A MONEY-LAUNDERING PARADISE: Why FBiH still hasn’t legally recognized cryptocurrencies

The Federation of BiH has not yet regulated the cryptocurrency market with any law. Until this happens, the market estimated at two billion KM remains a haven for laundering money obtained through illegal activities.

By Elmedina Šabanović

Cryptocurrencies are, in short, a type of digital money. They were created with the idea of being decentralized, independent, and protected payment systems. They are not issued by the state central bank; they are generated exclusively digitally. One of the most popular cryptocurrencies today is Bitcoin, and next to it, one of the most popular currently are Ethereum, Cardano, Solana, and similar cryptocurrencies. Cryptocurrencies have value because people buy them and can later exchange them for goods, services, or even government-issued currency.

In such a decentralized system that was beyond the control and supervision of the state, after the mass popularization of cryptocurrencies, countries around the world began to introduce legal regulations in order to manage and control the flow that takes place in the digital world.

When it comes to the European Union, the Markets in Crypto Assets Regulation (MiCA) was enacted there to utilize the potential and limit the risks of crypto assets. The goal of the new rules is to provide legal certainty, support innovation, protect consumers and investors, and ensure financial stability. On the other hand, Russia wants to impose a ban on the general circulation of crypto-assets such as Bitcoin, permitting only digital financial assets issued within its jurisdiction.

foto: How to sell

Under the MiCa regulation of 2023, the European Union supported rules for monitoring and identifying the transfer of cryptocurrencies to prevent their use in money laundering, terrorist financing, and other criminal acts. The law also allows the blocking of suspicious transactions, covering transactions with crypto assets worth more than a thousand euros.

Money laundering, terrorism financing, other criminal activities, and consumer protection are among the primary reasons for establishing supervision over cryptocurrency transactions.

No need for regulation?

In terms of Bosnia and Herzegovina cryptocurrencies were officially recognized only in the Republika Srpska entity in 2022, under the Law on the Securities Market of the Republika Srpska.

In that law, virtual currency is defined as “a digital record of value that has not been issued and whose value is not guaranteed by the central bank or other public sector body, and that is not necessarily tied to legal means of payment and does not have the legal status of money or currency. However, physical and legal entities accept it as a means of exchange and can buy, sell, exchange, transfer, and store it electronically”.

foto: FTV

Legal entities and natural persons offering services related to virtual currencies are recognized under the designation “Provider of services related to virtual currencies”. Currently, six such entities have been registered within the territory of the RS entity.

Conversely, the Federation of Bosnia and Herzegovina has not legally recognized cryptocurrencies. This stance was confirmed by the FBIH Ministry of Finance, which, shortly answered question of Tačno.net portal, saying that “the Federation Ministry of Finance does not regulate the operation of cryptocurrency exchanges, nor does it recognize cryptocurrencies as a means of payment in FBiH”.

The authorities in the FBiH are obviously not bothered by the recent seizure of cryptocurrency mining machines on FBiH territory by the Prosecutor’s Office of BiH. Additionally, and the fact that the Prosecutor’s Office of BiH had frozen the funds linked to cryptocurrencies in two cases, supported by evidence from the Sky and Anom applications, under a court order. This information was confirmed by the Prosecutor’s Office of BiH.

“One case involves the freezing of millions in cryptocurrencies under the Court of BIH’s order as part of a money laundering investigation, while the other case pertains to the confiscation of cryptocurrency mining machines in connection with organized crime. The Criminal Procedure Code outlines the way in which courts block specific assets in a case”, said the Prosecutor’s Office of BiH.

In 2023, the Ministry of Internal Affairs of Sarajevo Canton conducted the “Start” operation, during which 248 cryptocurrency mining machines were discovered in Vogošća. The total value of these machines is estimated to be around $1.2 million. Additionally, a substantial amount of cryptocurrency funds was seized during the operation. Among the individuals implicated in the operation, it is believed that one of the owners of the seized machines is Elmedin Karišik. Furthermore, former mayor of Stari Grad Municipality Ibrahim Hadžibajrić, his son Seid Hadžibajrić, and Alma Destanović, the secretary of a civil service body, were also arrested in this operation.

Ibrahim Hadžibajrić/foto: Pixsell

The “Start” operation involved more than ten individuals, both natural and legal persons, who are suspected of engaging in organized crime and various abuses involving multimillion amounts. Tačno.net reported about Ibrahim Hadžibajrić and his work as the municipal mayor back in 2020.

