Montenegro’s bid for crypto kudos heralds risks.

Montenegro has been trying to position itself as a crypto haven. In 2022, the government granted citizenship to Vitalik Buterin, co-founder of the Ethereum blockchain,¹ while the country’s then finance minister, Milojko Spajić, predicted that the cryptocurrency industry could grow to account for a third of national economic output by 2025. Following elections this year, Spajić emerged as prime minister in October 2023. Montenegro also this year hosted a two-month-long crypto conference at Lustica Bay, attended by Buterin – a guru in crypto circles – and hundreds of executives, many of whom combined entrepreneurial brainstorming sessions with cold plunges in the Adriatic.

Developing Montenegro into a crypto hub could create opportunities, but without sufficient regulation serious and multi-faceted risks arise. Nothing brings this into sharper focus than ongoing fallout from the arrest² at Podgorica airport in March this year of crypto entrepreneur Do Kwon, a man wanted by the US and South Korea for fraud. The collapse of his stablecoin³ Terra and its sister coin Luna last year was the trigger for an industry rout that wiped an approximate US$2 trillion in crypto market value.⁴ Undeterred, in July 2023 the Central Bank of Montenegro held talks with US crypto firm Ripple on developing a central bank digital currency or national stablecoin,⁵ although the former finance minister was more hesitant.

Safe or risky?

Cryptocurrency is not illegal; many of its supporters tout it as the future of finance because transactions are instantaneous, cost little and are recorded on a blockchain, an innovation that they also point out ensures an indelible record of every transaction. However, critics counter that the industry’s largely unregulated growth has spawned a digital Wild West in which chancers exploit naïve retail investors and enable money launderers to disperse enormous volumes of ill-gotten gains through the digital money-web by hiding behind pseudonyms.

Novak Svrkota, a financial advisor and a former associate at the finance ministry’s cryptocurrency directorate, favours Montenegro developing into a crypto haven. He pointed out that blockchain makes it ‘easier to follow the cryptocurrency’s path than in traditional money, which is often hidden behind various offshore destinations’.⁸ The idea of establishing a crypto arbitration court has also been mooted. This would ‘oversee the placement of smart contracts on the blockchain,’ said Svrkota. ‘Whatever is written on that blockchain, if it has the court’s confirmation, for example, confirmation regarding real estate, then it becomes enforceable,’ he noted, adding that Montenegro would be the first country in the world to implement such an initiative.

The former minister of finance, Aleksandar Damjanović, was more cautious.⁹ He shelved two pieces of legislation that sought to solidify Montenegro’s cryptocurrency aspirations.¹⁰ He also underlined the need for tough legal regulation that, in his view, the central bank does not have the knowledge or capacity to oversee.¹¹ Without such controls there would be ‘opportunities for money laundering, or numerous illegal transactions, where profits from these activities are laundered through cryptocurrencies,’ he told the Global Initiative Against Transnational Organized Crime (GI-TOC). He also cited Montenegro’s bad experience with offshore banking in the 2000s as another reason why a solid legal framework is necessary.¹² In 2002, Montenegro had a pressing need to clamp down on its clandestine offshore banking sector due to suspicions that it could be exploited by terrorist organizations for money laundering purposes.¹³

Miloš Katić, a forensic financial investigator and a member of the GI-TOC Network of Experts, noted that Montenegro’s poor track record on combating criminal activity (including cigarette and drug smuggling as well as corruption) makes close monitoring of cryptocurrency transactions essential. ‘While trading virtual currencies isn’t inherently negative, it must be conducted within well-defined boundaries,’ he cautioned.¹⁴

The risks of unregulated crypto have already become apparent in Montenegro. In June 2023, an illegal cryptomat was discovered in a prestigious area along Montenegro’s coastline. This cryptocurrency ATM enabled users to convert digital currencies into cash or other cryptocurrencies. The machine was linked to George Cottrell, a British individual with a criminal record who is reportedly under investigation by US authorities.¹⁵ According to the finance minister, this was not the only illegal cryptomat in Montenegro. ‘A similar machine was installed in Podgorica. It was removed as soon as the story about the first cryptomat emerged,’ he explained.¹⁶

Busted in Podgorica

The arrest of Do Kwon on charges of travelling on a fake Costa Rican passport as he sought to board a private jet to the United Arab Emirates in March 2023¹⁹ initially burnished Montenegro’s crime fighting credentials with the EU and the US. The South Korean – who has reportedly registered legal entities in Serbia²⁰ – was sentenced to four months in prison in late June, although the US continues to seek his extradition.

However, the political fallout in Montenegro itself has been substantial. In the run-up to Montenegro’s June 2023 elections, Do Kwon sent a letter to authorities claiming that he had a ‘very successful investment relationship’ with Spajić, the ex-finance minister and the leader of the Europe Now movement.²¹ Do Kwon also alleged that other unnamed crypto entrepreneurs had funded Europe Now’s campaign on the expectation that they would benefit from ‘crypto friendly policies’.²² Spajić and his lawyers denied the allegations,²³ but the fallout is widely seen as having dented his party’s performance at the polls. An investigation by Montenegrin authorities remains ongoing, although Spajić, whose party still won the most parliamentary seats, formed the government.²⁴

South Korean cryptocurrency entrepreneur Do Kwon is taken to court after being arrested in Podgorica, March 2023.

Photo: Stringer/AFP via Getty Images

Weeks after Do Kwon’s arrest, the Central Bank of Montenegro announced in April 2023 a collaboration with the US company Ripple to develop a national digital currency. In July 2023, Ripple officials arrived in Montenegro for talks with representatives from the financial sector, state institutions and the IT industry.²⁵ Meanwhile, this institution is actively preparing digital currency legislation.

In short, while cryptocurrencies open exciting new possibilities, there are also inherent risks. Montenegro’s track record as a hub for cigarette and drug smuggling as well as high-level corruption make it crucial to demonstrate sufficient regulatory capacity. If Montenegro is to embrace cryptocurrency, it will need to develop a strong and bespoke regulatory framework, alongside sufficient expertise in financial intelligence, cross-border cooperation and risk assessments concerning money laundering.

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