CONTENT 1. EXECUTIVE SUMMARY..........................................................................................................52. INTRODUCTION........................................................................................................................83. OBJECTIVE, METHODOLOGY AND DEFINITIONS.........................................................9

3.1. Objective.............................................................................................................................93.2. Methodology.......................................................................................................................9

3.2.1. Contributors..................................................................................................................93.2.2. Direct methods............................................................................................................103.2.3. Indirect methods.........................................................................................................10

3.3. Definitions.........................................................................................................................104. ANALYSIS OF FINDINGS IN PREVENTION OF INFORMAL ECONOMY, MONEY

LAUNDERING, TERRORIST FINANCING AND ECONOMIC AND FINANCIAL CRIMES......................................................................................................................................124.1. Development of the regime for the combat against the informal economy and

financial crimes in Kosovo..............................................................................................124.2. Implementation of the National Strategy and Action Plan 2014-2018 from 01.1.-

31.12.2014..........................................................................................................................134.2.1. Establishing mechanisms for implementation and supervision..................................134.2.2. National Strategy and Action Plan 2014-2018 and their implementation status........154.2.3. Findings......................................................................................................................19

4.3. Operating results for the Prevention of informal economy, money laundering, terrorism financing, economic and financial crimes 2008-2014..................................19

4.3.1. Operational targets set out in the National Strategy Action Plan 2014-2018.............194.3.2. The prevention of the informal economy...................................................................204.3.3. Criminal proceedings for money laundering, financing of terrorism and

economic and financial crimes...................................................................................214.3.4. Findings......................................................................................................................23

4.4. Operating results for prevention of the informal economy, money laundering, terrorism financing and financial and economic crimes in the period between January and March 2014................................................................................................24

4.4.1. Operating objectives set in the National Strategy Action Plan 2014 - 2018..............244.4.2. The prevention of the informal economy...................................................................244.4.3. Criminal proceedings for money laundering, financing of terrorism and

economic and financial crimes...................................................................................264.4.4. Findings......................................................................................................................31

5. CONCLUSIONS AND RECOMMENDATIONS REGARDING THE PREVENTION OF INFORMAL ECONOMY, MONEY LAUNDERING, TERRORISM FINANCING AND ECONOMIC AND FINANCIAL CRIMES...................................................................325.1. Implementation of the National Strategy and Action Plan 2014-2018........................32

5.1.1. Conclusions and recommendations............................................................................325.2. Operating Performance...................................................................................................32

5.2.1. Conclusions and Recommendations...........................................................................32

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LIST OF TABLES

1. Types of budget revenues of the Government of Kosovo from 2008-2014 in millions2. The value of mandatory collection of arrears taxes and customs and excise duties 20143. FIU-K Operating Results 20144. Financial Crimes recorded by the Kosovo Police, Kosovo Customs and Kosovo Judicial Council

2008-20145. The amount of funds seized and confiscated under the management of the Agency for the

Management of Seized and Confiscated Assets 2008-20146. The value of mandatory collection of taxes, customs duties and other revenues, January-

December 2014 and 20137. The value of mandatory collection of arrears taxes, customs and excise duties, January-December

2014 and 20138. FIU-K Operating results 20149. Financial Crimes recorded by the Kosovo Police, Kosovo Customs and Tax Administration,

January-December 201410. Financial Crimes processed for filing lawsuits by the Kosovo Police, Kosovo Customs and Tax

Administration, January-December 201411. The net value of assets seized during the investigation of the Kosovo Police, Kosovo Customs

and Tax Administration, January-December 201412. Penalties of financial crimes from basic courts, January-December 201413. The total value of seizure decisions by Basic Courts January-December 201414. The value of seized and confiscated assets under the management of the Agency for the

Management of Seized and Confiscated Assets January-December 2014

LIST OF CHARTS

1. Graph of the process of implementation and supervision of the National Strategy and Action Plan 2014-2018

LIST OF ANNEXES

1. Monitoring and Review Instrument for National Strategy of the Republic of Kosovo for Prevention and Combating of Informal Economy, Money Laundering, Terrorist Financing and Financial Crimes 2014-2018

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1. EXECUTIVE SUMMARY

Background

Factors such as the informal economy as well as economic and financial crimes, including money laundering, financing of terrorism and corruption, cause serious damage to the economy and society as a whole. These harmful phenomena vary in nature and scope. Therefore, it is important that contributors and the public as a whole are provided with accurate information to get familiar for undertaking preventive policy and providing support to it by the highest institutional level.

The Government of Republic of Kosovo on 28.01.2014 approved the National Strategy and Action Plan of the Republic of Kosovo to prevent and combat the informal economy, money laundering, terrorist financing and financial crimes 2014-2018 (hereinafter referred to as the National Strategy and Action Plan 2014-2018). These policy documents constitute a national risk management mechanism from harmful phenomena addressed by this strategy. The strategy is based on the findings of the report on national risk assessment which identified six key objectives:

1. Raising awareness for the impacts in the informal economy and financial crimes2. Strengthening the prevention and combat against informal economy and financial crime by

improving transparency, accountability, good governance and social partnership3. Promoting intelligence, investigation, prosecution, trial, and execution procedures on money

laundering, terrorist financing and other financial crimes4. Capacity building of relevant institutions5. Development and implementation of pro-active approach towards international cooperation in the

prevention of money laundering, terrorist financing and financial crimes6. Developing national legislation in accordance with international standards and securing its

effective enforcement thereof

In order to address these objectives, originally 51 activities were foreseen which are in process of implementation. Among the 51 activities, activity 2.1.1 of the Action Plan of the National Strategy 2014-2018 seeks to draft a status reports, based on the facts, focusing on the informal economy and financial crimes in Kosovo, on a regular 3 - 6 months basis to support relevant institutions not only in strategic and operational planning, but also in raising awareness in society through communication.

Annual Report 03/2014 on the Prevention of Informal Economy and Financial Crimes in Kosovo covering the activities conducted and results achieved during the period 1.1.-31.12.2014, and also contain information of 2013 to form a basis for implementation of the National Strategy and Plan Action 2014-2018.

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Metodologies

The Secretariat1 compiled a status report 1/2014 and 2/2014 and 03/2014 annual report using direct and indirect methods, paying attention to subjective and objective criteria. Annual status Report 03/2014 was adopted by the Government Working Group2.

Direct methods included interviews and meetings targeted in getting information on subjective criteria both at operational level and the managerial level of organisations representing the public, private and third sector.

Indirect methods included analysis of previous evaluation reports and analyses, statistics and legal framework. The goal was to obtain information related to objective criteria.

In this annual status report 03/2014, the Secretariat: collected information, performed analysis, prepared the findings, drew conclusions and presented a series of recommendations.

Analysis and findings

The Government of Kosovo created a mechanism for design, review, approval, implementation and supervision of the National Strategy and Action Plan 2014-2018.

When it comes to the implementation of the National Strategy and Action Plan 2014-2018, the responsible institutions have already completed nineteen (19) activities and initiated eleven (11) of a total of fifty (51) actions, whilst the implementation of (21) activities is expected to start being implemented according to the timelines set in the Action Plan.

National Strategy 2014-2018 includes an instrument for monitoring and review as an annex, which requires from institutions that the results of the implementation of the National Strategy and Action Plan 2014-2018 are determined on a regular basis using the tool “Monitoring and Review Instrument” which is included in the Annual Status Report no. 03/2014 as Annex 2.

The Secretariat, together with relevant institutions identified threats and weaknesses that pose a risk to the implementation of the National Strategy and Action Plan 2014-2018. These are linked to strategic objectives (2 and 5) as follows:

Objective 2: capacity building of relevant institutions; and Objective 5: Development and implementation of a proactive approach against international

cooperation for prevention of money laundering, terrorist financing and financial crimes.

1Secretariat was established and is led by the Ministry of Finance based on the National Strategy of the Republic of Kosovo for the prevention and combating the informal economy, money laundering, financing of terrorism and financial crimes 2014-2018. Its duties are to assist the Government, through the Governmental Working Group, in drafting, reviewing, amending and supervision of the National Strategy and Action Plan 2014-2018.2 Ibid.

