Kosovo: Mafia Crackdown

Crime pays, and pays handsomely. The difficulty lies in what to do with the proceeds. A new criminal code in Kosovo next year and a drive to make the euro the province's official currency will put pressure on the beneficiaries of Kosovo's thriving illegitimate businesses.

New criminal codes are about to replace Kosovo's current amalgam of Yugoslav law and ad hoc UNMIK regulations. The drafts makes several changes to current legislation, such as the abolition of the death penalty and political crimes. They also introduce protections against religious and racial hatred.

The most significant practical change will be fuller recognition of economic and financial crimes - like non-payment of tax, bribery, corruption of public officials and money laundering - and the provision of the legislative tools to deal with them.

Kosovo's tax revenues almost doubled this year but are still probably half what they should be. Criminal groups are responsible for the bulk of the shortfall.

"There has been a tremendous improvement," said Khawaja Sultan, director of tax policy at the Central Fiscal Authority in Pristina, "but we have a long way to go to eradicate corruption and bring about greater transparency in the economy."

One body dedicated to tackle economic and other transgressions is the

Organised Crime Intelligence Unit, funded by Britain, whose two dozen or so investigators have operated in the province for a year, coordinating and assessing information on individuals involved in mafia activities.

To find evidence of what the OCIU is fighting, you need only ride a bus along Kosovo's main roads and count the petrol stations. A region that might expect to have 200 or so contains around six times this number.

The reasons, Sultan says, are two-fold. While many were opened simply because people spotted the potential in running them, "some are there to engage in laundering money".

A business with a high turnover in low denomination cash, such as a petrol station, can justify possessing large amounts of money, ducking awkward questions when sizeable bank deposits are made.

This kind of laundering is characteristic of an economy with a rudimentary banking sector. While many businesses can serve as fronts, petrol supply has extra advantages. "As far as customs and excise are concerned," one source said, "it doesn't take much to change the documentation for an import of 100,000 gallons of petrol to appear as 400,000 gallons."

The introduction of the euro will increase pressure on Kosovo's criminal fraternity as it tries to flush dirty German marks through the system.

Sums above 10,000 marks will need a bank account to be cleared.

Criminals will doubtless try to exchange amounts just below this threshold. But cashiers will be instructed to report anything suspicious, so wholesale laundering may prove be difficult.

"We'll be able to tell over time whether the euro has led to an increase in laundering activity, which it could," said James Le-Mesurier, UNMIK's senior advisor on economic crime. "But I think as a whole, euro conversion assists in the fight against the problem."

This is partly because conversion will stimulate the number of bank account holders, increasing the level of transparency in Kosovo's economy.

The drive against financial crime, however, is in danger of being undermined by the very processes it aims to stop: bribery and corruption. One senior OSCE official in Kosovo said, "There was a celebratory song and dance when UNMIK came out with regulations to stop trafficking in women earlier this year. But it's a joke: it made no difference as the traffickers simply pay off the police... and get away with it."

The EU is studying ways to change government structures to reduce corruption and economic crime in Kosovo. The World Bank is also expected assess the problem. As one official said, "We really have no idea how bad things are."

As Europe turns its gaze towards Kosovo in the run-up to the euro's debut, the police agency Europol has singled out the province as a likely base for counterfeiters planning to flood the markets with fake currency.

As yet, the authorities in Kosovo, like their counterparts in neighbouring Macedonia, have not reached an agreement with Europol on how to deal with the threat.

Benjamin Beasley-Murray is a freelance journalist based in London