THU, 23 AUG 2001 00:07:23 GMT
Suspicions offshore banks in Montenegro
Are they laundering money?
While the U.S. Congress investigates offshore banks in Montenegro on
suspicion that they are laundering money, the Montenegrin government
is trying to hush up the matter by preventing the opening of new such
AIM Podgorica, July 27, 2001
Although the "tobacco scandal" is still attracting public attention
Montenegro has once more come under fire from the international
public. This time around, the U.S. Congress is launching an
investigation into the operations of U.S. offshore banks in Montenegro
after reports alleging that one of the biggest U.S. banks -- Citibank
-- is laundering some of its funds through its offshore branches, some
of which are located in Montenegro.
It turned out, however, that the Americans were not the only ones to
come up with the idea of tax evasion. According to unofficial reports,
Russians also launder money through Montenegro, syphoned out of Russia
via offshore banks, and deposited mostly in Western Europe. Reports
that the Montenegrin government has stopped further registration of
this type of financial institutions have practically confirmed
suspicions that something illegal is indeed afoot.
All this, however, appears only to be a part of a major operation
involving large sums of money. According to data provided by the
Institute for Strategic Studies and Forecasts, some 500 offshore banks
have been registered in Montenegro so far. Unofficial sources say that
they have handled hundreds of millions of German marks. How much
Montenegro has profited from this is not known.
The decision to stop registering new offshore banks, however, has not
hindered existing ones. A fierce debate followed on the legality of
their operations, but the government was also berated for having
allowed their registration.
And while some claim that their registration was illegal to begin
with, and allowed for an unhindered flow of money of unknown origin,
others regret the project is about to collapse because the government
is not interested in keeping these banks functional. In the view of
the latter, this could be a nice source of budget revenues. "Offshore
banks shouldn't have been registered in Montenegro at all," says
Nebojsa Medojevic, director of the Center for Transition, and adds
that a 1996 law on special companies does not allow for the founding
of such banks, but only offshore companies.
Vladimir Popovic, chairman of the managing committee of the
Montenegrin Offshore Business Center, blames top state officials. "As
early as the end of 1999, we brought up the issue of the investigation
launched by the Americans. Then, we said that Finance Minister
Miroslav Ivanisevic and Legislation Secretary Rajko Milovic were
planning to facilitate the founding of offshore banks without there
being any provision for that in the law," Popovic claims.
How do offshore banks operate?
It's not very complicated, really: any foreign physical or legal
entity may open an offshore bank in Montenegro with DM10,000 in
starting capital, which, after registration, can be withdrawn! The
next step is opening of an account with one of the Montenegrin banks.
After that, money from abroad can be transferred through fictitious
accounts and transfers to an offshore bank's account with a
Montenegrin bank. These funds can then be either withdrawn as cash or
transferred to another foreign destination. This makes the money hard
to trace and tax.
"The profit Montenegro makes from such deals is smaller than the
damage created by the fact that a country harboring such institutions
is considered a money laundering center," says Medojevic. He adds that
a certain amount indeed remains in Montenegro, but that "only a few
people can profit from that." "Whenever a civil servant makes an
arbitrary decision instead of strictly abiding by the law, there is
room for corruption. When the fact that there was no control or
transparency is taken into account, it is clear that there was also
plenty of room for various shams," explains Medojevic.
It is impossible to determine, even unofficially, who in Montenegro
actually profited from such financial transactions. No one wants to
mention any names, but many say that it must have been state officials
who know how the business works.
Knowledgeable sources say that this is not a usual procedure elsewhere
in the world, and that Montenegro has become a safe haven for
foreigners who can do whatever they want with their money by paying a
low, 2.5 percent tax. They add that this offers good opportunities for
profit for "domestic clients," who arrange such deals for the
Due to EU and U.S. pressure on the Montenegrin government, it has
been rumored that a cancellation of all offshore deals is to follow.
The Montenegrin law which facilitated the creation of such
institutions says that the state will guarantee their operations for
15 years. The law, however, is only five years old.
Lawyers representing the owners of offshore companies and banks say
Montenegro would be making a big mistake if it repealed the law. They
say that lawsuits could follow, first at home and then abroad, if the
former fail to produce results. It should not be even doubted that
Montenegro would end up by being obliged to pay huge sums in damages.
The offshore bank situation is getting more complicated by the day.
The fact that no new offshore banks are being registered does not
prevent existing ones from operating and continuing to use Montenegro
for transactions. Thus, say well-informed sources, a new black market
for offshore operating licenses has emerged. Licenses there are now
more expensive than what the Finance Ministry used to charge -- the
price is said to be up to DM30,000.
Advocates of the idea of Montenegro as an offshore center quote the
example of Cyprus which has DM400 million in budget revenues from
offshore business deals. "Since Cyprus wishes to become a member of
the EU, which does not allow offshore deals, there is a chance for
Montenegro to take over a part of its business," says lawyer Sasa
Vujacic, whose office represents owners of offshore companies and
Opponents of the offshore project, however, believe that the potential
profit is much lower than what Montenegro stands to lose by being
labelled a money laundering center.
Everybody, however, agrees on one point. If Montenegro wants to get
closer to the European Union, it will have to forget offshore
business. The question remains: could Montenegro, waiting in
uncertainty for EU membership, have come by much needed budget
revenues in some other way or, by sinking deeper in the offshore
project, would it have only shown the full extent of the numbness of
its system and further alienated itself from the EU.
Marijana Kadic (AIM)