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Based on the National Strategy and Action Plan 2014-2018, the Ministry of Finance through the Secretariat received information regarding the operating results of administrative bodies, those of law enforcement and the judiciary. The Secretariat analysed the data related to the reporting period covering January 2013 and December 2014 and focuses on prevention of the informal economy and offenses procedure of financial crimes. It is clear that the operating results of the relevant authorities had a positive development, but there are some specific weaknesses constituting risks for efficiency and transparency. The most challenging phases of the process are the Prosecution and use of judgments on for temporary seizure and confiscation. This is as a result of incomplete and inconsistent information on performance.

Conclusions and recommendations

In order to prevent the implementation of strategic and operational risks, the Secretariat drew conclusions and provided recommendations to the Government. They focus on the following areas:

1. In accordance with Annex 1 of activity 2.4.1 of the National Strategy Action Plan 2014-2018, it should provide the Ministry of Finance, and Secretariat with information on 3 month basis about operating performance and results of the responsible authorities in preventing informal economy and offense procedure for financial crimes;

2. In accordance with activity 2.4.11 of the National Strategy Action Plan 2014-2018 for making the needs assessment of the Joint training, Strategy and Programme for public, private and third sector in preventing and detection of informal economy, and creating quality training program from NP, defining and allocation of budget of 30,000 for the implementation of the training program for prevention of money laundering, terrorist financing and financial crimes;

3. Ensure that the government budget for the financial year 2015 onwards includes national-level objectives with regard to the prevention of the informal economy and offense procedure for financial crimes by responsible administrative, law enforcement and judicial institutions; and

4. Ensure that responsible administrative, law enforcement and judicial institutions for prevention of the informal economy and offense procedure for financial crimes, to prepare performance plans for the financial year 2015 onwards, including clear objectives at the institutional level, their implementation measures and key performance indicators with regard to prevention of the informal economy and offense procedures for financial crimes. The objectives of performance plans at the institutional level should come from the Government's budget goals.

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2. INTRODUCTION

Drafting of the annual status report no. 03/2014 is based on activity 2.1.1 of the National Strategy Action Plan of the Republic of Kosovo to prevent and combat the informal economy, money laundering, terrorist financing and financial crimes 2014-2018. These policy documents are approved by the Government on 28.01.2014.

The objectives of the annual status Report no.03/2014 were as follows:

Support the relevant public sector institutions, private and third sector in the strategic and factual operational planning and decision-making;

Provide information regarding focus areas of specific risk assessments, surveys, research and studies on the prevention of the informal economy and financial crime;

Enhance communication and awareness among the society for prevention of financial crime and the informal economy;

Providing evidence-based information to international organizations and the media regarding the informal economy and financial crimes in Kosovo as well as preventive mechanisms available.

The annual status report, which is compiled on annual basis, contains aggregated information of quarterly and six month reports on the status of implementing the National Strategy and Action Plan 2014-2018. Results from the implementation of the process are defined in the Monitoring and Review Instrument, which is included in the Annual Report 03/2014 within Annex 1.

It also contains information on the situation and current developments in terms of operating performance and results in prevention of the informal economy and financial crime based on the objectives and key performance indicators set out in Annex 1 of the National Strategy Action Plan 2014-2018.

Report of findings on the prevention of the informal economy and financial crimes in Kosovo was drafted by the Secretariat3 which was established by the Ministry of Finance, which report was adopted by the Government Working Group4. The annual status report 03/2014 covers activities carried out and results achieved during the period 1.1.-31.12.2014.

3 Secretariat was established and is led by the Ministry of Finance based on the National Strategy of the Republic of Kosovo for the prevention and combating the informal economy, money laundering, financing of terrorism and financial crimes 2014-2018. Its duties are to assist the Government, through the Governmental Working Group, in drafting, reviewing, amending and supervision of the National Strategy and Action Plan 2014-2018. 4Governmental working group headed by the Minister of Finance and other members at the level of leaders are: MoJ, MIA, MTI, MLSW, KP, KC, TAK, Chief State Prosecutor, CBK, Supreme Court, Anti-Corruption Agency and FIU.

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3. OBJECTIVE, METHODOLOGY AND DEFINITIONS

3.1. Objective

The Government of the Republic of Kosovo approved the National Strategy and Action Plan of the Republic of Kosovo 2014-2018. The purpose of the annual status report 03/2014 is to provide the Government, other contributors within the regime of prevention as well as society as a whole, with information about the status of implementation of the National Strategy and Action Plan 2014-2018.

The purpose of the annual status report 03/2014 is also to provide an analysis on the informal economy and money laundering, terrorist financing and other financial crimes in Kosovo. On the other hand, the same includes information about operating results of the administrative, law enforcement and judiciary bodies which are responsible for preventive measures in combating against these harmful phenomena.

Furthermore, this report intends to provide information to the Government and other contributors in identifying new crime trends and phenomena, as well as good practices regarding the prevention of the informal economy and financial crime.

3.2. Methodology

3.2.1. Contributors

The Government of the Republic of Kosovo is responsible for the support of the Government Working Group on the approval, review, implementation and supervision of the National Strategy and Action Plan 2014-2018. They are assisted by the Secretariat, established by the Ministry of Finance.

The Secretariat will prepare six month factual reports for approval by the Government Working Group.

The Secretariat is headed by a representative of the Ministry of Finance. Members are representatives from:

The Ministry for European Integration; Kosovo Police; Kosovo Customs; Tax Administration; Financial Intelligence Unit of Kosovo; Office of the Prime Minister; National Coordinator for economic crimes; Ministry of Justice.

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3.2.2. Direct methods

3.2.2.1. Meetings and interviews

Around 8 meetings, 5 meetings of the Secretariat and 3 meetings of the Working Group Government were organized during 2014, whereas topics of these meetings related to the nature and extent of the informal economy, money laundering, financing of terrorism, economic and financial crimes as well as implementation of the National Strategy and Action Plan.

Members of the Secretariat have interviewed representatives of relevant institutions. The results of these meetings are taken into account when analysing the current situation and preparing Annual Status Report 03/2014.

3.2.3. Indirect methods

Indirect methods consist of the collection and analysis of previous analyses and assessment reports, risk assessment and statistics in relation to strategic and operational performance. There are some shortcomings in the quality of statistics because not all relevant authorities have submitted the required information.

3.3. Definitions

The informal economy

The informal economy consists of informal grey economy and informal black economy.

Informal grey economy

Informal grey economy consists of activities that are productive and legal but deliberately hidden from public authorities to avoid payment of taxes and/or social security contributions or to comply with the rules. Incomes from informal grey economy should be taxed. This definition is consistent with that of the OECD5.

Informal black economy

The black economy consists of income from crime. It includes productive activities that generate goods and services forbidden by law or that are unlawful when committed by unauthorized manufacturers. This definition is consistent with that of the OECD6.

Money laundering

Money laundering means7 any behaviour in order to disguise the origin of money or other property acquired by an action, and includes:

5Measuring the not observed Economy - A manual, OECD 20136Ibid.7 Article 2 of Law no. 03/L-196 on the Prevention of Money Laundering and Terrorism Financing 2010.

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1. Converting or any transfer of money or other property derived from criminal activity;2. Hiding or disguising the true nature, origin, location, delivery, movement, ownership or rights with respect

to money or other property derived from criminal activity.

Financing of Terrorism

Financing of terrorism means8 the provision or collection of funds, in any way, directly or indirectly, to be used or knowing that they will be used, fully or partly, for committing any of the offenses pursuant to Article 138 of the Criminal Code and in particular the definitions set out in the FATF Recommendations.

Financial crimes

Financial crimes involve economic and financial crimes defined by the National Working Group for risk assessment9.

