Illicit capital, the Kremlin’s most powerful tool of power, flows in and out of the Western Balkans on a staggering scale, enabled by weak governance, endemic corruption, organized crime and a rampant underground economy, write Vanya Petrova and Ruslan Stefanov.
Vanya Petrova is a senior analyst and Ruslan Stefanov is a chief economist at the Center for the Study of Democracy in Sofia. This opinion article is based on the latest CSD policy brief on the link between illicit financing and disinformation in the Balkans.
Ukraine’s heroic resistance to Russia’s war of aggression constitutes the latest shock to the geopolitical conscience of the European Union. A year after the full-scale invasion, the European Commission rightly quickly extended the prospect of membership to Ukraine, Moldova and Georgia.
After all, the three countries indeed constitute the first line of defense against the Kremlin’s real and openly declared ultimate goal: the destruction of the EU. Yet many doubt whether the determination of all member states to keep this promise can last or deliver.
And the real stress test would be whether the EU would manage to take the next step of enlargement to the Western Balkans by 2029.
EU membership has long captured the imagination of Western Balkan elites. However, for many in the region, the idea of a bright European future often seems like an inconceivable fable.
Although last December’s EU-Western Balkans summit marked new hope, the decades-long stalemate remains intact, leading to frustration and stagnation. This creates a vacuum that malign foreign forces, notably Russia, are cleverly exploiting.
With 51% of Serbs ready to vote against EU membership in a referendum, and 40% remaining attached to Vladimir Putin, despite his atrocities in Ukraine, latent ethnic divisions in the region, the capture of State and media and the legacy of Russian cognitive biases make it a prime target of the hybrid war that Moscow is currently waging against the EU and the democratic West.
Russia established a pattern of harmful economic impact in Europe by cultivating an opaque network of patronage across the region to influence and direct decision-making in key markets and institutions.
Illicit capital, the Kremlin’s most powerful tool of power, circulates in and out of WBs on a staggering scalemade possible by weak governance, endemic corruption, organized crime and a rampant underground economy.
The scale of illicit financial flows (IFFs) is estimated at between $1 and $1.5 trillion per year globally, while in the Balkans, IFFs represent approximately 6% of the region’s GDP. This is twice as much as the corresponding global average.
This undermines the rule of law, erodes the functioning of criminal justice systems and jeopardizes the business environment. Illicit flows drain public resources, reduce the reach and quality of public services and thus undermine trust in state institutions. They also create powerful networks of influence, serving local or external malicious interests.
As a transnational issue, curbing the IFF wave requires coherence within and between national and international normative frameworks, as well as coordinated action within the framework of EU enlargement and the Berlin process.
A new EU approach to economic security, including accelerated deployment of the European Anti-Money Laundering Authority and improved systems for sanctions enforcement, investment controls and asset confiscation assets, is necessary.
The sooner these common tools for curbing IFFs are able to cover, with their greater capacity, the Balkans, the EU and countries that are not yet members of the EU, the better. This applies to other similar law enforcement agencies, such as the European Public Prosecutor’s Office, Europol. Frontex, etc.
Although not all funds flowing through IFFs originate from underlying crimes, capital generated legally, quasi-legally or informally may be transferred through illegitimate channels and held in offshore jurisdictions.
Thus, Balkan authorities must allow money laundering to be investigated as a separate crime, and beneficial ownership transparency must be strengthened to prevent, detect, prosecute and punish financial crimes.
Enforcement of beneficial ownership transparency requirements is essential, as is stricter security oversight of third-party investments in SEE and SEE companies or operations.
More attention should be paid to the crypto sphere, which includes significant new channels for illegally moving money in and out of the region, particularly due to below-average levels of compliance with international standards on risks related to virtual assets.
Much has been done and can still be done at the political, technical and administrative level to protect the Balkans from malign foreign influence and deprive Russia of further opportunities to weaken democratic Europe.
Yet, as with previous enlargements of the region, everything must start with a political vision and determination from the leaders of the free world, to set a clear timetable for the next round of accessions.
Europe will benefit geopolitically from completing its Balkan enlargement, while the people of the region will gain freedom, peace and prosperity, provided both sides are not poisoned by the white noise of disinformation.
