BOSNIA & HERZEGOVINA
Summary

Sanctions

EU travel bans and asset freezes against certain individuals

FAFT AML Deficient

Yes however Moneyval has lifted its Public Statement following key amendments to the Criminal Code addressing outstanding shortcomings in relation to the money laundering offence and the confiscation regime

Higher Risk Areas

US Dept of State Money Laundering assessment

Not on EU White list equivalent jurisdictions

Offshore Finance Centre

Medium Risk Areas

 

Compliance with FATF 40 + 9 Recommendations

US Dept of State Money Laundering assessment

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Bosnia and Herzegovina is on FATF’s list of aml deficient countries

 

Latest FATF Statement: 24 February 2017

In June 2015, Bosnia and Herzegovina made a high-level political commitment to work with the FATF and MONEYVAL to address its strategic AML/CFT deficiencies. Since October 2016, Bosnia and Herzegovina established a legal framework for freezing terrorist assets under UNSCR 1373 and made progress in adopting several insurance laws. Bosnia and Herzegovina should continue to implement its action plan to address its deficiencies, including by: (1) harmonising criminalisation of terrorist financing and money laundering in the remaining criminal code; (2) implementing an adequate supervisory framework; (3) implementing adequate AML/CFT measures for the non-profit sector; (4) establishing and implementing adequate cross-border currency controls; and (5) ensuring adequate procedures for the confiscation of assets. The FATF encourages Bosnia and Herzegovina to continue implementing its action plan to address its AML/CFT deficiencies.

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Bosnia & Herzegovina was undertaken by the Financial Action Task Force (FATF) in 2009. According to that Evaluation, Bosnia & Herzegovina was deemed Compliant for 3 and Largely Compliant for 14 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 3 of the 6 Core Recommendations.

 

US Department of State Money Laundering assessment (INCSR)

Bosnia and Herzegovina is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

Bosnia and Herzegovina (BiH) has a primarily cash-based economy and is not an international or regional financial center. BiH is situated centrally within the Balkans and has open borders with Croatia, Serbia, and Macedonia. The Visa Liberalization Agreement with the EU enables easy transit from eastern countries and the Balkan region to countries of Western Europe. BiH is a market and transit country for smuggled commodities, including cigarettes, firearms, counterfeit goods, lumber, and fuel oil.

International experts have noted deficiencies in Bosnia and Herzegovina’s confiscation measures; CDD; suspicious transaction reporting; internal controls, compliance, and audit; sanctions; special attention for higher risk countries; regulation of bank branches and subsidiaries and DNFBPs; guidelines and feedback; statistical data; public reporting from the Financial Investigation Unit, BiH’s FIU, on trends and typologies; lack of adequate supervisory powers in the insurance market; resources, integrity, and training at financial institutions; national-level cooperation; definition of legal persons and beneficial owners; and regulations on NPOs. Although progress has been made, BiH has not fully harmonized the criminalization of money laundering at the district and federal levels. BiH has established a working group to resolve these issues.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

Most money laundering activities in BiH Bosnia and Herzegovina focus on evading taxes, and the majority of reports on suspicious transactions are connected to tax evasion. A smaller amount involves concealing the proceeds of illegal activities, including trafficking in persons, illicit drugs, organized crime, and corruption. The FIU notes a high number of cases in which individuals withdraw funds under the guise of legitimate business, but where the transactions are later found to be fabricated. Reports on suspicious transactions submitted by banks show that, by number of transactions, fraud and identity theft are increasing, as are identity card counterfeiting and credit card fraud.

 

There are concerns about the effectiveness of controls of cross-border transportation of currency and bearer negotiable instruments at the maritime border and land crossings. There is no indication BiH law enforcement has taken action to combat the TBML likely to be occurring in the country. Corruption is endemic, affecting all levels of the economy and society. Integration of laundered proceeds in real estate is a problem.

 

There are four active FTZs in BiH. Companies working in these zones are primarily producing automobile parts, forestry and wood products, and textiles. There have been no reports that these areas are used for money laundering. The Ministry of Foreign Trade and Economic Relations is responsible for monitoring FTZs.

 

KEY AML LAWS AND REGULATIONS

 

The main legislation defining BiH’s AML regime includes the Law on AML/CFT, Criminal Codes of BiH, Criminal Procedures Code, and the Laws on Banks.

 

The country has comprehensive KYC and STR regulations and applies due diligence measures. The country has mechanisms in place for records exchange.

AML DEFICIENCIES

 

BiH amended its law on money laundering in 2015. BiH continues to slowly implement its action plan to address deficiencies. Items to be addressed include, among other items, implementation of an adequate financial supervisory framework; implementation of adequate AML measures for the non-profit sector; the establishment and implementation of adequate cross-border currency controls; the harmonization of the criminalization of money laundering in all criminal codes, e.g., in both entities and at the State level; and adequate procedures for the confiscation of assets.

 

To date, BiH’s State level government has addressed cross-border currency control and imposed due diligence procedures for PEPs.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

BiH’s political structure and ethnic politics hinder the effectiveness of its AML regime. Coordination of law enforcement efforts among the multiple jurisdictional levels in BiH - the State, the two entities (the Federation of Bosnia and Herzegovina and the Republika Srpska), and Brcko District - is improving, but additional efforts are necessary.