8 Ibid 9 List of economic and financial crimes defined by the National Working Group for risk assessment, 2013.

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4. ANALYSIS OF FINDINGS IN PREVENTION OF INFORMAL ECONOMY, MONEY LAUNDERING, TERRORIST FINANCING AND ECONOMIC AND FINANCIAL CRIMES

4.1. Development of the regime for the combat against the informal economy and financial crimes in Kosovo

The Republic of Kosovo has a wide range of instruments for combating the informal economy and financial crimes. Drafting of legislation, specialised authorities, policies and strategies for combating the informal economy and financial crimes have had a positive impact on society and the effectiveness of preventive measures

Government measures to prevent informal economy have had a positive impact and as a result the total amount of revenues collected increased. On the other hand, financial crimes are detected and investigated and the persons involved were prosecuted and convicted. Furthermore, criminal procedure provides information which can be used when planning and implementing the measures for preventing and raising awareness focusing on the informal economy and financial crimes

Responsible institutions have developed their own mechanisms to prevent informal economy and financial crime. These activities include measures to achieve further developments in the following areas:

It is important to ensure further development of the doing business environment in place which would prevent informal economy. Regarding this action, the Government of Kosovo adopted a strategy for the development of the private sector, particularly SMEs, 2013 - 2017 which aims to develop a competitive private sector. Tax Administration of Kosovo and Kosovo Customs play an important role in preventing of the informal economy. Both have increased revenue collection and continued the activities of preventing the informal economy by developing their mechanisms of risk assessment, awareness activities and organizational structures;

Prevention of money laundering and financing terrorism requires that Central Bank of Kosovo and the Financial Intelligence Unit of Kosovo have effective internal procedures, cooperation and good-functional agreement with public, private and third sector. And both these agencies have developed internal working processes and their organizations are effective in preventing the informal economy, increasing awareness, drafting guidelines and secondary legislation for the third sector. Furthermore, they have developed their oversight functions where the Kosovo Central Bank and the Financial Intelligence Unit of Kosovo signed a memorandum of understanding to ensure their continuing bilateral cooperation;

According to Article 36A of the Law no. 03/L-196 supplemented and amended by Law no. 04/L-178, FIU delegated powers in written to CBK to inspect banks and financial institutions which entered into force on 11/06/2013. In line with the actions specified in paragraph 2.3.3 of the National Strategy Action Plan 2014-2018 and the applicable agreement, FIU and CBK in close cooperation and coordination have developed Standard Operating Procedures for the supervision of Compliance for Banks and other funds expected to be approved.

The primary responsibility for criminal proceedings for financial crimes remains to Kosovo Police, Kosovo customs, Tax Administration of Kosovo, Kosovo Prosecutorial Council and Kosovo Judicial Council. The effectiveness of law enforcement and judicial powers is developed by drafting a new Code of Criminal Procedure, Criminal Code and Law on Expansion of Powers for Seizure of assets acquired through Criminal Acts. These legal instruments include tools which are based on international standards and which provide effective mechanisms for criminal proceedings for financial crimes. Regarding the organizational structure of the Kosovo Police,

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Tax Administration of Kosovo and Customs of Kosovo have developed their organizations. This was a response to the demands of the operational environment. Tax Administration and Kosovo Customs have intensified their functions together their investigative functions;

Prevention of informal economy and financial crime requires that cooperation and coordination arrangements between the relevant institutions of the public, private and third sector are functional. The Government of Kosovo established the function of the National Coordinator for the Implementation of Economic Crimes, which has a duty to promote, coordinate, monitor, assess and report on all activities of public sector institutions, private and third sector on combating the informal economy and financial crime.

4.2. Implementation of the National Strategy and Action Plan 2014-2018 from 01.1.-31.12.2014

4.2.1. Establishing mechanisms for implementation and supervision

National Strategy 2014-2018 identifies the required institutions and their responsibilities with regard to the design, review, approval, implementation and monitoring of the Strategy and Action Plan. It also describes the processes that should be applied when performing these activities.

Contributors defined in the National Strategy 2014-2018 are the Government of the Republic of Kosovo, the Ministry of Finance, Government’s Working Group, the Secretariat, the Technical Working Group, and public sector institutions, private and third sector responsible for implementing the National Strategy and Action Plan from 2014-2018. All these are activated through the following measures:

The Minister of Finance, representing the Government of the Republic of Kosovo, invited the Government Working Group composed of representatives from ministries and agencies set forth in the National Strategy 2014-2018 at its first meeting on 12.05.2014;

The Minister of Finance has established a Secretariat composed of representatives of ministries and agencies set forth in the National Strategy 2014-2018;

The Secretariat organized meetings, after the adoption of the National Strategy 2014-2018; Based on the request of the Minister of Finance, public institutions responsible for the

implementation of activities defined in the National Strategy Action Plan 2014-2018 have appointed officials who will be responsible for implementation of individual actions and reporting on implementation status;

Reporting the results on the process of implementing the National Strategy and Action Plan 2014-2018 should be made using monitoring and Review Instrument of the National Strategy of the Republic of Kosovo to prevent and combat the informal economy, money laundering, financing terrorism and financial crimes 2014-2018 which is an annex of the National Strategy 2014-2018

On 05.05.2014 the Secretariat organizes a meeting of the Technical Working Group and public officials who will be responsible for implementing individual activities and reporting of results;

The responsible institutions have already completed of 19 and launched a total of 11 from 51 activities set forth in the National Strategy Action Plan 2014-2018;

The Secretariat compiled the first annual status report whereby the government working group will report to the Government of the Republic of Kosovo for implementing the National Strategy and Action Plan 2014-2018 using the abovementioned Monitoring and Review Instrument and provide information on the results of operational activities concerning prevention and criminal proceedings against the informal economy and financial crime;

The Government of the Republic of Kosovo on 23.05.2014 organized a meeting for public sector institutions, private and third sector to raise awareness about the National Strategy and Action

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Qeveria•Vendos dhe monitoron Strategjine kombetare

GP qeveritar•Aprovon raportin e gjendjes faktike dhe raporton ne Qeveri, ndihmon ne hartimin, rishikimin, dhe monitorimin e strategjise kombtare

Antaret e sekretariatit• Grumbullimi dhe monitorimi i informatave te ofruara nga zyrtaret pergjegjes per implementim te strategjise kombtare

Zyrtaret pergjegjes per implementimin e strategjise • Raportojn per te

arriturat tek perfaqesuesit e institucioneve ne Sekretariat

Sekretariati• Harton raportin e gjendjes faktike per implementimin e strategjise per GP qeveritare•Mbeshtet GP qeveritare

PK2.3.5, 2.3.8, 2.4.4, 2.4.5, 2.5.4

ATK2.2.5, 2.3.8, 2.6.10, 2.6.12, 2.6.15

NJIF-i2.2.10, 2.2.11, 2.3.1, 2.3.3, 2.5.1, 2.5.2, 2.5.3

Dog.K.2.3.8

K. GJYq. Prok.2.1.1

Aud.GJEN2.2.9, 2.6.13

MPB2.4.1, 2.4.2, 2.4.6

MD2.4.1, 2.6.3, 2.6.4, 2.6.5, 2.6.6, 2.6.8, 2.6.9, 2.6.14

MTI2.2.13, 2.4.7

MPJ2.6.2

MAP2.2.6

Shefi I Prokur.2.3.4, 2.3.6, 2.3.7

Akad. PK2.4.3

ATK NJIF-i Doganat MF Kord. Komb.

Sekretariati

Grupi punues qeveritare

Qeveria

IKE

MoF2.1.1, 2.1.2, 2.1.3, 2.1.4, 2.2.1, 2.2.2, 2.2.3, 2.2.4, 2.2.7, 2.2.8, 2.2.12, 2.3.2, 2.4.1, 2.4.2, 2.6.1, 2.6.11

M. Integrim.ZKMPolicia e KS

Plan 2014-2018 and the operating results of prevention and offense procedures against the informal economy and financial crime in 2014.

