Back in July 2022, Montenegro committed itself to exchanging information to combat tax evasion at the global level, but the basic prerequisites for this have not yet been met, because the application software for the information system has not been acquired, even though funds were allocated for it a year ago.
Our country undertook this obligation through a multilateral agreement signed with the Organization for Economic Cooperation and Development (OECD), that is, with its Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum), whose headquarters are in Paris. A total of 147 countries have signed the agreement, and over a hundred countries are already exchanging data through this system. Data is already exchanged by all countries of the European Union (EU), but also Albania, and tax havens such as the Bahamas, Bermuda, Panama and others.
Montenegro guaranteed Global Form that by the end of 2023, through the standardized automatic exchange of data (AEOI), it would start exchanging information about taxpayers' financial accounts, but that has not yet happened, she told the Center for Investigative Journalism of Montenegro (CIN -CG) Zajda Manata, head of the Global Forum Secretariat.
The goal of establishing data exchange at the global level is to prevent tax evasion through the automatic and standardized exchange of data on financial accounts between the tax institutions of the countries participating in the agreement. This joint information system enables the availability of data that, for example, a Montenegrin taxpayer has opened an account in another country. Through AEOI, these data are first recorded in the tax administration of the country where the account is opened, and then the information is forwarded to the tax administration of the country where the account owner is a taxpayer.
The information they exchange, while respecting the protection of personal data, includes bank accounts and the identity of the owner, account number, account balance at the end of the year, income, interest, dividends, gross income, electronic money accounts and current accounts of individuals and legal entities that own financial assets.
Until this system is established, Montenegro loses the opportunity to monitor the money flows of its citizens, to gain insight into possible tax evasion and money laundering. If it is not in the system, it further threatens international credibility, which is already questionable due to known problems.
The funds were not used for the purchase of software
As explained to CIN-CG by the Ministry of Finance, the former Revenue and Customs Administration was responsible for activating the AOEI system in Montenegro, which assumed obligations regarding the procurement of software back in 2023, the year when the former Government approved funds for the procurement of software.
"In February 2023, the Ministry of Finance sent the Government of Montenegro information on the need to provide funds for the acquisition, implementation and maintenance of the AEOI information system. The Government of Montenegro tasked us with diverting funds in the amount of 363 thousand euros for the realization of these activities", the government department headed by Mr. Novica Vuković.
Those funds then reached the Tax and Customs Administration, however, they were not used for the purchase of this software in 2023. No public procurement procedure was initiated, nor was a tender procedure conducted. The former director of the Revenue and Customs Administration was responsible for this Vladimir Bulajic.
CIN-CG tried to get in touch with him, but he did not answer numerous questions until the publication of this text.
The Revenue and Customs Administration has undergone several institutional changes in the last few years. In 2021, by decision of the 42nd Government, the Tax Administration and the Customs Administration were Milojko Spajic, merged. After a little less than three years, these two institutions were separated again, by the decision of the 44th Government whose prime minister is Spajić.
At the same time, this institution changed several directors and acting CEOs. For a time, it was without an acting authority, so the Minister of Finance Vuković coordinated that body. Recently, he was elected as acting head of the Tax Administration (TA). Sava Laketic. The arrival of a new manager implies a new systematization.
In such circumstances, with constant changes in the status and people at the head of the Administration, the question arises as to how efficiently this institution could exercise its powers.
"Establishing a system for Automatic Data Exchange (application software, system software and hardware infrastructure) is a very demanding work challenge", they told CIN-GG from the Ministry of Finance.
However, a clear legal framework has been provided, as well as the accompanying administrative service, according to Vuković's department.
In order to avoid potential failures regarding the procurement of software, they clarified, they made a decision to call for a tender for a software solution that is already used in at least one OECD member state, according to the answers.
The tender has not yet been announced, and the Ministry of Finance estimates that it will take 30 to 120 days to establish the initial information system, when the software is acquired, and only after that the testing will begin.
"... It is necessary to enable an adequate time interval for testing the system by financial institutions recognized as obliged to report (minimum four months) and authorized officials of the Tax Administration as owners of business processes. After acceptance of the test results and established functionality, the system is put into production in the part of data collection and sending to the countries with which it is necessary to sign an agreement on AEOI", the Ministry of Finance announced.
When all this is taken into account, it is hard to believe that Montenegro will soon start exchanging data through this system on a global level.
