FATF Status

Bosnia and Herzegovina is no longer on FATF’s list of AML deficient countries

Latest FATF Statement:  23 February 2018

The FATF welcomes Bosnia and Herzegovina’s significant progress in improving its AML/CFT regime and notes that Bosnia and Herzegovina has established the legal and regulatory framework to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in June 2015. Bosnia and Herzegovina is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Bosnia and Herzegovina will work with MONEYVAL to improve its AML/CFT framework.

Compliance with FATF Recommendations

Bosnia & Herzegovina was removed from the 4th Round Mutual Evaluation follow-up process in 2020

US Department of State Money Laundering assessment (INCSR)

In 2021, Bosnia and Herzegovina was no longer categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.The last published report was in 2020.

Overview (2020)

Bosnia and Herzegovina (BiH) has a primarily cash-based economy and is not an international or regional financial center.  A Visa Liberalization Agreement with the EU enables easy transit from Eastern Europe and the Balkans region to countries in Western Europe.  BiH is a market and transit point for smuggled commodities, including cigarettes, firearms, counterfeit goods, lumber, and fuel oil and, during the last year, the country faced significant problems with illegal migration.

BiH has made substantial progress, not only in strengthening its AML regime, but also harmonizing its laws across its numerous legal systems, including laws related to money laundering and asset forfeiture.  BiH has a complex legal and regulatory framework with criminal codes and financial sector laws at the state and entity levels (Federation of BiH (FBiH) and Republika Srpska (RS)), and in the Brčko District (BD).

However, the BiH justice sector still performs relatively poorly in the areas of money laundering and forfeiture.  Specifically, prosecutor’s offices and law enforcement oftentimes lack expertise to conduct large-scale financial investigations.  Furthermore, judges often have a hard time comprehending expert testimony, which leads to poor verdicts.  International donors conduct ongoing capacity building activities that aim to improve the level of effectiveness of judges and prosecutors.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           35

World Governance Indicator – Control of Corruption             26

Corruption is a serious obstacle for business operating in Bosnia and Herzegovina (BiH). Almost all sectors of the economy suffer from rampant corruption and most particularly public procurement. The same applies to the public administration where nepotism and patronage networks are widespread practices. The Criminal Code in BiH criminalizes several forms of corruption; including passive and active bribery and the bribery of foreign officials. Nonetheless, the government did not enforce the relevant laws effectively and prosecutions of corruption offences have been selective and officials engaged in corruption with impunity. The offer and demand of bribes and gifts is criminalized in BiH, however, these practices are widespread. For further information - GAN Integrity Business Anti-Corruption Portal

Bosnia and Herzegovina (BiH) is open to foreign investment, but to succeed, investors must overcome significant challenges including endemic corruption, complex legal/regulatory frameworks and government structures, non-transparent business procedures, insufficient protection of property rights, and a weak judicial system under the undue influence of ethnonationalist parties and their patronage networks. The country offers a liberal trade regime, and its simplified tax structure is one of the lowest in the region (17 percent VAT and 10 percent flat income tax), but employers bear a heavy burden to the government for social contributions. Significant out-migration of the workforce has created challenges in hiring. More than 500 government-owned enterprises and a bloated public sector crowd out the private sector.

The complex institutional, political, and territorial structures of BiH complicate the economic landscape of the country and deter foreign investors. Following the October 2022 general elections, the state-level and Republika Srpska (RS) entity level governments were formed in record time. The Federation of BiH entity, where the government has been in a technical mandate since the 2018 elections, still faces significant challenges in forming a functioning government.  Ethnic tensions are high as the ethnonationalist parties battle to secure or maintain control over certain institutions. Against this backdrop, state-level institutions have made little progress to enact necessary reforms to strengthen the business environment. BiH became an EU candidate country in 2022 in a move that was widely acknowledged as a political decision rather than a reflection of significant progress on necessary reforms. BiH is not a member of the World Trade Organization (WTO).

Moves by the RS entity to unconstitutionally seize control of state property and threats by RS President Milorad Dodik to separate the RS from BiH have also increased tensions.  These actions, combined with RS efforts to form parallel entity-level institutions such as the RS Medicine and Medical Equipment Agency, threaten to create legal ambiguities that further complicate the business environment, disrupt the economy, and hinder investment. Investors should conduct adequate due diligence. This includes avoiding exposure to individuals and entities under U.S. sanctions, and clarifying land ownership rights and the status of sub-national institutions to avoid becoming entangled in a potential illegal and/or unconstitutional arrangement. Potential investors are urged to read the legal reviews and statements of the High Representative for BiH.

The BiH economy has fully recovered from the COVID-19 pandemic, but still records low levels of economic growth compared to its peers in the region. According to World Bank estimates, real GDP is expected to grow by 2.5 percent in 2023 and 3 percent in 2024. The BiH economy has not experienced significant direct effects from Russia’s war of aggression against Ukraine, but its economic recovery outlook has been hampered by the worsening external environment, elevated inflation, and tighter commercial financing conditions. The average inflation rate in BiH in 2022 was 16.3 percent and was especially high in basic consumer goods and energy. An anticipated economic slowdown in 2023 in Eurozone export markets also poses serious risks, as BiH is tied closely to European value chains and primarily exports goods rather than services.

BiH also has comparatively low levels of foreign direct investment (FDI). BiH’s fractured government has neither the capacity nor the political will to commit to providing adequate incentives or a sound enabling environment for investors. Between 1994 and 2021, roughly $8.95 billion of FDI flowed into BiH. The top five historic investors in BiH are Austria, Croatia, Serbia, Slovenia, and Germany. Collectively, these countries represent 61 percent of total FDI stocks in BiH. The main historic sectors for FDI in BiH are manufacturing, banking, trade, and telecommunications. Annual FDI tends to remain steady year on year at approximately $400 million. According to preliminary data from the Central Bank of BiH (CBBH), FDI in the first nine months of 2022 focused on renewable energy, tourism, real estate, and the metal-processing industry with an emphasis on the automotive sector. BiH is richly endowed with natural resources, providing potential opportunities in energy (hydro, wind, solar, along with traditional thermal), agriculture, timber, and tourism.  U.S. investment in BiH is low, and most U.S. companies in BiH are represented by small sales offices that are concentrated on selling U.S. goods and services, with minimal longer-term investments.

Country Links

Banking Agency of the Federation of Bosnia and Herzegovina

Financial Intelligence Department (FID )