Albania
Report on Observance of Standards and Codes-FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

In this study, the report on the observance of standards and codes on the financial action task force (FATF) recommendations for antimoney laundering and combating the financing of terrorism for Albania was prepared by a team of the International Monetary Fund using the assessment methodology adopted by the financial action task force. The assessment is based on the information available at the time of the mission and other verifiable information subsequently provided by the authorities. The detailed assessment report on which this document is based was adopted by the MONEYVAL plenary.

Abstract

In this study, the report on the observance of standards and codes on the financial action task force (FATF) recommendations for antimoney laundering and combating the financing of terrorism for Albania was prepared by a team of the International Monetary Fund using the assessment methodology adopted by the financial action task force. The assessment is based on the information available at the time of the mission and other verifiable information subsequently provided by the authorities. The detailed assessment report on which this document is based was adopted by the MONEYVAL plenary.

ABBREVIATIONS

AML/CFT

Anti-Money Laundering and Combating the Financing of Terrorism

BCP

Basel Core Principles

BoA

Bank of Albania

BL

Banking Law

CC

Criminal Code

CDD

Customer Due Diligence

CPC

Criminal Procedure Code

CSP

Company Service Provider

DAR

Detailed Assessment Report

DNFBP

Designated Nonfinancial Businesses and Professions

FATF

Financial Action Task Force

FI

Financial Institution

FIU

Financial Intelligence Unit

FSA

Financial Supervisory Authority

FSAP

Financial Sector Assessment Program

FSRB

FATF-style Regional Body

FT

Financing of Terrorism

GDPML

General Directorate for the Prevention of Money Laudering

IAIS

International Association of Insurance Supervisors

JIU

Joint Investigation Unit

KYC

Know your customer/client

LEG

Legal Department of the IMF

MEF

Ministry of Economy and Finance

MFA

Ministry of Foreign Affairs

MOU

Memorandum of Understanding

ML

Money Laundering

MLA

Mutual Legal Assistance

NPO

Nonprofit organization

NRC

National Registration Center

OEM

Other Enforceable Means

PEP

Politically-Exposed Person

ROSC

Report on Observance of Standards and Codes

SAR

Suspicious Activity Report

SRO

Self-regulatory Organization

STR

Suspicious Transaction Report

SUGC

Supervision Unit of the Games of Chance

UN

United Nations Organization

UNSCR

United Nations Security Council Resolution

A. Introduction

This Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT) was prepared by the IMF.1 The report provides a summary of the AML/CFT measures in place in Albania and of the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on how the AML/CFT system could be strengthened. The assessment is based on the information available at the time of the mission from November 15-30, 2010 and other verifiable information subsequently provided by the authorities. It was conducted using the 2004 Methodology as updated. The Detailed Assessment Report (DAR) on which this document is based was adopted by the MONEYVAL plenary on April 13, 2011. The views expressed here, as well as in the full assessment report, are those of the staff team, and do not necessarily reflect the views of the Government of Albania or the Executive Board of the IMF.

B. Key Findings of the Assessment

1. Although Albania has made considerable progress to tackle ML and FT the risk of ML remains high. Albania has a history of organized crime with clan-based and hierarchically organized networks that are mainly involved in drug trafficking. The relative size of the cash-based informal economy facilitates the laundering and integration of proceeds of crime. The number of sectors identified with illegal practices, including illegal gambling establishments and exchange bureaus, as well as the vulnerabilities that relate to cross-border transportation of currency, also make Albania at risk for ML activity.

2. Despite efforts by the authorities to reduce the reliance on cash, the use of cash through the informal economy remains a problem in Albania. The use of the informal economy has an impact on the overall effectiveness of preventive measures as transactions facilitated through these channels circumvent the preventive measures established by the authorities.

3. Albania also remains at risk regarding possible financing of terrorism activities. There is a record in the first half of the 2000s of the government freezing assets of terrorist financiers, curtailing activities of suspect Islamic NPOs, and expelling individuals suspected of having links to terrorism.

4. Albania has fully criminalized ML largely in line with the requirements under the Vienna and Palermo Conventions. However, there have been few convictions for ML and demanding evidentiary requirements have had a negative impact upon Albania’s ability to make effective use of the provisions. Also, the Albanian provisions that criminalize the financing of terrorism, although significantly enhanced in recent years, still fall short of meeting the FATF standard.

5. The Albanian FIU has improved its analytical processes resulting in higher quality financial intelligence; however the legal framework needs to be strengthened with regard to its operational independence. The FIU’s responsibility to disseminate information regarding suspicious transactions should also be clarified.