The Ministry of Finance in cooperation with the European Commission project have assessed the level of the informal economy in Kosovo and the results were published in December 2014 and the recommendations are included in the Action Plan,

The Financial Intelligence Unit in cooperation with the EU project made the risk assessment in the construction sector during 2014 and recommendations for handling measures are included in the Action Plan,

Conferences on informal economy were held at regional and local level during 2014.

The mechanism for design, review, approval, implementation and supervision of the National Strategy and Action Plan 2014-2018 is presented below in the chart of the process.

Chart 1: Chart of the process for implementation and supervision of the National Strategy and Action Plan 2014-2018

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Source: Secretariat and the EU project team, 2014

4.2.2. National Strategy and Action Plan 2014-2018 and their implementation status

4.2.2.1. General

National Strategy 2014-2018 consists of a total of six (6) strategic objectives which are considered essential for managing risks related to the informal economy and money laundering, terrorist financing and other financial crimes. The National Strategy Action Plan 2014-2018 includes 51 activities whose implementation secures the achievement of objectives and thus risk management.

The implementation status of the National Plan and Action Plan 2014-2018 is described below. More specific information about the content of specific activities defined in the National Strategy Action Plan 2014-2018 and the status of their implementation can be found in Annex 1. Annex 1 consists of monitoring and review instrument which is required to be used in National Strategy 2014-2018.

4.2.2.2. Raising awareness on the effects and prevention of the informal economy and financial crime

Implementation Status

Implementation of the National Strategy objective “Raising awareness on the effects and prevention of the informal economy and financial crime” will be made by implementing all four (4) activities. It refers to actions 2.1.1 - 2.1.4 included in the Action Plan.

Risks identified

Institutions responsible for activities 2.1.1 - 2.1.4 of the Action Plan did not report any risk to the Secretariat regarding the implementation process.

4.2.2.3. Strengthening the prevention and combat against the informal economy and financial crime by enhancing transparency, accountability, good governance and social partnership.

Implementation Status

Implementation of the National Strategy objective “Strengthening the prevention and combat against the informal economy and financial crime by enhancing transparency, accountability, good governance and social partnership” will be made by implementing all thirteen (13) activities. It refers to actions 2.2.1-2.2.13 included in the Action Plan. Responsible institutions have already completed six (6) activities (2.2.1 - 2.2.4 and 2.2.10-2.2.11) and are in the process of implementing two (2) actions (2.2.6 and 2.2.14). The implementation process for five (5) other activities has not begun.

Risks identified

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Institutions responsible for activities 2.2.1 - 2.2.13 of the Action Plan did not report any risk to the Secretariat regarding the implementation process.

4.2.2.4. Promoting the detection, investigation, prosecution, courts and enforcement procedures on money laundering, terrorist financing and financial crimes e

Implementation Status

Implementation of the National Strategy objective “Promoting the detection, investigation, prosecution, courts and enforcement procedures on money laundering, terrorist financing and financial crimes” will be made by implementing all eight (8) activities. It refers to actions 2.3.1 - 2.3.8 included in the Action Plan. Responsible institutions have already completed five (5) activities (2.3.1, 2.3.3, 2.3.4 and 2.3.6-2.3.7) and have started implementing two (2) activities (2.3.2, and 2.3.5). Implementation of activity (2.3.8) has not started.

Risks identified

Institutions responsible for activities 2.3.1 - 2.3.8 of the Action Plan have reported difficulties in implementing the activity 2.3.2 due to the funds which were not foreseen in the Action Plan.

4.2.2.5. The capacity building of relevant institutions

Implementation Status

Implementation of the National Strategy objective “capacity building of relevant institutions” will be made by implementing all seven (7) activities. It refers to actions 2.4.1 - 2.4.7 included in the Action Plan. Responsible institutions have already implemented three (3) activities (2.4.1, 2.4.4 and 2.4.5) and have started implementing two (2) activities (2.4.6 and 2.4.7). The process of implementation of other activities has not started.

Risks identified

The Secretariat is gathering information on a monthly basis for operating results of the responsible administrative judicial and law enforcement bodies to prevent informal economy and financial crime. This is based on 2.4.1 activity which aims to improve the performance management of the respective institutions. The Secretariat noticed that the information on operating results is not complete and consistent. This especially relates to the prosecution stage and using judgments for temporary seizure and confiscation. This poses a risk to the implementation of Action 2.4.1.

Institute for Economic Crimes, which is responsible for the activity 2.4.3 reported to the Secretariat that the status of the institute has not yet been determined. This poses a risk to the implementation of Action 2.4.2. On the other hand, the Institute for Economic Crimes reported to the Secretariat that the Government has not allocated 30,000 Euros required for the implementation of the training program for the Financial Intelligence Unit of Kosovo and other institutions engaged in the preventing money laundering, financing terrorism and financial crimes. These two issues pose risks to the implementation of actions 2.4.2 and 2.4.3. However, after numerous discussions with the heads of the Kosovo Police, it is

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decided that activity 2.4.2 is carried out by Kosovo Police which will also provide infrastructure support, and under this agreement, the role of the Institute for economic crimes is ceased. However, the condition of the Police is that there is a need for €30,000 annually to carry out this activity which is related to the compensation of trainers for hours of lectures. This action was redesigned and reflected with review in the Action Plan 2015-2018.

Institutions responsible for activities 2.4.1 and 2.4.4 - 2.4.7 of the Action Plan did not report any additional risk to the Secretariat related to the implementation process.

4.2.2.6. Development and application of a proactive approach to international cooperation for the prevention of money laundering, financing terrorism and financial crimes.

Implementation Status

Implementation of the National Strategy objective “Development and application of a proactive approach to international cooperation for the prevention of money laundering, financing terrorism and financial crimes” will be made by implementing four (4) activities. It refers to actions 2.5.1 - 2.5.4 included in the Action Plan. Responsible institutions have already started implementing all four (4) operations (2.5.1 - 2.5.4). In 2014, authorities reported the implementation of (1) activity (2.5.3), and (3) other activities are under implementation.

Risks identified

FIU-K which is responsible for the activity 2.5.2 reported to the Secretariat that the politically motivated statements of all three member organizations (FIU) of the Egmont Group of Financial Intelligence Units pose a risk to the implementation of the action. FIUK membership process was terminated in 2013 without any justification which would be based on the rules for membership to the Egmont Group. In 2014 the accession process has been delayed due to politically motivated measures taken by three Member States. As a result of these obstacles, FIUK has not been able to join the Egmont Group in 2014.

Further on, besides the refusal of some members of the Egmont Group, the absence of national law for preventing money laundering and financing of terrorism, on the reporting of suspected terrorism financing poses a risk to the accession process and should be adjusted. The government should ensure that the National law for the prevention of money laundering and terrorism is in accordance with international standards confirming that Kosovo has no factual obstacles regarding the membership of the FIU into the Egmont Group, and the action is met at the latest by June 2015.

Institutions responsible for the actions 2.5.1, 2.5.3 and 2.5.4 of the Action Plan did not report any additional risk to the Secretariat related to the implementation process.

4.2.2.7. Development of national legislation in accordance with international standards securing its efficient implementation

Implementation Status

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Implementation of the National Strategy objective “Development of national legislation in accordance with international standards securing its efficient implementation” will be made by implementing all fifteen (15) activities. It refers to actions 2.6.1 - 6.2.15 included in the Action Plan. Responsible institutions have started implementing one (1) action (2.6.1). The implementation process of all fourteen (14) activities (2.6.2 - 2.6.15) has not started yet.

Risks identified

Institutions responsible for activities 2.6.1 - 2.6.15 of Action Plan did not report any risk to the Secretariat regarding the implementation process.

4.2.3. Findings

The Secretariat analysed the implementation status of the National Strategy of the Republic of Kosovo for prevention and combating the informal economy, money laundering, terrorism financing and financial crimes 2014-2018. The findings are made based on information collected from relevant institutions reflecting the achievements during the period 01.01-31.12.2014, and they are as follows:

The Government of Republic of Kosovo established a mechanism for design, review, approval, implementation and supervision of the National Strategy and Action Plan 2014-2018;

Institutions responsible for implementation of the National Strategy Action Plan 2014-2018 have completed nineteen (19) and initiated twenty (11) out of fifty-one (51) activities. The implementation process of twenty one (21) other actions has not started yet.

