Kosovo

Kosovo Corruption Report

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Snapshot

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Corruption in Kosovo poses high risks for companies operating or planning to invest in the country. A lack of transparency and accountability in Kosovo's public administration results in widespread corruption and negatively affects the investment climate. The judiciary, customs, public utilities and procurement sectors are the most-affected by corruption. While anti-corruption laws are strong, the judicial system is inefficient, leading to poor enforcement. Active and passive bribery, extortionmoney laundering and abuse of office are prohibited by Kosovo's Criminal Code, while facilitation payments are not addressed. According to Kosovan law, all gifts received by public officials should be declared and registered. Notwithstanding, the practices of offering gifts and bribery are common in Kosovo.

Last updated: June 2017
GAN Integrity

Judicial System

The judicial system is considered among the most corrupt public institution in Kosovo (ACIK 2016). The constitution establishes an independent judiciary, but in practice political interference and controversial appointments are commonplace (HRR 2016). Nearly four in ten citizens report that bribes are offered to judges either often or very often (FOL 2015). Positions in the judiciary remain vacant due to partisan clashes over the selection of appointees (NiT 2016). Corruption offenses happen frequently in the judicial branch (EUPR 2016), which has led to an inability to properly implement and enforce laws (BTI 2016). The judicial system suffers from a large backlog; over 400,000 civil and criminal cases awaited trial as of July 2016 (HRR 2016). It takes between six months and a year on average to resolve a commercial case (ICS 2016). The European rule-of-law mission EULEX was scaled down in 2014; judges from EULEX no longer form the majority in court panels (BTI 2016). However, EULEX judges have cautioned that the local judicial system is currently insufficiently prepared to manage complex and sensitive lawsuits (BTI 2016). Further, an externally-ordered 2015 EU investigation did find that EULEX has thus far been unable to lay the foundations for a legal system capable of fighting corruption (BTI 2016). Improvements in the law on contract enforcement procedures should increase the efficiency in settling commercial cases (EUPR 2016). Foreign arbitral awards are recognized in local courts while foreign court awards are not (ICS 2016).

Allegations that an EULEX judge was bribed in a murder case which was subsequently covered-up drew considerable backlash from the Kosovar population in 2014. However, the EULEX judge was ultimately cleared of all charges (Jurist, Nov. 2016). 

Kosovo is not a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awardsbut it is a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Police

There is a moderate risk of corruption for companies when dealing with the police in Kosovo. The police in Kosovo remains subject to political pressure and internal corruption (EUPR 2016). A quarter of Kosovarians believes that bribes are offered to police often or very often (FOL 2015). The police, prosecutors, and courts have thus far not been effective in combating organized crime (BTI 2016). The police still does not have enough sufficiently skilled prosecutors and police officers to investigate corruption (EUPR 2016). One concern for businesses is the reported existence of 'private security companies' that provide security services to local businesses, but in practice operate based on extortion (Janssens, 2015). Nepotism remains a problem; friend and family connections are still perceived to play a large role in the hiring process for the police (PP 2016). Nearly half of companies reported that crime, theft, and disorder are major constraints to their ability to do business in Kosovo (ES 2013).

In December 2016, Kosovo's police force arrested 59 of its own officers on charges that they had extorted bribes from drivers. Thirty private citizens were also charged for offering bribes to the officers (Reuters, Dec. 2016).

Public Services

Companies encounter corruption when dealing with Kosovan public services. One in five companies expects to give gifts in order to 'get things done' (ES 2013). About three out of ten Kosovarians indicate that bribes are offered to municipal officials often or very often (FOL 2015). Civil service positions are often filled based on party affiliation rather than competence (BTI 2016). Due to poor oversight, many enterprises providing public services including energy, electricity, and telecommunications are believed to engage in corrupt practices (BTI 2016). Over half of companies cite practices of competitors in the informal sector as a major constraint (ES 2013). Civil society groups allege that the government has created a monopoly in the generation and distribution of energy under the Energy Market Model (BTI 2016). After the privatization of Kosovo Energy Distribution and Supply company (KEDS), Kosovo's Energy Regulation office immediately hiked electricity bills by almost ten percent (BTI 2016).

Starting a business requires only three procedures and an average of six days, which is significantly faster and requires less steps than the regional average (DB 2017). Getting an electrical connection is much easier than the regional average (DB 2017).