6. Albania has updated the legal framework for preventive measures for financial institutions, but the requirements fall short of the international standard in some areas, such as for the identification of beneficial owners, and the lack of any customer due diligence (CDD) measures for customers that are foreign politically exposed persons (PEPs). In addition, the effectiveness of implementation of preventive measures remains a concern, with uneven understanding of the provisions amongst financial institutions and a lack of suspicious transaction reports.

7. Implementation of preventive measures by designated non-financial businesses and professions (DNFBPs) is limited. A large range of DNFBPs have been subject to supervision by the FIU however other designated supervisors have had limited engagement in AML/CFT activities.

8. The legal framework underpinning the supervisory authorities’ power is sound but the supervisory role of the FIU should be clarified. Moreover, the Financial Supervisory Authority (FSA) has not undertaken any inspection of the securities and insurance sectors.

9. Domestic and international cooperation is good. Albania has established a number of domestic and international cooperation mechanisms that facilitate cooperation between competent authorities and foreign counterparts; however, cooperation mechanisms between supervisory agencies, both domestically and internationally, are underutilized.

C. Legal Systems and Related Institutional Measures

10. Albania has fully criminalized ML largely in line with the requirements under the Vienna and Palermo Conventions. The Albanian ML provisions extend to any type of property as defined in the FATF standard and also apply in most instances to persons who commit the predicate offense. The provisions do not, however, extend to the FATF-designated predicate offenses of insider trading and market manipulation. Most appropriate ancillary offenses are provided for. There have been few convictions for ML and demanding evidentiary requirements have impacted Albania’s ability to make effective use of the provisions.

11. Albania has provisions criminalizing both collection for, and the financing of, terrorism. Its legal framework also provides a specific definition of actions with terrorist purposes that are then prohibited. These provisions represent significant progress since the 2006 assessment but still fall short of meeting the requirements under the FATF Recommendations and the U.N. Financing of Terrorism Convention (FT Convention). Among the shortcomings are that it is not clear that provision and collection are prohibited in the absence of the commission or attempted commission of a terrorist act; there is a specific purpose or intent requirement applied in the case of conducts covered by the offenses set forth in the nine Conventions and Protocols listed in the Annex to the FT Convention; the criminal provisions do not sufficiently apply to the financing of all of the conducts set forth in the offenses in such annexed Conventions; financing does not clearly extend to the full extent of “funds” as defined in the FT Convention; and the financing of an individual terrorist is criminalized only if the funds are provided or collected to support terrorist activities.

12. Albania has in place a comprehensive legal framework to seize and confiscate the proceeds of crime. In addition to provisions that permit seizure and confiscation in criminal cases, the new Organized Crime Law adopted in late 2009 provides for preventive seizure and confiscation using a civil standard for a wide range of serious offences. However, as yet there have been few actual confiscations and limited use of sequester authority in ML cases. Criminal Code provisions have thus far not been used effectively to produce results. The provisions of the 2009 Organized Crime Law are just beginning to be applied in case settings and provide promise for positive results going forward.

13. Albania has a sound legal foundation to implement its obligations under UN Security Council Resolution 1267 but the legal provisions that apply in the case of UNSCR 1373 are uncertain. The framework has been effectively applied to freeze the funds and assets of designated terrorists and terrorist organizations. However, supervision for compliance is lacking in practice and the required legal framework is insufficient. A number of significant technical deficiencies were also identified, including insufficient updating of the domestic list that sets forth the names of persons whose assets must be frozen; the absence of secondary provisions to address requests by affected persons for subsistence or other expenditures; and the lack of guidance to the private sector and publically-available information on delisting and unfreezing procedures.

14. Albania’s financial intelligence unit (FIU) is seen by law enforcement and intelligence agencies as producing timely and high quality financial intelligence. The FIU has aligned its activities with activities of the Joint Investigation Units (JIUs) resulting in disseminations of its financial intelligence being integrated in a greater number of investigations. The timeliness of disseminations has improved and dissemination packages are considered more comprehensive due to the addition of cash reporting requirements and the lowering of thresholds. The effectiveness of its analytical activities could be enhanced by conducting more trend analysis and establishing a prioritization mechanism for STRs and other transaction reports. Concerns remain about the independence of the FIU due to the absence of statutory independence of the Directorate. The FIU’s responsibility to disseminate disclosures of suspicious transactions to domestic authorities should be made more explicit.

