Bosnia and Herzegovina has been placed on the Financial Action Task Force (FATF) grey list for the second time in a decade, after failing to demonstrate the effectiveness of its anti-money laundering framework. While public debate following the setback has largely focused on last-minute legislative shortcomings, the decision, taken in June, came as little surprise to financial crime experts.

Back in January, the EU warned that Bosnia and Herzegovina faced a high risk of being grey-listed unless urgent reforms were implemented. While the Bosnian authorities have largely framed the decision as a matter of political blame-shifting, the FATF emphasized the country’s broader inability to protect its financial system from criminal and terrorist threats. The designation also carries reputational costs, and may influence future economic and investment decisions.

Of the Western Balkan countries, Albania, Bosnia and Herzegovina, and Serbia have previously been subject to increased monitoring by the FATF. However, only Albania and Bosnia and Herzegovina have been relisted after being removed. Bosnia and Herzegovina was first grey-listed in 2015 and removed in February 2018, while Albania’s monitoring periods lasted for over two years each (2012–2015 and 2020–2023).

In order to be removed from the grey list, countries must implement an FATF action plan, which sets out the specific deficiencies they are required to address, and demonstrate that reforms are being applied effectively. Progress on the ground is verified through an on-site assessment by a team of experts.

Bosnia and Herzegovina’s latest grey-listing is the result of reforms that were never fully institutionalized. After the country was removed from monitoring in 2018, many of the measures were treated as a one-off exercise rather than an ongoing process. Once international monitoring ended, implementation weakened, and the issues returned.

How the system falls short

Domestic commentary on Bosnia and Herzegovina’s anti-money laundering compliance tends to focus on the adoption of new laws, regulations or registers. However, international assessments have repeatedly identified deficiencies in the implementation of existing anti-money laundering measures, particularly with regard to investigations, prosecutions and asset recovery.

Despite being exposed to significant levels of corruption and organized crime, Bosnia and Herzegovina continues to struggle to convert financial intelligence into operational cases. Financial investigations are often only launched after criminal proceedings have begun, or even after an indictment has been issued, which gives suspects time to move assets.

The country also records low numbers of money laundering prosecutions. In 2025, for example, the Prosecutor’s Office filed just six indictments for money laundering against 45 defendants, all of which were linked to predicate offences. There was just one indictment against six people in 2024, and two indictments against 17 people in 2023.

Questions remain about whether penalties are sufficiently dissuasive. Bosnia and Herzegovina allows prison sentences of up to one year to be converted into fines, a practice that has attracted criticism for potentially benefiting wealthy offenders and corrupt officials. In 2022, 119 people paid fines in lieu of prison sentences for various offences. In money laundering cases, where financial gain is often the primary motivation, such outcomes may weaken the deterrent effect of criminal sanctions.

Despite national risk assessments identifying lawyers, accountants and notaries as professions particularly vulnerable to money laundering abuse, reporting in these sectors remains exceptionally low across the Western Balkans. In Bosnia and Herzegovina, only 87 suspicious transaction reports were submitted between 2020 and 2024: 84 by notaries, two by accountants and one by a lawyer. This suggests a lack of awareness, ineffective feedback mechanisms or deliberate non-reporting.

In addition, Bosnia and Herzegovina’s fragmented institutional structure hinders the effectiveness of anti-money laundering investigations. This is particularly evident in terms of the transparency of beneficial ownership. The Federation of Bosnia and Herzegovina, one of the country’s two governing entities, still lacks a beneficial ownership register. Concerns also persist over the accuracy and availability of ownership data across jurisdictions.

These issues were highlighted in the mutual evaluation undertaken by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) in 2024, which noted weaknesses in policy coordination and the use of financial intelligence to initiate investigations, delays in proceedings, and deficiencies in the interpretation of money laundering offences by prosecutors and law enforcement authorities, particularly in standalone cases. It concluded that financial investigations and international cooperation were not being used effectively to identify new cases.

The practical consequences

Being on the FATF grey list does not mean that Bosnia and Herzegovina is financially isolated. However, banks and other financial institutions outside the country may regard transactions, clients and business relationships linked to the country as higher risk, resulting in additional checks, documentation requests and longer processing times.

Most of the country’s banks are part of foreign banking groups whose parent institutions and correspondent banks may apply stricter controls. This could increase compliance costs, raise service charges, and create delays for businesses and individuals.

Companies engaged in international trade may face additional documentation requirements, and some transactions could be delayed or rejected. Foreign firms with strict policies may become more cautious about establishing new business relationships. While existing investors are likely to continue operating in the country, potential new investors may adopt a more cautious approach.

Ultimately, although grey-listing does not prevent foreign investment or international commerce, it can increase operating expenses and complicate cross-border business. The effects are likely to be felt most by banks, exporters, payment providers and citizens living abroad.

Heeding a second warning

Bosnia and Herzegovina’s return to the FATF grey list is particularly noteworthy because the country has been through the process before. This time, it will need to demonstrate that its anti-money laundering system is effective in practice. This will involve swiftly detecting suspicious financial activity, initiating investigations and confiscating criminal assets. Progress on beneficial ownership transparency will be one of the clearest indicators of meaningful reform.

Bosnia and Herzegovina will also require a sustained and technically competent coordination mechanism to oversee the implementation of its new FATF action plan. This should bring together the financial intelligence unit, law enforcement agencies, prosecutors, courts, tax authorities, supervisory bodies and asset recovery institutions. Rather than only becoming active ahead of international evaluations, these institutions need mechanisms for continuous monitoring and accountability.

Political leaders must be provided with clear and regular information on risks, obligations and progress, and operational work should be protected from political interference. FATF evaluations are won through consistent implementation and measurable results over a number of years, rather than legislation passed just weeks before a plenary session.

Strong analytical and reporting teams within Bosnian entities are equally important. Institutions will not only need to achieve results but also systematically collect and present evidence of these processes to domestic decision-makers, MONEYVAL and the FATF.

Bosnia and Herzegovina’s second grey-listing serves as a reminder that passing laws is easier than putting them into practice. Until implementation becomes continuous rather than cyclical, the country risks repeating the same pattern once international scrutiny eases.