Bosnia and Herzegovina is dragging its feet when it comes to reforms to tackle money laundering and terrorist financing, putting at risk financial flows to and from abroad. There are concerns over the rest of the Balkan region too.
Bosnia and Herzegovina risks returning to a European ‘grey list’ of countries failing to make legal changes to tackle money laundering and terrorist financing, bankers fear, in a downgrade that would hurt transactions with countries inside the European Union.
A delegation from MONEYVAL, an anti-money laundering body of the Council of Europe, is expected to visit Bosnia September 25-October 1 to assess the country’s progress in making legislative changes eight years after it was removed from the grey list.
Still outstanding is a new law on the prevention of money laundering and terrorist financing and a raft of recommendations made by the Financial Action Task Force, FATF, a global watchdog.
A government official, who spoke on condition of anonymity, said MONEYVAL would likely give Bosnia a grace period in which to implement its recommendations. “Probably, nothing will be done and we’ll go back onto MONEYVAL’s grey list in 2025,” the source said. “But this time it won’t be for two and half years but for longer.”
Samir Lacevic, an adviser to the Bank Association of BiH, said that the impact would be felt by businesses and the public alike, particularly on the use of foreign credit cards in Bosnia and Bosnian cards elsewhere.
“It means a devastation of economic flows”, he said. “Imagine that payments by those cards are disabled because it’s prohibited in their countries. That’s a realistic situation. Besides, we’ll not be able to pay anything in the EU with our cards.”
“A situation arises in which business cooperation is cancelled because businesses in our partnering countries don’t want to enter into any sort of risk regarding money laundering given the draconian penalties.”
But it’s not just Bosnia which is in trouble: Albania has been on the MONEYVAL grey list for three years already. Serbia and North Macedonia are also expecting expert reviews in the near future.
New law pending
Bosnia was dropped from MONEYVAL’s grey list in 2015 and from FATF’s own ‘black list’ in early 2018; the EU dropped its designation as a ‘high-risk’ country in May 2020.
The progress followed the revision of several dozen laws and by-laws at all levels of government, said Nezir Pivic, who headed Bosnia’s delegation to MONEYVAL under the previous government.
“The new government,” he told BIRN, “does not put this issue in focus at all, which will lead to BiH being put back on the grey list.”
“Unfortunately, negligence will lead to a situation where our country will have significant issues when it comes to business activity, the economy and development of the country.”
Pivic said it was vital that Bosnia adopt a new law on prevention of money laundering and terrorism financing, which the previous government began drafting.
The Security Ministry said the draft is in the final stages and would bring Bosnia’s framework for fighting money laundering and terrorism financing into line with FATF standards and MONEYVAL recommendations “from the last round of evaluations”.
It did not specify which individual recommendations had been acted on since the last evaluation.
FATF has called for better monitoring of how notaries, attorneys, accountants, and microcredit organisations comply with money laundering and terrorist financing regulations; Bosnia also still lacks a registry of beneficial owners – a measure designed to help unravel the ownership of offshore companies – or a law on virtual currencies, among a raft of shortcomings identified in previous assessments.
Ivana Veselcic, Bosnia’s current head of delegation to MONEYVAL, said it was too early to speak about the results of the MONEYVAL assessment.
“Evaluation is a dynamic process aimed at improving the capacities of national authorities for a more efficient fight against money laundering and terrorist financing,” Veselcic said in a written response to BIRN. “We are of the opinion that the report for Bosnia and Herzegovina will be adopted in April 2024 at Moneyval’s plenary session.”
The EU delegation to Bosnia, however, warned that without taking the required action by the end of the year, “there is a realistic possibility that BiH, as a country with strategic deficiencies in this field, will be put back on ‘grey lists’ of international control bodies FATF and MONEYVAL”.
This, it said, “would have political, economic and financial consequences for the country and negative effects on the access to international financial markets and transactions, but also on private commercial activities and public fiscal affairs. It would significantly restrict access to foreign investments and loans from international organisations and international flow of capital.”
Part of the responsibility falls to the individual entities that make up Bosnia – the predominantly Serb-populated Republika Srpska and the mainly Bosniak-Croat Federation.
Responding to BIRN, the Republika Srpska government said it had begun inspecting notaries, appointed a working group to monitor implementation of the entity’s obligations in the field and adopted a law on virtual currencies and that the police had solved a record number of money laundering cases.
“We consider that the financial sector in Republika Srpska fulfils, for the most part, the prescribed standards in the field of prevention of money laundering and financing terrorist activities, so it should not affect the potential putting of BiH back on the grey lists of FATF and Moneyval,” the entity government said.
