1.4 million square meters of construction permits granted in Tirana only during 2022. Experts talk about how illegal money manages to get into Albania from organized crime and how it manages to be invested in real estate.
Authors: Xhoana Çallaku and Ermal Spahiu
If you have cash today and want to import in the country and then buy an apartment, this goal can be achieved very easily, although legally it is impossible due to the restrictions on allowed cash payments. ACQJ journalists infiltrated a number of real estate agencies as interested in buying an apartment worth 200 thousand euros through cash payment, the source of which was from abroad.
By questioning various actors, from police officers at border posts to builders and real estate agents, several schemes were discovered that are used to bring money into the country and then buy an apartment in the central area of the capital.
The introduction of cash in Albania, or as it is otherwise known by the term laundering of illegal money, goes through several stages and processes.
In the scheme set up for the transport of cash within the borders of Albania, persons who have large sums to pass, often from unjustified sources, establish contacts with persons who have a direct or indirect connection with border police officers.
Based on the law on the prevention of money laundering, all persons who enter/or leave the territory of the Republic of Albania are obliged to declare the amounts in cash, starting from the amount of 10,000 euros, or its equivalent in other currencies, the purpose of their holding, as well as to present the relevant justifying documents on this amount.
However, this rule often remains on paper, as the established schemes guarantee in most cases the transfer of money without significant problems for the sender. The person who creates the connections with the border police officers is the responsible person who has on his shoulders the entire chain of cash transfer. This same person, through negotiations and agreement with members of the police authorities at the border, manages to pass the sums of cash, without encountering legal restrictions or problems with other police officers.
It is these two links which, in agreement and through the payment of a percentage for this “service”, agree on the transfer of money through ordinary clothes bags or other goods that arrive at the border customs.
This form of cross-border cash flow, used by criminal drug trafficking networks, has also been cited by the European Monitoring Center for Drugs and Drug Addiction in a recent report on the health and safety threats associated with with drugs in the Western Balkans. According to this report, money generated by drug trafficking groups in Western Europe and laundered in the Western Balkans is often smuggled across borders in hidden compartments of cars and trucks.
Truck drivers interviewed, through also other schemes, say for this report and other previous reports published by the Global Initiative Against Transnational Organized Crime, as cash couriers they regularly travel between Albania and EU countries. as well as the United Kingdom, transferring relatively small amounts (less than €10,000) to avoid suspicion.
Illegal proceeds of crime are also transferred through the financial system, fast money transfer companies and hawala operators, a system based on informal transfers through illegal underground networks. This system takes into account the deposit of funds by the sender at an “office” in the country of origin, and the latter notifying its “branch” in the host country that the deposit has been made, paving the way for the delivery of an equivalent amount of cash to the receiver of funds.
According to the official statistics of the Customs Directorate, in 2021, the number of cases where undeclared “cash” was attempted to pass over the limit recognized by the legislation was 36. The land route was the one that had the most cases of passing money, while the border point with the most cases intercepted by the authorities has been Rinas Airport. In the figures provided by the Customs Directorate, money was attempted to be transferred by land in 20 cases, by sea in 4 and by air in 11. In total, 391,780 British pounds, 1,218,695 euros, 33,100 dollars and 424,500 ALL were seized.
However, despite the official figures of the amounts intercepted, a person involved in the scheme of passing cash at land border crossing, contacted by ACQJ reporters, admits that the practice of passing cash at the border is very common, and only a few transactions manage to be detected.
Former officials of anti-money laundering agencies, under the condition of anonymity, mentioned another form of introduction of black money in Albania. According to them, this is done through used cars, expensive furniture, for buyers coming from Belgium, England, etc., where they also mentioned the case of “Toyota Yaris with 3.5 million euros in the interior”.
“There are several forms of introducing illegal money in Albania, such as through the furniture inside them and used vehicles. It is no coincidence that the Toyota Yaris was 3.5 million euros at the same time, but there are other cases where individuals are used as carriers, who are given the corresponding amounts for passage, and after, the money is collected in Albania, they are distributed among different people in amounts that do not attract attention and are introduced into bank accounts”, – they said.