The requested information, collected on a monthly basis for the operating results and performance of the responsible administrative, law enforcement and the judiciary institutions to prevent informal economy and financial crimes are complete and consistent. This applies especially to the prosecution stage and using judgments for temporary seizure and confiscation. This poses a risk for executing the strategic objective “the capacity building of relevant institutions” and activity 2.4.1 of the Action Plan;

Unclear Status and funding of the Institute for Economic Crimes to implement the training program for the Financial Intelligence Unit of Kosovo and other institutions engaged in prevention of money laundering, terrorism financing and financial crimes deemed to pose risks for executing strategic objective “the capacity building of relevant institutions” and activities 2.4.2 and 2.4.3 of the Action Plan;

Refusal of political nature by the 3 members of the Egmont Group of Financial Intelligence Units regarding FIUK membership into the Egmont Group is considered to pose a threat to executing the strategic objective “application of a proactive approach to international cooperation for prevention of money laundering, terrorism financing and financial crimes” and activity 2.5.2 of the Action Plan.

Lack of national law on prevention of money laundering and terrorism financing, in terms of reporting on suspected financing of terrorism poses a risk to the implementation of the strategic objective “Development and application of a proactive approach to international cooperation for the prevention of money laundering, terrorism financing and financial crimes” and activity 2.5.2 of the Action Plan which relates to membership of FIU into Egmont Group.

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4.3. Operating results for the Prevention of informal economy, money laundering, terrorism financing, economic and financial crimes 2008-2014

4.3.1. Operational targets set out in the National Strategy Action Plan 2014-2018

Annex 1 of the National Strategy Action Plan 2014-2018 consists of key performance indicators for different stages of the operating process to prevent informal economy and financial crime. Specific indicators are defined for the following processes:

Mandatory collection of taxes and customs duties payable; Intelligence/discovery process related to money laundering, terrorism financing and other

financial crimes; The investigation of money laundering, terrorism financing and other financial crimes; Prosecution regarding money laundering, terrorism financing and other financial crimes;

4.3.2. The prevention of the informal economy

Recent macroeconomic calculations carried out in 2014, project assessment carried out by the EU10, show that the level of the informal economy in Kosovo including remittances received by financial institutions was 38.21% of GDP in 2013. As a total amount, this is equal to €2.035.000.000, which is generally 30% of this amount is a result of tax evasion. The loss of revenue only from income tax is around €63.720.000 while the remaining 8% is from unspecified sources and represents €441,950,000 of the total value.

Asessing the share of black economy in the total of the informal economy is made using the direct method, and this analysis has shown that a minimum of €172.000.000 from € 441.950.000 11 resulted from the activities of the black economy. This is a low value taking into account the characteristics of the operating environment in Kosovo, and therefore it is concluded that potentially the entire value of €441,950,000 or a large part of it is based on income from crime.

The total amount of net income determined in the budget of the Republic of Kosovo has increased during the years 2008-2014 from 929.00 to 1.458 billion euros. Customs revenues represented 54.9-60% of total amount and revenues from taxes 17.9-22.7%. The informal economy affects the revenues. This mainly relates the funds collected by the Tax Administration. Government of the Republic of Kosovo needs to especially increase the level of tax revenues.

The level of the informal economy in Kosovo is estimated to be at the same level as in other countries of the Western Balkans. Recent assessments in the region cover the period 2006-2013. The level of the informal economy in Kosovo’s neighbouring countries varies between 23-38.8% of GDP. Types of income and their share in the budget are set out in the table below.

10Support for Kosovo’s institutions in combating economic and financial crime-‘Assessment on the extent of the informal economy in Kosovo. EU Project 132399/C/SER/XK 04/12/201411Support for Kosovo’s institutions in combating economic and financial crime-‘Assessment on the extent of the informal economy in Kosovo. The EU project 132399/C/SER/ XK 12/04/2014

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Table 1: Types of gross revenues in the Budget of the Government of Kosovo 2009-2014 (EUR millions)

Type of revenues 2009 2010 2011 2012 2013 2014

Revenues from taxes 205 221 261 284 305.1 303.7Revenues from customs 635 701 828 845 837.3 871.0Other revenues 331 243 251 227 280.7 307.8

Total 1,171 1,165 1,340 1,356 1,423 1,482

Source: The Ministry of Finance of the Republic of Kosovo

The total amount of tax revenue marked a positive growth trend with an average rate of 5% during 2009-2015. This is an encouraging trend showing that the authorities' efforts in combating the informal economy are oriented to right direction. However, further efforts are needed to continue to expand the tax base to narrow the tax gap and reduce the informal economy.

Tax Administration of Kosovo reported that the total stock of outstanding tax debt in early 2014 was in the amount of 275,591,500 euros, and Kosovo Customs, the total outstanding debt including excise duty in the amount of 10,734,000.77 Euros. Continued efforts in intensifying activities to collect unpaid taxes will have a positive effect in reducing the level of the informal economy. Data for the total amount of outstanding debt for 2014 is presented in the following table.

Table 2: Value of the stock of debt on taxes, customs and excise duty,

Type of debt accumulated total amount of debt

Taxes

2013 2014

245,000,000 € 275,591,500€Customs and excise duties 9,134,000 € 9,500,000. €

Source: Kosovo Customs and Tax Administration of Kosovo 2014

4.3.3. Criminal proceedings for money laundering, financing of terrorism and economic and financial crimes

4.3.3.1. The information gathering process (intelligence)

One of the main FIU functions is the search, collection, and analysis of financial information. The Agency should draft intelligence reports and deliver them to the competent authorities to be used for the prevention of money laundering and financing of terrorism. The role of the FIU is crucial in terms of financial crime investigation, seizure and confiscation of assets earned from crime.

The total number of Suspicious Activity Reports (SARs), the number of transactions in cash received and the number of intelligence reports distributed by FIU over the years are shown in the table below:

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Table 3: FIU Operating results in 2014

FIU-K Results 2009 2010 2011 2012 2013 2014STR received 38 133 135 202 174 294CTR received 284 592 419 615 423 443 480 479 604 331 551 130Reports delivered 47 82 53 49 74 59

Compliance inspections n/a n/a n/a 0 0 35

Source: FIU 2014

The number of intelligence reports received and distributed has increased over the years 2009-2014, but in 2014 a decrease is noticed in reporting of transactions received in cash compared with 2013. The assumptions are that there is awareness raising of citizens for using use bank transactions instead of cash or due to the issuance of Administrative Instruction by the Financial Intelligence Unit no. 02/2014 on the exemption of certain transactions from reporting which requires the release of persons or entities, or group of persons or entities from reporting obligations under that law, the Compliance Inspections increased significantly in 2014.

4.3.3.2. Preliminary investigations and court proceedings for financial crimes

During 2008-2014, the total number of investigations initiated for financial crimes was higher in 2013.

Results regarding the number of investigations initiated in financial crimes have been as follows:

Table 4: Financial Crimes recorded by the Kosovo Police, Kosovo Customs and Kosovo Judicial Council 2008-2014

Investigations initiated for financial crimes 2008 2009 2010 2011 2012 2013 2014Police 3 043 2 123 2 774 2 914 2 135 3372 2 784Customs 90 57 64 69 49 165 104Tax Administration - - - - - - 25Total 3 133 2 180 2 838 2 983 2 184 3537 2913

Sentences for financial crimes 2008 2009 2010 2011 2012 2013 2014Basic Courts12 1 391 1 541 1 298 1 318 1 339 1 296 1 756

Source: Kosovo Police, Kosovo Customs, Kosovo Tax Administration and the Kosovo Judicial Council, 2014

12Basic courts from 2013 onwards and Municipal Courts 2008-201221

Statistical analysis shows that the most common financial crimes in 2014 received during pre-trial investigation13 were:

Fraud; Counterfeit of Currencies; Purchase, receiving or hiding goods obtained by committing an offense; and Illegal occupation of real estate.

