SERBIA
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

US Dept of State Money Laundering assessment

Not on EU White list equivalent jurisdictions

Medium Risk Areas

 

Compliance with FATF 40 + 9 Recommendations

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

OVERVIEW

 

Serbia 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 Europe also occur. Traffickers are often Serbian organized criminal groups or transnational organized criminal groups that include Serbian citizens.

 

Money laundering vulnerabilities include fictitious legal transactions and trade with off-shore persons, misuse of consultancy and other services, construction and sale of real estate, inheritance or family financial support-related transactions, trade in gold and abuse of e-banking and virtual currencies, and risks arising from Serbia’s geographic position. According to Serbia’s 2015 Money Laundering Typologies/Money Laundering Case Studies, funds are laundered through the abuse of legal entities, front companies and offshore jurisdictions, and the abuse of payment cards and remittance services.

 

Authorities in 2015 paid special attention to monitoring migrants’ transactions to identify potential links to terrorism, financing terrorism, and human trafficking.

 

Of 109 activities envisaged by the Action Plan accompanying the National Strategy Against Money Laundering and Terrorist Financing (2015-2019), 22 were implemented, 39 were partially implemented, and 48 were not implemented.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

According to the 2012 National Risk Assessment, illicit proceeds are mainly generated through unlawful production and circulation of narcotics, corruption, and tax evasion.

 

The most common money laundering typologies recognized by the Administration for the Prevention of Money Laundering (APML) include: depositing funds of suspicious origin into non-resident accounts in Serbia; agreement on the gift and purchase of real estate with dirty money; drawing funds from an account of a legal person on the basis of a loan interest; privatization with funds of unknown origin; abuse of money transfer agents for the purpose of human trafficking; money laundering through associated legal persons; and introducing funds of unknown origin into legal flows.

 

Obstacles to fighting narcotics-related money laundering are Serbia’s position as a transit country in international drug routes, poverty and unemployment, a prolonged privatization process, inconsistent or selective implementation of regulations by an inefficient court system, migration, persistent corruption, and the misuse of modern technology and electronic money transfers.

 

From the APML’s perspective, FTZs are not a concern.

 

KEY AML LAWS AND REGULATIONS

 

According to international experts, important AML issues include deficiencies regarding international standards related to NPOs, financial sanctions, supervision of certain DNFBPs, PEPs, wire transfers, and high-risk jurisdictions.

 

Both Serbia’s AML law and the Law on the Freezing of Assets are in the process of being updated. The draft AML law aligns with international standards and was supposed to be adopted by the end of 2016; its current status is unknown. With the adoption of the Law on the Prevention of Money Laundering and Terrorism Financing, public notaries will become covered entities and domestic PEPs will be subject to enhanced due diligence measures.

 

Serbian AML/CFT law introduced comprehensive CDD requirements in 2009.

 

In May 2009 Serbia signed an MOU with FinCEN. The Law on Mutual Legal Assistance in Criminal Matters, the AML/CFT law, the Law on Banks, and the Law on Payment Transactions ensure the availability of records.

 

Serbia is a member of MONEYVAL, a FATF-style regional body.

 

AML DEFICIENCIES

 

Legal persons are covered. Foreign PEPs are subject to enhanced due diligence according to the current law, and domestic PEPs will be covered under a new proposed law.

 

Serbia is not subject to any U.S. or international sanctions or penalties.

 

Serbia has a National Strategy against Money Laundering and Terrorist Financing (2015-2019). The implementation of the Action Plan is on-going. Serbia should improve interagency cooperation, pursue money laundering independently of other crimes, and build the capacities of the APML and AML supervisors.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

Serbia has not refused to cooperate with foreign governments.

 

In 2015 one final conviction against two individuals was delivered and three new prosecutions were initiated.

 

Serbian authorities exchange information and conduct investigations on an ad hoc basis. Efforts are underway to establish formal task forces and liaison officers to combat money laundering. Efforts are also underway to institute provisions on seizure and confiscation of criminal proceeds, to seek training on investigating financial crimes, and to conduct further AML training.

 

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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)