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Montenegro Country Summary

64.78 Country Rating /100
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Sanctions

Limited EU and US restrictions

FATF AML Deficient List

No

Terrorism
Corruption
US State ML Assessment
Criminal Markets (GI Index)
EU Tax Blacklist
Offshore Finance Center

Background Information


Anti Money Laundering

FATF Status

Montenegro 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 Montenegro was undertaken in 2023. According to that Evaluation, Montenegro was deemed Compliant for 2 and Largely Compliant for 19 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 2 with regard to the areas of Effectiveness of its AML/CFT Regime.

US Department of State Money Laundering assessment (INCSR)

Montenegro 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: -

Montenegro’s geographic location and use of the euro make it an attractive target for money laundering. Public perception of corruption in Montenegro remains widespread. Factors that facilitate Montenegro’s vulnerability to money laundering are the use of cash for many large commercial transactions, weak financial crimes enforcement, and a lack of monetary controls over currency use, as Montenegro uses the euro but is not a Eurozone member country.

Additional factors that inhibit the fight against money laundering include corruption, insufficient capacity to conduct financial investigations, weak collaboration among government agencies, and a judicial system susceptible to political influence. Organized crime remains a serious concern in Montenegro and is linked to corruption. Criminal organizations, including sophisticated international narcotics trafficking enterprises, have a presence in Montenegro.

Montenegro is a transit country for illegal goods. The country’s ports have been used by criminals as a staging area to unload illicit cargo and reload it onto other vessels with onward shipping to Central and Western Europe. Organized criminal groups in Montenegro traffic in stolen cars, narcotics, cigarettes, and counterfeit products. Proceeds of narcotics trafficking, tax evasion, internet fraud, games of chance, and other illegal activities are often laundered through Montenegro’s construction and real estate industries, and investments in the stock market.

Organized criminal groups, primarily from Russia and Western European countries, invest significant amounts of money to purchase and construct real estate in Montenegro.  The properties are often not registered to the true owner. The Montenegrin financial intelligence unit (FIU) has noted cases of local companies receiving significant loans from their parent companies or offshore companies. In most cases, the loans are never repaid to the offshore lender but are used for the purchase or construction of real estate in Montenegro instead. Loan contract signing follows the same pattern; after a loan contract or other business deal is signed, it is not certified by the Notary Public to ensure legal validity. As such, many court cases are disputed. The FIU has also noted frequent electronic payments between the same accounts slightly below the 15,000 euros (approximately $16,150) reporting limit.

Criminals often use phantom companies to present fictitious transfers of goods and services in order to legalize or re-direct invested money.  Criminals also have deposited the proceeds of illicit transactions into offshore accounts and taken back the funds in the form of loans, which they never repay.  According to Montenegrin authorities, most illegal proceeds come from Russia, Italy, Switzerland, Serbia, Croatia, and Panama. In a form of service-based laundering, offshore companies send fictitious bills to a Montenegrin company (for market research, consulting, software, leasing, etc.) for the purpose of extracting money from the company’s account in Montenegro so funds can be sent abroad. The emergence of terrorist financing is also of concern to the government. Information technology, electronic transfers, credit cards, internet payments, cyber-currencies, and other new payment methods make these threats more difficult to detect.

According to authorities, money laundering takes place in the banking sector and, to a lesser extent, through Western Union. There are no cases of money laundering reported in informal remittance systems such as hawala or hundi. Authorities note that criminals prefer using electronic transfers based on fictitious accounts mostly opened by foreign nationals instead of using bank notes.

Sanctions

EU Sanctions

This regime includes a prohibition to satisfy claims in relation to contracts and transactions the performance of which was affected by measures imposed by the Security Council pursuant to Resolution 757(1992) and related resolutions. The same restrictive measures regime applies in relation to Serbia.

Measures - Prohibition to satisfy claims

It shall be prohibited to satisfy or to take any step to satisfy a claim made by any person or body referred to in paragraph 9 of United Nations Security Council Resolution 757(1992)

OFAC

Following the issue of EO 14033 in June 2021, the US has expanded the scope of sanctionable conduct in the Western Balkans to include the Republic of Albania and the territory of the former Socialist Federal Republic of Yugoslavia, which today comprises the modern states of Bosnia and Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia, Serbia, and Slovenia.