From informal money, now part of the formal economy
But what happens after the money reaches the Albanian territory? After the arrival of the money in our country, the person who owns these sums tends to connect with construction companies or real estate agencies, in order to purchase one or more apartments, this is a form of money laundering which has found application in widely in recent years.
The supply of apartments has increased in recent years due to the significant increase in building permits in the capital. According to INSTAT data, in 2021, the area of construction permits granted by the Municipality of Tirana reached 1.4 million square meters, the highest level on record, at least since 2005, the year in which INSTAT started keeping data.
Anti-Money laundering officials further point to the fact that the imported money is mainly invested in construction, through newly formed companies, for which would be practically impossible to develop the investments for which they received construction permits, given their initial financial capital.
“The second moment of the integration of illegal money is to hide the money, hoard it. They do this through construction companies, both large construction companies and new companies that have just entered the market. You see that companies have entered the market that had no income before, no history in construction, etc. In the middle of the day they have income and start making towers etc. So, these companies are not controlled by the state, but they allow them themselves and start and build them with that money,” – they add.
Further, in terms of money laundering in this sector, they point out that the practice is not only seen in shell companies, but they list a number of components of the entire industry, from iron and concrete to gas stations, which have pushed the creation of shell companies in extremely high numbers for a country as small as ours.
“In every country, not only those who produce iron or concrete, but from iron, concrete to those who produce refined products, plaster, curtains, shutters, etc., if you see, there are many more enterprises or points of sale than the country needs. Just like there are gas stations, we have more gas stations than the entire Balkans would probably need, and actually what are they for? If we had a legitimate economic account, they don’t even cover their expenses. So, someone provides them with dirty money and they take advantage of the value, a percentage of that money and then give it back to them through turnover”. – they conclude.
Buying apartments in cash
But what happens after a person has managed to get his money into Albania? How can he invest 200,000 Euros in buying an apartment in Tirana? A real estate agent, on condition of anonymity, explains to ACQJ.
In most cases, 50% of the undeclared money is distributed to relatives in such amounts that they can be declared as savings and induced in the banking system without raising red flags. These funds are then passed on by the family back to the person in the form of donations or ordinary transfers with family justifications. or small loans.
“The remaining part is given in cash to the real estate agency” – he says.
The agency in turn transfers a large part of the amount received, about 30% of the initial funds, to its account in the form of capital for investment.
“The remaining part of the funds, after being transferred to the account of the agency, is agreed between the administrator of the real estate agency, the director of the bank and the persons at the General Directorate of Prevention of Money Laundering, how to administer it so that the amount does not attract attention from third parties”. – he concludes.
Once the money has already been induced into the system, the only thing left is the conclusion of the contract between the buyer, the agency as a mediator and the seller of the apartment, in the presence of a notary, who formalizes the contract and everyone goes their own way.
Moneyval, the mechanism of the European Commission for the prevention of money laundering, in its reports on Albania, has consistently found that real estate is the most vulnerable sector to money laundering.
In February 2020, the Financial Action Task Force – FAFT, a mechanism of Moneyval, re-introduced Albania to the money laundering gray list, originally established in 2015. Until the last review in October 2022, Albania continued to still be on this list, together with Turkey, the only two European countries on the list.
“For the real estate sector, the problems are compounded by the complete non-registration of titles and in many cases by the lack of reliable evidence of ownership, especially for new buildings, which constitutes a fragility that can enable money laundering”, – points out Moneyval.
In the 3rd follow-up report of “Measures against money laundering and financing of terrorism” for Albania, May 2022, it is noted that despite many positive developments in various sectors in the fight against money laundering, the sector of real estate agencies was the one that suffered the most from the lack of regulatory framework for various issues, or its non-implementation.
