KOSOVO: KOSOVO INTERNATIONAL NARCOTICS CONTROL

UNCLAS PRISTINA 001058

SIPDIS

SIPDIS

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E.O. 12958: N/A
TAGS: KCRM KTFN EFIN ECON YI
SUBJECT: KOSOVO: KOSOVO INTERNATIONAL NARCOTICS CONTROL
STRATEGY REPORT PART II

REF: STATE 157000


1. Kosovo is a disputed territory that has been governed by
the United Nations (UN) since 1999. Current laws and
regulations pertaining to financial crimes derive their
authority from the Special Representative of the UN Secretary
General. If, as expected, there is a resolution of Kosovo's
final status in 2007, a critical challenge will be ensuring
the continuity and enhancement of existing legal instruments.



2. Kosovo,s major problems include a struggling economy with
high unemployment, corruption, crime, weak adherence to and
respect for the rule of law, and the need for greater
protection of minority rights. After more than seven years
of UN administration, Kosovo institutions have assumed
greater responsibility for major governmental functions,
although the United Nations Mission in Kosovo (UNMIK)
maintains executive authority in critical areas.


3. Kosovo is not an important regional financial center and
most money laundering offenses are related to tax evasion,
customs fraud and smuggling. It is estimated that
money-laundering related to narcotics-trafficking, weapons
smuggling, and trafficking in persons is about 20 percent.
Kosovo has an underground market for smuggled goods,
counterfeit currency and pirated products. Illegal proceeds
are generated from official corruption, tax evasion, customs
fraud, organized crime, contraband and other types of
financial crimes. Illegal proceeds are laundered into Kosovo
from domestic and foreign criminal activity. While more
evidence is needed, UNMIK officials believe that proceeds
from illegal activities are being laundered in all forms of
real estate, retail and commercial stores, banks, financial
services, casinos and trading companies.


4. According to Kosovo,s Financial Intelligence Center
(FIC),money laundering likely occurs in non-bank financial
systems such as hawalas, exchange houses, and street currency
vendors. Kosovo has experienced bank fraud and counterfeit
currency. In March 2006, Credit Bank of Pristina (CBP),one
of six local banks in Kosovo, had its operating license
revoked by the Banking and Payments Authority of Kosovo (now
Central Banking Authority of Kosovo) as a result of bad loans
totaling 14 million euros given primarily to some of the
bank,s board members and shareholders. Many customers,
including some American citizens, suffered losses as a result
of CBP,s financial malfeasance. The Banking and Payments
Authority hired the U.S. Federal Deposit Insurance
Corporation (FDIC) officials to conduct the bankruptcy and
liquidation of CBP in hopes of returning 95 percent of the
deposits to the bank,s former customers. The Central
Banking Authority is closely monitoring the activities all
banks to avoid fraud and financial malfeasance. FIC
officials said that counterfeit currency ) U.S. dollars,
euros, Swiss francs ) is becoming a problem in Kosovo. Most
of the counterfeit currency is not produced in Kosovo, but
laundered into the banking and financial systems.


5. There is currently no evidence that Kosovo,s financial
institutions engage in currency transactions involving
international narcotics proceeds or money laundering that
include significant amounts of U.S. currency or currency
derived from illegal drug sales in the United States. The
FIC reported that it has not discovered laundered money
heading to the United States. Most of the cash flow entering
Kosovo derives from the Balkans, Switzerland, United Kingdom,
Turkey and the United States. The FIC estimates that there
is 3-4 billion euros of cash in Kosovo every year.


6. Kosovo does not have nor license offshore financial
centers, offshore banks and offshore international business
companies. There is no legislation in Kosovo that permits
offshore shell companies, trusts and other forms of offshore
international business. There are no free trade zones in
Kosovo.


7. UNMIK Regulation No. 2004/2 (On the Deterrence of Money
Laundering and Related Criminal Offenses) is the regulation
that criminalizes money laundering and terrorist financing.
The law criminalizes all serious crimes related to money
laundering that carry a minimum threshold for fines and
penalties up to 100,000 euros and jail time for two to five
years. There is no law that applies only to drug-related
money laundering. Money laundering is a felony offense.