Bribery & Corruption

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                          46

World Governance Indicator – Control of Corruption             51

Corruption is a problem for investors in Montenegro. The regulatory environment can be complex and time-consuming, and business regulations are inconsistently applied. Corruption is particularly pervasive at the municipal level in the areas of land zoning, public procurement, privatisation, education and healthcare. The Montenegrin Criminal Code applies to all individuals in public and private sectors, and it criminalises active and passive bribery, abuse of office, trading in influence and fraud. A bribe does not need to be of monetary value, but can also constitute gifts and other types of benefits. Companies are held liable for criminal offences committed by their representatives under the Law on Criminal Liability of Legal Entities. Integrity mechanisms have limited effectiveness, and enforcement of anti-corruption legislation is hindered by inadequate institutional coordination, implementation and monitoring. Bribery is widespread in Montenegro, and gifts are expected in certain sectors. For further information - GAN Integrity Business Anti-Corruption Portal

Economy

Montenegro relies on a narrow tax base with an economy centered on three sectors, and the government largely focuses its efforts on developing tourism, energy, and to a lesser extent, agriculture. The tourism sector officially accounts for about 25 percent of GDP, although some analysts believe it accounts for over one third when considering the grey economy. In the energy sector, the most important project in the transmission system was the construction of a two-way underwater electricity cable to export power to Italy, which included the development of a 433-kilometer-long tunnel approximately 1,200 meters below the Adriatic Sea surface. The project cost 800 million euro and began operation in December 2019. There are several other ongoing energy projects, including the controversial ecological reconstruction of the coal-fired thermal plant in Pljevlja in partnership with People’s Republic of China (PRC) company Dongfang Electric Corporation that began in April 2022, as well as the development of a 55-megawatt wind power plant in Gvozd, a project supported by the European Bank for Reconstruction and Development (EBRD).

According to the Central Bank of Montenegro (CBCG), foreign direct investment (FDI) in 2022 totalled to €1.15 billion. Although no one source country dominates FDI, significant investments have come from Serbia, Russia, Germany, Switzerland, UAE, Turkey, Italy, and the United States, with other investments coming from Cyprus, the Netherlands and Austria. Montenegro has one of the highest public debt-to-GDP ratios in the region, but this ratio has been declining over the last two years thanks to strong growth and repayments, dropping from a high of 105 percent in 2020 to about 73 percent in April 2023. Infrastructure development remains a government priority. The most visible current project is the Bar-Boljare highway, Montenegro’s first modern highway which is designed to better connect the more developed south with the relatively underdeveloped north of the country. The highway, the first and most expensive portion of which was built by the China Road and Bridge Corporation and became operational in July 2022, has been widely criticized as a textbook example of PRC “debt trap diplomacy”. The completion of the full four-stage project continues to pose challenges to Montenegro’s fiscal position, given limited room to finance the construction of the three remaining sections.

The pandemic hit Montenegro’s economy hard, with the unemployment rate reaching 24 percent by the end of 2021, although it has since dropped to 16 percent at the end of 2022. In addition, gross domestic product (GDP) declined by 15.3 percent in 2020, the biggest drop in Europe. The country enjoyed a strong recovery in 2021, however, with the government announcing a GDP growth rate of 14 percent for the year, one of the highest in Europe. GDP growth was 6.9 percent in 2022, led by private consumption and a better-than-expected tourism season. Economic recovery will continue to face challenges, however. Developments in Ukraine and Russia, two of Montenegro’s main sources of tourists and together accounting for about 16 percent of total arrivals and over 20 percent of tourism spending in 2021, will threaten economic growth as the country will likely struggle to compensate for their absence during the 2023 tourism season.

In 2022, Montenegro began implementing a wide-ranging economic reform program known as Europe Now, which eliminated all individual health care contributions, almost doubled the minimum wage, increased pensions, and introduced a system of progressive taxation. The economic impact of these ambitious new measures will take time to become clearer. However, analysts have attributed Montenegro’s 20 percent increase in consumption and an inflation rate of over 17 percent in 2022 to the reforms, coupled with a huge inflow of Russian and Ukrainian citizens as the result of Russia’s war of aggression against Ukraine. Montenegro has not yet joined the Open Balkan Initiative, previously known as “Mini-Schengen,” a project championed by Serbia, Albania, and North Macedonia and designed to facilitate trade, services, and movement of people throughout the Western Balkans. Montenegro continues to grapple with rule of law concerns, including corruption and organized crime.

As the 29th NATO member and the long-standing EU-accession front-runner, Montenegro plays a pivotal role in a volatile region still struggling to fully embrace Euro-Atlantic values and susceptible to malign foreign influence.  This has been a central theme since the country’s first transition of power in 30 years following the narrow victory of a broad but disparate coalition of civic, moderate, and radical pro-Serb and pro-Russian parties in the August 2020 national elections. Since then, two successive coalition governments have lost votes of no confidence in the parliament, first in February and then in August of 2022. Voters elected a political newcomer in the country’s presidential runoff election held on April 2, 2023, ending the 32-year rule of Europe’s longest serving leader. After a long-standing political impasse, snap parliamentary elections were called for June 11, 2023.

 

Country Links

Administration for the Prevention of Money Laundering and Terrorist Financing (APMLTF)

Central Bank - CBCG :: Central Bank of Montenegro

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