The government of the RS risks new international consequences after the million-dollar contract with the sanctioned Chinese corporation

After the revelation that the Government of Republika Srpska signed a secret contract of 57 million marks for digital protection with a Chinese company owned by a corporation linked to the military industry, which is under US sanctions from 2021, economists warn that the authorities thus risk expanding the US "blacklist". 

The Government of Republika Srpska has been facing challenges in the digital space for months, as a result of US sanctions on information companies, and the solutions they are finding in secret could cause additional damage.
Recently, the business portal Capital revealed that in early June the Government signed a contract with the Chinese company "Elinc" for the procurement of software for digital protection in all institutions, and that the contract was marked as confidential.
It is planned to install the systems in all entity institutions for a period of ten years. Capital announced that the authorities decided to take this step after shutting down the Government domain due to the introduction of US sanctions, hacker attacks and data leaks, as well as a number of other challenges. "Elinc" itself is part of a corporation that is on the US sanctions list.
This could create additional problems, according to economic analyst Svetlana Cenić. She explains that all those who cooperate with those who are on the Ministry of Finance OFAC's "black list" can be sanctioned, and this includes all companies and persons, in this case the Government.
"It's about payment transactions, about financial transactions, and OFAC is very clear about that - when someone gets on the 'black list', all those who cooperate or carry out payment transactions, buying and selling can be punished," says Cenić.
On the website of the company "Elinc China" it is stated that it is a wholly owned subsidiary of "China Electronics Corporation" (CEC).
CEC has been on the U.S. sanctions list, or CMIC list, since June 2021, when the Treasury Department's Office of Foreign Assets Control (OFAC) added regulations to implement an earlier executive order related to investments in securities that finance the Communist Chinese military. companies.
The CMIC list is a targeted sanction that restricts US persons from buying or selling publicly traded securities of companies designated as operating, or having operated in, the defense and related materiel or technology sectors of China's economic surveillance. The order was amended on June 3, 2021, and refers to China's military-industrial complex and Chinese surveillance technologies.
The sanctions prohibit securities transactions between US citizens and listed companies. With the amendments to the list of sanctions, any purchase or sale of publicly traded securities, or any publicly traded securities, is prohibited.

Buying software from a company that cooperates with military structures, and is still on the American "black list", also brings risk, according to the editor of the Capital portal, Siniša Vukelic. He explains that the cooperation between the Government and the Chinese company is problematic from several angles.
"First, did the government know that this company was under American sanctions. "If she knew and still made the deal, then she knowingly put at risk not only that project, but also the possible expansion of the American 'blacklist', when it comes to legal and natural persons from the RS," says Vukelic
If she did not know, then the question arises of the responsibility of the highest executive authority in Republika Srpska to carry out such valuable work without detailed checking and preparation, according to Vukelic.
He says that this does not exclude the personal responsibility of the individuals who prepared and put the proposal to the vote at the Government session.
"And this shows how to approach such important and big jobs like this one, which is worth close to 60 million marks," he adds.
Prime Minister Radovan Višković did not answer calls from Detektor journalists.
The Agency for Information and Communication Technologies of the RS issued a statement in which they stated that over the past year, the Government has carried out a detailed analysis of the state of information security in public administration and critical infrastructures, developed guidelines for the development of information security and designed a new national protection system which - in terms of scope, resources and complexity - represents the largest information and communication technology project in this entity.
They said that the implementation of the project is expected to begin by the end of August, but they did not respond to Detektor's inquiry.
Economist Svetlana Cenić says that the question is how "Elnic" will charge for services because Russia developed its own charging system after being excluded from SWIFT, and after that China developed its own.
"But we're not, we use SWIFT. If some companies are on OFAC's list, their account is controlled," says Cenić.
The SWIFT system enables most international money and security transfers.
Cenić says that the contract has not been made public, but regardless, it will be difficult to implement it.
"It is punishable, America has the right to it. We know who controls the world's financial flows. They may have entered into a contract in the hope of getting some credit. I cannot understand that someone who deals with finance can allow himself to take such a risk, knowing what the consequences are," says Cenić.
Currently, there are 46 Chinese companies and their subsidiaries on the sanctions list. "Enlic" itself is not on the list of sanctions.

OFAC stated in the explanation of the sanctions that it was determined that China is increasingly exploiting US capital for resources and to enable the development and modernization of its military, intelligence and other security apparatuses, which continues to allow China to directly threaten the US and US forces abroad. including the development and deployment of weapons of mass destruction, advanced conventional weapons, and malicious cyber actions against the US.
These companies have been found to pose a threat, originating largely outside the US, to US national security, foreign policy, and the US economy, and a national emergency has been declared regarding the threat.
The company with which the Government of Republika Srpska signed the contract states on its website that they are authorized by the Chinese government to export military items and guide the globalization efforts of the Chinese defense electronics industry, and that "Elnic" is an important platform for international cooperation in the IT industry for China.
According to information available on the website, currently "Elinc" is present in more than 160 countries and regions around the world and has branches in 23 countries
The Center for a New American Security (CNAS) writes that the July 2021 executive order expanded the policy objective of the CMIC list, including new powers for the government to sanction firms that work in Chinese surveillance technology “to facilitate repression or serious human rights violations, in addition to previously included defense sector and related material".
Economic analyst Zoran Pavlović says that the RS Government's need for cyber protection has become necessary, but that such work had to be done through an international tender where the best bidders and companies with experience are sought.
He notes that the Government of the RS and its agencies have so far concluded contracts with "Prointer" and other domestic companies.
Detektor previously wrote about how the sanctioned companies, due to their ties to the President of the RS Milorad Dodik, earned 500 million marks in tenders.
The problem, according to Pavlović, is that there was no public tender, as well as the fact that the contract was concluded secretly with a company that is part of a corporation that is on OFAC's "black list".

"This is very dangerous because, from an economic point of view, OFAC can put the Government of RS on the 'black list' on that basis, and that would be a disaster for the citizens. Apparently, people in the government are not even aware of what they are doing," Pavlović believes.

CONCLUSION

The contract for the procurement of software for digital protection in all institutions of the Republika Srpska by the Chinese company "Elinc", which is owned by a company that is on the list of companies sanctioned by the USA, is first of all transparent, suspicious from a legal point of view and ultimately, possibly, and dangerous for the safety of the institutions and citizens of the RS.

Neither a domestic nor an international tender was called for the award of the contract (because the companies that have done this work so far are on the US sanctions list), the contract was concluded with a secret mark, which justifiably raises the question of its content and possible consequences for the security of the institutions and citizens of the RS .

The contract itself is a typical pattern of work of most Chinese companies in the countries of the Western Balkans, where the details of the contract remain unknown to the public, which, in addition to being non-transparent, opens up space for illegal business and possible corruption. Additional vigilance and assurance of control mechanisms for the implementation of a contract like this, which (if implemented) can pose a serious threat to the safety of citizens, as well as the work of the institutions of the Republika Srpska, is necessary.