8. Kosovo has UNMIK secrecy regulations for banks but UNMIK
Regulation No. 2004/2 supersedes these statutes. UNMIK
Regulation No. 2004/2 also includes a provision that
prohibits professional secrecy to be invoked as a ground for
refusal to provide information pertaining to money
laundering. UNMIK Regulation No. 2004/2 establishes the
creation and authority of the FIC. The Central Banking
Authority of Kosovo (CBAK) and the FIC supervise banks and
financial institutions to ensure compliance with the
anti-money laundering (AML) law. Banks and financial
institutions are required to report any single transaction
over 10,000 euros. UNMIK Regulation No. 2004/2 requires
banks and financial institutions to maintain records for
money laundering or terrorist financing cases for at least
five years after the account has been closed or relations
with the client have ended, whichever is later.


9. Most money laundering regulations are applied to all
non-bank financial institutions (NBFIs) except casinos.
Casinos are not expressly mentioned in UNMIK Regulation No.
2004/2, but they fall under the jurisdiction of the UNMIK
Regulation for Business Organization. The FIC has submitted
amendments to require casinos to report their activities to
the CBAK. The FIC supervises most NBFIs for compliance.
UNMIK Regulation No. 2004/2 requires all banks, financial
institutions, non-governmental organizations (NGOs),
attorneys and accountants to file suspicious activity reports
(SARs) within 24 hours of the time the act was identified.
Businesses are not required to file SARs. There is no
threshold amount to file a SAR. UNMIK Regulation No. 2004/2
requires all reporting individuals to cooperate with the FIC.
There are no statutory requirements limiting the
international transportation of currency and money
instruments coming in and out of Kosovo. However, every
person entering or leaving Kosovo and carrying monetary
instruments in excess of 10,000 euros shall declare the
amount and source of the money with UNMIK Customs Service
with a copy of that report to the FIC. Every person sending
from or receiving in Kosovo in excess of 10,000 euros via
post or commercial courier shall declare the amount and
source of the money with UNMIK Customs Service with a copy of
that report to the FIC.


10. The FIC is an independent organization which reports to
the UNMIK Principal Deputy of the Special Representative of
the Secretary General. The FIC needs more qualified,
experienced staff. The FIC is an administrative body that
demands information from banks, financial institutions and
NBFIs. The FIC can conduct compliance inspections but it is
not a criminal investigatory agency. The FIC does have
regulatory responsibilities. The FIC has access to records
and databases of the PISG, financial institutions and NBFIs.


11. The FIC shares information and works closely with the
Central Banking Authority of Kosovo (CBAK),Kosovo Tax
Administration, Kosovo Office of the Auditor General, UNMIK
Customs, UNMIK Central Intelligence Unit, the Financial
Investigation Unit (The Italian Government's Guardia di
Finanza is seconded to UNMIK to carry out the investigation
of financial crimes, including money laundering and terrorist
financing),UNMIK Civilian Police, Kosovo Ombudsmen and
publicly-owned enterprises such as the Kosovo Energy
Corporation. The FIC has formal agreements in place with
Albania, Montenegro and Macedonia to share information with
their financial intelligence units.


12. As of November 2006, 30 SARs were filed and banks,
financial institutions and NBFIs file approximately 8,000
currency transaction reports each month. There has been one
arrest related to money laundering involving the
telecommunications monopoly Post and Telecom of Kosovo, but
the case did not result in a successful prosecution.


13. Kosovo's Financial Investigation Unit (FIU) is comprised
of the Italian Government's Guardia di Finanza which is
seconded to UNMIK to carry out the investigation of financial
crimes, including money laundering and terrorist financing.
The FIU is adequately staffed and trained.


14. In 2006, the FIC conducted a public outreach campaign and
sting operation called Operation Z Market to compel illegal
money exchangers, hawalas and remitters to license their
activities. Twenty people applied for a license after the
FIC conducted its sting operation to compel them to
legitimize their company or face the possibility of fines,
penalties and jail time.