Regarding judicial procedures, the most common financial crimes for which the Basic courts have given sentences14 in 2014 were:

Counterfeit of Currencies; Fraud; Illegal occupation of real estate; and Smuggling of goods.

4.3.3.3. Seized and confiscated assets

An effective prevention of financial crime requires the seizure and confiscation of income from crime. Agency for the management of seized and confiscated assets maintains statistics on an annual basis related to the total number and value of decisions on temporary seizure and judgments on confiscation. The agency has no specific information regarding the use of these measures during the financial crimes prosecutions. However, the total value of assets subject to temporary seizure and confiscation, are as follows:

Table 5: The value of seized and confiscated funds under the management of the Agency for the Management of seized and confiscated assets 2010- 2014

Legal measures concerning income from crime 2010 2011 2012 2013 2014Temporary seizure 0 € 41 852,31 € 2 482 903,54 € 1 555 258,43 € 21 256142.7Confiscation 1 720,00 € 26 765,35 € 103 647,57 € 6 700,00 € 26 350.90

Source: Agency for the Management of sequestrated and confiscated assets, 2015

The available information shows that the total value of the seized income increased. However, the results of seizure procedures are reduced and are at a low level being only 6700 Euro 2013.15

13 Financial crimes recorded by the Kosovo Police, Kosovo Customs, Kosovo Tax Administration of Kosovo and the Kosovo Judicial Council, 2008-2014; The Secretariat14 Financial crimes recorded by the Kosovo Police, Kosovo Customs, Tax Administration of Kosovo and the Kosovo Judicial Council, 2008-2014; and the Secretariat.152010-2014 Statistics, the Agency for the management of seized and confiscated assets, 2015

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4.3.4. Findings

The Secretariat analysed the operating results for the prevention of the informal economy and financial crimes prosecutions in 2014. The findings made based on information collected by the institution are as follows:

Foreseen extension of informal economy in Kosovo in 2013 was in absolute value between €1,651,370 and €2,035,000; During 2008-2013, customs fees represented 51.8 to 63.5% of total revenues;

The total amount of tax revenue has increased systematically during 2009-2014 and represented 17.9 to 22.7% of total revenues;

The total value of overdue tax debt with 01.01.2014 was €275,591,500 and for customs and excise duties was €9,500,000;

In 2013, the total amount of overdue taxes was 245 million euros and customs duties were €9,134,000.7;

The total number of intelligence reports received and distributed by the FIU has significantly increased

The annual number of financial crimes recorded by the Kosovo Police, Kosovo Customs and the Tax Administration during 2014 were 2,913, marking a decrease of 624 compared with 2013;

The annual number of sentences by Court regarding financial crimes has remained stable, and increased from 1296 (2013) to 1756 (2014);

The total value of seized property remained at an adequate level during 2012-2013 being €1 555 258.43 in 2013, but in 2014 the seized assets increased significantly, reaching a value of 21 256 142,70 EUR;

The total value of seized assets declined during 2012-2014 from €103 647.57 into €26 350.90 in 2014.

4.4. Operating results for prevention of the informal economy, money laundering, terrorism financing and financial and economic crimes in the period between January and March 2014.

4.4.1. Operating objectives set in the National Strategy Action Plan 2014 - 2018

A proper performance management in relation to the prevention of the informal economy and financial crime requires specific key performance indicators. Consequently, the process should be divided into different phases to ensure proper identification of indicators and measurement of results.

National Strategy Action Plan 2014-2018 consists of key performance indicators for different stages of the operating process related to the prevention of the informal economy and financial crime. Specific indicators are defined for the following processes:

Due collection of taxes and customs arrears; The process of collecting information on money laundering, terrorism financing and other

financial crimes; The investigation of money laundering, terrorism financing and other financial crimes; Prosecution related to money laundering, terrorism financing and other financial crimes; Court proceedings related to money laundering, terrorism financing and other financial crimes.

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4.4.2. The prevention of the informal economy

Medium Term Expenditure Framework 2015-2017 foresees two main assumptions which are expected to affect the collection of revenues: additional revenues as a result of the increased volume of real economic activity as a result of the projections in decline of prices in the medium term, and successful implementation of the strategy and action plan to prevent and combat the informal economy. It is expected that successful implementation of these policies will allow reducing the tax gap through continuous formalization of economic activities, which will provide a sustainable revenue budget for the coming years.

Annex 1 of the National Strategy Action Plan 2014-2018 does not consist of specific objectives for the collection of revenues. However, the results achieved in this regard are an important indicator when measuring the efficiency of the combat against the informal economy. Also, the assessment of the level of the informal economy identified additional measures which will impact on reducing the tax gap. The total amount of revenues collected during 2014 and 2013 at a monthly frequency is as follows:

Table 6: The value of the revenues collected from taxes, customs and other gross revenues January-December 2014 and 2013, in millions of euros

Type of revenues Jan 2014

Feb 2014

Mar 2014

Apr 2014

May 2014

June 2014

July 2014

Aug 2014

Sept 2014

Oct 2014

Nov 2014

Dec 2014

Revenues from taxes 36.6 17.9 20.5 37.2 18.4 17.5 33.7 19.3 20.6 34.5 18.9 28.6Revenues from customs 45.7 52.7 67.1 68.9 71.0 77.3 81.3 86.0 83.8 80.7 67.1 89.4

Other revenues 29.0 29.6 20.5 28.8 18.0 48.8 1.3 15.2 26.5 24.7 19.8 45.6

Total revenues 111.4 100.1 108.0 134.9 107.4 143.7 116.3 120.5 130.8 139.9 105.8 163.6

Type of revenues Jan 2013

Feb 2013

Mar 2013

Apr 2013

May 2013

June 2013

July 2013

Aug 2013

Sept 2013

Oct 2013

Nov 2013

Dec 2013

Revenues from taxes 33.5 19.8 19.2 37.8 18.8 18.7 35.9 22.3 20.1 35.7 20.8 22.4Revenues from customs 44.2 45.9 57.1 71.1 73.1 70.5 90.1 82.2 76.5 77.7 67.0 81.8

Other revenues 12.8 11.9 16.1 33.7 58.7 16.7 13.4 38.2 11.7 31.8 16.2 19.5

Total revenues 90.5 77.6 92.4 142.6 150.5 105.9 139.4 142.7 108.2 145.3 104.0 123.8

Source: Ministry of Finance 2014

The total amount of collected gross revenues during the period January-November 2014 was 1,369 euro, which at the same time is an increase of around 1% or about 15.00 million more in comparison with 2013. The measures undertaken by the responsible tax authorities have ggiven positive results and it is reflected in the increasing trend in revenue collection.

Annex 1 of the Action Plan 2014-2018 requires that minimal annual results of enforced collection of tax arrears shall be 90,000,000 Euros and 4,500,000 Euros for overdue customs and excise duties. Results during the period January-December 2014 were as follows:

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Table 7: Value of enforced collection of overdue taxes and customs duties and excise, January-December 2014

Type of debt

collected

2014

Jan Feb March April May June July Aug Sept Oct Nov Dec Total

Taxes 4,222 3,417 4,394 3,176 3,732 4,970 3,868 3,616 4,090 4,337 3,875 4,042 47,738,628Customs

duties 68.0 155.1 204.2 126.6 78.3 193.7 0.0 110.6 152.9 49.8 47.8 331.65 1,518.766

Source: Kosovo Customs and Tax Administration of Kosovo, 2014

Results of the Tax Administration of Kosovo and Kosovo Customs are encouraging but efforts to collect overdue debts should be intensified. The measures taken in 2014 by the two institutions have not produced the expected results based on key performance indicators.

