Embassy of the United States Serbia

March 2010

United States Department of State

Bureau for International Narcotics and Law Enforcement Affairs

International Narcotics Control Strategy Report

Volume I: Drug and Chemical Control

Serbia

I. Summary

The Republic of Serbia is a major transit country for narcotics and other drugs along the Balkan smuggling corridor from Turkey to Central and Western Europe. In 2009, Serbia took measures to improve its capacity to combat drug trafficking through new laws and law enforcement initiatives that tightened the regulations on narcotics, corruption, and organized crime, including legislation authorizing plea bargaining and the use of cooperating witnesses. Serbia’s updated drug laws are adequate; however improved communication and strategic coordination among law enforcement and judicial bodies can considerably enhance the comprehensive law enforcement landscape. A small amount of smuggled narcotics remains in Serbia for domestic consumption. As Yugoslavia’s successor state, the Republic of Serbia is party to the 1988UN Drug Convention.

II. Status of Country

Serbia is primarily a transit country for the movement of narcotics. The number of seizures in the first part of 2009 seemed headed for a slight decrease in comparison with 2008, possibly due to law enforcement adapting to shifting trends of increased cocaine trafficking. Serbia’s borders remain porous, but Serbia has increased border cooperation with many of its neighbors. Increased international law enforcement cooperation has led to some important arrests, but cooperation with Kosovo remains limited.

Heroin is the most prevalent narcotic, transported from Central Asia along the Balkan Route. Marijuana is grown in, and transported from Albania. Serbian organized crime groups are increasingly smuggling cocaine from South America directly to Western Europe, although some comes to Serbia overland or through the postal system. The Serbian government estimates that relatively small amounts of narcotics, mostly heroin, remain in the country for domestic consumption.

III. Country Actions Against Drugs in 2009

Policy Initiatives. Serbia’s Parliament passed amendments to the Criminal Code and Criminal Procedure Code in August 2009 to enhance Serbian law enforcement’s efforts to combat narcotics smuggling, organized crime, and corruption, including the use of plea bargaining and increased use of cooperating witnesses and special investigative techniques such as wiretapping. Parliament is considering draft versions of a new Customs Law and a new Customs Service Law to replace the current Customs Law. The new laws, if adopted, would bring Serbia’s Customs Service into compliance with European Union standards, most importantly by giving the Customs Service law enforcement status and the ability to testify in court. The government also adopted a National Strategy for the Fight against Drugs in February 2009 and a National Action Plan to implement the Strategy in April 2009. The government created a minister-level coordinating body to fight organized crime in 2009 as well as established an Anti-

Corruption Agency, which will investigate allegations of official corruption. The Agency will be  operational in 2010.

Law Enforcement Efforts. A number of law enforcement agencies are responsible for combating drug-related crimes, including the Interior Ministry’s Drug Smuggling Suppression Department, Border Police, and Drug Addiction Suppression Department; and the Finance Ministry’s Customs Administration. While these agencies report generally good operational cooperation, there is no government-wide coordinating body that addresses counternarcotics trafficking law enforcement efforts. The Interior Ministry is currently going through a strategic planning process that could result in improved formal cooperation.

The Commission for the Fight against Drugs, composed of the Ministries of Health, Education and Sport, Interior, Social Welfare, and Justice, meets to develop activities to implement the National Strategy for the Fight against Drugs, but there is no clear lead ministry Serbia’s cooperation with police in other countries has been intensifying. Serbia hosts law enforcement liaison officers from Bulgaria, Romania, Croatia, Italy, Germany, the United Kingdom, and Australia. In March 2009, Serbia hosted a regional UN Office on Drugs and Crime conference on “Promoting the Rule of Law Human Security in South Eastern Europe,” and in September 2009 the Ministries of Justice and Interior hosted a regional organized crime conference. Serbia also continued to participate in Southeastern Europe Cooperative Initiative (SECI) Regional Center for Combating Trans-border Crime activities, such as a September 2009 organized crime conference. In May 2009, Serbia and Croatia signed an agreement on police cooperation.

