Central bank scandal raises questions about banking sector in Albania

By bne IntelliNews October 21, 2014

Clare Nuttall in Bucharest -


The discovery that €5m worth of cash had been stolen from Albania’ central bank resulted in a large-scale inquiry with more than 16 of the bank’s employees including its now ex-governor Ardian Fullani facing trial. The negligence discovered on the part of Fullani and other senior officials raises questions about the supervision of Albanian banks, and whether prosecutors will seize the opportunity for a wider investigation into suspected corruption in the financial sector.

Thefts amounting to ALL715m (€5m) in cash emerged in July, when seven Bank of Albania (BOA) employees were arrested on suspicion of stealing from the bank over a four-year period. One economist confessed to police that he had smuggled banknotes out of the building inside his clothes or old books. Ardian Bitraj told police he used the money to gamble, stealing notes daily during the 2014 World Cup.

As the probe widened, pressure mounted on Fullani, who had chaired the bank since 2004, to resign. On September 5 he was taken into police custody and is now under house arrest while several charges against him are investigated. And on September 18, Albania’s parliament voted to dismiss him from his post for alleged abuse of office. A statement from Albanian prosecutors said that Fullani, together with the bank’s inspector general Elivar Golemi, “because of their inactions, have created conditions to violate the security of money in the administration of the Bank of Albania.”

Lack of supervision

While Fullani has not been accused of direct involvement in the thefts, he is ultimately responsible for the alarming lack of supervision within the bank. Since the BOA is also responsible for supervision of the Albanian banking sector, this concern extends to how effectively it has carried out that role. In particular, given Albania’s large informal economy, and the problems of drug and human trafficking in the country, there are questions about to what extent illegal profits have been channeled through the banking sector.

The Financial Action Task Force (FATF), an inter-governmental body that promotes policies to combat money laundering and terrorist financing, reports that while the BOA established a task force to confirm banks’ compliance with customer verification rules, “enforcement remains poor in practice.”

Other reports point out that the relatively large proportion of cash transactions in the Albanian economy have made it easier to launder funds. “The relative size of the cash-based informal economy facilitates the laundering and integration of proceeds of crime,” says a 2011 report from the International Monetary Fund (IMF). “The number of sectors identified with illegal practices, including illegal gambling establishments and exchange bureaus, as well as the vulnerabilities that relate to cross-border transportation of currency, also make Albania at risk for [money laundering] activity.”

A 2014 report by two members of the Albanian National Bar Association, titled “Laundering of Crime Proceeds in Albania”, agrees that the country is “a suitable place for money laundering because of the corruption, cash transactions and the informal economy... The construction sector, creating commercial companies, and opening casinos and gambling are the main means of money laundering in Albania.”

While the report adds that, “These methods appear to be less sophisticated than countries that have developed financial markets and where money laundering is done through complex financial transactions,” it is unlikely that corruption on this scale is possible without involving the banking sector.

“Albania has developed a reputation for being a crossroads for drug trafficking, human trafficking and money laundering. There is no way that these activities could make up such a large proportion of GDP without using the banking sector,” Gary Kokalari, founder of Albanians for a Democratic Albania, which is involved in fighting corrupt practices in Albania, tells bne. Kokalari believes that the “lack of responsibility in the management of the Bank of Albania” raises questions about the supervision of the banking sector.

Full of Fullani

This is not the first time that Fullani has been the subject of controversy. A career banker, he joined the BOA as deputy governor in 1992, and was appointed governor in 2004. However, he was known for cultivating close links with politicians from both left and right, and was more often seen in Tirana restaurants than behind his desk at the bank.

In 2011, Fullani was re-appointed for a second seven-year term, despite fierce opposition from Socialist Party MPs. Discussions on his re-appointment took place at the same time as the trial of former deputy PM Ilir Meta on charges of asking for favours in return for public tenders. Fullani’s wife was one of the panel of judges who acquitted Meta.

Albania’s then prime minister, Sali Berisha, whose Democratic Party of Albania was the senior partner in the coalition government alongside Meta’s Socialist Movement for Integration, proposed that Fullani serve a second term. The Socialist Party, which came to power under Edi Rama in September 2013, opposed the appointment, claiming it was connected to Meta’s trial. Socialist PMs also accused Fullani of striking deals behind the scenes with the government, including over the financing of the budget deficit.

Albania is the most corrupt country in Europe, according to Transparency International. In 2013, Albania dropped to 116th place among the 117 countries on the anti-graft NGO’s annual “Corruption Perceptions Index.” PM Rama came to power promising, like many Albanian leaders before him, to be tough on crime, corruption and drugs. In June, police launched a dramatic operation at Albania’s so-called “marijuana mountain,” where an estimated €4.5bn worth of the drug is produced every year. Around 800 police were involved in the operation, which resulted in several arrests and the destruction of over €30bn worth of drugs.

However, according to Kokalari, this was a relatively easy and high-profile target compared to making progress against trafficking in hard drugs, money laundering or government corruption – for example by revisiting past privatisations of companies such as Albtelecom and Albpetrol.

EU push

Tirana now has a new incentive to address corruption. After numerous failed attempts, in June the country was finally given EU candidate status, although European foreign ministers said that more progress in tackling organised crime and corruption would be needed before it can join.

There is some evidence of progress recently. A spokesperson for Albania’s Ministry for European Integration tells bne that Albania has been working in close cooperation with European partners, and “anti-corruption measures have been focused on increasing transparency and creating a track record.” A 2014 report from the European Commission also identified “continued political will to act decisively... and fight against corruption, as shown by the adoption of new legislation in this area.”

The government has prepared a draft law on protection for whistleblowers, with a focus on the public sector, that is due to be presented to the parliament in November. The six months after Rama’s election, from October 2013 to March 2014, also saw a 16% increase in the number of corruption cases referred to prosecutors, though the conviction rate remains relatively low.

Meanwhile, at the BOA Rama appears determined not to appoint a Fullani clone. Shortly after Fullani’s arrest and subsequent sacking, the PM indicated he could look outside the country for a replacement. However, with his first candidate – the former governor of the Bank of Argentina Mario Blejer – rejected by President Bujar Nishani, it may be some time before order is restored at the bank under a new governor. 


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