Slovakia 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 Slovakia was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, Slovakia was deemed Compliant for 4 and Largely Compliant for 18 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 4 of the 6 Core Recommendations.
MoneyVal Plenary - 1st June 2017: Fourth round follow up: application by the Slovak Republic to be removed from regular follow-up
The Secretariat presented its analysis on the Slovak Republic’s application to be removed from regular follow-up process under the 4th round follow-up. Since the adoption of the 4th round MER, the Slovak Republic has taken a number of measures with a view to addressing the remaining shortcomings identified in respect of the key and core recommendations. However, there still remain deficiencies related to R.26 and SR.III.
At the 52nd Plenary in December 2016, the Plenary considered that the Slovak Republic was not yet in a position to be removed from regular follow-up due to the fact that a number of deficiencies under some key recommendations remain. Therefore, the Plenary invited the Slovak Republic to provide a further follow-up report at the 53rd Plenary and seek then removal from the regular follow-up process.
The Slovak Republic has made progress with regard to SR.III, with the new “Act on the implementation of the international sanctions” covering the freezing of assets in the event of control or possession of assets. The deficiencies related to the timely amendment of lists published under UNSCR 1267 have however not yet been addressed. Mechanisms for considering requests for freezing from other countries and procedures for de-listing and unfreezing have been included in the new Act. However, some deficiencies still remain.
With regard to Recommendation 26, a proposal for organisational changes related to the position of the FIU within the Police Force was prepared. Despite initial positive feedback from the Presidium of the Police Force, the latter authority’s management refused the request in early 2017. As no formal actions have been taken since the adoption of the 4th round MER, the concerns raised therein relating to the weak formal position of the FIU in the police structure remain. No formal safeguards were introduced to ensure the FIU’s operational independence and autonomy.
The Plenary decided to move the Slovak Republic into enhanced follow-up and apply step 1 under the MONEYVAL Compliance Enhancing Procedures. In doing so, the Plenary took into account the severity of the outstanding deficiencies (mostly under R.26 and SR.III) and the fact that the 4th round MER of the Slovak Republic was adopted in September 2011, i.e. more than five and a half years ago. The Slovak Republic was requested to report back to the Plenary on progress made in December 2017.
US Department of State Money Laundering assessment (INCSR)
Slovakia 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: -
Criminal activity in the Slovak Republic (Slovakia) is characterized by a moderate to high level of domestic and foreign organized crime, mainly originating from eastern and southeastern Europe. Slovakia is a transit and destination country for counterfeit and smuggled goods, auto theft, value-added tax (VAT) fraud, and trafficking in persons, weapons, and illegal drugs. Many of the same organized crime groups are involved in laundering funds raised from these criminal activities.
The Slovak Ministry of Interior’s Financial Intelligence Unit (FIU) has identified unusual transactions suspected of perpetrating tax fraud and evasion. A common tactic is the use of shell companies to execute complex commercial transactions through a system of “carousel trading” and, ultimately, to claim either unauthorized VAT refunds or evade tax payments. The FIU also has registered increased unusual transactions suspected of disguising illicit funds in bank accounts registered to Hungarian and Chinese citizens and business entities.
Trade-based money laundering and possible terrorist financing are concerns. There are no indications that significant funds generated by public corruption are being laundered or used to finance terrorist activities. Slovakia has no offshore or free trade zones. Slovak authorities see the transfer of undeclared cash across borders as a possible money laundering vulnerability. Alternative remittance systems are not known to be widely used in Slovakia.
The FIU also has noted increased incidences of online consumer fraud, including phishing and pharming attempts. Perpetrators of online consumer fraud frequently target those interested in purchasing automobiles, industrial equipment, mobile phones, or employment assistance. Perpetrators request the prepayment of a deposit and do not provide delivery of goods or services. Investigations have revealed victims transferred funds to bank accounts often controlled by Romanian citizens. Coordinated phishing attacks to gain illegal access to bank accounts have targeted account owners located in smaller Slovak villages.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 50
World Governance Indicator – Control of Corruption 66
Corruption is a problem for businesses in Slovakia. Companies cite the lack of transparency and inefficient government bureaucracy as the largest impediments to business. The Slovak Penal Code, the Criminal Procedure Code and the Specialised Criminal Act provide for the criminalisation of most forms of corruption, including active and passive bribery, bribery of foreign officials and extortion. However, insufficient law enforcement negatively affects foreign companies in Slovakia. Companies report the possibility of facilitation payments and bribes in the customs, public utilities, public procurement and judicial sectors. Facilitation payments and gifts are illegal under Slovak law, but officials in some sectors expect to receive gifts and irregular payments. For further information - GAN Integrity Business Anti-Corruption Portal
Slovakia has made significant economic reforms since its separation from the Czech Republic in 1993. With a population of 5.4 million, the Slovak Republic has a small, open economy, with exports, at about 93% of GDP, serving as the main driver of GDP growth. Slovakia joined the EU in 2004 and the euro zone in 2009. The country’s banking sector is sound.