Montenegro cannot conduct a serious tax policy without software
"Establishing such a system of information exchange is only the beginning of the story, and a department that would deal with tax fraud has yet to be formed. The exchange of information with foreign tax authorities not only benefits other countries, but it is important for us as well, because it is crucial for a serious fight against corruption and crime. Without cooperation with other countries, we cannot obtain relevant data," the economist and former finance minister explained to CIN-CG Aleksandar Damjanović.
The application of the mentioned system enables a more complete fulfillment of the obligations from the negotiation chapter 16, which refers to the tax policy. The Ministry of Finance adds that the functioning of this system would increase revenues in the budget of Montenegro.
Money laundering is, according to the economics professor Zarija Pejović, a big problem in Montenegro, even before the increase in the number of foreigners who now live there.
"If we analyze the gross domestic product data for, say, the year 2021, we will see that the sum of the total wages paid in Montenegro, around one and a half billion, does not match with the total consumption of around three and a half billion. That's a big gap," says Pejović.
The described disproportions require a thorough analysis and an answer as to whether and to what extent such a large consumption was caused by illegal money flows, although it is clear that part of the money comes from remittances from abroad.
Estimates are that around half a million citizens of Montenegro live outside its borders. There are currently around 95 foreigners in the country with temporary or permanent residence, or on the basis of temporary protection, according to data from the Ministry of Internal Affairs (MUP).
Insufficient transparency of money flows discourages the arrival of credible international investors, and also affects the uncontrolled growth of the shadow economy.
In December of last year, Montenegro barely avoided being on the gray list of the Financial Action Task Force (FATF). FATF is an organization that sets standards in the fight against money laundering and terrorist financing, whose secretariat is an integral part of the OECD.
It is unclear whether the police are able to use their powers
Two days before the session of MONEYVAL, which consists of experts of the Council of Europe for the evaluation of measures against money laundering and financing of terrorism, the Parliament of Montenegro adopted, by emergency procedure, the new Law on Prevention of Money Laundering and Financing of Terrorism. The new law regulates measures for the prevention and detection of money laundering and terrorist financing, as well as the tasks, powers and methods of operation of the Financial Intelligence Unit (FIU). The FIU carries out the tasks of detecting money laundering and terrorist financing and it is a body that functions under the Ministry of Internal Affairs.
Thus, Montenegro complied with the XXIX recommendation of MONEYVAL and FATF, which envisages the establishment of the FIJ as a national center that collects data for the purpose of analyzing suspicious financial accounts, assesses the risk of money laundering and terrorist financing, and forwards this information to the necessary addresses.
According to the International Monetary Fund (IMF), the FIU has more functions than administrative; through that of judicial-prosecutorial character, to law enforcement (low-enforcement). In the early 90s, when the first units of this type were established, there was no internationally accepted model for the functions of the FIJ. Each country created that body according to its needs. In some countries, like ours, that unit was within the Ministry of the Interior. While in other countries, such as Italy, FIU is organized as an administrative body that acts as an intermediary between financial institutions and the police.
In the analysis of the functioning of the FIJ, made by the IMF, it is stated that financial institutions, such as banks, are often faced with potentially problematic transactions, but do not have the ability to establish evidence of criminal activities. On the other hand, the FIU can perform all technical controls and when it finds an irregularity, it can directly ask the police and the prosecutor's office to start an investigation.
The new Law on Anti-Money Laundering of Montenegro regulates the international cooperation of the FIJ:
"In order to establish, realize and improve international cooperation, FIJ can conclude agreements with authorized bodies of other countries and international organizations on the exchange of financial information".
The exchange of information with other countries is legally provided for, but not through an automatic standard, but at the request of the police segment, that is, when there is suspicion of illegal actions.
"The largest number of identified shortcomings include the absence of provisions requiring competent authorities to quickly exchange information (...) It is unclear whether the police are able to use their domestic investigative powers to collect and obtain information for the benefit of their foreign colleagues," the latest report says. MONEYVALA about Montenegro.
Montenegro has been the subject of MONEYVALA's attention since the beginning of the 2000s. Not only last year, but several times before, she risked being on the FATF's undesirable list. In the report for 2023, MONEYVAL, in addition to stating that there is a high risk of money laundering in Montenegro, it is also stated that it is "mainly connected with the international drug trade, tax evasion and extortion".
"Due to the lack of an adequate flow of information, we are de facto without a weapon for any serious tax policy," says Damjanović.
In order to implement serious reforms in the tax system of Montenegro, it is necessary for the state to establish cooperation with international organizations in order to control financial flows more effectively. Judging by how long it takes to acquire and put into operation the software for the exchange of tax information, our country seems to be in no hurry to institutionalize cooperation on a global level in this field.
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