Kosovo is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
A Mutual Evaluation relating to the implementation of anti-money laundering and counter-terrorist financing standards has not yet been undertaken for Kosovo.
US Department of State Money Laundering assessment (INCSR)
Kosovo 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: -
Kosovo is not considered a regional financial or offshore center. The country has porous borders that facilitate an active black market for smuggled consumer goods, especially fuel, cigarettes, and pirated products, largely along the Kosovo - Serbian border. Kosovo is a transit point for illicit drugs. Drugs from Afghanistan make their way through Turkey where they are often routed through the Drenica Valley in Kosovo, from where they are smuggled to Western Europe. Proceeds of drug trafficking do not fund the black market of smuggled and pirated items. There are estimates that the Kosovo informal economy approaches 40 percent or more of GDP.
Illegal proceeds from domestic and foreign criminal activity are also generated from corruption, tax evasion, customs fraud, organized crime, contraband, human trafficking, and various types of financial crimes. A large amount of money is invested in real estate, restaurants, trading companies, bars, and games of chance operations, such as casinos, slot machines, and sports betting facilities. There is no capacity to supervise this movement. There is also a tendency to conduct business and to engage in business transactions on private accounts without business registration. Official corruption is believed to be a significant problem, as are resource constraints.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 36
World Governance Indicator – Control of Corruption 32
Corruption in Kosovo poses high risks for companies operating or planning to invest in the country. A lack of transparency and accountability in Kosovo's public administration results in widespread corruption and negatively affects the investment climate. The judiciary, customs, public utilities and procurement sectors are the most-affected by corruption. While anti-corruption laws are strong, the judicial system is inefficient, leading to poor enforcement. Active and passive bribery, extortion, money laundering and abuse of office are prohibited by Kosovo's Criminal Code, while facilitation payments are not addressed. According to Kosovan law, all gifts received by public officials should be declared and registered. Notwithstanding, the practices of offering gifts and bribery are common in Kosovo. For further information - GAN Integrity Business Anti-Corruption Portal
Kosovo's economy has shown progress in transitioning to a market-based system and maintaining macroeconomic stability, but it is still highly dependent on the international community and the diaspora for financial and technical assistance. Remittances from the diaspora - located mainly in Germany, Switzerland, and the Nordic countries - are estimated to account for about 15% of GDP and international donor assistance accounts for approximately 10% of GDP. With international assistance, Kosovo has been able to privatize a majority of its state-owned enterprises.
Kosovo's citizens are the poorest in Europe with a per capita GDP (PPP) of $8,000 in 2014. An unemployment rate of 31%, and a youth unemployment rate near 60%, in a country where the average age is 26, encourages emigration and fuels a significant informal, unreported economy. Most of Kosovo's population lives in rural towns outside of the capital, Pristina. Inefficient, near-subsistence farming is common - the result of small plots, limited mechanization, and a lack of technical expertise. Kosovo enjoys lower labour costs than the rest of the region. However, high levels of corruption, little contract enforcement, and unreliable electricity supply have discouraged potential investors.
Minerals and metals production - including lignite, lead, zinc, nickel, chrome, aluminium, magnesium, and a wide variety of construction materials - once the backbone of industry, has declined because of ageing equipment and insufficient investment. A limited and unreliable electricity supply is a major impediment to economic development, but Kosovo has received technical assistance to help improve the sector’s performance. In 2012, Kosovo privatized its electricity supply and distribution network. The US Government is cooperating with the Ministry of Economic Development (MED) and the World Bank to conclude a commercial tender for the construction of a new power plant, Kosovo C. MED also has plans for the rehabilitation of an older coal power plant, Kosovo B, and the development of a coal mine that could supply both plants.
In June 2009, Kosovo joined the World Bank and International Monetary Fund, and began servicing its share of the former Yugoslavia's debt. In order to help integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo) its accession to the Central Europe Free Trade Area (CEFTA) in 2006. Serbia and Bosnia previously had refused to recognize Kosovo's customs stamp or extend reduced tariff privileges for Kosovo products under CEFTA, but both countries resumed trade with Kosovo in 2011. Kosovo joined the European Bank for Reconstruction and Development in 2012 and the Council of Europe Development Bank in 2013. In 2014, Kosovo concluded the Stabilization and Association Agreement negotiations (SAA) with the EU, focused on trade liberalization, and signed it into law in 2015. In 2015, Kosovo negotiated a $185 million Stand-by Arrangement (SBA) with the IMF following the conclusion of its previous SBA in 2014. The official currency of Kosovo is the euro, but the Serbian dinar is also used illegally in Serb majority communities. Kosovo's tie to the euro has helped keep core inflation low.