According to Tačno.net’s sources from the Federation Police Administration cryptocurrencies cannot be confiscated in the FBiH because they are not recognized as valuable assets under current law.

However, the situation becomes even more ambiguous considering that at the beginning of last year, media reports circulated about the opening of the first bitcoin ATM in the Sarajevo area, located at Kranjčevićeva 33. As it was reported by portal Klix.ba the company Virtual Planet, which is behind that project, said that “the project is entering the final stage concerning the licenses. We believe that everything is ready”.

Almost a year after the installation of the ATM at that location, journalists from the Tačno.net portal discovered a facility sealed by the Federation Ministry of Finance/Tax Administration of FBiH. Tačno.net attempted to reach out to a legal representative of Virtual Planet, the operator of the Shitcoins ATM, in order to ascertain who issued the licenses to operate within the territory of FBiH. However, we received a response stating that a contact person will reach out to us, which did not happen by the time this text was released.

foto: Tačno.net

While the ATM in Sarajevo remains sealed, the same cannot be said for their ATM in Mostar, situated in Mepas Mall, as observed firsthand upon visiting the location. Additionally, according to their website, Virtual Planet operates ATMs not only in Sarajevo and Mostar but also in Brčko and Tuzla. However, it is worth noting that the official website of the Securities Commission of Republika Srpska does not list Virtual Planet among the licensed entities in the section on providers of services related to virtual currencies.

foto: Tačno.net

According to data from Akta, Virtual Planeta d.o.o. Banja Luka reported zero revenue in 2023. The company’s director, Beata Sparzak, is stated to be from Slovakia. Further information reveals that the company was founded in 2022.

In response to an inquiry from Tačno.net portal regarding the operation of crypto machines in Mepas Mall Shopping Center, the Tax Administration of the FBiH stated that there is no specific law governing the taxation of cryptocurrency trade in the Federation of BiH.

foto: FTV

“From a tax perspective, in accordance with the provisions outlined in the Law on Income Tax, the Federation of Bosnia and Herzegovina does prescribe taxation on income earned by natural persons (independent entrepreneurs and citizens), within its territory. Article 12, paragraph 1 of the Law specifies that income from self-employment encompasses income earned by a natural person through independent and ongoing engagement in activities aimed at generating income. This includes income from various sources such as trades and related activities, agriculture and forestry, freelance work, and other independent activities”, they explained.

Furthermore, they elaborated that, in accordance with the provision concerning the treatment of cryptocurrency trading, as per the opinion of the Federation Ministry of Finance from January 14, 2022, and March 29, 2022, it is regarded as conducting an independent activity aimed at income generation, which may be either primary or supplementary activity.

Conscious creation of chaos?

When discussing the scale of cryptocurrency transactions in BiH, Darko Šljivar, one of the founders of DCX Exchange, highlighted for Tačno.net a significant distinction between trading activities and actual payments.

“You can trade as in all other countries on the stock markets, with millions circulating, but the money is somewhere in the air, so to say. While two billion marks were involved in trading over the past two years, it doesn’t imply that these funds remained within BiH. Although transactions may occur multiple times within one’s crypto wallet—buying and selling fifty times, for instance—this activity doesn’t necessarily reflect the taxable reality of the situation”, explains Šljivar.

In our quest for answers regarding the oversight of cryptocurrency exchange offices, we reached out to various ministries, commissions, and agencies responsible for monitoring such activities.

The Ministry of Security of BiH informed us that, in accordance with the provisions of the Law on Prevention of Money Laundering and Financing of Terrorist Activities (Official Gazette 13/24), the entities tasked with supervising the operation of cryptocurrency exchanges include: the Securities Commission of Republika Srpska, the Securities Commission of the Federation of Bosnia and Herzegovina, and the Directorate for Finances of Brčko District of BiH (Tax Administration of Brčko District of BiH).

Securities Commission /photo: Faktor

The FBiH Securities Commission did not provide a response to our inquiry regarding its oversight of cryptocurrency exchanges within the FBiH and the manner in which it conducts such supervision.

Professor Nedžad Korajlić from the Faculty of Criminalistics, Criminology, and Security Studies at the University of Sarajevo expressed to Tačno.net that the absence of a definitive legal framework in the Federation of Bosnia and Herzegovina for regulating cryptocurrencies poses a significant challenge. This is particularly concerning given the potential for their exploitation in activities such as money laundering and the financing of terrorism.

