Investigation 27 Sep 12

Millions Vanish in North Kosovo’s Black Hole

Criminals from both Kosovo and Serbia have made fortunes from cross-border smuggling into Serb-run northern Kosovo, depriving both countries of millions of euro a year in lost duties.

Dinko Gruhonjic, Besiana Xharra BIRN

“Brotherhood and unity” between ethnic Albanian and Serbian criminals is being blamed for the loss to Serbia of more than 210 million euro between January 2008 to June 2011 - and 40 million euro a year to Kosovo.

The losses are attributed to Serbia’s decision, which it revoked in the summer of 2011, not to collect Value Added Tax on products sold in the northern Serb-controlled part of Kosovo.

Another factor behind the losses is the general lack of rule-of-law in the troubled region, which has allowed smugglers to act with virtual impunity.

Goods brought into Kosovo across northern Kosovo border crossings – both official and unofficial – have found their way into shops in the rest of Kosovo having evaded all import duties.

Some have also found their way back into Serbia where they are sold, without duties having been collected on them.

The situation has improved in the past year, officials on both side of the border say, but criminality persists.

Kosovo Customs told Balkan Insight that even this year, they still estimate that they have lost about 9 million euro through smuggling, mostly through the north.

Research carried out by the Center for Regionalism, an NGO in Novi Sad, in Serbia, and by Mother Theresa, an NGO in Pristina, between 2008 and June 2011, said Serbia lost 90 million euro in that period in unpaid VAT for oil products, 120 million euro in vehicles brought into Kosovo and 3 million euro in telecommunications.

The aggregate loss is likely to be significantly higher, however, as the Serbian government has not applied its normal VAT rate of 18 per cent to northern Kosovo since 2006.

The study also reveals that in the last decade Kosovo was the ninth most important market for Serbian exporters, making up about 4 per cent of exports, or around 300 million euro in 2012. 

But, according to field research, which included interviews with transporters, intermediaries, and producers, it is believed that unregistered exports from Serbia are worth another 200 million euro a year, which would bump Kosovo up to Serbia’s fifth most important market.

Exports from Kosovo to Serbia, on the other hand, are insignificant. They were worth only about 4 million euro in 2010, though unregistered exports are believed to have been worth another 10 million euro.

“Kosovo is of vital interest to Serbia from the viewpoint of exporters and the general economy, “ the study, recently presented at the Media Centre in Belgrade, noted.

The researchers noted that many goods transported to the north of Kosovo and not subject to customs taxes returned to Serbia unregistered and were sold in Serbia at prices excluding VAT.

The research claims that most transporters involved in the “grey trade” are from Serbia’s southwestern Sandzak area, centred on the town of Novi Pazar.

Most of the intermediaries come from Sandzak and northern Kosovo but some were from Macedonia and Montenegro. 

“The greatest profits in Serbia-Kosovo-Serbia commerce are made in this region [Sandzak], damaging the customs and tax services of Serbia and Kosovo, and damaging producers and consumers as well,” the study said.

“Many people profit on the basis of lack of transparency of goods circulation between Serbia and Kosovo,” it added.

Borislav Stefanovic, Serbia’s main negotiator in EU-led Belgrade-Pristina talks, said that deals reached last year between Serbia and Kosovo should decrease smuggling between Serbia and Kosovo.

“Some individuals have become rich by means of this illegal commerce,” Stefanovic said.

According to him, implementation of the rule of law and Serbia’s re-imposition of VAT on goods headed for Kosovo last September were important steps in curbing smuggling.

Aleksandar Popov, head of the Centre for Regionalism, the organisation that researched the report, said that the findings revealed “brotherhood and unity of crime”, referring to the Yugoslav-era slogan about cooperation between different ethnic communities.

“In the grey commerce in Kosovo, Albanian-Serb brotherhood and unity functions without obstacles,” Popov said.

According to him, the size of this “grey area” needs to be revealed in order to understand why some sections of the political establishment in Kosovo and Serbia seem willing to tolerate the status quo.

“It isn’t convenient to them to put some order in the field of commerce and customs,” Popov suggested.

He said that once goods pass into Kosovo through Gate 1 or 31, the two northern crossing points, they are registered by the EU mission, EULEX, and then disappear.

“After this, nobody knows what happens with these goods, because, without being registered [by Kosovo customs], they arrive in the south through grey channels,” Popov explained.

Serbia’s government has been unwilling to say how much its revenues from the north have increased since the changes in VAT regulation in 2011.

But Popov said that, according to data from a similar project carried by the Center for Regionalism in 2005, they are worth millions of euro a year.

“Specific individuals used the unregulated situation to become rich, at the same time causing great damage to the Serbian budget,” Popov said.

The deal reached between the two sides on what is called “integrated border management” should cut the level of smuggling between Serbia and Kosovo, he continued, but the agreement has yet to be implemented.

Bisera Sheceragic, an economic expert from Novi Pazar who was involved in the project, for which purpose she spoke to various local businessmen, said that legal procedures for exports are too complicated, providing another incentive for traders to explore unofficial routes.

“For example, there is a dual system for the transportation of people and goods,” she said.

“There is one system for Kosovo Serbs, specifically those north of river Ibar [in the Serb-controlled zone of the north], and there is another for south of the Ibar [the rest of Kosovo],” she said.

Still losing millions to smuggling

Adriatik Stavileci, spokesman for Kosovo Customs, said the country had been losing around 40 million euro a year from smuggling in the north, though he declined to reveal how this calculation was made.

He said that the situation was now improving.

“This year, smuggling in the north decreased,” he said, adding that this was because Kosovo Customs staff were now present at Gates 1 and 31 on the border.

“The exact size of this decrease [of smuggling] for the north will only be known at the end of the year,” he continued.

Last July, Kosovo sent special police to take control of both gates in the north, causing a spike in tension. Negotiations following this incident led to an increased presence at the crossings and, in September 2011, Kosovo and Serbia reached a deal on accepting each other’s customs stamps. 

Stavileci said that smuggling continued across other borders, albeit at a lower level, in food, oil, alcohol and cigarettes.

He said that so far this year Kosovo had lost around 9 million euro in smuggling, much less than it lost at the same time period last year.

KFOR, the NATO-led body responsible for controlling roads in the north, has so far failed to close all the illegal routes between northern Kosovo and Serbia.

But KFOR Spokesperson Mars Stummler told Prishtina Insight that troops were in the process of closing illegal crossings.

“KFOR does not talk prior to operations it will undertake,” he explained.

Dinko Gruhoniq is editor of News Agency Beta, department of Vojvodina, and head of the Association of Independent Journalists of Vojvodina. His research was assisted by Heartefact Fund, HF. Besiana Xharra works for the Zeri newspaper and regularly contributes to BIRN. This article was first published by BIRN's Gazeta Jeta ne Kosove on September 10, 2012.

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