As governments and civil society organizations across the region work to combat illicit financial flows, recent geopolitical developments have made this important work more challenging.
Russia has established an opaque network of patronage in the Balkans that it uses to influence decisions in important markets and institutions. new report by the Global Initiative Against Transnational Organized Crime (GI-TOC), warned.
The war in Ukraine has created a set of circumstances that threaten to increase illicit financial flows (IFFs) in the region, which encourage rent-seeking, drain public resources, undermine confidence in the state and harm the business environment.
Illicit flows represent 3 to 5% of global gross domestic product (GDP), but 8.3% of the GDP of Bosnia and Herzegovina (BiH), 7.8% of that of Kosovo and 5.7% of that of the North Macedonia.
Between 2000 and 2020, $18.7 billion of illicit money left Serbia, $18 billion left Bulgaria and Croatia, and $13 billion left Bosnia and Herzegovina. Illicit flows account for 4.8 percent of Bulgaria’s GDP and 4.7 percent of Croatia’s, and IFFs are estimated to represent 6 percent of the region’s total GDP.
“The strategic geographic position of the Balkans, acting as a gateway between Asia and Western Europe, coupled with an ecosystem of state capture, institutional weaknesses, organized crime and a rampant shadow economy, make the region particularly vulnerable to IFFs. » said Vanya Petrova, author of the report.
All eight countries analyzed in the report (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Montenegro, North Macedonia and Serbia) have informal sectors in their economies that exceeded 25% of GDP in 2022. Four: Albania, Bosnia-Herzegovina Herzegovina and North Macedonia. , and Serbia – exceeded 31 percent. The widespread use of cash in the region also facilitates IFFs.
Even as governments and civil society organizations across the region work to combat IFFs, recent geopolitical developments have made this important work more challenging. The report identifies significant infrastructure investments in recent years, led by China. Belt and Road Initiative Projects— as a major catalyst for trade flows.
But Russia’s invasion of Ukraine – and the subsequent rush by blacklisted Russian elites to find new ways to circumvent Western sanctions – has further accelerated capital flows across the Balkans.
As the European Union (EU) seeks to crack down on facilitating the circumvention of existing sanctions rather than introducing new ones, it has singled out the Balkans – as well as Georgia, Armenia, Turkey, Kazakhstan and Kyrgyzstan – as harboring potential money laundering routes. sanctioned products.
“The combination of state and media appropriation, latent ethnic divisions between and within countries, slow accession to the EU and the legacy of Russian cognitive biases make the region a gateway to entry for sanctions evasion,” the report warns.
Since many European countries have imposed travel bans on Russians, Serbia is one of the few routes for Russians to reach Europe. Nearly 220,000 Russian citizens have entered Serbia and 5,000 businesses have been registered there by Russian nationals since the start of the war in Ukraine. The report notes that the location of so many businesses in Serbia provides fertile ground for money laundering.
Although Serbia and Bosnia-Herzegovina are both candidates for EU membership, neither has introduced sanctions against Russia despite pressure from Brussels.
The threat posed by “citizenship through investment”
The EU has also tried – unsuccessfully – to pressure two other Balkan accession candidates, North Macedonia and Montenegro, to phase out their “citizenship for investment” programs due to risks. money laundering, fraud, corruption and sanctions evasion. .
Despite pressure from the European Commission, Podgorica continued to award a record number of honorary citizenships. During the period covered by last fall’s report, the largest proportion of new Montenegrin citizenships – 38 percent – went to Russian nationals, followed by 23 percent by Chinese nationals.
Using real estate as a means of holding value is a common way to circumvent sanctions, and Montenegro’s coastline remains a favored location for many Russian oligarchs and their yachts.
Albania had its own “citizenship for investment” program, but ended it in March 2023 under pressure from the EU. Foreign citizens can still deposit up to two million euros of undeclared money in Albanian banks and benefit from legal immunity and a low tax of five to ten percent.
The need for “strategic decoupling”
To combat Russia’s illicit actions in the Balkans, the report calls for a macro-level “strategic decoupling” of the European economy from that of Russia and of “strategic investments” by the EU and the United States in the economies of the Balkans in order to make them less vulnerable and less dependent on Russian money. . It also calls for “denouncing and targeting hotbeds of political corruption and increasing the level of combating money laundering against Russian financial flows in the Balkans”.
“There is a critical need to increase the quantity and quality of data available on the nature and scale of IFFs in order to understand their main drivers, channels and trends, and to initiate a stronger policy response,” concludes the report.
“As a transnational issue, the drive to reduce IFFs requires coherence within and between national and international normative frameworks and coordinated action within the framework of EU enlargement and the Berlin process. »
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