4.4.3. Criminal proceedings for money laundering, financing of terrorism and economic and financial crimes

4.4.3.1. The information gathering process (intelligence)

FIU-K is collecting, analysing and disseminating financial information. Annex 1 of the Action Plan 2014-2018 requires from the Agency to obtain and distribute a number of reports. It is also composed of objectives in terms of the number and value of transactions suspended by the FIU-K. Results of the unit were:

Table 8: FIU-K operating results, January-March 2014

FIU-K Results Jan Feb March April May Jun Jul Aug Sep Oct Nov Dec

STR received 9 13 18 9 25 34 34 18 29 26 32 31

CTR received 45, 058 38, 091 37, 853 48,808 40,352 43,417 53,849 49,687 43,687 55,956 40,713 53,479Reports received on terrorism financing 1 3 2 0 0 1 3 0 3 1 2 0Distributed intelligence reports to the mandated authorities 26 19 20 18 18 17 15 12 10 16 11 12Suspended transactions 0 0 0 95 0 0 0 1 0 0 0 0

The value of suspended transactions 0 0 0 339,115 0 0 0

435,000.0 0 0 0 0

Source: FIU-K 2014

Results for 2014 show that FIU-K has met and exceeded key performance indicators set out in Annex 1 of the Action Plan. In 2014, FIU-K managed to receive 294 reports of suspicious transactions out of which around 278 have been reports of suspicious transactions for money laundering, while 16 have been

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reports of suspicious transactions for terrorism financing and 194 reports based on requests for information have been delivered to the mandated authorities and 59 intelligence reports were delivered based on STRs. The number of suspended monetary transactions was 96 and total monetary value of these transactions was 774,115 thousand Euros, while the number of reports received for transactions in cash was 551,130.

It should be noted that despite the difficulties in terms of staffing and logistical support (workspaces), and not being accepted it in the Egmont Group, FIU-K managed to show an extremely good performance during 2014 which is reflected even the achievements listed in the table above. Further on, in 2014 FIU-K carried out risk assessment in the construction sector which report served to draft handling measures for reducing and eliminating risks, as the avoidance of taxes, etc., in this sector. Further on, other relevant institutions provided contribution to this activity such as TAK, KC, KP and support of the European Commission project (B & S).

4.4.3.2. Preliminary investigations of financial crimes and temporary seizures

Annex 1 of the Action Plan 2014-201816 sets out the objectives of the preliminary investigations of financial crimes. They include key performance indicators for the Kosovo Police, Kosovo Customs and Tax Administration of Kosovo in relation to the minimum number of investigations started, where the estimated value of the income from crime is 5,000 Euros or more, the net value of property which is subject to temporary measures of seizure, the minimum number of investigations of financial crimes (the value of income from crime is 5,000 Euros or more), which are completed and forwarded for review of the charges and the average time for the investigation of financial crimes.

Results regarding the number of investigations initiated in financial crimes have been as follows:

Table 9: Financial crimes recorded by the Kosovo Police, Kosovo Customs and Tax Administration of Kosovo, January-December 2014

Investigations started for financial crimes Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Total

Police 17 358 267 272 241 239 241 180 228 199 197 159 203 2,784

Customs 12 10 26 12 11 9 2 5 7 3 2 5 104

Tax Administration 3 2 4 0 4 3 2 0 3 1 3 0 25

Total 373 279 302 253 254 253 184 233 209 201 164 208 2 913

Source: Kosovo Police, Kosovo Customs and Tax Administration of Kosovo, 2014

Statistical analysis shows that there are no substantial changes in relation to the total and the most common types of financial crimes recorded by the Kosovo Police, Kosovo Customs and Tax

16The National Strategy of the Republic of Kosovo for preventing and combating the informal economy, money laundering, terrorism financing and financial crimes 2014-2018.17Kosovo Police recorded a total of 2,784 financial crimes in January-December 2014.

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Administration of Kosovo in January-December 2014 compared with 2013. Typical financial crimes received during the preliminary investigation18 were:

Counterfeit of Currencies; Fraud; Illegal occupation of real estate; and Smuggling of goods.

It can be concluded that law enforcement authorities have started focusing on the most serious offenses when uncovering financial crimes.

The information available on the number of financial crimes and prcessed for consideration of charges are set out in the table below:

Table 10: Financial crimes prosecuted for filing lawsuits by the Kosovo Police, Kosovo Customs and Tax Administration, January-December 2014

Investigations concluded for financial crimes processed for filing lawsuits Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Total

Police 26 20 21 35 25 29 23 55 32 88 30 70 454

Customs 3 6 12 15 11 9 1 2 6 4 1 4 74Tax Administration 0 1 2 1 1 3 1 1 1 1 0 1 13

Total 29 27 35 51 37 41 25 58 39 93 31 75 541

Source: Kosovo Police, Kosovo Customs and Tax Administration of Kosovo, 2014

Asset Tracking is an essential part of criminal proceedings related to financial crimes. Consequently, the Action Plan 2014-201819 sets out objectives for the preliminary investigation stage in relation to the provisional seizure measures. Results for 2014 are as follows:

Table 11: The net value of assets seized in the investigation by the Kosovo Police, Kosovo Customs and Tax Administration, January-December 2014

The net value of assets seized temporarily

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Police 11, 100 76, 914 22, 193 - 300,000 - - - 234,659 78,838 1,180 23,136.3 748,020.3

Customs 8, 901 9, 055 - 121,201.6 10,000 - - 20,822 154,869 7,042.7 - 55,029.7 386,922.3Tax Administration - - - - - - - - - - - - -

18Financial crimes recorded by the Kosovo Police, Kosovo Customs and Tax Administration of Kosovo, 2014; and the Secretariat.19 The National Strategy of the Republic of Kosovo for preventing and combating the informal economy, money laundering, terrorism financing and financial crimes 2014-2018.

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Total 20, 001 85, 969 22,193.1 121,201.6 310,000 - - 20,822 389,528 85,880.7 1,180 78,166 1,134,942.6

Source: Kosovo Police, Kosovo Customs and Tax Administration of Kosovo, 2014

In 2013, the total amount of assets seized temporarily by the Agency for the management of seized and confiscated assets was 86,004,84 Euro. Results of Law enforcement authorities for 2014 have already exceeded this figure, reaching the figure of €1,134,942.6

4.4.3.3. Consideration of indictments for financial crimes and temporary seizures

Objectives for the prosecution phase in terms of financial crime are identified in Annex 1 of the Action Plan 2014-2018. They include key performance indicators for state prosecutors regarding the minimum number of indictments (the value of the income from crime is EUR 5,000 or more per crime), the average time used to review the indictments for financial crime, the minimum net value of asset which is subject to temporary measures of seizure and the minimum total value of requests for confiscation included in the indictment.

Complete and reliable information for operating results of state prosecutors are not available. Statistics which have been submitted to the Ministry of Finance and National Coordinator for economic crimes related to the prosecution phase objective in Annex 1 of the Action Plan 2014-2018 are not consistent.

4.4.3.4 Sentences for financial crimes and judgments for forfeiture

Annex 1 of the Action Plan 2014-201820 sets targets for judicial procedures regarding financial crimes. They include key performance indicators for basic courts in relation to the total minimum number of decisions about financial crimes in which the estimated value of the income from crime is 5,000 Euros or more, the average time used for court proceedings per calendar year regarding financial crimes and the overall value of the total minimum decisions imposed for confiscation.

The Secretariat headed by the Ministry of Finance has provided information regarding the total number of convictions related to financial crimes, and the results for 2014 are as follows:

Table 12: The sentences for financial crimes imposed by the Basic Courts, January-December 2014

Sentences for financial crimes 2014

Basic Courts 1 756

Source: Kosovo Judicial Council, 2014

In 2013, the total number of sentences for financial crimes was 1,296, while in 2014 this figure reached 1,756 cases. It can be concluded that Basic Courts’ productivity increased in 2014. The statistical analysis shows that there are some differences in the types of most common financial crimes determined in the

20 The National Strategy of the Republic of Kosovo for preventing and combating the informal economy, money laundering, terrorism financing and financial crimes 2014-2018.

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sentences imposed by basic Courts in January-December 2014 compared with year 2013. Typical Financial Crimes received during court proceedings21 were:

Abuse with official position; Smuggling of goods; Tax offenses; Illegal occupation of real estate; and Bribery.