15. The creation of JIUs has enhanced collaboration between domestic AML/CFT stakeholders and resulted in an increase in the number of money laundering investigations. The establishment of the JIUs has resulted in increased efficiency of ML investigations with the number of investigations having doubled from 2008 to 2009. However, challenges persist in establishing arrests and prosecutions. Amendments to the legislative framework are needed to explicitly provide law enforcement authorities with the ability to postpone and waive arrest warrants and allow them to conduct interceptions without advising defense counsel. The judiciary lacks the expertise to review complex money laundering cases and requires training. Concerns have also been expressed about the integrity of the judiciary.2

16. There has been significant progress in the area of oversight of cross-border transportation of currency, but the number of declarations remains low. Cash couriers need to be tackled more effectively. Customs’ capacity to collect and analyze data related to cross-border transportation of currency should be strengthened.

D. Preventive Measures—Financial Institutions

17. Albania has improved the legal framework concerning AML/CFT preventive measures. The AML/CFT Law, adopted in 2008, establishes requirements for CDD, correspondent banking, unusual transactions, record keeping and the reporting of suspicious transactions. The AML/CFT Law covers all financial activities covered by the FATF definition of “financial institutions”.

18. The legal framework for CDD covers, to an extent, the required essential criteria, but there are a number of technical gaps. In particular, some of the provisions technically only apply to the identification and verification of customers and not to other components of CDD, the requirements for identifying and verifying the identity of beneficial owners are incomplete and inconsistent, and there are limited provisions for carrying out CDD where there is a suspicion of money laundering and terrorist financing. The measures required for conducting enhanced due diligence are also inconsistently implemented by financial institutions, and there are very limited requirements for ongoing due diligence. The requirements for establishing correspondent banking relationships have been improved. There are still no requirements regarding foreign PEPs.

19. Implementation of preventive measures remains uneven across the financial sector. The banking sector demonstrated the best understanding of the measures, and was sometimes complying to a standard in excess of that required by law. However, this tended to be as a result of higher overseas group standards. Measures for ongoing monitoring and for identifying and verifying beneficial ownership were poorly implemented, with some confusion amongst financial institutions as to the scope of the requirements. In addition, whilst the concept of customer risk factors is a new development in the Albanian system which is to be encouraged, its effectiveness would be enhanced with additional guidance on how to use them.

20. The legal requirements for submitting suspicious transaction reports have been improved. However, there remain some technical deficiencies, and the number of reports in comparison to the higher number of currency transaction reports gives rise to concerns about effectiveness. In particular, the shortcomings noted with regard to the criminalization of money laundering and terrorist financing limit the circumstances in which reports are required. There is no specific requirement to report attempted transactions, and Albania has a number of exemptions from the requirement to report suspicious transactions which are not in line with the FATF standards. The very low number of terrorist financing reports also raises concerns about the effectiveness of the provisions, especially in the light of the risk that Albania faces in relation to the financing of terrorism via NPOs.

21. Although there are measures in Albania to prevent criminals from owning or controlling financial entities there remain activities carried out by non-licensed operators. This is the case with informal bureaus of foreign exchange and money transmitters, which are operating outside the regulated market and constitute a risk for ML and TF activities.

22. The financial supervisors—the Bank of Albania (BoA) for banks and other financial institutions and the Financial Supervisory Authority (FSA) for insurance and securities — have adequate powers to ensure FIs compliance with their AML/CFT obligations but the supervisory approach and implementation is uneven across the financial sector. BoA offsite monitoring is inadequate and the onsite risk-based supervision is at an embryonic stage of implementation. The FSA has not been supervising the securities and insurance sectors for AML/CFT compliance.

23. The FIU also has supervisory responsibilities with regard to the reporting obligations. However the inspections carried out by the FIU seem to cover a broader range of requirements than provided by the law. The FIU has been the only supervisor that has actually imposed sanctions to reporting entities for non-compliance with the AML/CFT requirements.

E. Preventive Measures—Designated Nonfinancial Businesses and Professions

24. The preventive measures for DNFBPs mirror those for financial institutions; however their implementation is at an early stage. Preventive measures apply to all DNFBP categories (with the exception of some trust and company service provider activities). Some customer identification and record keeping obligations are being met but the majority of obligations are not complied with due to lack of knowledge and the absence of guidance. Authorities should address more proactively illegal gambling operations in order to mitigate the money laundering risk.

