Bosnia and Herzegovina – Know Your Customer (KYC) Rules

 

 

Bosnia and Herzegovina (BIH) is primarily a cash-based economy and is not an international or regional financial center. Most money laundering activities in BIH are for the purpose of evading taxes. A lesser amount involves concealing the proceeds of illegal activities, including trafficking, illicit drugs and corruption. BIH authorities have had some success in preventing money laundering in the formal banking sector. However, with porous borders and weak enforcement capabilities, BIH is a significant market and transit point for smuggled commodities including cigarettes, illicit drugs, firearms, counterfeit goods, lumber and fuel oils. The cash-based economy and weak border controls on bulk cash couriers also contribute to making BIH an attractive venue for organized criminal elements and potential terrorist financiers. There is no indication BIH law enforcement has taken action to strongly combat the trade-based money laundering likely to be occurring in the country. Corruption is endemic, affecting all levels of the economy and society.

There are four active free trade zones in BIH, with production based mainly on automobiles and textiles. There have been no reports that these areas are used in trade-based money laundering. The Ministry of Foreign Trade and Economic Relations is responsible for monitoring free trade zone activities.

KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: YES
    • Domestic PEP: NO

Bosnia and Herzegovina – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Bosnian and Herzegovinian Law:

    • Banks and currency exchange offices
    • Financial leasing firms
    • Insurance companies
    • Post offices
    • Investment and mutual pension companies
    • Stock exchanges and stock exchange agencies
    • Casinos and gaming enterprises
    • Dealers in vehicles, art, precious metals and stones
    • Lawyers, notaries, auditors and accountants
    • Real estate brokers
    • Company formation agents
    • Trusts and asset managers
    • Pawnshops
    • Travel agents
    • Auctioneers
    • Charities

Bosnia and Herzegovina – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 163,805 from January 1 – September 11, 2011

Number of CTRs received and time frame: 101,712 from January 1 – September 11, 2011

The following is a list of STR covered entities covered by Bosnian and Herzegovinian Law:

    • Banks and currency exchange offices
    • Financial leasing firms
    • Insurance companies
    • Post offices
    • Investment and mutual pension companies
    • Stock exchanges and stock exchange agencies
    • Casinos and gaming enterprises
    • Dealers in vehicles, art, precious metals and stones
    • Lawyers, notaries, auditors and accountants
    • Real estate brokers
    • Company formation agents
    • Trusts and asset managers
    • Pawnshops
    • Travel agents
    • Auctioneers
    • Charities

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: Two from January 1 – October 18, 2011
Convictions: Two first instance verdicts and two second instance from January – October, 2011

 

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

BIH‘s political structure, fragmented police and judicial structures, and ethnic politics hinder its anti-money laundering/counter-terrorist financing (AML/CFT) regime. Coordination of financial law enforcement among the multiple jurisdictional levels in BiH — the State, the two entities (the Federation of Bosnia and Herzegovina and the Republika Srpska), and Brcko District — is improving, but can and needs to improve further. Criminal codes and criminal procedure codes from the State, the two entities, and Brcko District were enacted and harmonized in 2003, but further harmonization is necessary. Since the State level resources could not investigate all money laundering violations, the respective criminal codes complement one another. The jurisdictions, however, maintain separate bank supervision and enforcement/regulatory bodies. Although BIH has an overarching law providing a framework for implementing UNSC measures, in some cases, it lacks appropriate regulations for prescribing implementation.

The Law on Foreign Exchange Operation, adopted by BIH entities in 2010, and the rules on procedures issued by the Ministry of Finance improve KYC rules. BIH also issued guidelines, which include risk assessment guidelines and indicators of suspicious activity, for the Insurance Agency and Securities Commission for customers under their jurisdictions. In May 2011, the Financial Intelligence Department (FID) issued reporting instructions to all covered non-bank entities. In addition, BIH authorities, including the FID, organized training and awareness programs for a number of persons/sectors covered under the law.

BIH law requires the reporting of all cross-border transportation of cash and securities in excess of KM 10,000 (approximately $6,900). However, due to weak enforcement and corruption, large amounts of currency leave and enter the country undetected. In addition, the Indirect Tax Administration has no authority to seize currency from the carrier upon discovery of a false declaration or suspicion of illegal activity. Although the Government of BIH (GOBIH) recognizes the threat of money laundering posed by bulk cash couriers, enforcement problems continue to exist.

Officially, the FID has access to other government entities‘ records, and formal mechanisms for interagency information sharing are in place. In practice, however, the FID has only indirect access to the full range of databases required to perform proper analysis. Over the last year, the cooperation between investigative agencies and the FID has improved significantly, and information has been shared in both directions.

The GOBIH should continue to strengthen institutions with responsibilities for money laundering prevention. Due to a lack of resources and bureaucratic politics, the Financial Intelligence Unit (FIU), like many State institutions, remains under-funded and under-resourced. Although the Council of Ministers passed amendments to the Law on Prevention of Money Laundering and Terrorist Financing, the State Parliament rejected the legislation on October 27, 2011. There are ongoing deliberations to review and possibly re-submit the draft legislation. Under the legislation, the FIU would become a more independent administrative body under the Ministry of Security. The legislation would also strengthen the FIU‘s ability to disseminate information and penalty provisions for non-compliance with reporting obligations.

Although prosecutors, financial investigators, and tax administrators have received training on tax evasion, money laundering, and other financial crimes, BIH should enhance their capacity to understand diverse methodologies, and aggressively pursue investigations. BIH authorities should undertake efforts to understand illicit markets and their role in trade-based money laundering and alternative remittance systems.

BIH law enforcement and customs authorities should take additional steps to control the integrity of the borders and limit smuggling. BIH should take specific steps to completely implement its anti-corruption strategy and to combat corruption at all levels of commerce and government. The GOBIH also must adopt a comprehensive asset forfeiture law that implements a formal mechanism for the administration of seized assets. The government should enact implementing legislation for the international conventions to which it is a party. The government must ensure BIH adopts and enacts appropriate regulations for implementation of UNSC measures.