FATF Status

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.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           41

World Governance Indicator – Control of Corruption             47

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

The Kosovan economy has shown considerable resilience in the wake of the shocks arising from the pandemic and rapid increases in commodity prices. After contracting more than 5 percent in 2020, Kosovo’s economy grew between by 7.1 and 7.5 percent in 2021 based on World Bank and International Monetary Fund (IMF) estimates, thanks to reduction in covid travel restrictions, extraordinary diaspora inflows, and increased local demand. According to the IMF, economic activity is forecast to grow at 3.8 percent in 2023, driven partially by the strong economic momentum of 2022. Foreign Direct Investment (FDI) remains limited while diaspora remittances (representing 16 percent of GDP in 2021) continue to be the country’s main economic driver, underscoring the need for Kosovo to diversify sources of economic growth. The COVID-19 pandemic, Russia’s illegal invasion of Ukraine, supply shocks, and global inflation have thus far not influenced changes in Kosovo’s investment policies.

Kosovo’s potential to attract increased FDI is constrained by numerous structural issues, including limited regional and global economic integration; political interference in the economy and judiciary; an unreliable energy supply; a large informal sector; difficulty establishing property rights; corruption; and tenuous rule of law, including a lack of contract enforcement. The country’s ability to sustain growth relies significantly on international financial support and remittances. Kosovo’s ongoing dispute with Serbia and lack of formal recognition by many countries and international organizations, including the United Nations, also hinders investment and creates obstacles to doing business.

In 2022, the net flow of FDI in Kosovo was estimated at $836 million, a significant increase over the 2021 amount of $466 million. Real estate and leasing activities are the largest beneficiaries of FDI, followed by financial services and energy. The food, IT, infrastructure, and energy sectors are growing and are likely to attract additional FDI. One key sector of the economy that has sustained strong growth is the wood processing sector.

Kosovo’s laws and regulations are consistent with international benchmarks for supporting and protecting investment, though enforcement remains weak. Kosovo has a flat corporate income tax of 10 percent. With USAID assistance, Kosovo established a Commercial Court in August 2022, which aims to handle business disputes fairly, efficiently, and predictably and is expected to improve the business enabling environment by reducing opportunities for corruption and building investor and private sector trust in the judiciary. All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices. All large companies are required to comply with international accounting standards. Investors should note that despite regulatory requirements for public consultation and the establishment of an online platform for public comments ( http://konsultimet.rks-gov.net ), some business groups complain that regulations are passed with little substantive discussion or stakeholder input.

Despite the challenges, Kosovo has attracted significant investors, including several international firms and U.S. franchises. Some investors are attracted by Kosovo’s young population, low labor costs, proximity to the EU market, and natural resources. Global supply disruptions brought on by the COVID-19 pandemic have sparked greater interest from some businesses to use Kosovo as a base for near-shoring production destined for the EU market. Kosovo does provide preferential access for products to enter the EU market through a Stabilization and Association Agreement (SAA).

Country Links

Central Bank of the Republic of Kosovo