Montenegro – Know Your Customer (KYC) Rules

 

 

Since its independence in 2006, Montenegro has struggled to improve its capacity to prevent and address money laundering, along with other aspects of organized crime and corruption. Legislative reforms have put in place a legal infrastructure, however, little action has been taken to proactively investigate and prosecute suspected cases of money laundering, raising concerns about the ability and will of the Government of Montenegro (GOM) to effectively combat this component of crime.

Criminal organizations, including sophisticated international narcotics trafficking enterprises, have a presence in Montenegro, and the country is also part of transit routes used to smuggle narcotics and other contraband. Within Montenegro there exists a significant black market for smuggled items such as stolen cars, narcotics, cigarettes, and counterfeit products. Many of these items are trafficked by organized criminal groups. This criminal activity, and the money laundering and corruption connected to it, is a cause of concern for both the GOM and the international community. Evidence exists that the proceeds of narcotics trafficking and other illegal activities are being laundered through businesses engaged in food service and gambling, along with construction and real estate transactions. Factors that increase Montenegro‘s vulnerability to and facilitate money laundering are the high use of cash for purchases and Montenegro‘s use of the euro without being within the Euro Zone.

Investigations by Montenegrin government agencies into organized crime operations and suspicious financial transactions show money moving from and through foreign off-shore financial institutions, including institutions located in the British Virgin Islands, Cyprus, the Seychelles, Panama, and Switzerland. Funds transferred from these institutions are being used to purchase real estate and luxury consumer goods, and to invest in businesses.

Proceeds of criminal enterprises fuel corruption which impacts law enforcement organizations and the judiciary in Montenegro. The origin of funds used to acquire companies or businesses during privatization is often unclear and the transactions lack transparency. In spite of the existence of a legislative framework and several anti-corruption bodies, the overall coordination and implementation of anti-corruption efforts remain insufficient.

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: YES

Montenegro – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Montenegrin Law:

    • Banks, savings banks, savings and loan institutions, loan brokers, and other financial institutions
    • Organizations performing payment, payment or credit card transactions, and post offices
    • Stock brokers and investment and pension fund managers
    • Insurance brokers and companies dealing with life assurance
    • Organizers of lotteries and special games of chance
    • Exchange offices
    • Pawnshops
    • Audit companies
    • Independent auditors and tax advice services
    • Institutions for issuing electronic money
    • Humanitarian, non governmental and other non-profit organizations
    • Those engaged in: sale and purchase of claims; factoring, safekeeping and guaranty; property management; financial leasing; travel organization; real estate trade; motor vehicle, vessel and aircraft trade; credit agencies
    • Auctioneers and traders of works of art, precious metals and stones, and other high value goods

Montenegro – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 60 from January 1 to September 30, 2011

Number of CTRs received and time frame: 38,563 from January 1 to September 30, 2011

The following is a list of STR covered entities covered by Montenegrin Law:

    • Banks, savings banks, savings and loan institutions, loan brokers, and other financial institutions
    • Organizations performing payment, payment or credit card transactions, and post offices
    • Stock brokers and investment and pension fund managers
    • Insurance brokers and companies dealing with life assurance
    • Organizers of lotteries and special games of chance
    • Exchange offices
    • Pawnshops
    • Audit companies
    • Independent auditors and tax advice services
    • Institutions for issuing electronic money
    • Humanitarian, non governmental and other non-profit organizations
    • Those engaged in: sale and purchase of claims; factoring, safekeeping and guaranty; property management; financial leasing; travel organization; real estate trade; motor vehicle, vessel and aircraft trade; credit agencies
    • Auctioneers and traders of works of art, precious metals and stones, and other high value goods

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: One during the first six months of 2011
Convictions: None from January 1 to November 1, 2011

 

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Harmonization of Montenegro‘s anti-money laundering/counter-terrorist financing (AML/CFT) laws with international standards is still pending completion. However, with Montenegro ready to start the EU negotiation process, added pressure will exist to adopt all the appropriate legislation. The basic legal and institutional framework to deal with ML/TF is in place and cooperation between the financial supervisory authorities and law enforcement has been established; however, the operational and investigative capacities of law enforcement and the judiciary need further enhancement.

Police and prosecutors need to improve their collection and management of data and their capacity to investigate financial crimes. Financial investigations in two high-profile cases led to the temporary seizure of assets. Still, the number of financial investigations and criminal asset forfeitures remain low. During the first ten months of 2011, the financial intelligence unit (FIU) forwarded 25 suspicious transactions to the law enforcement agencies for further processing, but there were no convictions for ML or TF.

The system for reporting suspicious transactions also needs improvement, although the banking sector improved its STR reporting. The Administration for Prevention of Money Laundering, Montenegro‘s FIU, lacks sufficient human resources (in spite of the slight increase of resources in 2011), workspace, and IT equipment to deal with its numerous assignments. The FIU is not completely independent from the Ministry of Finance, impeding its ability to investigate all claims of AML. Furthermore, remuneration is generally low in all AML/CFT-related agencies, and the staff turnover and limited technical capacity are hampering their effective functioning.

The framework for international judicial cooperation in ML/TF cases is generally comprehensive. Although the GOM has signed bilateral cooperation agreements with a number of countries, the country needs to strengthen their implementation. During 2011, Montenegro signed bilateral agreements on cooperation in ML/TF exchanges of financial intelligence data with Armenia, British Virgin Islands, Great Britain and Aruba.

In August 2010, the GOM announced that persons with a credible global reputation will be able to obtain Montenegrin citizenship if they directly invest at least 500,000 euros (approximately $689,100) in Montenegro and its economy. This economic citizenship or citizenship-by-investment program was suspended at the end of 2010 but was never formally overturned.

Although legal and institutional mechanisms to fight corruption were strengthened, the perception of corruption remains widespread, due to the lack of convictions, which potentially affects efforts to combat money laundering. A Joint Investigative Team, consisting of representatives of law enforcement bodies and headed by the Special Prosecutor, was formally re-established on June 18, 2011. A National Commission for implementing the 2010 Strategy for Prevention of Money Laundering and Terrorist Finance has been established, made up of representatives from the relevant institutions. Although it may be argued there is still no clear division of competencies among the different anti-corruption bodies, some efforts were made in the fight against organized crime and enhancing regional cooperation.

Montenegrin authorities do not consider Montenegro to be exposed to terrorism or a haven for terrorist finance. Unlike previous years, the FIU examined two possible cases of terrorist financing involving 26 non-residents and two non-resident business entities. According to the FIU, Montenegrin officials have not recognized the existence of informal systems of financial transfers or alternative remittance systems. In its 2011 progress report, the EU noted the country‘s capacity to detect actions related to terrorism remained limited.