During a talk show in November last year on ABC News television, veteran crime reporter Artan Hoxha sounded the alarm about the massive involvement of organized crime in black market loans, in which people in financial difficulties are offered loans through simplified procedures – but with eyewatering interest rates.
“The child of a businessman received 10,000 euros as a loan. He has now paid off 800,000,” Hoxha said, adding that victims are paying off loans with properties such as villas or coffee shops.
Hoxha said the organized crime group involved in this particular scheme has members with a rich crime history dating from the civil turmoil of 1997 in the country.
“Police are aware about them,” he said, adding that “they corrupt individuals within the police, which is why the situation is as it is”.
Albania’s crime code forbids the granting of loans without a licence from the Central Bank.
However, documents and testimonials obtained by BIRN show that illegal black market loans are widespread.
Apart from organized crime, those involved in the illegal business include public notaries and corrupt politicians.
“In every town, there are two or three [lenders] that work like it’s the Middle Ages, offering money on request without any paperwork in deals in which trust lies in the barrel of a revolver,” Zef Preci, director of the Albanian Centre for Economic Research, says.
“The next visible category is a number of politicians who have become rich thanks to money obtained during their past tenures in power or due to involvement in crime,” he added.
Age-old practice that’s become more sophisticated
Photo: Pixabay
General Prosecutor Olsian Cela, in his annual crime report read out in parliament on July 14, underlined that, during the last year, some 14 cases of unlicenced financial activities were recorded, of which shark loaning were a part.
Experts says the practice of lending money unofficially at high rates is an old in Albania but has become more sophisticated over time.
Artan Gjergji, an expert in financial markets and founder of the country’s first private bond market, said the main purpose of the crime is often taking over the businesses whose owners take out their loans.
“They impose interest rates well above any economic logic, foreseeing the bankruptcy of the business, so they can take it over,” Gjergji explained. “Their main purpose is to take over the business when the owner is unable to pay them back,” he added.
Businesses lured into the informal loan market often are unable to fulfil the stringent conditions set by the banks in times of crisis, when they need money fast.
An accountant in Tirana who spoke to BIRN under condition of anonymity told the story of one of her clients.
Four years ago, he started a business in production but faced a difficult period one year ago and went for a black market loan of 80,000 euros. Although he has paid off 90 per cent of the loan, he is still facing threats, the accountant said.
“It is a criminal scheme,” the accountant said, adding that, usually, “these kind of usurers operate in groups … They go fishing in a similar way till they … take over the business,” she warned.
Loans are usually granted for a week, a month, three months, or for a year. Usually, they are for an emergency situation. Rates vary from 5 to 10 per cent per month, or 60 to 120 per cent per year.
Fabian Zhilla, an expert working for the Global Initiative Against Transnational Organized Crime, says if repayment is not made on time, the debtor is often obliged to hand over their business or another asset agreed as a guarantee.
“The damage to the economy has multiple aspects because this activity is totally illegal, so it’s untaxable, and also helps underworld figures to become part of the economy,” Zhilla said.
“If you fail to pay back, you end up working for organized crime,” he explained, adding that his helps members of the organized crime groups remain anonymous.
“The person who received the loan continues to be nominal owner, but the company ends up administered by the organized crime group,” Zhilla noted.
Start-ups often have no other option
Photo: Pixabay
Not all lenders involved in the usury market are members of organized crime groups. A business consultant who spoke on condition of anonymity told BIRN that often this practice of informal lending is the only way to finance “start-up” businesses in Albania.
He recounted the story of two young entrepreneurs who had opened a business after working for years in the same industry employed by somebody else.
He said the two entrepreneurs aimed to set up their own workshop – initially in an underground space before scaling up – so they negotiated a 30,000-euro loan, at just a few percentage points’ interest rates above the usual bank rates.
“They attempted to get a loan from the banks but it was impossible,” he explained.
According to the consultant, after a few years, the two partners formalized their business and now have 10 employees in their workshop. They now have two loans from the banks for some 120,000 euros, and another for 10,000 euros, from the informal market.
“I have always urged them to go through officialization of the process, but informal loans were unavoidable at their start,” the consultant said.
Albanian Central Bank data show that, during the 2020 pandemic year, money outside the banks in Albania reached an all time high of 324.6 billion leks, or 2.6 billion euros.