Slovakia has led the region garnering FDI, because of its relatively low-cost, highly-skilled labour force, reasonable tax rates, and favourable geographic location in the heart of Central Europe. However, recent increases in corporate taxes, as well as changes to the Labour Code, slow dispute resolution, and ongoing corruption potentially threaten the attractiveness of the Slovak market. Moreover, the energy sector is characterized by high costs, unpredictable regulatory oversight, and growing government interference.
Agriculture - products:
grains, potatoes, sugar beets, hops, fruit; pigs, cattle, poultry; forest products
automobiles; metal and metal products; electricity, gas, coke, oil, nuclear fuel; chemicals, synthetic fibres, wood and paper products; machinery; earthenware and ceramics; textiles; electrical and optical apparatus; rubber products; food and beverages;
Exports - commodities:
vehicles and related parts 27%, machinery and electrical equipment 20%, nuclear reactors and furnaces 12%, iron and steel 4%, mineral oils and fuels 5% (2015 est.)
Exports - partners:
Germany 22.7%, Czech Republic 12.5%, Poland 8.5%, Austria 5.7%, Hungary 5.7%, France 5.6%, UK 5.5%, Italy 4.5% (2015)
Imports - commodities:
machinery and electrical equipment 20%, vehicles and related parts 14%, nuclear reactors and furnaces 12%, fuel and mineral oils 9% (2015 est.)
Imports - partners:
Germany 19.4%, Czech Republic 17.4%, Austria 9.1%, Hungary 6.3%, Poland 6.3%, South Korea 5.5%, Russia 5.2%, China 4.1% (2015)
Investment Climate - US State Department
With a population of 5.4 million, the Slovak Republic has a small, open economy. Slovakia joined the European Union (EU) in 2004 and the Eurozone in 2009. Of the EU member states, Slovakia is among the quickest to recover from the global economic crisis. In recent years exports, which account for as much as 93% of GDP, have served as the main driver of economic growth. In 2015 the Slovak GDP grew by an estimated 3.5%, fueled by increased domestic consumption (up 2.3%) and investment activity (up 12.7%, largely driven by efforts to fully utilize remaining EU 2007 – 2013 programming period funds). Domestic consumption growth is being driven by increases in real wages, thanks to deflation and improvements in the labor market.
Growth projections for 2016 GDP range between 3.4 and 3.6%. Slovakia’s banking sector is sound. Credit rating agencies emphasize the country’s deep economic and financial integration within Europe, and moderate government debt ratios.
Slovakia has been a regional FDI champion for several years, attractive due to a relatively low-cost yet skilled labor force, reasonable tax rates, and a favorable geographic location in the heart of Central Europe. Among the most pressing domestic issues potentially threatening the attractiveness of the Slovak market are increasing labor costs, labor code changes reducing flexibility, ongoing corruption issues and an inadequate judiciary. The energy sector in particular is characterized by high costs, unpredictable regulatory oversight, and persistent government interference.
The automotive industry has attracted a great deal of FDI. Slovakia remains the largest per capita car producer in the world (producing over one million cars last year) with three major car producers and approximately 300 auto suppliers. In 2015, the Slovak government and Jaguar Land Rover (JLR) signed an agreement to build a new EUR 1.5 billion manufacturing facility in Western Slovakia, the biggest investment deal in Slovak history.
Other sectors traditionally attracting investment are machinery, telecommunications, and energy. Many established companies continue to make new investments in their production facilities, and only a few major investors have exited. There are more than 120 U.S. companies present in the Slovak market. The total amount of inward FDI from the U.S. is approximately USD 600 million. With total bilateral trade amounting to USD 2 billion in 2015, the U.S. is Slovakia’s 14th largest trade partner.
Positive aspects of the Slovak investment climate include:
Membership in the Eurozone (unique among the Visegrad Group (V4) countries – Czech Republic, Hungary, Poland, Slovakia)
Firm government commitment to EU deficit and debt targets
An open, export-oriented economy (the most open EU economy in terms of percentage of exported goods to GDP)
Proximity to western Europe
A simplified one-stop shop process for starting a business
A new fund of funds – the Slovak Investment Holding (SIH), to drive investment in strategic sectors
A qualified and relatively inexpensive workforce (despite increasing labor costs)
Increased focus on drawing EU structural funds for R&D, the support of clusters and Industry 4.0 solutions
Financial incentives for investors, including foreigners.
Negative aspects of the Slovak investment climate include:
High electricity costs for industries
The highest corporate income tax rates in the V4
An incomplete national transport network and underdeveloped infrastructure
Frequent Labor Code amendments
High sensitivity to regional economic developments (such as an economic slowdown in Germany or a further escalation of the Russia-Ukraine conflict)
An inefficient judicial system, limited law enforcement and enforcement of contracts
Low rate of government investment in R&D
Heavy reliance on EU structural funds, with limited accountability.
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