The Interior Ministry conducts joint investigations with Bosnia-Herzegovina, Montenegro, and Croatia and provides intelligence to other neighbors and Western European countries, which aids in seizures and arrests in those countries. Increasingly, Serbia is working with South American countries with U.S. assistance. In October 2009, Serbian law enforcement, working in conjunction with the U.S. Drug Enforcement Administration, contributed to the seizure of over 2 tons of cocaine in international waters near Uruguay. Serbian authorities arrested eight Serbian citizens in connection with the case, and they are in detention in Serbia awaiting trial.

Cooperation with the Republic of Kosovo remains an exception to this trend. The Serbian government does not recognize Kosovo as an independent country and therefore will not cooperate directly with representatives of Kosovo’s government, permit them to attend conferences that Serbia hosts, or participate in multilateral events with Kosovo representatives. The Interior Ministry signed an agreement with the European Union Rule of Law Mission in Kosovo (EULEX) in September to cooperate on law enforcement issues, and the Customs Service cooperates informally with EULEX, but both forms of interaction need to increase significantly.

Serbia’s Customs Administration Law Enforcement Directorate and all Interior Ministry agencies made a total of 3,634 seizures from January to September 2009. During this period, Serbia interdicted a total of 655.3 kilograms of drugs including 107.4 kilograms of heroin, 501.3 kilograms of marijuana, 9.9 kilograms of cocaine, 15.4 kilograms of hashish, 7.6 kilograms plus 202 tablets of Ecstasy, 91 tablets of LSD, 5.5 kilograms plus 204 tablets of amphetamines, and 8.2 kilograms plus 14,607 tablets of other illegal drugs. This is a decrease in quantity of drugs seized compared to the first part of 2008, but law enforcement officials note that total quantity of drugs seized is not indicative of success, since many seizures involve small quantities and other seizures yield unexpectedly high results. The Serbian Drug Smuggling Suppression Department believes an increase in seizures of cocaine and Ecstasy and a decrease in seizures of all other drugs is due to Serbian organized crime groups increasingly focusing on cocaine instead of heroin.

Serbian law enforcement agencies report that while most interdictions to date have been the result of good investigative work, the government is introducing equipment to aid in border inspections, such as the upcoming purchase of 10 mobile x-ray systems for the Customs Administration.

In October 2009, the government launched the nationwide “Operation Morava,” targeting drug dealers. The government reported during the initial phase of the operation on October 31 that police temporarily detained 500 individuals throughout Serbia, with 100 taken into custody. It is anticipated that approximately 80 will be charged with narcotics-related offenses. The Interior Ministry reported seizing $1.05 million in counterfeit U.S. dollars, currency, weapons, luxury vehicles, stolen vehicles, several kilograms of illegal drugs, and other items.

Under Article 246 of the Criminal Code, Production, Distribution, and Possession of Narcotics, in the first nine months of 2009, police arrested and charged 3,592 individuals. Under Article 247, Facilitating the Consumption of Narcotics, police arrested and charged 155 individuals. In the first 11 months of 2009, 2,836 individuals were indicted under both articles. In 2008, 4,178 individuals were tried under Article 246, and 3,870 were convicted. More than half of the sentences were probation, fines, or community service, and most prison sentences were three years or less. The majority of prosecutions (70 percent in 2008) were for possession, which carries more lenient sentences than for production or distribution (29 percent of cases in 2008).

Corruption. Corruption within Serbia’s law enforcement agencies responsible for counternarcotics remains a problem, in large part due to low pay. The Customs Administration reported that there was no organized crime influence but that there were continued instances of officers accepting small bribes from drug dealers or users. The Customs Administration reported that it investigated and referred for prosecution 10 percent more officials suspected of corruption in 2009 than in 2008. The Drug Smuggling Suppression Department reported reduced corruption and noted that there were no police investigated for narcotics-related corruption in the first nine months of 2009.

