ANTI MONEY LAUNDERING
Albania is on the FATF List of Countries that have been identified as having strategic AML deficiencies
Latest FATF Statement - 23 October 2020
Since February 2020, when Albania made a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime, Albania has taken steps towards improving its AML/CFT regime, including by bringing into effect legislation to implement a register of beneficial owners, taking measures to reduce the informal economy and use of cash, and establishing specialised teams and officials in each district to investigate and prosecute ML. Albania should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) conducting additional in-depth analysis to understand its ML risks, and enhancing institutional coordination and cooperation; (2) improving the timely handling of mutual legal assistance requests; (3) establishing more effective mechanisms to detect and prevent criminals from owning or controlling DNFBPs, including by strengthening competent authorities’ powers to take necessary actions; (4) ensuring that accurate and up-to-date legal and beneficial ownership information is available on a timely basis; (5) increasing the number and improving the sophistication of prosecutions and confiscations for ML, especially in cases involving foreign predicate offenses or third-party ML; (6) improving the implementation of targeted financial sanctions, in particular through enhanced supervisory action and targeted, proactive outreach.
Compliance with FATF Recommendations
The latest Follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Albania was undertaken in 2019. According to that Evaluation, Albania was deemed Compliant for 5 and Largely Compliant for 28 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 2 of the Effectiveness & Technical Compliance ratings.
US Department of State Money Laundering assessment (INCSR)
Albania is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
The Government of Albania made little progress toward thwarting money laundering and financial crimes in 2019. Albania remains vulnerable to money laundering due to corruption, organized crime networks, and weak legal and government institutions. The country has a large cash economy and informal sector, with significant remittances from abroad. Major proceedsgenerating crimes include drug trafficking, tax evasion, and smuggling. Albanian organized crime organizations are known to have links with networks operating in Europe and South America. Ongoing judicial reforms, to include the vetting of judges and prosecutors and the creation of multiple specialized police units targeting financial and economic crimes, have improved Albania’s prospects for addressing money laundering. These efforts, however, are still hamstrung by the capacity challenges of recently established justice institutions and the pervasive corruption that undermines existing rule of law.
There are no international sanctions currently in force against this country.
BRIBERY AND CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 35
World Governance Indicator – Control of Corruption 35
Corruption is a serious problem in Albania. It is one of the country’s greatest stumbling blocks, impeding its bid for EU candidacy and hindering its investment climate. The procurement and construction sectors are particularly affected by patronage networks and other forms of corruption. The judiciary is also hampered by corruption and political influence. The necessary anti-corruption legal framework is in place, but enforcement is poor and conviction rates are very low. Active and passive bribery, as well as the bribery of foreign officials, are illegal under the country's Criminal Code. The same applies for offering gifts or facilitation payments, yet these practices are widespread. For further information - GAN Integrity Business Anti-Corruption Portal
Albania, a formerly closed, centrally-planned state, is a developing country with a modern open-market economy. Albania managed to weather the first waves of the global financial crisis but, more recently, the negative effects of the crisis have caused a significant economic slowdown. Close trade, remittance, and banking sector ties with Greece and Italy make Albania vulnerable to spillover effects of debt crises and weak growth in the euro zone.
Remittances, a significant catalyst for economic growth, declined from 12-15% of GDP before the 2008 financial crisis to 5.7% of GDP in 2014, mostly from Albanians residing in Greece and Italy. The agricultural sector, which accounts for almost half of employment but only about one-fifth of GDP, is limited primarily to small family operations and subsistence farming, because of a lack of modern equipment, unclear property rights, and the prevalence of small, inefficient plots of land. Complex tax codes and licensing requirements, a weak judicial system, endemic corruption, poor enforcement of contracts and property issues, and antiquated infrastructure contribute to Albania's poor business environment making attracting foreign investment difficult.
Albania’s electricity supply is uneven despite upgraded transmission capacities with neighboring countries. Technical and non-technical losses in electricity - including theft and non-payment - continue to undermine the financial viability of the entire system, although the government has taken steps to stem non-technical losses and has begun to upgrade the distribution grid. Also, with help from international donors, the government is taking steps to improve the poor national road and rail network, a long standing barrier to sustained economic growth.
