Financial Crime World

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Bosnia and Herzegovina’s Anti-Money Laundering System: Addressing Deficiencies in Suspicious Transaction Reporting

Key Findings and Recommendations

A recent report on Bosnia and Herzegovina’s (BiH) anti-money laundering (AML)/countering financing of terrorism (CFT) system has identified several deficiencies in the country’s suspicious transaction reporting (STR) regime. These findings are related to Recommendation 13/Special Recommendation IV, which emphasizes the importance of effective STR reporting.

Deficiencies in BiH’s AML/CFT System

The report highlights six key deficiencies in BiH’s AML/CFT system:

  • Deficiency 1: Confusion over Reporting Requirements
    • By-laws do not cover funds but rather transactions, creating confusion about the application of the wider reporting requirement.
  • Deficiency 2 and 3: Defensive Reporting Practices
    • Large amounts of STRs are only reported after supervisory action.
    • Defensive reporting undermines the quality of STRs and reduces their actual number.
  • Deficiency 4: Overreliance on Cash Transaction Reports
    • CTR (Cash Transaction Report) reporting leads to disregard of STR reporting.
  • Deficiency 5 and 6: Lack of Subjective Test of Suspicion
    • The subjective test of suspicion is rarely applied in practice.
    • There is an overreliance on a list of indicators provided by authorities.
    • STR reporting is often lacking in relation to terrorist financing, despite high risk.

Progress Made and Remaining Challenges

While BiH has taken some steps to remedy these deficiencies, including providing feedback to reporting entities on the results of analysis and discussing the issue with responsible supervisors, further measures are needed to address the overreliance on CTR reporting and improve the quality of STRs. Specifically:

  • Some progress appears to have been made in addressing Deficiency 2 (STRs only reported after supervisory action).
  • However, other deficiencies remain, including:
    • Lack of clear guidance on funds and transactions in by-laws (Deficiency 1)
    • Defensive reporting practices that undermine STR quality (Deficiencies 2 and 3)
    • Overreliance on CTR reporting (Deficiency 4)
    • Insufficient use of a subjective test of suspicion (Deficiencies 5 and 6)

Conclusion

Overall, while some steps have been taken to address the deficiencies in BiH’s AML/CFT system, the country still faces challenges in implementing effective STR reporting as required by Recommendation 13/Special Recommendation IV. Further measures are needed to improve the quality of STRs and address the overreliance on CTR reporting.