TIRANA, August 28
The laundering of illicit money through real-estate and construction in Albania was estimated at Euro 1.6 billion during 2017-2019, the recent report on Illicit Financial Flows in Albania, Kosovo, and North Macedonia, by Global Initiative confirms. According to the report, which follows a model provided by the United Nations on Financing Development, money laundering is done in all manner of ways, particularly in the real-estate sector. In general, the process begins with the financing of new residential or commercial construction, continues with financing the construction contracts and undercounting the value of labor in construction, and again with the sale of the finished buildings.
“Collusion in these forms of illicit activity has been identified at all points in the chain, including contractors, real estate agents, notaries, lawyers, and bankers,” the report points out.
Further on, the report shows that the construction sector started growing significantly in 2016, with 65 percent of all new residential construction permits issued in the capital city Tirana. The investment value of those projects was estimated at Euro 400 million. However, the report shows that of the 141 companies that received building permits for buildings higher than six floors between 2017 and 2019, 59 percent did not have the financial capacities to complete them. They lacked revenues, assets, or loans to make the investments. Hence, based on the report assessment, approximately 60 percent of the above-mentioned value is derived from illicit money.
How was the €1.6 billion calculated?
The report also uses mortgage-loans related data to estimate the scale of money laundering through real-estate.
About Euro 200 million in mortgages was issued in Albania during 2019. On their part, banks usually finance 50-70 percent of the apartment value. The rest is financed by the buyer through personal savings. Normally, a bank would refuse the mortgage if the applicant cannot prove that he/she has enough savings or income.
What happened in 2019? According to the report, a total of real properties worth Euro 300-400 million were financed by mortgage loans. However, statistics show that real estate totaling Euro 953 million was constructed, with the difference presumably paid outright by the purchaser or through private loans.
“A money-laundering expert in Albania estimated that approximately Euro 500 million was laundered through the real estate sector in 2019 in this manner. Using the same calculation for 2017 and 2018 indicates Euro 320 million and euro 570 million respectively. This adds up to a total estimate of Euro 1.6 billion worth of dirty money laundered through the Albanian real estate sector in those three years,” the report says.
Moreover, the way how the construction industry works, makes it susceptible to money laundering. The sector is mostly cash-based. Real-estate agents in Albania reported that about 40-50 percent of all sales are made exclusively in cash.
Overall, the use of ill-gained money in the Albanian construction industry has affected the real estate market. According to the report, at the end of 2019, the average price of residential apartments in Tirana reached just above Euro 1000 per square meter. This represents a 16 percent inflation rate from 2016 when the illicit construction boom began.
“It is also higher than credible in a country where the average monthly income is Euro 420,” the report highlights.
Moreover, the report also stresses that Kosovan politicians are known to invest their kickbacks and corrupt earnings in real estate on the Albanian coast.
On their part, Albanian authorities are consulting a new bill on the regulation of real estate brokerage. The bill aims to regulate the activity of brokers, their rights and obligations, disciplinary measures, transaction fee-charging, and defining relations with third parties. One of the main goals of the new bill is the identification of potential money laundering.
The report in the Albanian language is available HERE