Criminal networks are exploiting financial institutions across the Western Balkans to move illicit money across borders, leveraging regulatory weaknesses and systemic vulnerabilities, according to a new report by the Global Initiative Against Transnational Organized Crime (GI-TOC). 

Despite significant efforts to combat illicit finance, such as the implementation of EU anti-money laundering (AML) directives and adherence to Financial Action Task Force (FATF) standards, financial systems in the region remain highly susceptible to exploitation by organised crime groups, according to the report, “Dirty money: Assessing the vulnerability of financial institutions in the Balkans to illicit finance”. 

“The paradox of the financial sector is that it acts as both the main channel for illicit finance and the primary system responsible for detecting and preventing it,” the GI-TOC report states. 

“On the one hand, financial institutions are intended to serve as the gatekeepers of financial integrity, with robust anti-money laundering and counter-terrorist financing (AML/CFT) standards with which to comply, including customer due diligence procedures, transaction monitoring and reporting suspicious transactions to financial intelligence units (FIUs),” it adds.

“On the other hand, there is considerable evidence, including from the Global Initiative Against Transnational Organized Crime (GI-TOC)’s own research in the region and Moneyval reports, that financial institutions are integral to the three-stage process of money laundering: placement, layering and integration.”

Banks dominate the region’s financial landscape, but alternative financial service providers – including cryptocurrency exchanges, money transfer services, and foreign exchange offices – are increasingly contributing to the region’s evolving vulnerabilities. Organised crime networks employ a mix of methods to launder proceeds from criminal activities, ranging from real estate transactions to the misuse of bank loans and cryptocurrency.

Weak gatekeepers

The report sheds light on systemic weaknesses within the banking sector, which remains the most common conduit for large-scale money laundering. Despite their robust AML frameworks, banks often fall prey to insider corruption, regulatory loopholes, and complex criminal schemes.

In one case in Tirana, Albania, authorities arrested seven individuals in June 2024 and seized €50mn worth of assets linked to money laundering. The suspects had reportedly secured large, unjustifiable loans from a second-tier bank, which itself acted as a guarantor. These funds were ostensibly earmarked for hydropower projects, but construction never began.

“Banks and bank officials play a critical role in the global fight against money laundering, but in some cases they have been complicit in facilitating illicit financial activities. The involvement of banks in money laundering often occurs through lax oversight, issuance of fraudulent loans or the direct involvement of bank officials with corrupt officials and criminal networks,” according to the report. 

Another high-profile case singled out in the report is that of Eurostandard Bank in North Macedonia, which was embroiled in an internal money laundering scheme worth approximately €110mn. The scandal led to the revocation of the bank’s licence in 2020.

The real estate sector is another vulnerability, again enabled by weak regulatory oversight and a lack of mechanisms to verify property valuations. Properties are often purchased at inflated prices to launder large sums, or prices are manipulated to secure inflated loans.

“The influx of non-residents, particularly from Russia, Ukraine and Turkey, is intensifying illicit finance in the region,” said the report. “Countries such as Serbia and Montenegro have experienced a greater influx of Russian and Ukraine nationals as a result of the war in Ukraine. A large portion of foreign direct investments in the Western Balkans is through real estate purchases, particularly in luxury residential areas in Serbia and Montenegro.” 

Cryptocurrency risks

Cryptocurrency poses an increasingly high risk for illicit finance in the Western Balkans, where regulatory frameworks lag behind technological advancements. Criminal networks are using cryptocurrencies to move proceeds from trafficking drugs, weapons and humans, as well as from fraud.

“Without adequate regulation, virtual assets operate without compliance requirements and create a greater risk of money laundering,” the report warns. Montenegro has emerged as a hotspot, with cryptocurrencies frequently used to purchase real estate and luxury goods.

Beyond banks and cryptocurrencies, other financial institutions, such as money transfer services and foreign exchange offices, are exploited for laundering smaller amounts of money. These institutions often handle high volumes of cash transactions with limited oversight, making them attractive to criminal networks.

The GI-TOC identifies several structural weaknesses contributing to the region’s vulnerability. These include the absence of centralised registries for politically exposed persons (PEPs) and beneficial ownership, insufficient public-private partnerships in AML enforcement, and inconsistent feedback mechanisms between financial institutions and financial intelligence units (FIUs).

“Without adequate information-sharing and collaboration, financial institutions are left in the dark, inadvertently providing cover for criminal actors,” the report states.

To address these gaps, the report calls for a multi-pronged approach involving governments, financial institutions and non-state actors. Key recommendations include: strengthening regulatory frameworks; better inter-agency collaboration; training and capacity building; and setting up centralised registries. 

“Effective strategies to tackle illicit finance require collective actions by governments, the private sector, civil society and the media,” the report concludes.