 

Criminal codes and criminal procedure codes from the State, the two entities, and Brcko District contain similar money laundering offenses. Self-laundering is not criminalized consistently and penalties for money laundering are not yet equivalent. The criminal codes of the entities and Brcko District each lack specific provisions on some aspect of confiscation and forfeiture income or other benefits, commingled property, or instrumentalities. Since the State does not have the resources to investigate all money laundering violations, the respective criminal codes complement one another. The jurisdictions, however, maintain separate bank supervision and enforcement/regulatory bodies.

 

BiH has implemented the 1988 UN Drug Convention and other applicable agreements. BiH has not refused to cooperate with foreign governments.

 

In the period January - August 2016, the BiH Court (State-level) convicted four persons on charges related to money laundering (which had been prosecuted prior to 2016) and initiated no new prosecutions.

 

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SANCTIONS

Pursuant to Council Decision 2011/173 the EU has imposed travel bans and asset freezes against certain persons undermine the sovereignty, territorial integrity, constitutional order and international personality of Bosnia and Herzegovina.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

39

World Governance Indicator – Control of Corruption

45

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Bosnia and Herzegovina (BiH) still struggles to attract foreign investment. Although open to foreign investment, investors continue to face a number of serious obstacles including: multiple complex legal and regulatory frameworks and government structures; non-transparent business procedures; corruption; poor infrastructure; insufficient protection of property rights; and a weak judicial system. In addition, the country’s political environment, coupled with the pressures of the global economic downturn, has stalled many key economic reforms.

Under the BiH constitution established through the Dayton Accords, Bosnia and Herzegovina is divided into two “entities,” the Federation of BiH (the Federation) and the Republika Srpska (RS). A third, smaller area, the Brčko District, operates under a separate administration. The Federation is further divided into ten cantons, each with its own government and responsibilities. Each entity also has municipalities. As a result, BiH has a multi-tiered legal and regulatory framework that is often duplicative and contradictory. Employers pay a heavy burden to governments, an extra 69 percent of the wage level in the Federation and 52 percent in the RS, for mandatory health and pension contributions. Labor and pension laws are deterrents to investment.

The lack of a single economic space throughout BiH creates difficulties for companies trying to do business across the entire country. While corporate income taxes in the two entities and Brčko District are now harmonized at ten percent, entity business registration requirements are not harmonized. The RS has its own registration requirements, which apply to the entire entity. Each of the Federation’s ten cantons has different business regulations and administrative procedures affecting companies. Simplifying and streamlining this framework is essential to improving the investment climate.

According to the World Bank, BiH ranks only above Tajikistan and Uzbekistan in the region of Europe and Central Asia in terms of ease of doing business. It ranked 131 out of 189 countries in the 2014 World Bank Doing Business report, down one spot from its ranking the previous year. BiH's position improved in three categories: trading across borders, enforcing contracts, and resolving insolvency. BiH’s worst performance was in the following categories: starting a business, dealing with construction permits, and obtaining electricity. The World Bank estimates that in the city of Sarajevo, starting a business requires an average of 37 days and 11 separate procedures, well above the average for the region. BiH’s full WB Doing Business review can be found at: http://www.doingbusiness.org/ExploreEconomies/?economyid=26. In 2013, the RS established a one-stop-shop for business registration in the RS. This reduces the required processes dramatically, and initial reports indicate the time to register a business in the RS is down to an average of one week.

Potential investors have been frustrated by the lack of attractive privatization opportunities, non-transparent government tender processes, and impediments to greenfield investment. Privatization offerings are scarce and often require unfavorable terms. For example, some formerly successful state-owned enterprises have accrued significant debts from unpaid health and pension contributions, and potential investors are required to assume these debts and maintain the existing workforce. As a result, foreign investment -- including greenfield investment -- has significantly shrunk in the last several years. From a high of $2.1 billion in 2007, foreign direct investment (FDI) totaled $392 million in 2012 and was $347 million in the first nine months of 2013. Most investments in 2012-2013 came from Russia, Austria, Croatia, Serbia, Slovenia and Germany.

The state-level Law on the Policy of Foreign Direct Investment provides a generic framework for foreign investment. The law accords foreign investors the same rights as domestic investors, including bidding on privatization tenders. With the exception of the defense industry and the media sector, where foreign control is limited to 49 percent of a single company, there are no restrictions on investment. Investors are also protected from changes in the Law on Foreign Investment. Should the government amend the legislation, the investor may choose the most favorable regulations to apply.

BiH has a Competition Council, designed to be an independent public institution to enforce anti-trust laws, prevent monopolies, and enhance private sector competition. The Council reviews and approves foreign investments in cases of mergers and acquisitions of local companies by foreign companies. The Competition Council consists of six members appointed for six-year terms of office with the possibility of one reappointment. The BiH Council of Ministers appoints three Competition Council members, the Federation Government appoints two members, and the RS Government appoints one member. From the six-member Competition Council, the BiH Council of Ministers appoints the president of the Council for a one-year term without the possibility of reappointment.

Public-private partnerships (PPPs) are gradually gaining wider acceptance with BiH officials. The RS currently has PPPs in the health-care and transportation sectors. Several cantons in the Federation adopted laws on public-private partnerships, with the goal of providing incentives for entrepreneurs and facilitating access to certain projects.

 

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FURTHER REPORTS

7 June 2014  -  MONEYVAL calls on States and territories evaluated by MONEYVAL and other countries to advise their financial institutions to pay special attention by applying enhanced due diligence measures to transactions with persons and financial institutions from or in Bosnia and Herzegovina in order to address the money laundering and financing of terrorism risks.

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