No evidence exists that the Serbian government encourages the illicit production or distribution of narcotics or actively launders proceeds from illegal drug transactions. There is no evidence that any senior government official engages in, encourages, or facilitates the illicit production or distribution of drugs. The Republic of Serbia is a party to the 2003 UN Convention against Corruption.

Agreements and Treaties. Serbia became the legal successor state to the State Union of Serbia and Montenegro on June 3, 2006. All international treaties and agreements continue in force, including the 1988 UN Drug Convention, the 1961 UN Single Convention as amended by the 1972 Protocol, the 1971 UN Convention on Psychotropic Substances, and the UN Convention against Transnational Organized Crime, and its three protocols.. Serbia has cooperative agreements with Slovenia, Croatia, and Bosnia- Herzegovina on issues relating to cross-border narcotics trafficking. Serbia signed a trilateral agreement with Romania and Bulgaria for counternarcotics cooperation in 2008. The 1902 Extradition Treaty between the United States and the Kingdom of Serbia remains in force between the United States and Serbia. In 2009, the Parliament passed a law on international cooperation in criminal matters that permits the extradition of Serbian nationals if a binding international treaty exists.

Drug Flow/Transit. Serbia sits directly on the Balkan narcotics trafficking route. The UNODC estimates  that over 80 tons of heroin travels along this route each year. Serbia’s location and porous borders make it attractive for transit. There is no inspection of transit cargo entering on boats on the Danube and only inspection of container seals and documents for cargo destined for Serbia. Serbian officials report that large organized crime groups that currently smuggle heroin appear to be restructuring to smuggle cocaine.

Heroin grown and processed in Afghanistan is smuggled through Turkey, Bulgaria, Romania, and Kosovo into Serbia, and onward into Western Europe. Police reported an increase in the street price of heroin at the end of October, likely a reaction to recent large interdictions; it is too early to tell if this is a trend. An estimated 5 percent-10 percent of heroin stays in the country, but Serbia primarily serves as a transit point. Large amounts of marijuana flow from Albania through Montenegro and onward through Serbia to Western Europe. The Customs Administration reports greater flows of drugs from Montenegro and Kosovo this year. Some cocaine transits Serbia along the Balkan route. The Customs Administration reported a significant seizure of cocaine at a border crossing with Bulgaria, where it is more common to discover heroin; it is too early to tell if this represents a trend. The Drug Smuggling Suppression Department believes that Serbian organized crime groups are bypassing Serbia and smuggling cocaine directly from South America to Western Europe. Some of this cocaine comes overland to Serbia, and police have recently discovered that some is sent to Serbia through the postal system and commercial courier services. There is an increase in trafficking of synthetic drugs and precursors from Western Europe, either for the domestic market or transiting along a reverse Balkan Route to Turkey.

Domestic Programs/Demand Reduction. The government conducts an addiction prevention program in primary and secondary schools, “Drug Zero, Life One,” which includes lectures for students, parents, and teachers and referrals for families who seek help, but the program is currently only offered in Belgrade and individual schools choose whether to participate. The government is expanding the program from Belgrade to the cities of Nis and Novi Sad. The National Network for the Fight against Drugs, a network of counternarcotics NGOs, maintains a website with information about drug addiction and prevention. According to the Public Health Service, there were 60,000 drug users in Serbia in 2008. According to a 2009 Public Health Service study, 15 percent of high school freshmen have tried narcotics. Serbia’s only dedicated government-run drug and alcohol rehabilitation clinic treats about 1,100 patients per year. The clinic provides emergency services and inpatient and outpatient detoxification, using opiate receptor blockers or methadone; psychotherapy, and reintegration skills workshops are also used to treat patients.

Public hospitals, including prison hospitals, run outpatient and inpatient drug rehabilitation programs, and the Health Ministry has a pilot project to provide methadone substitution in primary care clinics. The Serbian Orthodox Church also operates several drug rehabilitation centers. In May 2009, there were allegations of patient abuse at a center in Crna Reka in Serbia’s Sandzak region. The Church dismissed the head of the center, and the district prosecutor requested an investigation of the center’s two top officials on charges of abuse and torture.

