ALBANIA'S CENTRAL BANK GOVERNOR: MONEY LAUNDERING

C O N F I D E N T I A L TIRANA 000358

SIPDIS

SIPDIS

DEPT FOR EUR/SCE (BENEDICT,SAINZ)
TREASURY FOR ATUKORALA
NSC FOR BRAUN

E.O. 12958: DECL: 04/07/2016
TAGS: ECON EFIN EINV KCRM AL
SUBJECT: ALBANIA'S CENTRAL BANK GOVERNOR: MONEY LAUNDERING
IN CONSTRUCTION


Classified By: Charge d'Affaires Steven Zate
for reasons 1.4 (b) and (d).


1. (SBU) Albania's Central Bank Governor, Ardian Fullani,
became the first high-ranking GoA official to state what many
analysts have assumed for years: Albania's booming
construction industry is driven, in part, by "dirty money."
In his annual report to Parliament's Committee on the
Economy, Fullani noted the continuing expansion of the
economy (5.5 percent growth in 2005),low inflation (3
percent) and shrinking budget deficits as evidence of
Albania's positive economic development. He expressed
concern, however, over perceived overheating in the real
estate market, opining that prices were rising at a much
faster clip than construction costs. He said that the demand
for developed real estate was based on remittances (nearly
USD 1.1 billion in 2005) and illegal activities, the flows of
which were neither easy to track nor predict. He added that
the share of money laundering financing construction projects
had reached such levels that interdiction of such flows could
endanger the entire economy.


2. (SBU) Currently, construction accounts for roughly ten
percent of GDP, but is a growing sector and is perceived as
an engine for the economy. Fullani contended that more
careful scrutiny of the sector was needed because nearly 80
percent of collateral in private banks was based on real
estate and construction. Should the real estate bubble
burst, Fullani said, the even faster growing financial sector
would be damaged. (Loan volume increased 74 percent last
year).


3. (C) Several major builders we have spoken to are furious
at Fullani's statements, claiming that it is not appropriate
for him to comment on their sector. They also contend that
there is no proof of a money laundering link to the
construction industry, and that even if there is, it is wrong
to smear the entire industry if a few builders are
facilitating money laundering. Builders and construction
material suppliers we have talked to are anxious due to what
they contend is a liquidity crunch -- banks are unable to
release loan proceeds because the local property registration
offices are unable to provide information to the banks on
land titles in a reasonable or timely manner. This, they
claim, combined with a delay in the construction permitting
process -- due mainly to political squabbling -- have caused
a slow-down in the industry.


4. (C) COMMENT: Fullani's comments are remarkable in that
he explicitly linked the health of the Albanian economy at
least partially with cash flow from money laundering. The
reaction of the builders, while understandable, is probably
only correct in the sense that estimates of money laundering
flows (as well as remittances) are very difficult to prove,
much less attribute to one sector. In our opinion,
remittances probably finance the vast majority of small,
usually unregulated, single family homes that have come to
dominate the suburban landscape around Tirana, Durres and
other urban centers in the last decade. There are real
questions, however, whether the source of funding for the
many hotel, restaurant, cafe and service station projects --
many of which appear to be based on no fathomable business
plan and are often vacant -- is hard-earned, smart money.
Fullani is expected to address the full Parliament in a few
days and may have more to say on this issue.
ZATE