 2019.

The sanctions are imposed for illegal collection, systematization, storage, modification, addition, use, provision, dissemination, transfer, depersonalization and destruction of personal data as follows:

  1. Administrative liability in the form of a fine from three to five minimum wages to individuals and from five to 10 wages to corporate officers according to the Article 46-2 of the Administrative Liability Code. Cases of this category are under the jurisdiction of administrative courts.
  2. Criminal liability arises if the same actions were committed after an administrative penalty, in the form of a fine up to 50 minimum wages or deprivation of a certain right of up to three years or correctional work of up to two years according to the Article 141-2 of the Criminal Code.
  3. Criminal liability of a stricter nature is applied if a crime is committed by prior conspiracy by a group of individuals, repeatedly or by a dangerous recidivist, for mercenary or other vile motives, using his official position, or entails grave consequences, with sanctions in the form of a fine from 50 to 100 minimum wages or correctional work from two to three years, or custodial restraint from one year to three years or imprisonment up to three years.
  4. Subjects of personal data also have the right to demand compensation for property and moral damage caused to them as a result of violation of their rights and legitimate interests.

Exemption from liability

A person accused of a criminal offense may be discharged by admitting his guilt, by reconciling himself with the victim and compensation of the caused harm (Article 66-1 of the Criminal Code). However, this rule does not apply to individuals who have unexpired convictions for committing grave or exceptionally aggravated criminal offences.

 

 

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Compliance: history of appearance in Uzbekistan

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Compliance in banks

Nowadays Uzbekistan supports a program by the President of the Republic of Uzbekistan and the Government of the Republic of Uzbekistan of developing and implementation of compliance control system in state bodies, as well as in various business sectors. A certain number of legal acts aimed at implementing the compliance system in various areas have been developed. For example, for the first time, compliance control was mentioned in the joint Resolution of the Board of the Central Bank of the Republic of Uzbekistan Of the Department for combating economic crimes under the Prosecutor General’s office of the Republic of Uzbekistan “On approval of internal control rules for countering the legalization of proceeds from criminal activities, the financing of terrorism and the financing of the proliferation of weapons of mass destruction in commercial banks” No. 2886 dated 23.05.2017, which states that commercial banks should develop internal rules, which should reflect assurance compliance control, audit and (or) functions on counteraction of legalization of incomes received from criminal activity, financing of terrorism and (or) the financing of proliferation of weapons of mass destruction, obtaining in the necessary cases for the purposes of counteraction of legalization of incomes received from criminal activity, financing of terrorism and (or) the financing of proliferation of weapons of mass destruction, information from branches and subsidiaries about their clients, accounts and transactions. Implementation of compliance control in banks is aimed to protect interests of investors, banks and their clients by monitoring compliance of bank employees with the provisions of current legislation, requirements of supervisory authorities, as well as documents defining the Bank’s internal policies and procedures.                                                                                                                          

According to the act, commercial banks should take appropriate measures to study, analyze, identify, evaluate, monitor, manage, document and reduce the level of risk. In their activities they are required to systematically conduct researches, analysis and identification of possible risks of legalization of proceeds from criminal activities, financing of terrorism and financing the proliferation of weapons of mass destruction, and document the results of the study.          

For example, the commercial bank Hamkorbank has a Code of corporate ethics, which declares that the Bank does not accept any types of bribery and corruption. Neither employees nor third parties cooperating with the bank can give remuneration to officials in order to obtain or accelerate actions on their part. The commercial bank Uzpromstroybank has set up an anti-corruption hotline, where you can report illegal actions of employees, as well as warn about various causes and conditions that may contribute to the manifestation of corruption.                                                                            

The position of compliance lawyer

After the above-mentioned legal act position of a compliance lawyer officially appears in Uzbekistan. Thus, according to the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan “On further improvement of the classifier of the main positions of employees and professions of workers” No. 795 dated 04.10.2017, the document was supplemented with the position of a compliance lawyer.