25. The designation of supervisory authorities for DNFBPs needs to be clarified. A number of supervisory authorities have been designated as AML/CFT supervisors in their respective areas of responsibility. However, very few AML/CFT examinations have been conducted by these authorities and their understanding of ML/FT vulnerabilities is limited. The FIU is undertaking supervisory activities in all DNFBP sectors despite the absence of clear legislative authority to ensure compliance with nonreporting requirements. The supervisory responsibilities of the FIU as well as of the other supervisors need to be clearly delineated and respected.

F. Legal Persons and Arrangements and Non-Profit Organizations

26. Albania has improved the legal framework concerning legal persons and the authorities’ access to beneficial ownership information. The establishment of the National Registration Center (NRC) constitutes a positive step towards ensuring more transparency of legal persons. However, Albanian authorities have not taken measures to ensure that bearer shares are not misused for ML purposes.

27. The measures in place in Albania relating to NPOs are deficient. No formal review of the sector has been carried out, and there is no formal supervision of the sector. Unlike the case of for-profit companies the legal framework concerning NPOs has not been updated and is flawed, in that it does not provide accurate information on beneficial ownership. The registration requirements are largely quantitative, with few checks on the information provided. There is also a lack of outreach to the NPO sector. Albania has demonstrated that it is aware that NPOs pose a TF risk, as financial institutions are required to conduct enhanced CDD in relation to them.

G. National and International Cooperation

28. The establishment of the inter-agency Coordination Committee against Money Laundering and the development of a National Strategy on the Investigation of Financial Crimes provide a good basis for domestic collaboration. The Coordination Committee and its associated working group provide for a for discussing the implementation of the National Strategy as well as operational issues. The creation of the JIUs has also contributed to greater collaboration between law enforcement, intelligence agencies, the prosecutor’s office, the FIU as well as other government agencies responsible for the fight against money laundering. However, cooperation between supervisory agencies should be improved and the FIU should work more closely with the financial supervisors to coordinate inspections and share findings. Statistics gathering is not coordinated resulting in inconsistencies in the data.

29. International cooperation mechanisms are in place for the FIU, law enforcement agencies and certain supervisors. Information exchanged with foreign FIUs is comprehensive and timely. Despite mechanisms being in place through Interpol, there is no evidence of collaboration between law enforcement agencies outside MLAT channels. Financial sector supervisors have memoranda of understanding in place to exchange information with their foreign counterparts; however these mechanisms do not appear to be frequently utilized.

30. Albania cooperates internationally based on the provisions of the Criminal Procedure Code (CPC) and the recently enacted 2009 Mutual Legal Assistance Law. The latter supplements the CPC provisions and will provide an enhanced legal framework for assistance going forward. The authorities may provide a wide range of assistance in relation to ML and FT cases. The granting of such assistance is not subject to any unduly restrictive or unreasonable conditions. In cases where dual criminality is required, the shortcomings identified in relation to the provisions criminalizing ML and FT may limit the authorities’ ability to provide MLA. For assistance in confiscating assets, there is a limited ability under the current legal framework to execute foreign requests. There are a few practical barriers in the provision of assistance such as the application of principles of dual criminality in all circumstances, the necessity of a court order for every execution and occasional use of diplomatic channels.

31. ML is an extraditable offense in relation to Council of Europe Member States and countries with which the Albania has entered into a bilateral or multilateral extradition treaty. Albania may also extradite even without a treaty based upon reciprocity. FT is an extraditable offense but based on the dual criminality requirement, the shortcomings identified under Special Recommendation II may limit the Albanian ability to extradite in certain FT cases. A CPC provision that provides the Minister of Justice with wide discretion to impose requirements on extradition should be reviewed because of its potential to be used to defeat extradition.

Summary Table of Observance and Key Recommendations

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1

The assessment team consisted of Giuseppe Lombardo (team leader), Marilyne Landry, and Rocio Ortiz Escario (all of LEG); Margaret Cotter and Ian Matthews (consultants).

2

European Commission, Commission Opinion on Albania’s application for membership of the European Union.

3

Compliant (C): the Recommendation is fully observed with respect to all essential criteria. Largely compliant (LC): there are only minor shortcomings, with a large majority of the essential criteria being fully met. Partially compliant (PC): the country has taken some substantive action and complies with some of the essential criteria. Non-compliant (NC): there are major shortcomings, with a large majority of the essential criteria not being met. Not applicable (NA): a requirement or part of a requirement does not apply, due to the structural, legal or institutional features of a country.

Albania: Report on Observance of Standards and Codes-FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism
Author: International Monetary Fund