SERBIA
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

Not on EU White list equivalent jurisdictions

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)

Failed States Index (Political Issues)(Average Score)


 

ANTI-MONEY LAUNDERING

 

FATF Status

Serbia 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 Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Serbia was undertaken by the Financial Action Task Force (FATF) in 2016. According to that Evaluation, Serbia was deemed Compliant for 3 and Largely Compliant for 20 of the FATF 40 Recommendations.

Risks and General Situation

Serbia faces a range of significant ML and FT threats and vulnerabilities. Organised crime is a major ML threat in Serbia. Smuggling, trafficking and, to a lesser extent, the production of narcotic drugs is the most extensive form of criminal activity which organised criminal groups operating in Serbia engage in. Organised criminal groups are also active in the trafficking of human beings and, more recently, in the facilitation of migrant smuggling. Tax evasion is a major proceeds-generating offence within Serbia. Corruption-related offences, including embezzlement, accepting and giving of bribes and abuse of office, which are often directly linked to organised criminality, constitute a significant ML threat.

Transfer of property with the intent to conceal or misrepresent the lawful origin of the property, or conceal or misrepresent the facts about the property, and use of the property with knowledge that it originates from crime are the most frequent money laundering methods. An analysis of the proceeds seized by law enforcement authorities indicates that proceeds of crime, especially those generated by drug trafficking, are generally laundered through the purchase of real estate, valuable moveable property and investment in securities. The misuse of domestic and foreign (offshore) legal persons together with multiple use of wire transfers are common money laundering typologies in relation to all forms of proceeds-generating crime. The country’s exposure to cross-border illicit flows is significant. This is largely related to the existence of organised criminal groups, which generally have links with foreign associates. Suspicious transactions reported to the FIU by reporting entities and related to foreign exchange payment operations and cross-border money transfers also indicate the importance of international links.

Serbia’s geopolitical situation is highly relevant when considering the risks of terrorism and financing of terrorism that the country faces. The aftermath of past conflicts in the Balkan region is believed to have given rise to terrorism risks originating from separatist and/or extremist groups situated in the region and in certain parts of the southern regions of Serbia. Countries and territories in the region have recently experienced an increase in Islamic radicalisation and nationals joining the so-called Islamic State (ISIS) as foreign fighters in Syria and Iraq. Some members of the ethnic separatist and/or religious extremist groups in Serbia are also believed to have joined ISIS. There are various factors pointing to an elevated degree of FT risk in Serbia, particularly emanating from the non-profit sector and informal money remittances.

Serbian authorities view the region in or close to Kosovo* as being vulnerable to use by organised criminals involved in the trafficking of drugs, human beings and arms as a means of avoiding detection and prosecution. The porosity of the boundary line facilitates an active black market for smuggled consumer goods and pirated products. In addition, the region of Kosovo* and the neighbouring southern parts of Serbia alongside the boundary line were mentioned as areas vulnerable to the activity of religious extremist and/or ethnic separatist groups involved in terrorist acts.

In terms of materiality, the banking sector is the largest within the financial sector in Serbia. Banks account for 92.4% of assets held by the financial sector. Cross-border formal and informal money transfers are also a material component in Serbia. Statistics by the National Bank of Serbia indicate that formal and informal money transfers into Serbia constitute 9 to 10% of Serbian GDP, making them one of the largest sources of foreign income. Despite efforts made by the authorities, the shadow economy still constitutes a problem in Serbia. It is estimated that the size of the shadow economy is approximately 33.6% of GDP. The shadow economy is exacerbated by the widespread use of cash. According to the Tax Administration, cash transactions in significant amounts are conducted in businesses dealing with foreign trade, purchase of secondary raw materials and agricultural products, as well as in the entities engaged in the construction industry.

 

US Department of State Money Laundering assessment (INCSR)

Serbia 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: -

Perceived Risks:

Although Serbia is not considered a regional financial center, it is situated on a major trade corridor, known as the Balkan route, which is used by criminal groups for various criminal activities, including narcotics trafficking and smuggling of persons, weapons, pirated goods, and stolen vehicles. While the bulk of narcotics seizures continue to be of heroin, seizures of South American cocaine transiting Serbia to Western European countries also occur. Traffickers are often Serbian organized criminal groups or transnational organized criminal groups that include Serbian citizens. Serbia has a black market for smuggled goods. Illegal proceeds are generated from drug trafficking, corruption, tax evasion, and organized crime, as well as other types of crimes. Proceeds from illegal activities are invested in real estate and businesses. Cyprus, Macedonia, Hungary, Switzerland, Austria, Netherlands, and China are also destinations for laundered funds. Trade and service-based transactions, in the form of over- and under-invoicing, are commonly used for laundering money, as are shell companies incorporated in Serbia and abroad in offshore destinations. Purchases of some private and state-owned companies have been linked to money laundering activities. According to the Council of Europe, money laundering costs the Serbian economy between three and five percent of its GDP every year.