Compliance in the construction sector

Uzbekistan is taking measures to introduce modern market mechanisms to support business entities, provide greater freedom to private sector, strengthen guarantees of their rights and legitimate interests, attract foreign investment and modern technologies. Construction sector can be called one of priority sectors economy of Uzbekistan. The modern construction industry is one of the most prominent national sectors of the economy of the Republic of Uzbekistan showing stable annual growth. President Sh. Mirziyoyev in his strategy of development of the economy on 2017-2021 stated that special attention is given to the construction industry as a priority of the economy to accelerate development of the construction of buildings and structures, new objects of industry and private businesses, railways, roads, residential buildings.  In view of this, in accordance with the Decree of the President of the Republic of Uzbekistan “On measures to radically improve the quality of construction and installation works and improve the control system in construction” under No. 4586 dated 05.02.2020  in order to further improve the quality of construction and installation works, strengthen the role of inspections for control in the construction sector  a compliance service must be created, that will report directly to the head of the construction control inspectorate under the Ministry of construction of the Republic of Uzbekistan.

Compliance in the oil and gas industry

The development of the oil and gas industry of Uzbekistan is inextricably linked with the implementation of tasks to ensure the effective functioning of the fuel and energy complex of the Republic. On 04.04.2020  the decree of the President of the Republic of Uzbekistan “On priority measures to improve the financial stability of the oil and gas industry” came into force, which stated that in order to fully meet the needs of the economy and population of the Republic in energy resources, financial recovery of oil and gas enterprises, as well as creating favorable conditions for the development of a healthy competitive environment in the industry based on generally accepted international standards and best foreign practices, must be ensured implementation of the anti-corruption system “compliance control” at all enterprises of the oil and gas industry.         

To date, JSC “UZBEKNEFTEGAZ” has developed local regulatory documents in order to prevent corruption offenses, as well as a helpline for reporting signs of corruption. Also, the compliance control system seems to be implemented in JSC “UZKIMYOSANOAT”. However, there is no information about the development and implementation of the compliance control system in other organizations related to the oil and gas industry.                                      

Compliance in the Ministry of Justice

Next legal act, which refers to compliance is the decree of the President of the Republic of Uzbekistan “On measures on further improvement of activity of bodies and establishments of justice in the implementation of state legal policy”, which provides that the Ministry of Justice of the Republic of Uzbekistan has to implement anti-corruption compliance and create a position of “officer integrity” for coordination of anti-corruption policy of the Ministry of Justice of the Republic of Uzbekistan.                                                                                              

It is also worth noting that the Ministry of Justice of the Republic of Uzbekistan was the first among the state administration bodies of Uzbekistan to receive the certificate of the international standard of anti-corruption management ISO 37001:2016 “Anti-Corruption management system”. The international standard ISO 37001: 2016 provides for the implementation of acceptable and comparable measures to prevent, detect and take measures against corruption, as well as to minimize corruption risks.                                                     

Compliance and Anti-Corruption Agency

Thus, another legal act that referred to compliance is the Decree of the President of the Republic of Uzbekistan “On additional measures to improve the Anti-Corruption system of the Republic of Uzbekistan”, which declared formation of the Anti-Corruption Agency. One of the main tasks of the Agency is to organize the implementation and effective functioning of the internal Anti-Corruption compliance control system and other international anti-corruption tools in state and economic management bodies, state-owned enterprises, including banks with a state share in the authorized capital, and to conduct anti-corruption monitoring based on modern methods and technologies, as well as to compile a rating of their activities in this area. Based on this Decree, the Anti-Corruption Agency of the Republic of Uzbekistan is the responsible body for implementing the compliance control system in the above-listed organizations.

Compliance and business development Agency                                                                            

According to the decree of the President of the Republic of Uzbekistan “On additional measures to improve the system of public involvement in entrepreneurship and entrepreneurship development” under No. PP-4862 dated 13.10.2020, the Agency for business development, together with the State Inspectorate for supervision of the quality of education and the Ministry of justice was instructed to submit to the Cabinet of Ministers within a month the procedure for forming an electronic register of non-state educational organizations participating in programs for training the population in professions and entrepreneurship, as well as compensation for their expenses spent on training of public. At the same time, it should include: ensuring transparency and fairness in the provision of compensation, creating a system of compliance control to combat corruption, aimed at preventing various forms of abuse in this process.

