In the next few months, Bosnia and Herzegovina (BiH) will need to fulfill at least 75% of the recommendations and requirements of the Council of Europe Committee (Moneyval) if it wants to avoid the “grey list” and the introduction of additional monitoring of every transaction of businesses and citizens with foreign countries.
The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism of the Council of Europe determined in December that there are a number of deficiencies in BiH in the area of preventing money laundering and terrorist financing. For this reason, it was given one year of observation by the Financial Action Task Force (FATF), the global supervisory body for preventing money laundering and terrorist financing, which is the timeframe to correct the deficiencies.
According to Edin Jahic, head of the Department for Combating Organized Crime and Corruption in the Ministry of Security of BiH and a member of the BiH Moneyval delegation, the next three to four months are crucial to make progress and achieve what Moneyval has requested.
He says that BiH is on the right track, but that it is necessary to decisively implement the provisions of the Law on Prevention of Money and Terrorist Financing in BiH and fulfill at least 75% of the recommendations.
“We have formed a coordination body that is working on supplementing the risk assessment in the area of terrorist financing. Currently, our biggest problem is establishing supervision where it does not exist, especially in the area of preventing money laundering. It is missing with notaries in the Federation of BiH (FBiH), in post offices, with lawyers, and in gambling in the FBiH. This is not simple and requires setting up a department, hiring and training people,” Jahic explains.
He emphasizes that everything must be completed by December and the holiday season, so that everything is prepared for February next year when Moneyval convenes and reviews the achievements.
“That is why we must use these few months. Someone observing from the outside might not say that, but we have done a lot this year,” says Jahic.
What BiH must fulfill
If BiH does not achieve at least 75% fulfillment of Moneyval’s recommendations, there is no doubt that it will go on the “grey list,” says Jahic.
Asked to explain what this means for citizens, he explains that every time a natural or legal person from BiH is part of any transaction worldwide, additional checks will have to be conducted.
“These checks mean that foreign countries doing business with us would have to request additional information and allocate more resources. Since all of this is paid for, the question is whether anyone from those international institutions, and who at all, would want someone from BiH as a client,” Jahic explains.
Moneyval, in its report that put BiH under observation, highlighted significant improvements in the legal and regulatory framework in the fight against money laundering and terrorist financing, but also noted that further development of coordination among competent authorities is needed.
BiH is expected to make significant efforts in implementing the recommendations and work intensively to improve the entire system. If it does not, it will be marked “as a jurisdiction with strategic deficiencies in the system for preventing money laundering and terrorist financing.”
The main problems identified in the latest report, among others, are weak coordination at the state level and limited use of the Financial Intelligence Unit (FIU), which relies mostly on bank reports and little on other sources. Investigations and indictments for money laundering are not a priority, are often slow, and are focused on self-laundering and taxes, while corruption and organized crime are not sufficiently addressed.
What the Moneyval report says
“There are good results in confiscating illegally acquired assets, but a unified state system and clear rules are missing, and penalties for unreported cash are minimal. Results in the fight against terrorist financing are weak. There is only one conviction and one acquittal, and there are insufficient statistics and investigations. Effective financial sanctions are lacking, and during the observed period, there were no asset freezes,” the Moneyval report states.
It emphasizes that the non-financial sector, which includes notaries, lawyers, accountants, and gambling, has a limited understanding of risks and poor application of measures. Checks on beneficial owners of assets and companies are also missing, and it is not known whether all have bank accounts.
“Penalties for banks are too low, and non-financial sectors are not punished at all. There are many investigations and convictions for money laundering, but mostly for self-laundering and taxes, while corruption and organized crime are insufficiently prosecuted,” the report states, adding that BiH authorities have a good understanding of money laundering risks but poorly understand terrorist financing risks.
The EU Delegation in BiH says that placing BiH on the “grey list” would have political, economic, and financial consequences, including complicating access to international financial markets and transactions.
“Additionally, it would negatively impact private commercial activities and public fiscal operations, and could potentially restrict access to foreign investments, international capital flows, and loans from international organizations. BiH has already successfully taken some key steps, such as adopting the Law on Prevention of Money Laundering and Terrorist Financing. However, much remains to be done,” says Ferdinand Koenig, spokesperson for the EU Delegation.
Recommendations can be fulfilled
He says that BiH must prioritize adopting a law on asset confiscation and management at the state level, as well as a law on targeted financial sanctions related to terrorism, terrorist financing, and the proliferation of weapons of mass destruction.
“There has long been a wait for establishing a register of beneficial owners of legal entities in BiH, which is another important EU and FATF condition assessed by Moneyval, and the competent institutions must urgently resolve this. These reforms are of fundamental importance both for BiH and its EU path,” says Koenig.
Economist Igor Gavran says that the conditions set by Moneyval are not unreasonable and can be met within the prescribed timeframe.
“Nothing abnormal is expected from BiH; these are measures important for our security. Monitoring financial crime, the origin of money, and money laundering is required. Very often, we say we do not know the origin of someone’s money or that real estate is being bought with unknown sources. Our goal is also to access the EU payment system, which requires monitoring and reliability of cash flows,” says Gavran.
He adds that even if some conditions require extra effort, they can be overcome because the negative effects are very bad for us and must be avoided at all costs.
“We were once briefly on the ‘grey list’ and experienced negative effects for citizens and legal entities. Citizens could not make money transfers or pay subscriptions to international services, such as those via PayPal and Netflix. However, that is nothing compared to what could happen to businesses, whose transactions could be interrupted or required to pay in advance, which could cause serious problems,” says Gavran, adding that it could also halt remittances from the diaspora, which is a large source of funds for BiH, Capital writes.
