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Bosnia and Herzegovina’s Urgent Need to Strengthen Anti-Money Laundering Measures

The latest report from MONEYVAL, the Council of Europe’s anti-money laundering (AML) watchdog, has raised serious concerns about Bosnia and Herzegovina’s (BiH) ability to combat money laundering (ML) and terrorist financing (TF). The assessment reveals gaps in enforcement, regulatory oversight, and risk management that demand immediate action.

MONEYVAL’s evaluation highlights that BiH demonstrates only moderate effectiveness in nine out of eleven assessed areas, including risk understanding, international cooperation, intelligence utilization, and ML/TF investigations. While some progress has been made, significant deficiencies persist.

One of the most pressing issues identified in the report is the inadequate application of United Nations financial sanctions, particularly in countering terrorist financing risks within the non-profit sector. Without a robust strategy to identify and mitigate these threats, BiH remains vulnerable to illicit financial activities that can undermine its economic and national security.

Money Laundering Investigations and Convictions: A Partial Success

Although there have been some successful money laundering investigations leading to convictions, they do not fully align with the country’s risk profile. This misalignment suggests that enforcement efforts are not sufficiently targeted at the most significant threats. Moreover, asset confiscation remains an area requiring substantial improvement. Without a more aggressive approach to seizing proceeds of crime, financial criminals can continue operating with relative impunity.

When it comes to terrorist financing, the situation is even more concerning. Prosecutions and convictions in this area remain inconsistent with the known risk exposure, reflecting gaps in the country’s capacity to detect and address TF threats effectively. There is also a notable lack of comprehensive understanding of TF risks among law enforcement agencies and financial institutions.

Challenges in Regulatory Compliance and Risk Assessment

Financial institutions, particularly banks, have demonstrated a good understanding of ML/TF risks and are generally compliant with customer due diligence (CDD) requirements. However, the same cannot be said for other designated non-financial businesses and professions (DNFBPs), including notaries and real estate agents. These sectors have lagged in implementing enhanced due diligence measures for politically exposed persons (PEPs), making them attractive channels for illicit financial activities.

While banking supervisors exhibit a thorough grasp of ML risks, most other financial and non-financial sectors lack a mature framework for identifying and assessing risk. The report underscores that state-level coordination remains a major obstacle to effectively preventing the misuse of legal entities for illicit financial flows.

International Cooperation: Strengths and Weaknesses

MONEYVAL acknowledges that BiH has a generally good record of international cooperation. However, this collaboration is not always proactive, particularly in cases related to terrorist financing. Law enforcement agencies have been slow to seek police cooperation in TF risk matters, which limits their ability to disrupt cross-border financial crime networks.

Given the transnational nature of money laundering and terrorist financing, a more proactive and coordinated international approach is essential. BiH must enhance its collaboration with foreign financial intelligence units (FIUs) and law enforcement agencies to track and dismantle illicit financial networks effectively.

The Road Ahead: MONEYVAL’s Enhanced Follow-Up Procedure

As a result of these findings, MONEYVAL has placed Bosnia and Herzegovina under its enhanced follow-up procedure. This means that the country will be subject to increased scrutiny and must report back on its progress by December 2026. Failure to address the identified deficiencies could lead to more severe consequences, including potential blacklisting by international financial watchdogs.

To avoid these repercussions, BiH must take decisive steps to strengthen its AML/CFT framework. This includes improving enforcement mechanisms, enhancing regulatory oversight across all financial sectors, and fostering greater coordination between national and international agencies.

Conclusion: An Urgent Call for Reform

Bosnia and Herzegovina’s AML and CFT framework is at a critical juncture. While some progress has been made, substantial weaknesses persist, leaving the country vulnerable to financial crime and international scrutiny. Addressing these issues requires a comprehensive and coordinated effort from both public and private stakeholders.

Strengthening enforcement, improving risk assessment mechanisms, and enhancing international cooperation must be top priorities. If BiH fails to act swiftly, the consequences could be severe, not just in terms of financial crime risks but also regarding the country’s standing in the global financial community.