15. Kosovo has not criminalized the financing of terrorism as
required by the United Nations Security Council Resolution

1373. Terrorism and terrorist financing are considered
serious crimes under UNMIK Regulation No. 2004/2 and UNMIK,s
Provisional Criminal Code (Articles 109-112) and UNMIK
Regulation No. 2001/12 on the Prohibition of Terrorism and
Related Offenses. UNMIK,s Office of Internal Security is
responsible for disseminating UN 1267 sanctions lists to the
appropriate intelligence, law enforcement agencies, financial
institutions and the FIC. UNMIK has the jurisdiction to
freeze, seize or forfeit assets. In 2005-06, UNMIK did not
freeze, seize or forfeit assets related to UN 1267 sanctions
lists.


16. UNMIK Regulation No. 2004/2 does not permit
non-governmental organizations (NGOs) to accept any currency
in excess of 1,000 euros from a single source in a single
day. NGOs can not disburse money in excess of 5,000 euros in
a single day to a single recipient. NGOs can seek a one-time
or recurring exemption from the FIC to allow acceptance of
donations in excess of 1,000 euros from a single donor or to
disburse currency in excess of 5,000 euros to a single
recipient. The FIC has 30 days to respond to the request and
may grant or deny the exemption. The FIC,s decision is
final and not subject to appeal. NGOs are required to
maintain accounts that document all income and disbursements,
identify the sources and amounts of income and method of
payment. NGOs must also identify disbursements by
recipients, intended use of funds and method of payment.
NGOs are required to file SARs and an annual report with
detailed accounting and records of all donations and
disbursements in excess of 5,000 euros. UNMIK may suspend or
revoke the registration of an NGO for violation of any
provision in UNMIK Regulation No. 2004/2 and UNMIK Regulation
No. 1999/22 on the Registration and Operation of
Non-Governmental Organizations in Kosovo.


17. UNMIK does have statutes to regulate and monitor cash
coming into and out of Kosovo. UNMIK Customs officials note
that there is a lack of effective control of the
administrative boundary between Kosovo and neighboring
countries and suspect that significant amounts of cash flow
in and out of Kosovo. There are inbound and outbound
reporting requirements. There are no statutory requirements
limiting the international transportation of currency and
money instruments coming in and out of Kosovo. But every
person entering or leaving Kosovo and carrying monetary
instruments in excess of 10,000 euros shall declare the
amount and source of the money with UNMIK Customs Service
with a copy of that report to the FIC. Any cash smuggling
report is shared between UNMIK Customs Service, the FIC, FIU,
intelligence organizations and law enforcement.


18. UNMIK Regulation No. 2004/2 has provisions for asset and
forfeiture, using both civil and criminal proceedings. For
suspicious transactions or activities related to money
laundering and terrorist financing, the FIC can freeze a
transaction for 48 hours and the public prosecutor's office
can decide to seize or continue freezing the asset.
Legitimate businesses can be seized if used to launder money
or support terrorist activity. The banking community
cooperates with enforcement efforts to trace funds and
seize/freeze bank accounts. There is no law drug-related
asset seizure and forfeiture law. In 2006 there were no
terrorist-related assets frozen, seized or forfeited.
Kosovo,s undefined political status impedes its ability to
enter into agreements with other countries to share seized
narcotics assets or assets from serious crimes. Kosovo does
participate in regional initiatives to improve its capacity
on asset tracing, freezing and seizure.


19. UNMIK has cooperated with the United States by accepting
USG Executive Order lists, but there is no existing law or
executive decision by the United Nations, Special
Representative of the Secretary General for Kosovo to
facilitate distribution of these lists to the CBAK, banks and
financial institutions. Although Kosovo under UNMIK does not
automatically become a party to the UN International
Convention against Illicit Traffic in Narcotics Drugs and
Psychotropic Substances (Vienna Convention),the UN
Convention Against Transnational Organized Crime (Palermo
Convention),the UN Convention Against Corruption, and the UN
International Convention for the Suppression of the Financing
of Terrorism, UNMIK is adhering to these conventions as much
as possible in accordance to its mandate under UN Security

Council Resolution 1244.


20. The FIC only has agreements with Albania, Macedonia and
Montenegro to share information. Kosovo under UNMIK is
working to incorporate Egmont, FATF and EC policy directives
in its anti-money laundering and counter-terrorist financing
operations.
KAIDANOW