Land Administration

Kosovo's land administration carries moderate to high corruption risk for companies, primarily due to the lack of property records (ICS 2016). Gifts and irregular payments are expected by one in every ten companies seeking a construction permit (ES 2013). Kosovo's property laws are generally well-structured (ICS 2016), but several problems hamper the execution of these laws. The destruction of property records during the 1998-1999 conflict made determining the rightful owner problematic; often multiple claims to the same property exist (ICS 2016). Illegal changes in the use of agricultural land are a problem (EUPR 2016). It takes slightly longer than the regional average to register a property (DB 2017).

Six people were arrested in April 2016, following an investigation into a land scam that cost the state EUR 30 million. The alleged leader of the ring is Azem Syla, a prominent member of parliament for the ruling party (Reuters, Apr. 2016). The investigation concerns a number of officials and business people who bought and sold state-owned land for a large profit near the capital Pristina (Reuters, Apr. 2016). Twenty-two people have been charged with organized crime and 17 persons have been charged with money laundering (Balkan Insight, Oct. 2016). Among those charged is also the former president of Pristina's municipal court, who allegedly helped with court proceedings related to the transactions (Balkan Insight, Oct. 2016).

Tax Administration

The tax administration carries a significant risk of corrupt practices to companies due to a lack of qualified staff and an inefficient tax system (BTI 2016). Four in ten Kosovarions indicate that bribes are sometimes offered to tax officials, while one quarter indicates that bribes are offered frequently (FOL 2015). Tax evasion is common and the tax collection rate is low (EUPR 2016). Companies should be aware that ineffective tax policies result in a large informal sector, undermining fair competition (EUPR 2016). In 2016, Kosovo introduced an online system for filing and paying VAT and social security contributions, reducing face-to-face contact with tax officials. Kosovo amended its tax code in September 2015 to improve its business climate and authorize tax breaks for new investments (ICS 2016). Information on the implementation of the necessary legal acts was unavailable at the time of review. Paying taxes takes significantly less time and requires fewer procedures every year than the regional European average (DB 2017).

Allegations of a widespread tax fraud scheme surfaced in November 2016. It is alleged that for many years, major Kosovar companies evaded millions of euros in taxes through the use of fake invoices issued by shell companies that allowed them to receive major tax deductions (Balkan Insight, Nov. 2016). This practice was allowed to continue for years due to the political ties these companies enjoyed (Balkan Insight, Nov. 2016).

Customs Administration

Kosovo's customs administration presents moderate corruption risks for companies (UNODC, 2013). Around a third of companies consider that customs officials abuse their function for personal gain, yet only five percent of companies report having been asked for a bribe (UNDP 2016a) and a slightly higher percentage of companies reported offering facilitation payments themselves to speed up service (UNDP 2016a). Discrepancies between the Customs Code and the Criminal Code hinders the fight against crime and corruption among customs officials (EUPR 2016). The fight against the smuggling of narcotics and other prohibited materials has recently been intensified (EUPR 2016). Simplified procedures for exports were introduced in March 2016, which significantly reduced the cost and time of administrative procedures (EUPR 2016). Kosovo has a single window for export and import procedures. The time companies spend on border compliance is higher than the regional average (DB 2017). 

Public Procurement

Kosovo's public procurement sector lacks transparency and accountability and is vulnerable to corruption. Almost half of all companies report that facilitation payments and gifts to government officials are common to secure public contracts (ES 2013). International companies report that irregularities frequently occur when competing for high-value public tenders (ICS 2016). Three different agencies; the Public Procurement Agency, the Public Procurement Regulatory Commission, and the Procurement Review Body have overlapping responsibilities, which produces a complex and fragmented institutional framework prone to corruption (BTI 2016). The highest incidence of irregularities is found in the eligibility and award criteria of public tenders, as well as the evaluation of bids (EUPR 2016).  Domestic bidders do not enjoy preferential treatment (EUPR 2016). Issuance of tenders is not centralized in the government; 174 separate entities issue tenders which, combined with inadequate planning and weak oversight, leads to higher risks of corruption (EUPR 2016). Electronic procurement is mandatory for all budget organizations in the government per January 2017 (EUPR 2016). The e-procurement portal may be accessed here. The government is in the process of privatizing hundreds of state-owned companies; this process is open to foreign investors following public procurement procedures (ICS 2016). However, the process of privatization has frequently been criticized in the media as non-transparent and illegal (ICS 2016). The privatization of the Kosovo Electricity Distribution Company (KEDS) was mired in controversy; the process was not transparent since there was no access to bid documents provided to the public (BTI 2016).