The Federation government did not respond.
North Macedonia: Concern over NGO sector
North Macedonia was on the EU grey list of non-cooperative jurisdictions for tax purposes from October 2021 until February this year.
In its last report, from May, MONEYVAL urged the government in Skopje to step up the investigation and prosecution of money laundering, saying that “institutions and prosecutors do not systematically pursue parallel financial investigations and target more complex cases of money laundering”.
The fact that only one case of terrorist financing has been prosecuted does not reflect the risk profile of North Macedonia and its immediate neighbourhood, MONEYVAL told BIRN, and cited the threat posed by citizens who left to fight in Syria and later returned.
Among 40 recommendations, MONEYVAL said North Macedonia should step up the supervision or monitoring of the non-governmental sector due to the increased risk of abuse for terrorist financing; pay closer attention to data submitted during the registration of companies; and improve the work of the financial intelligence unit in monitoring all sectors, particularly business such as casinos and currency exchanges.
Montenegro, which is not on the grey list, is waiting on the results of MONEYVAL’s latest assessment, launched in March, amid pressure to improve cooperation between institutions in tracking, detecting and prosecuting illegal money flows.
According to official data, more money laundering cases are reaching court, but the EU says the rate is still too low. Two court verdicts were issued in cases involving three individuals in 2021, all based on plea bargains.
In the first six months of 2022, nine money laundering cases were pending before the courts, of which four were stand-alone money laundering cases.
Serbia: External evaluation needed
Serbia was on FATF’s grey list from February 2018 to June 2019. The country is due to submit its latest report this year detailing the progress it has made in complying with FATF and MONEYVAL recommendations.
The last MONEYVAL assessment from November 2021 states that the country is “compliant” with five out of 40 FATF recommendations, “mostly compliant” with 34 recommendations and “partially compliant” with one.
According to the report, the country amended laws to further regulate the work of notaries and attorneys and the licencing of accountants and real estate agents. But it noted that MONEYVAL did not assess whether the new rules were applied in practice.
“At present, there is no comprehensive analysis, so it is hard to estimate to what extent the 40 recommendations are actually being implemented in practice,” said Sasa Djordjevic, coordinator for Serbia and Montenegro of the Global Initiative against Transnational Organised Crime.
“We need an external evaluation, which would be supported by the public, private and civil sectors. What is possible is to identify the sectors at risk of money laundering. There is a consensus that it is the real estate sector, especially illegal construction, which has been a problem in Serbia for decades.”
Serbia is late with a strategic framework in the field of combatting financial crime, which was due in 2021. The justice ministry has reported to the EU that a working group is preparing the framework but did not answer questions sent by BIRN as to when it would be ready and why the delay.
According to Djordjevic, officially, the total value of assets subject to investigation on suspicion of money laundering in Serbia exceeded 57 million euros, based on the amount that Serbia’s Administration for the Prevention of Money Laundering calculated for the period 2018 and 2020 in cases involving 467 people. But the Global Initiative against Transnational Organised Crime estimates the real figure is anywhere between one and 2.5 billion euros.
“That is just a part of the illegal financial flows in Serbia estimated to amount to nearly five per cent of gross national product, as estimated in a report by the Global Initiative against Transnational Organised Crime,” he said.
Albania was put on FATF’s grey list in February 2020; in February this year, the country was commended for its progress in addressing the shortcomings but remained on the grey list due to concerns over a draft law on voluntary tax consent.
Under the draft, individuals with up to two million euros of unreported cash or real estate would be allowed to report it without penalty providing they pay the tax. Critics said it would effectively allow drug smugglers to launder their money, no questions asked. The International Monetary Fund, EU and the business community in Albania all criticised the proposal.
“It would weaken the Albanian money laundering controls while doing little to improve the possibilities of tax administration for tax requests,” the European Commission, the EU’s executive arm, said in 2022.
In June, FATF announced it would visit Albania again to assess its reform progress in tackling money laundering and developments surrounding the proposed new tax law.
This story was produced with support from the Global Programme ‘Combating Illicit Financial Flows’ implemented by the GIZ and financially supported by the German Federal Ministry of Economic Cooperation and Development and the Norwegian Ministry of Foreign Affairs.
Its contents are the sole responsibility of BIRN and do not necessarily reflect the views of the GIZ, the German Federal Ministry of Economic Cooperation and Development or the Norwegian Ministry of Foreign Affairs.
Source : Balkans Insight