The Association of Real Estate Agencies warns of a serious institutional paradox

On the occasion of the entry into force of the Law on Amendments to the Law on the Prevention of Money Laundering and Financing of Terrorism, the Association of Real Estate Agencies warns of a serious institutional paradox that threatens to significantly slow down real estate sales in Montenegro and jeopardize the country's image as an investment destination.

With the new legal solution, the state has introduced an obligation that every real estate purchase transaction worth 10.000 euros or more be carried out exclusively through a transaction account opened with a credit institution in Montenegro, with an additional obligation for notaries to refuse to draw up and certify a legal act if this rule seeks to avoid using the national payment system. Although we support the state's efforts to prevent all forms of money laundering and terrorist financing through strengthening the legal framework, improving supervision of financial flows and more efficient work of competent institutions, we point out an alarming problem in practice related to opening accounts for non-residents.

Foreign citizens, who are key buyers and sellers in our market, are increasingly faced with banks refusing to open accounts for them. On the one hand, the state legally requires non-residents to have an account in Montenegro in order to be able to buy or sell real estate. On the other hand, banks, as joint-stock companies, use their discretionary right to refuse to open accounts for non-residents without explanation, especially if they assess that they are not “profitable” clients because they will use the account for a one-time purchase or sale, or if they assess that the verification process for such a client is complicated and risky. In addition, some banks require non-resident real estate owners to have a temporary residence permit for foreigners, although the vast majority of non-residents have never had the need to regulate temporary residence in Montenegro because they used their real estate for tourism. In a situation where a non-resident seller does not have an account in Montenegro, the disputed provision further requires the non-resident buyer to open an account in Montenegro, which is often not possible without residence, and residence is usually acquired only on the basis of real estate or other grounds in accordance with the Law on Foreigners. In this way, non-resident buyers and sellers are placed in a legal vacuum in which they have clean money and a proven origin of funds, but their purchase or sale is physically impossible.

In the context of European integration, EU and SEPA member states should not prohibit payments from accounts opened in other banks within the SEPA system. In some countries, real estate transactions are also carried out through notary deposit accounts, primarily for the security of the transaction and the protection of the buyer and seller, while in other countries, non-residents are directed to open accounts with local banks that perform the necessary checks. Most regulations in EU countries define that the purchase and sale of real estate is carried out through a bank account, but not exclusively through an account in the country where the real estate is located. Montenegro, as a candidate for EU membership, must not introduce measures that make the purchase of real estate more difficult for non-residents than for residents, because this introduces barriers contrary to the principle of freedom of business and the spirit of the free market.

The free movement of capital is a fundamental pillar on which the European market rests. When a bank refuses to open an account for a non-resident who wants to buy real estate, it directly restricts the movement of his capital and prevents investment. We agree that the aforementioned law is crucial in the fight against money laundering, but the way in which it stipulates that the account must be exclusively in a domestic bank represents an obstacle to free payment transactions and deviates from European principles. If a buyer has money in an account in a bank operating within the SEPA system, Montenegrin legislation should not force him to open a new account in Montenegro solely for the purpose of a single transaction, especially in a situation where banks can refuse to accept that account.

Therefore, we appeal to the Government of Montenegro, the Ministry of Finance and the Central Bank of Montenegro to urgently consider adopting clearer guidelines that would ensure uniform practice of banks in relation to the opening of non-resident or special purpose accounts for the purposes of buying and selling real estate, while at the same time maintaining standards in the field of preventing money laundering and financial security. We also propose that through official interpretation or amendment of the regulations, it be explicitly enabled that transactions can also be carried out through a notary account, or a deposit account of a real estate broker, in accordance with the Law on Mediation in the Sale and Lease of Real Estate, as a model that ensures full traceability and security, and prevents the blocking of transactions. Real estate agencies are, in accordance with the newly voted amendment to the Law on the Prevention of Money Laundering and Financing of Terrorism and the aforementioned Law on Transactions, participants in legal transactions. If an urgent solution is not found for this conflict of law and banking practice, Montenegro risks a long-term outflow of capital to competing countries in the region that have more efficient administrations.

(Association of Real Estate Agencies of Montenegro)