Obligation of Certification and Loan Agreement Register

The recent amendments to the Law on the Prevention of Money Laundering and the Financing of Terrorism, along with corresponding amendments to the Law on Notaries, have made a previously informal agreement (often concluded verbally) strictly formal.

This concerns loan agreements between individuals, particularly in cases where the loan amount is equal to or exceeds 10,000 euros. It should be noted that, in accordance with the Law on Obligations, a loan agreement is an informal and real contract – it is concluded by the mutual consent of the contracting parties and by the transfer of the loan item to the borrower. Loan agreements date back to Roman law and are among the frequently concluded agreements in legal transactions. However, precisely because a loan agreement does not need to be formulated in writing to be valid, many legal proceedings are conducted in which proving this agreement by the plaintiff is often difficult.

In Serbia, a register of loan agreements has been established to improve transparency and control over loans between citizens. This register is part of measures to prevent money laundering and the financing of terrorism.

Main Obligations of Contracting Parties, Notaries, and the Administration for the Prevention of Money Laundering:

1. Notary Certification: All loan agreements between citizens where the loan amount is equal to or exceeds 10,000 euros must be made in writing, contain all legally prescribed mandatory elements, and be certified by a notary (solemnization of the agreement).

2. Notary Obligations: The notary is obliged to enter all identification data on the lender, borrower, loan amount, repayment terms, interest, and currency into the register. The notary who has certified (solemnized) the loan agreement is also obliged to immediately submit a certified copy of that agreement to the Administration for the Prevention of Money Laundering via the register developed and maintained by the Ministry of Justice.

3. Obligations of the Administration for the Prevention of Money Laundering: The loan agreement register is managed by the Administration for the Prevention of Money Laundering (APML). This institution is responsible for overseeing and managing the register and ensures that all loan agreements above a certain amount are transparent and accessible to competent authorities, aiming to prevent money laundering and/or financing of terrorism.

Given that the amendments to the law introduce a new obligation, which additionally imposes financial obligations on the contracting parties (towards the notary), it is assumed that future lenders and borrowers may be motivated to circumvent this legal obligation. However, the consequences of such a decision should be considered. Namely, if a loan agreement is not certified – solemnized by a notary, it is possible that we will face some or all of the following consequences:

• Lack of Legal Force: The agreement may be declared void in the event of a dispute, as it was not concluded in the legally prescribed form;
• Risk of Fraud: Without solemnization, there is a higher risk of fraud and avoiding the obligation to repay the loan, and in case of initiating legal proceedings against the borrower, proving the agreement and its legal force will be questionable.
• Lack of Trust: The agreements that are not solemnized do not have the evidentiary power of a public document.
• Misdemeanor and Fine: A fine ranging from 5,000 to 50,000 dinars will be imposed for a misdemeanor on an individual who receives cash based on a loan agreement or a real estate sale agreement in the amount of 10,000 euros or more in dinar equivalent, regardless of whether it is one or more interrelated cash transactions or one or more agreements within a period of one year.

Given the listed risks, establishing legal obligations for the solemnization of loan agreements and maintaining a loan agreement register can be considered a key step towards improving legal security and transparency in these frequent transactions between individuals.

If you have any questions regarding the compulsory liquidation procedure, feel free to contact us. Our law firm provides expert assistance in resolving these complex legal matters.

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