Implementation of compliance in state-owned enterprises

The next regulatory act is the Decree of the President of the Republic of Uzbekistan “On measures for accelerated reform of enterprises with state participation and privatization of state assets” No. up-6096 dated 27.10.2020, which provides for the formation of a Department for the transformation of large enterprises with state participation in the structure of the Central office of the Ministry of Finance, one of the main tasks of which is to introduce a modern corporate governance system that provides for auditing procurement and management systems, as well as the formation of the compliance system and anti-corruption services in enterprises with state participation.                                                                                                                                     

The main goal of privatization in Uzbekistan is to attract private sector investment in the modernization, technical and technological re-equipment of privatized enterprises, the production of import-substituting and export-oriented products and creation of new job opportunities. Thereby ensuring the growth of the importance and share of the private sector in the country’s economy and accelerating structural changes in the economy.                                  

Compliance in the Cadastral Agency under the State tax Committee

Also, the system of compliance control is provided in the Cadastral Agency under the State tax Committee, as well as in organizations that are part of the Cadastral Agency system, as stated in the Decree of the President of the Republic of Uzbekistan “On organizational measures to reduce the shadow economy and improve the efficiency of tax authorities” No. up-6098 dated 30.10.2020. This implementation is noticeable on the official website of the Cadastral Agency under the State tax Committee, where a section “Fight against corruption” was added, which provides an opportunity to contact anonymously about the presence of corruption. However, according to article 29 of the Law of the Republic of Uzbekistan “On appeals of individuals and legal entities”, appeals submitted anonymously are not subject to consideration.

Conclusions and recommendations.

It is worth to emphasize that it is noticeable how the Government of Uzbekistan is taking measures to implement the compliance system in various areas, including in the activities of state bodies last three years. However, policy development alone is not enough without proper implementation in processes. In addition to hiring employees with special knowledge in the field of compliance, for the positions of compliance lawyers, i.e. “integrity officers”, it is important to conduct regular compliance courses for other employees, develop incentive systems, build an internal system of checks and balances and in order to succeed it is necessary to establish the work of the personnel service, financial control system, etc. It is important to bring existing local regulations into line. Most importantly it is necessary to review and adopt a number of changes and additions to the existing legislation of the Republic of Uzbekistan.

Our clients: ARboost

Our law firm Black Swan Consulting has been closely working for several months with the Russian company ARboost, known in the IT and telecommunications sector.

Within the framework of the agreement, BSC provides legal support in every possible way, as well as advises on various legal issues that the company faces in Uzbekistan. We also represent ARboost’s interests in government agencies.

ARboost was founded in 2010. The main goal of company is to provide ways for mobile operators to conduct interactive campaigns with subscribers.

ARboost offices are located throughout the CIS countries, what provides great convenience for its customers.

The company cooperates with such mobile operators as Beeline, MegaFon, Utel, Tele2.

“In cooperation with BSC, we most value efficiency, customer focus and quality of performed work,” says ARboost in-house counsel Sergey Gudkov.

BSC signed memorandum with NGO “Mercy and Kindness”

“The greatness of a nation and its moral progress can be judged by the way it treats animals,” – Mahatma Gandhi said.

Recently, our law firm “Black Swan Consulting” LLC signed a Memorandum with the NGO “Mehr va Oqibat” (translated from uzbek as Mercy and Kindness), which works in the field of upholding the rights and justice for animals.

Within the framework of this Memorandum, BSC is ready to assist and participate in projects initiated by NGOs. Despite the fact that the specifics of our firm is consulting in the field of corporate and commercial law, intellectual property and compliance, we have shown full readiness to support this NGO in every possible way and advise them in individual cases, as well as work together with them to tighten responsibility for animal cruelty. To date, the maximum fine for animal abuse is about $65. The criminal code of the Republic of Uzbekistan does not provide responsibiity for this act.

As part of this cooperation, we have already helped this NGO to bring to justice the person who shot the cat. As a result, the person was brought to justice and the court imposed (https://uznews.uz/ru/article/25760) a fine of $46.

Managing partner of the company – Amir Akhmedov is one of the oldest NGO volunteers, and was there at the time when the society was just emerging.

We hope that our cooperation and our work will be effective and will bring benefits to society