Information on rules, regulations and procedures in the public procurement sector is available on the Public Procurement Regulatory Commission's website. Companies are recommended to use a specialized public procurement due diligence tool to reduce corruption risks in this sector.

Natural Resources

Corruption risks in Kosovo's extractive sector are high. Key corruption risks in Kosovo's extractive industry are at the level of license and contract negotiations, and in monitoring and regulatory compliance; ineffective judicial procedures, low fines and monitoring deficiencies are additional weaknesses (UNDP 2016b). Furthermore, the process of licensing does not contain enough safeguards against corrupt practices (UNDP 2016b).

Concerns have been raised over the granting of coal exploration licenses to a company linked to retired US General Wesley Clark, who is revered in Kosovo for his role in the 1999 NATO bombing campaign. The company, Envidity, has been granted exclusive rights by the government to explore over a third of Kosovo's territory which contains the majority of Kosovo's suspected coal reserves (OCCRP, Sept. 2016). In order to do this, the government amended the Law on Mining and Minerals to allow for licenses to be issued without a public tender when there are 'reasons directly related to the need to ensure the security of the energy supply' (Balkan Insight, Sept. 2016). The deal is currently awaiting parliamentary approval.

Legislation

The Criminal Code of Kosovo criminalizes all major forms of corruption, including active and passive bribery, extortion, attempted corruption, money laundering and abuse of office. The Code also prohibits bribery of foreign public officials and extortion. The criminal penalty for bribery ranges from one to ten years' imprisonment. Private sector bribery is also criminalized. The Anti-Corruption Agency Law establishes the Kosovo Anti-Corruption Agency (ACA) and stipulates asset disclosure mechanisms for senior officials. The Law on Declaration of Assets for Senior Public Officials and Gifts for All Public Officials requires senior public officials and their family members to declare their revenues and assets. It regulates the procedures on declaration, control and origins of gifts received by government officials. Conflict of interest is regulated by the Conflict of Interest Law. Exceptions for facilitation payments are not addressed in Kosovo's anti-corruption legislation. Whistleblower protection is addressed in the Law on the Protection of Informants and the Witness Protection Law. However, in practice enforcement of the law is weak and citizens do not trust the authorities to protect whistleblowers (HRR 2016; EUPR 2016). Other anti-corruption laws include the Law on the Administrative Procedure, the Law on Access to Official Documents, the Law on Public Procurement and the Law on Civil Service of Kosovo. Enforcement of anti-corruption legislation in Kosovo remains weak (EUPR 2016).

Civil Society

The Constitution of Kosovo protects freedoms of the press and of expression; however, in practice, the media environment is restrained by political interference and corruption (FotP 2016). The press faces difficulty in gaining access to information from government officials, even where the information should be volunteered by law (HRR 2016). Journalists are vulnerable to corruption and self-censorship (FotP 2016). Reporters investigating government officials for irregularities face occasional physical attacks and intimidation (FotP 2016). In one example, the president of the association of journalists in Kosovo was threatened with beheading if he continued investigating corruption at a large petrol company (FotP 2016). Media outlets that are critical of the government and ruling elites are vulnerable to discriminating tax inspections (FotP 2016). Kosovo lacks effective regulations to ensure media ownership transparency (EUPR 2016). Private media outlets do not have access to stable funding and revenues, making them strongly dependent on their owners causing them to take their political and economic interests to heart (BTI 2016). Kosovo's press environment is classified as 'partly free' (FotP 2016).

Kosovo's civil society is underdeveloped and lacks sufficient funding to promote citizens' interests independently of the government. Less than a third registered civil society organizations (CSOs) are active, and those are supported by international organizations (NiT 2016). CSOs are generally too weak to have an impact as watchdogs and abstain from criticizing government policies, thereby preventing democratic progress in Kosovo (BTI 2016). The government did not adequately consult civil society to ensure that restrictive provisions concerning money-laundering and anti-terrorism do not unduly inhibit civil society's ability to operate (EUPR 2016).

Sources

Topics: Europe & Central Asia