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 Progress Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Montenegro was undertaken by the Financial Action Task Force (FATF) in 2015. According to that Evaluation, Montenegro was deemed Compliant for 7 and Largely Compliant for 12 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 5 of the 6 Core Recommendations.
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.
UN / 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)
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 45
World Governance Indicator – Control of Corruption 58
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
Montenegro's economy is transitioning to a market system. From the beginning of the privatization process in 1999 through 2015, around 85% of Montenegrin state-owned companies have been privatized, including 100% of banking, telecommunications, and oil distribution. Tourism brings in twice as many visitors as Montenegro’s total population every year. Several new luxury tourism complexes are in various stages of development along the coast, and a number are being offered in connection with nearby boating and yachting facilities.
Montenegro uses the euro as its domestic currency, though it is not an official member of the euro zone. In January 2007, Montenegro joined the World Bank and IMF, and in December 2011, the WTO. Montenegro began negotiations to join the EC in June, 2012, having met the conditions set down by the European Council, which called on Montenegro to take steps to fight corruption and organized crime.
The government recognizes the need to remove impediments in order to remain competitive and open the economy to foreign investors. The biggest foreign investors in Montenegro are Italy, Norway, Austria, Russia, Hungary and the UK. Net foreign direct investment in 2014 reached $483 million and investment per capita is one of the highest in Europe.
Montenegro is currently planning major overhauls of its road and rail networks, and possible expansions of its air transportation system. In 2014, the Government of Montenegro selected two Chinese companies to construct a 41 km-long section of the country’s highway system. Construction will cost around $1.1 billion. Montenegro first instituted a value-added tax (VAT) in April 2003, and introduced differentiated VAT rates of 17% and 7% (for tourism) in January 2006. In May 2013, the Montenegrin Government raised the higher level VAT rate to 19%.
Agriculture - products:
tobacco, potatoes, citrus fruits, olives, grapes; sheep
steelmaking, aluminium, agricultural processing, consumer goods, tourism
Exports - partners:
Croatia 22.7%, Serbia 22.7%, Slovenia 7.8% (2012 est.)
Imports - partners:
Serbia 29.3%, Greece 8.7%, China 7.1% (2012 est.)
Investment Climate - US State Department
Since regaining its independence in 2006, Montenegro has adopted a legal framework that encourages privatization, employment, and exports. Implementation, however, lags well behind the legal structure, and the Montenegrin economy continues to flounder on a very narrow tax base and a band of three developing sectors: tourism, energy, and to a lesser extent agriculture. Montenegro has one of the highest public debt to GDP ratios in the region, currently at 60%, with forecast of growing indebtedness to cope with the repayment of €800 million debt to China’s Ex/Im Bank for financing Montenegro’s first modern highway. Despite legal improvements, corruption is a major concern. Montenegro ranks 61 in Transparency International’s (TI) 2015 “Corruption Perception Index” survey of 167 countries. In 2015, the economy grew by 3.5% while unemployment is stuck at nearly 20%.
As a candidate country on its path to join the European Union (EU), Montenegro is making good progress in opening and negotiating chapters with the EU. To date it has opened 22 out of 35 chapters and has provisionally closed two. Montenegro received an invitation to join NATO in December 2015, which is historic and perhaps the most important event since its independence in 2006.
Montenegro’s 300 km- long coastline and the spectacular mountainous north drives the tourism sector, which accounts for up to 20 percent of GDP. Government sales of formerly state-owned land have spurred a wave of foreign investment in large-scale tourism and hospitality centers; however, bureaucratic gridlock has left many of these projects on hold. No one country dominates the FDI field, with Russia, Azerbaijan, China, Swiss (Egypt), Arabian Gulf, U.S., U.K., and Canadian projects taking root.
The GoM is building an underwater electric transmission cable to Italy which will export renewable energy to the continent starting in 2017. Additionally, there are several ongoing conventional energy projects around the country, including a second block of the thermal plant in Pljevlja (which has drawn Czech interest and the Government is in final phase of negotiation with Skoda Praha) and a number of small-scale hydro projects. In late 2013, Montenegro invited international oil and gas companies to bid on licenses to explore its offshore coast, based on seismic data showing favorable condition for hydrocarbon deposits off Montenegro’s deep-water coast. The Government has adopted a concession agreement with the Italian-Russian consortium Eni/Novatek for four blocks. Next year, they will most likely sign one more agreement with a Greek – British consortium Energean oil/Mediterranean oil & gas for just one block. It is expected that the exploration will start in 2016 and several more licensing rounds are foreseen in by 2020 for additional exploration blocks.
Montenegro’s temperate climate supports a nascent agro-production industry; however, the country continues to be dependent on imports of food products from neighboring countries owing to the economies of scale. The exception is the local wine industry, with government-owned “Plantaze” being a leading regional producer and exporter to Europe and the U.S.
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