“Without sufficient oversight, cryptocurrency transactions operate outside the purview of traditional financial and regulatory institutions, creating opportunities for exploitation. This lack of oversight poses a potential threat to the financial stability and security of the country. Therefore, it is imperative to promptly establish comprehensive regulations that facilitate effective supervision and control of this sector”, explains professor Korajlić.

Professor Korajlić highlights that recorded cases of individuals being arrested for organized crime underscore the potential risks associated with cryptocurrencies and their possible connections to criminal activities.

He adds “The discovery of mining machines within the context of organized crime underscores the critical need for enhanced surveillance and stricter regulation as to prevent their exploitation and abuse for illicit purposes.”

Amidst the complex web of competencies among various institutions at the FBiH level, there is a lack of clarity regarding whether and which entity is responsible for supervising cryptocurrencies and establishing their legal framework despite the evident connections between cryptocurrencies and activities such as money laundering and organized crime.

Kalashnikov rifle, speed or a prostitute

The normalization of cryptocurrencies, even in the absence of legal regulations, is evident from the fact that certain betting shops in BiH offer support for various cryptocurrencies and facilitate transactions using them. One such example is Wwin,  which allows users to select the Crypto option when depositing or withdrawing funds from their WWin account. They assure customers that following a quick and straightforward procedure will enable secure transactions.

Betting offices are not the sole entities offering cryptocurrency transactions in BiH, particularly in FBiH. On platforms such as OLX, the largest online marketplace for buying and selling goods, users can engage in trade using cryptocurrencies as well.

Furthermore, delving deeper, it’s evident that the infamous dark web predominantly relies on cryptocurrency transactions for its operations.

Recognizing the growing prominence of cryptocurrencies in BiH, the Tačno.net portal sought to understand the stance of banks in the country regarding the crypto market. Consequently, inquiries were directed to the Association of Banks of BiH to get their position on cryptocurrencies.

Edis Ražanica, the director of the Association of Banks of Bosnia and Herzegovina, has clarified that the association does not hold a unified stance concerning the business models and potential risks associated with cryptocurrency trading.

“The absence of a comprehensive legal framework regulating cryptocurrencies primarily contributes to this situation. In the absence of clear legal guidelines, each bank independently evaluates risks and determines the structure of its products and services within its business model. To navigate the regulatory gap surrounding cryptocurrencies, banks rely on existing legislation such as the Law on Prevention of Money Laundering and Financing of Terrorist Activities, along with other pertinent regulations and internal policies. This approach aims to manage risks effectively and make decisions that safeguard both clients and the operations of the bank”, explains Ražanica adding that the bank independently evaluate the client’s risk profile and the risk of the transaction.

When it comes to banks and cryptocurrencies, the public is aware of the dispute involving Unicredit Bank Banja Luka and the cryptocurrency mining company “Bitminer”. “Bitminer” had been raising funds for its projects through an account with Unicredit Bank. However, Unicredit Bank intervened and began returning funds to investors, citing internal policies that prohibit them from engaging with companies in the cryptocurrency field. As a result, the Higher Commercial Court in Banja Luka ruled that Unicredit Bank will not be obligated to pay 256 million marks to “Bitminer Factory,” the cryptocurrency mining company, due to the closure of its business account.

Admir Čavalić, the president of the Committee for Economic and Financial Policy in the FBiH House of Representatives, informed Tačno.net that the committee had put forward a conclusion to the House of Representatives. This resolution was subsequently adopted, urging the FBiH Government to initiate the drafting of legislation aimed at regulating the cryptocurrency market.

“The proposal aims to involve the Securities Commission, mirroring the approach of the RS entity, and to enact a new law or expand existing legislation to formally recognize cryptocurrencies. What is the problem now? The citizens in FBiH are safely buying crypto currency, but without any regulation that would ultimately safeguard their rights. We do know that cryptocurrencies are a normal product, so to say, that they can be perceived as money, a medium of exchange as well as an avenue for savings and investment”, explains Čavalić.

As the Federation of Bosnia and Herzegovina awaits the adoption of cryptocurrency legislation, its current status in the gray area poses a twofold challenge. On one hand, citizens are unable to keep pace with global trends in digital currency. On the other hand, this legal ambiguity allows individuals to exploit the lack of regulation, potentially perpetuating unlawful activities.

Izvor: tacno.net



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