A report by the Geneva-based Global Initiative Against Transnational Organized Crime found that “The construction sector is particularly susceptible to money laundering because of the way it is structured. First, new construction sales generally work through prepayments, selling before construction begins. The industry is generally cash-based, with real estate agents in Albania reporting that 40-50% of all sales are made exclusively in cash.” According to the report, for the period 2017-2019, it is estimated that around 1.6 billion euros were laundered in the country.
For economy expert Pano Soko, political and public figures make the biggest impression on the purchase of apartments or real estate, followed by immigrants who work illegally abroad.
According to him, banks come into play in this form, justifying the income since they enable the granting of loans for debt repayment through monthly installments.
“The other scheme is when things are more complicated. How much more complicated? In these cases, we talk about people who are more public; a politician, or director. If I don’t know the guy from London at all and he bought 3 apartments, I might not be impressed at all. I know the customs director, the public knows him, and it impresses me that, for example, with a salary of 1.5 million ALL, he has the opportunity to buy 3 apartments. So, they have to make it a little more sophisticated and that’s where the bank comes into play. Banks in general have been helpful, operational, they are part of it. How do banks come into play? I don’t go and give the money to the construction company, but I go and get a loan from the bank with the cash money as collateral”, – says Soko.
Data from the Bank of Albania show that new loans for real estate have increased significantly in recent years. For the 9 first months of 2022, the loans granted by banks to individuals for the purchase of real estate reached 35 billion ALL (almost 300 million euros), twice as high as in 2020.
Money laundering in the eyes of legal experts
Legal expert and lawyer, Redi Ramaj, tells ACQJ that most apartment purchases in our country are made with cash.
“Most of the transactions in Real Estate are made with cash because it is evident from the low value of the contract declaration for an apartment, although every day it has become more and more difficult to buy an apartment in Tirana, either in the suburbs, or in the center. In the center, the prices have gone to the extreme and some declared contracts that we have seen even during the processes or in the court or other institutions, we have noticed that the value of the transaction is low, which means that a part was liquidated in the bank and the other part in cash”, he said.
Despite this, Ramaj raises another concern where he states that the commercial loans received in the bank are at low levels.
“It’s been a few years now and construction is at an all-time high, which means builders have found other sources of financing for their construction beyond the bank and loans, which means it’s black money.” he says.
Another aspect that is evident is the increase in prices, even though the average personal income is low, the price of apartments increases every day.
“There is demand because the price adds demand to supply and the demand for purchase comes only from the money that comes illegaly, because there is no possibility for the price to increase at this kind of rate, so I think it is problematic”. – he concludes.
According to the Fischer Index of Housing Prices, calculated by the Bank of Albania, the average price of housing sold during the first six months of 2022 has increased by 28.4% compared to the previous six months and by 39% compared to a year ago.
Compared to 2013, when the Bank of Albania started calculating this index, prices have increased by about 110%. In the center of Tirana, prices fluctuate from 4000-5000 euros per square meter, within the yellow line 1200-2500 euros, and on the outskirts of Tirana, no cheaper than 700-800 euros per square meter.
Ramaj “accuses” the state as the main actor that has allowed the phenomenon of money laundering over the years. “The state itself and the government itself has tolerated the fact that these actions are carried out, either by agencies or by individuals, because it has an interest in this to keep the economy alive and functioning, to allow actions that can be understood as fiscal evasion, or as criminal offense. The economy is in a critical state and illegal money, I believe helps the state at the moment and this is short-term, and in the long-term it damages it because black money channels are created that will bring long-term damage to Albanian society”, – Ramaj said to ACQJ.
Despite the factual situation from experts, national law enforcement agencies, international institutions or even the reports of organizations that monitor money laundering, it has been more than two years that the government insists on the implementation of a new initiative, which provides for the formalization of money of immigrants from abroad, through the implementation of a fiscal and criminal amnesty. This initiative has been opposed not only by economic experts, but also by international financial institutions, as too dangerous, and that paves the way for organized crime money to be introduced into the formal market.