Inward FDI has increased significantly in recent years as the government has embarked on an ambitious program to improve the business climate through fiscal and legislative reforms. The government is focused on the simplification of licensing requirements and tax codes, and it entered into a new arrangement with the IMF for additional financial and technical support. Albania’s IMF program may be at risk, however, because the government has not collected sufficient tax revenue needed to reduce the budget deficit. The country continues to face increasing public debt, exceeding its former statutory limit of 60% of GDP in 2013 and reaching 73% in 2015.
Investment Climate - US State Department
Albania is a relatively small country located in the Western Balkans with a population of approximately 3 million people and a landmass the size of Maryland. Albania became an EU candidate country in June 2014 and currently is working to fulfill the criteria that would pave the way for the start of accession negotiations.
Despite the government’s stated desire to attract foreign direct investment, Albania remains a very challenging economy for foreign investors. Validity of contracts with the government is an ongoing concern, with incoming governments often seeking to nullify or modify contracts signed by previous governments. Albania’s judiciary is inefficient and frequently corrupt. To minimize this risk, investors traditionally have bypassed local courts by including international arbitration agreements in their contracts with Albanian counterparts. In 2016, however, the government ignored an injunction order from an international arbitration court in a high-profile investment dispute, which caused many foreign investors to question the country’s commitment to honoring arbitration decisions.
Investors report ongoing concerns that regulators use difficult-to-interpret, or inconsistent, legislation and regulations as a tool to punish competition and to favor politically connected companies. Regulations and laws governing business activity change frequently and with little meaningful consultation with the business community. Major foreign investors report pressure to hire specific, politically connected subcontractors and often raise concerns about operating in Albania while complying with the Foreign Corrupt Practices Act. Reports of corruption in government procurement are commonplace. Numerous U.S. companies complained last year that they were disqualified from public tenders despite offering the lowest bid in order to award tenders to companies with politically connected local partners. Another challenge is the situation related to property rights in Albania; clear title is hard to obtain for various reasons, (unscrupulous actors frequently manipulate the corrupt court system to obtain title to land not their own); compensation for those whose land was confiscated by the communist regime is hard to obtain and inadequate; the agency charged with removing illegally-constructed buildings (a significant problem in Albania) sometimes acts without full consultation and without following procedures.
Although the country largely was spared from the severe fallout of the 2008 financial crisis, economic output has slowed since 2009, reflecting the prolonged European crisis in neighboring Italy and Greece, where close to 1.2 million Albanians live and work and with which 66 percent of Albanian trade occurs. Faced with public debt ballooning to 70 percent of GDP and large arrears to the private sector, the government began an ambitious fiscal consolidation program and signed a 330 million Euro, three-year program with the IMF in February 2014. The program aims to help the GOA implement structural reforms that would in turn strengthen competitiveness, improve the investment climate, and catalyze stronger growth. GDP grew by 2.66 percent in 2015, up from 1.9 percent in 2014, and both the government and IMF estimate approximately 3.4 percent growth in 2016.
With low domestic demand, low bank lending rates, and limited government spending, the Albanian government has been focused on promoting foreign direct investment (FDI) as the driver of growth in the economy by implementing a liberal foreign investment regime. In an attempt to attract much-needed FDI, the GOA approved a new Law on Strategic Investments in 2015, which outlines investment incentives and offers fast-track administrative procedures to strategic foreign and domestic investors, depending on the size of the investment and number of jobs created. The government also passed legislation creating Technical Economic Development Areas (TEDAs) similar to free trade zones, but the tender to develop the first TEDA failed and the process has stalled.
After climbing 40 places in the 2015 World Bank Doing Business Report, Albania fell 20 slots in 2016, largely due to the near complete suspension of issuing construction permits in 2015.
The Albanian legal system does not discriminate against foreign investors. The U.S. - Albanian bilateral investment treaty entered into force in 1998 ensures that U.S. investors receive most-favored-nation treatment. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies with a few typical exceptions in international air passenger transport, electric power transmission, and television broadcasting.
Foreign direct investment annual inflows in Albania have increased significantly since 2008, averaging close to $1 billion per year for the period 2008-2014. Greece and Canada are the largest source of Albanian FDI, representing 42 percent of Albania’s $5.1 billion foreign investment stock in 2014 primarily in the telecommunications, financial intermediation, manufacturing, hydrocarbon, and mining sectors. FDI experienced a slight decrease in 2014 and 2015 reflecting a decline in investments in the oil sector.
Foreign investment opportunities in Albania likely will grow in the coming years, especially in the IT, oil and gas, electricity, and hydropower sectors. However, despite many emerging opportunities, the major challenges outlined above will remain for the foreseeable future.
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