VZCZCXYZ0000
RR RUEHWEB

DE RUEHPS #1058/01 3451010
ZNR UUUUU ZZH
R 111010Z DEC 06
FM USOFFICE PRISTINA
TO RUEHC/SECSTATE WASHDC 6810
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

UNCLAS PRISTINA 001058 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/SCE, EB/ESC/TFS AND INL 
PLEASE PASS TO TREASURY FOR FINCEN 
PLEASE ALSO PASS TO JUSTICE FOR AFMLS, OIA, AND OPDAT 
 
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