Confiscating incomes from financial crime is essential to prevent financial crimes. However, information regarding the use of this legal measure are not available, as it can be seen below.

Table 13: The total value of the decision on confiscation by Basic Courts, January-December 2014

The total value of decisions for confiscation 2014Basic Courts N/A

Source: Kosovo Judicial Council, 2014

Currently, the functioning of the mechanism for seizures is difficult to assess where the only sources for respective statistics are law enforcement authorities, prosecutors and the Agency for the Management of seized and confiscated assets. It would be important for the Government and operational authorities to obtain information on the total value of seizure decisions. This will assist them in assessing the efficiency of the whole process chain starting from asset tracking through to the execution of confiscation decisions.

4.4.3.4. Management of seized and confiscated assets

Agency for Management of seized and confiscated assets maintains statistics on net asset value temporarily seized and confiscated. Results were as follows:

Table 14: Value of assets seized and confiscated under the administration of the Agency for management of seized and confiscated assets, January-December 2014 in millions

The legal measures taken against the incomes from crime

Janar Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Temporary seizure 56,207 65,891 20,000 60,229 23,931 33,000 30,221 26,309 25,271 61,540 20,008 845,619 21,256,143

Confiscation 19,466 - 824.0 1,805 170.0 - - 500.0 2,565 - 1,022 - 26,351

Source: Agency for the Management of seized and confiscated assets, 2014

According to the Agency for management of seized and confiscated assets, the total amount of assets temporarily seized in 2013 reached the value of 1 555 258,43 Euro and the value of the confiscated

21Annual Statistics, Kosovo Judicial Council, 201429

income from crime was 6,700 Euros. Results for 2014 show an increase of confiscated assets compared with 2013. During 2014, the value of the seized assets amounted to 21,256,143 million euros, and the confiscation was 26,351.0 thousand euros. However, one can conclude that the achievement of the objectives set in the Action Plan 2014-2018 were challenging in 2014.

It can be also concluded that the statistics of the Agency for Management of seized and confiscated assets for 2014 regarding the value of temporarily seized assets are not in line with the information provided by law enforcement authorities and prosecutors. Reasons for differences in these statistics should be evaluated and law enforcement authorities and judicial authorities should enhance applying the law to ensure effective management of seized property in accordance with applicable law. However, there are actions that are in process and relate to money laundering law which has passed the stage of drafting the concept paper. The law in question is expected to be in line with international standards and at the same time is expected to be approved during 2015.

4.4.4. Findings

The Secretariat analysed the operating results in prevention of the informal economy and financial crimes prosecutions for the period January-December 2014. The following are the findings drawn up based on information collected from the relevant institutions:

The amount of revenue collected is 1,482 billion euros, recording a 4% increase in total revenue collected during 2014 compared with 2013;

The total amount of mandatory collection of overdue taxes and customs duties was 49,257,394 euros;

FIU received 551,130 on cash transaction reports (RCT) and 294 suspicious transaction reports (STRs). The unit delivered a total of 59 intelligence reports to mandated authorities, which means that the total number has reached certain objectives in key performance indicators.

The Kosovo Police, Kosovo Customs and Tax Administration have identified a total of 2,913 financial crimes, which increased in comparison with 2013.

The most common financial crimes recorded by law enforcement authorities were related to counterfeit of currencies, frauds, illegal occupation of real estate and smuggling of goods;

The total value of assets seized temporarily by the Kosovo Police, Kosovo Customs and Tax Administration has been 1,134,942.6 Euro;

Complete and reliable information for operating results in terms of the prosecution phase objectives set out in Annex 1 of the Action Plan 2014-2018 are not available

The total number of sentences imposed by basic courts for financial crimes was 1,756, which marked an increase compared with 2013.

The most common financial crimes defined in the sentences imposed by basic courts were related to abusing official position, smuggling of goods, tax violations, illegal occupation of real estate and bribery;

The total value of the basic decisions of the Courts for forfeiture is not available; The total value of temporarily seized assets, which is under the management of the Agency for

the management of seized and confiscated assets for 2014 reached a value of 21,256,143 euros, an increase compared with 2013.

The total value of temporarily seized assets, which is under the management of the Agency for the management of seized and confiscated assets, was 26,350.9 Euro;

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Statistics for 2014 of the law enforcement authorities and prosecutors regarding the value of temporarily seized assets are not in line with the information of the Agency for Management of Seized and Confiscated Assets;

With regard to the supervision of the implementation of the National Strategy and Action Plan 2014-2018 and performance management in relation to criminal proceedings for financial crimes, the most challenging phases are prosecution and use of a temporary confiscation and seizure decisions. This is the result of incomplete and inconsistent information.

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5. CONCLUSIONS AND RECOMMENDATIONS REGARDING THE PREVENTION OF INFORMAL ECONOMY, MONEY LAUNDERING, TERRORISM FINANCING AND ECONOMIC AND FINANCIAL CRIMES

5.1. Implementation of the National Strategy and Action Plan 2014-2018

5.1.1. Conclusions and recommendations

The Government of the Republic of Kosovo and institutions of the public, private and third sector have started implementing the National Strategy and Action Plan, 2014-2018. The activities are mainly in line with the requirements and deadlines set out in the policy documents. However, altogether there are three (3) risks which can be managed based on national-level measures. They are related to the implementation of the strategic objective “the capacity building of relevant institutions”.

Government of Republic of Kosovo should increase the implementation of the National Strategy and Action Plan 2014-2018, the efficiency and transparency of the informal economy and the prevention of financial crime and the awareness, skills and capacity of institutions in the public, private and third sector when it comes to combating these harmful phenomena. It is therefore recommended that the Government should ensure that:

1. The responsible and assigned authorities continue to provide requested information to the Secretariat, on 3 months basis, on their operational performance and results set out in Annex 1 for 2.4.1 activity of the of the National Strategy Action Plan 2014- 2018. This measure is necessary to enhance the efficiency and transparency of the informal economy and the prevention of financial crime and ensure the implementation of the National Strategy and Action Plan 2014-2018;

2. the budget for the Kosovo Police is allocated to implement the activity (2.4.11) to enable the establishment, implementation and evaluation of a training program by the Kosovo Police in cooperation with FIU and other institutions engaged in the prevention of money laundering, terrorism financing and financial crimes. This measure is necessary to raise awareness, skills and capacity of institutions in the public, private and third sector when it comes to prevention of the informal economy and financial crime and ensure the implementation of the National Strategy and Action Plan 2014-2018.

5.2. Operating Performance

5.2.1. Conclusions and Recommendations

Annex 1 of the activity 2.4.1 within National Strategy Action Plan 2014-2018 sets out the objectives and key performance indicators for the administrative, law enforcement and the judiciary institutions to prevent informal economy and financial crime. The process of implementing these measures has been launched and the first results are promising. However, there are certain vulnerable stages in the chain of the process due to incomplete and inconsistent performance. This especially concerns the prosecution and using judgments on temporary seizure and confiscation. Consequently, performance management mechanisms of the relevant institutions should be developed and generation and dissemination of information necessary to evaluate their performance should be secured and adjusted to enhance the efficiency and transparency of processes.

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It is recommended that the Government of the Republic of Kosovo increases the effectiveness and transparency when it comes to prevention of informal economy and financial crime by ensuring that:

1. The Budget of the Government for the financial year 2015 onwards shall include the objectives of the national level when it comes to prevention of the informal economy and financial crimes prosecutions for administrative, law enforcement and judicial institutions; and

2. The responsible administrative, law enforcement and judicial institutions for preventing informal economy and criminal proceeding for financial crimes prepare performance plans for the financial year 2016 and onwards. These plans should include precise targets at the institutional level, to implement their measures and key performance indicators with regard to prevention of the informal economy and criminal procedure for financial crimes. The objectives of performance plans at the institutional level should derive from the Government’s budget goals and therefore their drafting should start at the same time when government budget for the financial year 2015 onwards is drafted.

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