IV. U.S. Policy Initiatives and Programs

Bilateral Cooperation. The Serbian Government works closely with the United States, the OSCE, and EU countries to reform and improve its law enforcement, judicial capacity, and border management. The United States has provided extensive technical assistance and equipment donations to the police, customs services, border police, and judiciary. Several USG agencies have programs that directly or indirectly support counternarcotics activities in Serbia, including the Department of Justice programs (funded by the Bureau of International Narcotics and Law Enforcement Affairs (INL) of the Department of State ):

International Criminal Investigative Training Assistance Program (ICITAP) and Overseas Prosecutorial Development, Assistance, and Training (OPDAT), Drug Enforcement Administration, Department of Homeland Security, Department of Defense and Department of the Treasury. The OPDAT program has been instrumental in supporting the Special Court for Organized Crime and War Crimes. The programs are aimed at professionalizing the police and customs services, building skills for new prosecution and investigation techniques provided for in new legislation, improving the ability of Serbia to investigate, prosecute and adjudicate corruption and organized crime, including money laundering and illicit trafficking, and increasing the ability of the judiciary to effectively address serious crime.

In 2009, INL-funded DOJ ICITAP assisted in the formation of Serbia’s first undercover police unit by addressing personnel selection issues, training, and mentoring. The unit chief attended additional FBI undercover agent selection process training. In March, the Departments of State and Justice provided instruction in an OSCE undercover operations training course. An undercover officer successfully completed the unit’s first undercover purchase of illegal narcotics in April 2009, leading to charges against two drug traffickers. In November, ICITAP and OPDAT held an international narcotics trafficking course for police and prosecutors. During 2009, members of the Serbian Border Police attended U.S. Coast Guard training on small boat operations as well as courses on small boat engineering and maintenance.

The Road Ahead. The United States will continue to support the efforts of Serbian law enforcement to combat narcotics smuggling in the region. During the next year the United States would like to see Serbia increase its cooperation with Kosovo and EULEX. Serbia’s own goals for the future are: continue progress on judicial and law enforcement reform, strengthen interagency coordination, and fully define the structure and activities of the Commission for the Fight against Drugs. Serbian demand reduction personnel believe that increased public awareness campaigns could decrease domestic demand for drugs.

Volume II: Money Laundering and Financial Crimes

 Serbia is not considered a regional financial center. Serbia is on the major trade corridor known as the “Balkan route,” and confronts narcotics trafficking, smuggling of persons, weapons and pirated goods, money laundering, and other criminal activities. While the bulk of seizures are of heroin, the Government of Serbia (GOS) advises trafficking of cocaine of South American origin is on the rise and is expected to continue increasing as organized crime groups restructure their operations. Corruption and organized crime also continue to be significant problems in Serbia.

Serbia continues to be a black market for smuggled goods. Illegal proceeds are generated from drug trafficking, corruption, tax evasion and organized crime, as well as other types of crimes. Proceeds from illegal activities are invested in all forms of real estate and, increasingly, into sports, particularly football (soccer). Some money flows to Cyprus, reportedly as payment for goods and services; however, GOS officials believe this has become less of a factor over the past few years. Banks in Macedonia, Hungary, Switzerland, Austria and China have emerged as destinations for laundered funds. Trade-based money laundering, in the form of over- and under-invoicing, is commonly used to launder money. There are reports the purchase of some private and state-owned companies was linked to money laundering activity.

Offshore Center: No

Free Trade Zones: Yes

Serbia has four designated free trade zones (FTZs) (Subotica, Pirot, Zrenjanin, and Novi Sad) established to attract investment by providing tax-free areas to companies. Business activities conducted in these areas receive benefits such as unlimited imports and exports, preferential customs treatment and tax relief. Goods coming in or out of the FTZs must be reported to the customs authorities and payments must be made in accordance with regulations on hard currency payments. Companies must provide information to the Administration for Free Trade Zones and, other than the financial benefits described above, are subject to the same laws and supervision as other businesses in Serbia.