 

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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

42

World Governance Indicator – Control of Corruption

51

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Following the country’s recent political progress, Serbia’s investment climate is slowly improving. In April 2013, the country signed an agreement to normalize relations with neighboring Kosovo, which paved the way for the January 2014 opening of accession negotiations with the European Union (EU). These developments present a real opportunity for the country to attract new foreign direct investment (FDI), especially as the government moves to align domestic legislation with EU standards and implement other measures to improve the business environment.

The Serbian government continues to prioritize investment, especially investment originating from abroad. U.S. investors report positively on doing business in Serbia; they highlight the country’s strategic geographic location, the well-educated and affordable labor force, and the free trade agreements with key markets (including Russia, Turkey, and the EU) as particular appeals. Although there are occasional challenges with bureaucratic delays and corruption, for the most part U.S. investors enjoy a level playing field with their Serbian and foreign competitors. The U.S. Embassy in Belgrade assists investors when issues arise, and Serbian leaders are responsive to our concerns.

The March 2014 national elections resulted in Aleksandar Vučić becoming the new Prime Minister, and he has identified economic growth as his top concern. Prime Minister Vučić has promised swift action by his government to resolve a number of long-standing issues related to the country’s slow transition to market-driven capitalism. On the legislative front, the country’s outdated labor, construction permitting, bankruptcy, and privatization laws hinder development of a stronger business environment. The public sector is bloated, and more than 150 struggling state-owned enterprises (SOEs) are in urgent need of restructuring. Tens of thousands of government employees may face layoffs as the government implements these reforms. While this will be painful for the Serbian economy, the government recognizes the need to cut spending while also improving the investment climate to draw in new private sector companies to offset the public sector job losses.

If the government delivers on promised reforms, investors could find significant, meaningful business opportunities over the next few years. Key sectors poised for growth include agriculture, information and communications technology (ICT), and mining. Investors should monitor economic reform steps that the new Serbian government takes during 2014. Comprehensive reform in the areas listed above will signal that the state is serious about opening the economy to private investment. Similarly, investors should follow the development of the new investment incentive program, which the Prime Minister has said will feature smarter, individually tailored offerings. With an already adequate climate for foreign investors, there is room for substantial progress in the near term as the new Serbian government places economic reform at the top of its agenda.

 

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FURTHER REPORTS

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

Concerning the criminalisation of corruption offences, amendments to the Criminal Code were drafted by the previous Government and sent to Parliament for adoption. However, following the latest elections in May 2012, the draft was withdrawn. A new Working Group has been created to deal with the recommendations issued in this area. GRECO is hopeful that the limited number of specific deficiencies identified in the Criminal Code of Serbia concerning the criminalisation of corruption will be promptly addressed.

Serbia deserves recognition for the holistic review carried out in the area of party funding and GRECO is pleased to note that all its recommendations have been implemented satisfactorily. With the adoption of the new Law on Financing Political Activities (LFPA), Serbia has now in place a detailed and comprehensive legal framework broadly inspired by and abiding to the principles contained in Recommendation Rec(2003)4 on Common Rules against Corruption in the Funding of Political Parties and Electoral Campaigns. Implementation of the relevant legislative provisions is now being tested and the Anti-Corruption Agency has a key role to perform in this regard. Time and experience will show whether the law efficiently serves its purpose and prevents corruption and malpractice in party financing, and whether further improvements, of either a legislative or a practical implementation nature, are necessary. The authorities anticipate that further work will go ahead concerning the use of public facilities during election periods, an area identified as particularly prone to abuse in Serbia.

In view of the above, GRECO welcomes the important efforts made to comply with the recommendations issued in respect of Theme II – Transparency of Party Funding. GRECO hopes that the Criminal Code of Serbia undergoes amendment, as planned, in order to meet the recommendations issued in respect of Theme I – Incriminations. GRECO encourages Serbia 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 Serbia to submit additional information regarding the implementation of recommendations i to v Theme I – Incriminations) by 30 April 2014 at the latest.

Read Full Report (pdf file)