Financial experts believe very low interest rates for deposits in banks might have acted as an incentive for informal lending, with lenders searching for better interest rates on their money.
The increase in out-of-bank money, according to experts, has created more space the informal economy, fuelling tax evasion and helping launder money from the proceeds from illegal activities.
“The bank of Albania sees informal lending … as part of a larger problem, which is the fight against informality,” said the bank.
Latest data from the World Bank show that some 35 per cent of the economy in Albania is informal. Part of that is money lent by usurers.
Florian Zekja a representative of the clothing industry in Albania, says black market lending is an old issue in Albania, and is strictly related to the difficulties that businesses face in accessing cash from the banks.
“The first reason is the informality, the second one is the lack of help from the government, while another reason relates to red tape – the difficulties that businesses face with risk factors in second-tier banks,” he said.
According to him, businesses go to the black market to survive and hold on to the wealth that has been created over the years.
Zekja underlines that this is a fast market. It doesn’t always seek guarantees while the interest rates are sky-high.
“Those possessing large quantities of cash for informal lending may be just normal persons, they could, however, also be part of criminal networks that use this way for money laundering,” he explained.
“There have been cases when businesses paid dear when they got hooked by such criminal networks,” Zekja said.
Notaries play important role as mediators
Photo: Pixabay
Informal lending practices can be tracked down at notary offices, however, the document granting the loan will not mention an interest rate, because it is illegal. However, the parties will agree on possible guarantees.
A notary statement seen by BIRN about a 45,000 US dollar loan awarded by two persons to a third one for business needs, included the house of the borrower as guarantee.
A notary who spoke on condition of anonymity told BIRN that a network of trusted notaries in Tirana signs scores of such deals every day, for loans ranging from 10,000 to a million euros.
“Such acts are everyday work for some notaries across the country, but a selected number of notaries have it as their specialty. They are known as VIP notaries,” she explained.
“The rest of us do it only when we know the parties well, because we are supposed to report such transactions to the Anti-Money Laundering General Directorate,” she added.
Another notary who also spoke on condition of anonymity explained that some 20 per cent of their daily work has to do with such loan contracts. He evidenced the existence of an informal investment market where notaries act as intermediaries.
“There are persons who own large quantities of money, created in illegal way and who, as such, cannot go through the banks. They search for businesses in which to invest minority shares, such as 20 per cent of the capital, and use notaries for this purpose,” he explained. Construction and energy are the preferred sectors to invest, according to him.
Albania’s Law on Prevention of Money Laundering and Financing of Terrorism obliges notaries to report any suspect transactions, including cash payments for goods, such as car purchases, or loans, to the General Directorate of Money Laundering Prevention – the state office controlling the flow of money in the economy with the purpose of flagging and investigating suspected transactions.
“If we fail to report suspected transactions, we could face fines of 5 million to 20 million leks,” the notary explained, adding that, however, some notaries are able to overcome the difficulties and avoid penalties. “They have their own connections,” she explained.
“For the rest of us, it remains just to report emigrants, the poor people that worked all their life to buy a house,” she said.
Data from the General Directorate for the Prevention of Money Laundering shows that some 12 notaries were fined during 2021 for failing to report shady deals. Total fines amounted to 3.8 million leks. The main reason for the fines was for not reporting large transactions or not being vigilant enough.
Some experts believes that the fight against loan sharks can be won only through the development of a legitimate financial market.
“There is no other solution except the development of a formal financial market, so that people can get away from the informal one,” Artan Gjergji said. “We need liberalization of the services of financial institutions,” he added.
Florian Zekja, the entrepreneur, sees the solution only in a long-term strategy from the government. This could start with a fiscal amnesty, that, according to him, would bring about the legalization of this money. However, he says stringent conditions should be applied.
“A second part should be a joint collaboration between businesses, the Central Bank and the commercial banks to ease lending procedures, whose risk makes it difficult for scores of businesses to obtain loans, pushing them towards the black market,” Zekja added.
Fabian Zhilla, an expert on criminology, says the legal framework to fight the phenomenon is already in place. The problem is that law enforcement agencies are not very pro-active in enforcing it.
“We need to investigate the finances of organized crime and of those who own large quantities of cash and administer money in cash,” he said; agencies should create direct communication channels with businesses to obtain more timely information.
“What it is needed is a stronger response from law enforcement to fight and prevent the phenomenon,” Zhilla said.