Criminalizes narcotics money laundering: Yes

In September 2005, Serbia codified an expanded definition of money laundering in Article 231 of the Criminal Code.

Criminalizes other money laundering, including terrorism-related: Yes

In 2009, Serbia enacted the Law on the Prevention of Money Laundering and the Financing of Terrorism (AMLL). Banks, attorneys, auditors, tax advisors and accountants, currency exchanges, insurance companies, investment managers, pension funds, casinos, securities brokers, real estate agencies, and persons dealing with postal communications are required to comply with the AMLL provisions. The AMLL also applies to branches and subsidiaries outside Serbian territory. In September 2009, Serbia amended Article 231 of the Criminal Code, which adds the crime “group act of money laundering”.

Criminalizes terrorist financing: Yes

(Please refer to the Department of State’s Country Reports on Terrorism, which can be found here: http://www.state.gov/s/ct/rls/crt/)

The AMLL criminalizes terrorist financing.

Know-your-customer rules:

The AMLL sets out know-your-customer (KYC) obligations for covered entities. The National Bank of Serbia (NBS) has also issued a KYC-specific regulation that further elaborates on KYC procedures required for banks, voluntary pension funds, management companies, financial leasing providers, insurance companies, brokerage companies, agency companies, and insurance agents. All obligors under the AMLL are required to conduct customer due diligence when: establishing a business relationship; carrying out a transaction equal to or greater than the equivalent of euro 15,000; when there are reasons for the suspicion of money laundering or terrorist financing; and when there are doubts about the veracity of previously obtained data about a customer or beneficial owner. Under the provisions of the AMLL, Serbian financial and non-financial institutions are also required to conduct risk-based assessments of clients and businesses.

Bank records retention: Yes

The AMLL requires records to be maintained for ten years.

Suspicious transaction reporting: Yes

Suspicious transactions in any amount must be reported to the financial intelligence unit (FIU),. Under the AMLL Serbian financial institutions and obligated reporting entities are required to develop and apply a list of indicators to help them identify suspicious transactions.

Large currency transaction reporting: Yes

Both the AMLL and previous anti-money laundering (AML) legislation require obligated entities to report to the FIU all cash transactions equal to or more than euro 15,000 (approximately $22,500), or the dinar or foreign currency equivalent.

Narcotics asset seizure and forfeiture:

The 2008 Asset Forfeiture Law (AFL) became effective on March 31, 2009. Prosecutors are empowered to initiate seizure and forfeiture proceedings. Decisions to seize would be rendered by a competent investigative judge, a judge presiding over the trial panel of judges, or a trial panel of judges handling the criminal case against the persons whose assets are the subject of proceedings, depending on the phase of criminal proceedings at which a request for seizure is filed. Forfeiture proceedings are exclusively handled by the trial panel of judges or the president of the trial panel. Assets that can be forfeited include goods of any kind, tangible or intangible; revenue or gain generated, directly or indirectly, from a criminal offense as well as any goods into which it is transformed or with which it is co-mingled; instrumentalities; or substitute assets. Under the AFL, the burden of proof is shifted to the accused, an heir/legal successor, or a third party to prove that assets have been legitimately earned. Asset forfeiture proceedings are separate proceedings from those conducted on criminal charges. The FIU has the authority to freeze transactions for a maximum of 72 hours.

Narcotics asset sharing authority: Yes

The AFL provides for cooperation with other governments in tracing, freezing and seizure even without the existence of an international treaty.

