Although Montenegro has recorded significant progress in the fight against money laundering and terrorist financing in the latest report of the Council of Europe (CoE) Committee of Experts on the Evaluation of the Prevention of Money Laundering and the Financing of Terrorism (MONEYVAL), four key recommendations have still not been fulfilled.
These are areas related to relations with high-risk countries, concealment of beneficial ownership of companies, use of legal arrangements to conceal assets, and supervision of risky non-financial activities, such as casinos, real estate agents, dealers in precious metals and gemstones, lawyers, notaries... It is in these segments, as MONEYVAL notes, that the system still has serious gaps that allow money and ownership to be hidden behind formal structures and weak supervision.
“Highly aligned”
These recommendations were issued by the FATF (Financial Action Task Force) - an international body that sets global standards for combating money laundering, terrorist financing and the proliferation of weapons of mass destruction. MONEYVAL acts as the European branch of the FATF and monitors how these recommendations are implemented in the member states of the Council of Europe.
At the end of 2023, Montenegro avoided being placed on the FATF "gray list", that is, on the list of countries that do not apply or apply little measures to prevent money laundering and terrorist financing.
"Montenegro has made significant progress in improving its framework for combating money laundering and terrorist financing. MONEYVAL notes that Montenegro has sufficiently addressed deficiencies in relation to several recommendations of the Financial Action Task Force (FATF). As a result, the country has been upgraded to 'largely compliant' for 12 recommendations," MONEYVAL said, noting that none of the FATF recommendations were assessed as non-compliant.
The progress made was not sufficient, as stated, to award upgrades for recommendations 19 (on higher-risk countries), 24 (on transparency and beneficial ownership of legal entities), 25 (on transparency and beneficial ownership of legal arrangements) and 28 (on regulation and supervision of non-financial entities), and Montenegro maintained the rating of “partially compliant”.
Regarding recommendation 19, MONEYVAL notes that Montenegro does not have a legal basis for mandatory implementation of the measures prescribed by the FATF. Although the Law on the Prevention of Money Laundering and Financing of Terrorism provides for enhanced controls in dealings with high-risk countries, financial institutions are not explicitly obliged to apply them to countries on the FATF list. Furthermore, the Administration for the Prevention of Money Laundering and supervisory authorities, including the Central Bank, the Capital Market Commission and the Insurance Supervision Agency, do not have the authority to introduce countermeasures when called upon to do so by the FATF, while the publication of the list of high-risk countries is left to the discretion of the FIU.
In order for recommendation 19 to be fully implemented, MONEYVAL states that it is necessary to amend the law in a way that would ensure mandatory adoption of the FATF list, introduce a clear legal basis for the application of countermeasures, and explicitly link enhanced controls to all business relationships and transactions with countries internationally designated as high-risk.
Regarding recommendation 24, which concerns transparency and beneficial ownership of legal entities, MONEYVAL notes that Montenegro still does not have a fully established system that provides accurate, complete and up-to-date data on the beneficial owners of companies. Although there is a legal framework and a register of beneficial owners, it was noted that the register is largely incomplete and that there are no effective oversight mechanisms to ensure that the data is regularly updated and verified.
MONEYVAL indicates that the state does not have a comprehensive assessment of the risks of money laundering and terrorist financing for all legal entities, but rather existing analyses rely on limited data sources and partial assessments.
The report also notes serious shortcomings in terms of sanctions. Although fines are prescribed for failure to provide or incorrect data entry, MONEYVAL states that the range of penalties, particularly in the Law on Companies, is not sufficient to ensure that sanctions are applied in proportion to the gravity of the violation.
In order to fully implement recommendation 24, MONEYVAL states that it is necessary to establish effective mechanisms to ensure accurate and up-to-date beneficial ownership data, strengthen the supervision of registers, introduce more proportionate and effective sanctions, and establish measures to prevent the abuse of nominee directors and shareholders. It is also necessary to improve the monitoring of international cooperation and the quality of assistance that Montenegro receives from foreign authorities regarding beneficial ownership data.
Strengthen supervision
Regarding recommendation 25, which concerns transparency and beneficial ownership of legal arrangements, MONEYVAL notes that Montenegro does not have a system in place to monitor these structures. Legal arrangements, as stated in the report, include trusts and similar fiduciary structures in which assets are formally held by one person or entity, while the beneficial owner or beneficiary of the assets remains hidden. Although such arrangements are not part of the domestic legal system, they are used in practice through foreign structures that have links to assets or businesses in Montenegro.
The report notes that there is no system of oversight over legal arrangements, nor an effective framework of sanctions for those who conceal beneficial ownership or fail to cooperate with institutions. Therefore, it is assessed that these structures represent significant vulnerabilities, as they can be used to hide assets, evade the law and conceal money flows.
In order for recommendation 25 to be fully implemented, MONEYVAL states that it is necessary to regulate legal arrangements, establish mechanisms for identifying and maintaining accurate and up-to-date data on their beneficial owners, enable competent authorities to have prompt and full access to this information, and introduce effective supervision and proportionate sanctions for abuses.
Regarding recommendation 28, which concerns the regulation and supervision of non-financial activities and professions, MONEYVAL notes that Montenegro still does not have an effective and consistent system of control over sectors that are identified as risky for money laundering and terrorist financing. These are activities and professions such as casinos, real estate agents, dealers in precious metals and gemstones, lawyers, notaries, accountants, as well as providers of company formation and management services.
In order for recommendation 28 to be fully implemented, MONEYVAL states that it is necessary to strengthen institutional oversight of these sectors, enhance the role of the Anti-Money Laundering Authority and other supervisory authorities, establish regular and risk-based controls, ensure effective and proportionate sanctions, and improve coordination and information exchange between all bodies involved in supervision.
Vulnerabilities still exist in the NGO sector
MONEYVAL announced that progress has been made on recommendation 8 (regarding the prevention of abuse of non-profit organizations), Montenegro has been upgraded to the level of “partially compliant”
According to the FATF definition, non-profit organizations considered to be at potential risk of misuse for terrorist financing purposes are those that primarily raise and distribute funds for humanitarian, charitable, religious, educational, cultural or social purposes.
The MONEYVAL report notes that Montenegro has conducted a terrorist financing risk assessment for the period 2020-2024, which assessed the sector as a whole as low risk. As part of this analysis, 3.253 out of a total of 11.841 non-profit organisations were identified as falling under the FATF definition, of which 1.187 were assessed as vulnerable to potential abuse, including 26 that were identified as highly vulnerable. The assessment also included 22 religious communities.
The report states that there is no review of the adequacy of laws and regulations relating to the part of the NGO sector that can be misused to finance terrorism and that no system of supervision over the implementation of the Law on Non-Governmental Organizations has been established.
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