MONTENEGRO
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

Not on EU White list equivalent jurisdictions

Medium Risk Areas

 

Non - 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)

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Montenegro is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

The last Mutual Evaluation Progress report Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Montenegro was undertaken by the Financial Action Task Force (FATF) in 2015. According to that Evaluation, Montenegro was deemed Compliant for 7 and Largely Compliant for 12 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 5 of the 6 Core Recommendations.

 

US Department of State Money Laundering assessment (INCSR)

Montenegro was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows: -

 

Montenegro’s geographic location and use of the euro make it an attractive target for money laundering. Public perception of corruption in Montenegro remains widespread. Factors that facilitate Montenegro’s vulnerability to money laundering are the use of cash for many large commercial transactions, weak financial crimes enforcement, and a lack of monetary controls over currency use, as Montenegro uses the euro but is not a Eurozone member country.

Additional factors that inhibit the fight against money laundering include corruption, insufficient capacity to conduct financial investigations, weak collaboration among government agencies, and a judicial system susceptible to political influence. Organized crime remains a serious concern in Montenegro and is linked to corruption. Criminal organizations, including sophisticated international narcotics trafficking enterprises, have a presence in Montenegro.

Montenegro is a transit country for illegal goods. The country’s ports have been used by criminals as a staging area to unload illicit cargo and reload it onto other vessels with onward shipping to Central and Western Europe. Organized criminal groups in Montenegro traffic in stolen cars, narcotics, cigarettes, and counterfeit products. Proceeds of narcotics trafficking, tax evasion, internet fraud, games of chance, and other illegal activities are often laundered through Montenegro’s construction and real estate industries, and investments in the stock market.

Organized criminal groups, primarily from Russia and Western European countries, invest significant amounts of money to purchase and construct real estate in Montenegro. The properties are often not registered to the true owner. The Montenegrin financial intelligence unit (FIU) has noted cases of local companies receiving significant loans from their parent companies or offshore companies. In most cases, the loans are never repaid to the offshore lender but are used for the purchase or construction of real estate in Montenegro instead. Loan contract signing follows the same pattern; after a loan contract or other business deal is signed, it is not certified by the Notary Public to ensure legal validity. As such, many court cases are disputed. The FIU has also noted frequent electronic payments between the same accounts slightly below the 15,000 euros (approximately $16,150) reporting limit.

Criminals often use phantom companies to present fictitious transfers of goods and services in order to legalize or re-direct invested money. Criminals also have deposited the proceeds of illicit transactions into offshore accounts and taken back the funds in the form of loans, which they never repay. According to Montenegrin authorities, most illegal proceeds come from Russia, Italy, Switzerland, Serbia, Croatia, and Panama. In a form of service-based laundering, offshore companies send fictitious bills to a Montenegrin company (for market research, consulting, software, leasing, etc.) for the purpose of extracting money from the company’s account in Montenegro so funds can be sent abroad. The emergence of terrorist financing is also of concern to the government. Information technology, electronic transfers, credit cards, internet payments, cyber-currencies, and other new payment methods make these threats more difficult to detect.

According to authorities, money laundering takes place in the banking sector and, to a lesser extent, through Western Union. There are no cases of money laundering reported in informal remittance systems such as hawala or hundi. Authorities note that criminals prefer using electronic transfers based on fictitious accounts mostly opened by foreign nationals instead of using bank notes.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

45

World Governance Indicator – Control of Corruption

56

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Montenegro is a country in transition politically and economically. Formerly a part of the Socialist Federal Republic of Yugoslavia and later the Union of Serbia and Montenegro, Montenegro voted for independence from Serbia in 2006. Since then, the country of approximately 650,000 inhabitants has been led by a democratically elected government headed by the Democratic Party of Socialists (DPS). In that time, Montenegro has adopted an investment framework that in principle encourages growth, employment and exports. However, it is still in the process of establishing a liberal business climate that fosters foreign investment and local production. Although the continuing transition has not yet eliminated all structural barriers, the government generally recognizes the need to remove impediments in order to remain competitive, reform the business environment, and open the economy to foreign investors. Foreign companies and investors are generally treated the same as their domestic counterparts. Nevertheless, Montenegro continues to struggle with the perception and reality of corruption in its economic sectors, and the government has so far pursued few high-profile prosecutions of alleged corrupt officials.