Cross-border currency transportation requirements: Yes

The Law on Foreign Exchange Operations, adopted in 2006, criminalizes the use of false or inflated invoices or documents to facilitate the transfer of funds out of the country. The AMLL introduces a cash declaration system, which came into effect in September 2009. Individuals can bring in and take out dinars up to the equivalent of euro 10,000. Larger amounts can only be brought in if there is documentation they were purchased in a foreign bank. When departing Serbia, residents are not permitted to take out foreign currency in excess of euro 10,000 unless they can prove they are emigrating. Nonresidents can take out higher amounts of cash if they meet the following conditions: they declared such amounts upon entry into Serbia, if the foreign currency was withdrawn from a foreign currency account or passbook within Serbia, or if the foreign currency was purchased by selling dinars through the use of a payment card. Individuals are permitted to bring any amount of foreign cash into Serbia, as long as they declare all currency or checks in amounts exceeding euro 10,000 (approximately $14,500).

Cooperation with foreign governments (including refusals):

International cooperation is now defined in Articles 61 to 66 of the Law on Anti Money Laundering and Terrorist Financing (adopted in March 2009). The law allows the exchange of information related to AML and terrorist financing between the GOS and foreign governments. International cooperation is also defined in the Law on International Legal Assistance in Criminal Issues adopted in March 2009, which applies to money laundering activities, narcotics, and terrorism.

U.S. or international sanctions or penalties: No

Enforcement and implementation issues and comments:

A 2004 law governs gaming rules and the Administration for Games of Chance was established on January 1, 2005. The law sets a maximum of ten casino licenses, and requires existing casinos to reapply for licenses. Two casinos were issued new licenses pre-2009; a tender for a third license closed on November 23. There are also a number of clubs with gaming machines that do not require licenses. The gaming supervisory authority has very limited resources, and the political will to enforce the law is weak.

The Law on Investment Funds and the Law on Securities and Other Financial Instruments Market, both enacted in 2006, provide the Securities Commission (SC) with the authority to “examine” the source of investment capital during licensing procedures for broker-dealers, management companies, authorized banks, custody banks, and investment funds. The SC is also charged with monitoring its obligors’ compliance with the AML laws. Regulations to implement requirements set out by the AMLL currently are being developed.

Most designated non-financial businesses and professions (DNFBPs) have not implemented any of the requirements of the AMLL nor the previous AML law, which included them as obligors.

The FIU circulates the UNSCR 1267 Sanctions Committee’s list of designated individuals and entities. No terrorist-related assets were identified in 2009.

U.S.-related currency transactions:

There is no evidence of significant US currency flows through Serbia, licit or illicit.

Records exchange mechanism with U.S.:

Serbia does not have a mutual legal assistance arrangement with the United States, but information exchange via a letter rogatory is standard. The 1902 extradition treaty between the Republic of Serbia and the United States remains in force. The treaty does not require extradition of nationals, and Serbia currently does not extradite Serbian citizens to the United States. The FIU actively participates in information exchanges with counterpart FIUs, including FinCEN.

International agreements:

The GOS has bilateral agreements on mutual legal assistance with 31 countries. The FIU has signed information sharing agreements with 15 countries, and anticipates signing two more by the end of 2009.

Serbia is a party to:

•           the UN Convention for the Suppression of the Financing of Terrorism - Yes

•           the UN Convention against Transnational Organized Crime - Yes

•           the 1988 UN Drug Convention - Yes

•           the UN Convention against Corruption - Yes

Serbia is a member of MONEYVAL, a Financial Action Task Force-style regional body. Its most recent mutual evaluation can be found here: http://www.coe.int/t/dghl/monitoring/moneyval/Countries/Serbia_en.asp

Recommendations:

The Government of Serbia (GOS) has taken a number of steps to improve its anti-money laundering/counter-terrorist financing (AML/CFT) regime over the past year. Serbia should ensure its securities firms and other DNFBPs are adequately supervised and are provided with guidance to ensure they understand and are able to comply with their responsibilities under the AMLL. The GOS should adopt regulations and bylaws to help money service businesses and DNFBPs understand and implement all requirements of the current AMLL. The National Bank of Serbia and other supervisory bodies as well as investigative agencies, the FIU, prosecutors, and judges need enhanced capability and additional resources. The gaming laws should be fully enforced and the Administration for Games of Chance provided with adequate resources and authority.