Kosovo experienced its first federal budget deficit in 2012, when government expenditures climbed sharply. In May 2014, the government introduced a 25% salary increase for public sector employees and an equal increase in certain social benefits. Central revenues could not sustain these increases, and the government was forced to reduce its planned capital investments. The government, led by Prime Minister MUSTAFA - a trained economist - recently made several changes to its fiscal policy, expanding the list of duty-free imports, decreasing the Value Added Tax (VAT) for basic food items and public utilities, and increasing the VAT for all other goods. In August 2015, as part of its EU-facilitated normalization process with Serbia, Kosovo signed agreements on telecommunications and energy distribution, but disagreements over who owns economic assets within Kosovo continue.
Agriculture - products:
wheat, corn, berries, potatoes, peppers, fruit; dairy, livestock; fish
mineral mining, construction materials, base metals, leather, machinery, appliances, foodstuffs and beverages, textiles
Exports - commodities:
mining and processed metal products, scrap metals, leather products, machinery, appliances, prepared foodstuffs, beverages and tobacco, vegetable products, textiles and apparel
Exports - partners:
Italy 25.8%, Albania 14.6%, Macedonia 9.6%, China 5.5%, Germany 5.4%, Switzerland 5.4%, Turkey 4.1% (2012 est.)
Imports - commodities:
foodstuffs, livestock, wood, petroleum, chemicals, machinery, minerals, textiles, stone, ceramic and glass products, electrical equipment
Imports - partners:
Germany 11.9%, Macedonia 11.5%, Serbia 11.1%, Italy 8.5%, Turkey 9%, China 6.4%, Albania 4.4% (2012 est.)
Investment Climate - US State Department
The Republic of Kosovo, a province of the former Yugoslavia, declared independence from its neighbor to the north, Serbia, in 2008. Serbia does not recognize Kosovo as a state, although with the Brussels Agreement of 2013 it has accepted the legitimacy of Kosovo institutions. Kosovo is considered Europe’s poorest country, as it was in prior times the least developed region of Yugoslavia. With a population of 1.8 million, a land-locked area 6,675 square miles, and virtually no industry, Kosovo is challenged by political instability, corruption -- practiced and perceived -- unreliable energy supply, a large informal economy estimated at 35 percent of GDP, and a lack of contract enforcement that create significant barriers to foreign investment.
Kosovo’s official unemployment rate is 35.3 percent, although some estimates are as high as 45 percent. Unemployment levels for youth and first-time job seekers are considerably higher than the official rate. According to the World Bank, Kosovo’s economy is characterized by: limited integration into the global economy; the success of its Diaspora in foreign labor markets resulting in a steady stream of remittances; pro-growth budgetary priorities; and continued international financial support.
Despite the challenges, Kosovo’s relatively young population, low labor costs, and abundant natural resources have attracted some foreign investment in services such as parcel delivery and private security, with several international firms and franchises already present in the market. In 2015, Foreign Direct Investment (FDI) in Kosovo was estimated at €338 million, up from €151 million in 2014 and €280 million in 2013. Real estate and leasing activities have received the most FDI, followed by financial services and construction. The food, IT, infrastructure, and energy sectors are growing and could attract new FDI. Portfolio investment in 2015 totaled €1,388 billion, with equity securities of €1,086 billion and debt securities of €302 million.
The government has implemented several policies aimed at fostering sustainable, private-sector led growth that has improved the overall business climate. It adopted a new fiscal package in 2015 aimed at strengthening its public finances and attracting FDI. The Kosovo Investment and Enterprise Support Agency (KIESA) is Kosovo’s official investment promotion agency, providing investment-support services to all potential investors. In addition, the government and international donors created a Credit Guarantee Fund that will improve access to credit for businesses. With USAID assistance, the Ministry of Trade and Industry is working on improving its place on the World Bank’s Doing Business index.
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