Montenegro’s three biggest sectors for investment and economic growth are agriculture, energy, and tourism, the last of which brings in over a million foreign visitors every year, many of whom arrive by boat at the deep fjord-like Kotor Bay. Montenegro has abundant natural beauty, with 300 kilometres of sea coast, mountains, rivers, and lakes, all in close proximity, which provides for ample scenic views and touristic accommodations and investment opportunities. Several new luxury tourism complexes are in various states of development along the coast, and several envision being used in connection with boating and yachting facilities nearby. The increased burden of additional visitors and traffic patterns points up a need (and opportunity) for a general overhaul of existing transportation infrastructures. Montenegro is currently planning major overhauls of its road, rail networks, and possible expansions of its air transportation system. Podgorica International Airport connects to most of Europe and the world via transfer hubs in major European capitals such as Vienna, Munich, Paris, London and Istanbul. Tivat Airport has regular air service to Russia and points East, while Dubrovnik Airport in nearby Croatia is increasingly used for tourist destinations along Montenegro’s northern coast. The biggest foreign investors in Montenegro are: Italy, Norway, Austria, Russia, Hungary, the U.S. and Great Britain. Lately, China, Azerbaijan, and Near Eastern and Gulf Emirate states have shown increasing interest in investing in Montenegro’s resort development industry.

Montenegro is an EU candidate country and is taking active steps to become a member of NATO.

 

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FURTHER REPORTS

IMF Report - Montenegro : Financial System Stability Assessment (March 2016) – Extract:

Anti-Money Laundering and Combating the Financing of Terrorism

Montenegro is taking active steps to enhance its AML/CFT framework and to reach a better understanding of its money laundering and terrorist financing risks (ML/TF). The most recent assessment in 2014 found significant deficiencies.21 Some progress has since been made, in particular through the AML/CFT law rescinding the previous versions of the law. The new law notably strengthened customer due diligence (CDD) obligations by requiring the reporting entities to verify the identity of a person purporting to act on behalf of a corporate customer, and by allowing the application of simplified CDD in instances of “insignificant” ML/TF risk and no suspicion of ML/TF. Practical steps were also taken to improve the reporting of suspicious transactions (by expanding the indicators of suspicious transactions and conducting training events for reporting entities) and to initiate a national assessment of Montenegro’s ML/TF risks.

Significant deficiencies nevertheless remain. The scope of the reporting requirements remains narrow, as it refers to the reporting of “transactions” (rather than “funds”) and of “suspicion of ML/TF” (rather than “suspicions of funds that are the proceeds of a criminal activity”). Information on the beneficial ownership of legal persons created in Montenegro does not appear to be accessible to competent authorities in a timely manner. While reporting entities collect some beneficial ownership information, it does not appear adequate. Enhanced due-diligence measures are insufficient, notably because reporting entities are not required to establish on a risk basis the source of wealth of beneficial owners identified as domestic politically exposed persons (PEPs). In addition, there are no provisions to prevent criminals or their associates from holding or being the beneficial owners of a significant or controlling interest, or from holding senior management functions in certain financial sector institutions. These deficiencies and other significant vulnerabilities identified in the national risk assessment should be addressed as a matter of priority.

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Group of States against Corruption (GRECO) publishes third round compliance report on Montenegro  -  Conclusions (December 2012)

Montenegro has made credible efforts to meet the recommendations addressed by GRECO in its Third Round Evaluation Report. In particular, all recommendations concerning Theme I – Incriminations have been complied with. The latest amendments of the Criminal Code provide for greater harmonisation of the key elements of bribery and trading in influence offences and establish broader jurisdictional rules. With respect to Theme II – Transparency of Party Funding, the new Law on the Financing of Political Parties, which was adopted in July 2011, along with its implementing regulations, constitute a positive step to better ensure transparency, control and responsibility in the area of political funding. That said, additional steps can be taken to strengthen internal discipline of political parties, to regulate the use of public facilities during election periods, and to enlarge the coverage of sanctioning provisions. More importantly, it will be decisive to ensure that the oversight responsibilities conferred to the State Audit Institution and the State Election Commission are properly performed in practice. Likewise, the sanctioning  regime remains to be tested to assert its proportionality, dissuasiveness and effectiveness. These are all areas that merit further review.

In view of the above, GRECO commends Montenegro for the substantial reforms carried out with regard to both themes under evaluation and which show that, already at this stage, Montenegro complies with more than two thirds of the recommendations issue d in the Third Round Evaluation Report. It encourages Montenegro to pursue the reforms underway in order to implement the pending recommendations within the next 18 months. GRECO invites the Head of the delegation of Montenegro to submit additional information regarding the implementation of recommendations iv, vi, vii and viii (Theme II – Transparency of Party Funding) by 30 June 2014 at the latest.

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