An analysis of the clash between real rights, public criminal interest, and legal certainty in the Albanian construction market.
1. Introduction: Towers, shadows, and the mysteries of financing. The legal risk hidden beneath them!
In Tirana, the construction of new towers is radically transforming the cityscape. Unlike its counterparts in Macedonia or Montenegro, where the building boom that began a decade ago has stalled and abandoned structures with rusty scaffolding and overgrown trees dominate the landscape, Tirana is experiencing an intensive construction boom—with cement mixers operating 24/7—at a pace rarely seen even in more developed European cities like Milan and London!
When a client/friend recently told us that authorities were rejecting his 20-story project in central Tirana because the Prime Minister was allegedly requiring a minimum of 30 stories, we were skeptical. But after hearing a renowned European architect state at a recent event that the Prime Minister was personally involved not only in the height but also in the design and color of each tower's façade, we conceded. The client began to revise the project. But that was the easy part. The difficult part, as for any investor, was: financing—the money needed for a project that would increase by at least 10 floors and 30% in value.
Today, Tirana is the main hub of construction development in Albania, and Vlora is likely to become the second in the near future.
But Tirana is neither Milan, Monaco, nor Dubai, where the demand for purchasing buildings is naturally extremely high. The explosion of construction valued at tens of millions of euros in Tirana has raised a central question about mystery number one: Where does the financing come from?
A year ago, Albania was removed from the Moneyval grey list, just like the United Arab Emirates recently. However, beyond legal bank financing, there is a growing public concern—fueled by data from mass surveillance platforms like Sky ECC and EncroChat, part of Operation "Vanilla"— about the involvement of criminal organizations in money laundering schemes through real estate investment. These concerns, along with the rather persistent efforts of the prosecution, have turned the construction market into a high-risk sector.
Public concern about the capital shadows in the rising towers stems from the suspicion that financing might be occurring outside the banking system. Could the capital come from informal chains starting with "the boys" in Dubai, Antwerp, London, Guayaquil, all the way to command centers of the criminal networks mentioned in the Sky ECC and EncroChat files? Is this a real threat or an urban legend? This is a real challenge for the state—but also a direct challenge for the banking system, which, through "compliance" rules, contractual integrity, and registered encumbrances, tries to stay protected in a market where capital circulates with less legal and financial oversight than anywhere else in the region.
Yet, the banking sector cannot remain outside this significant wave of economic development. It was skeptical of financing PPPs a few years ago—and rightly so—but it cannot remain disengaged from the construction market. Precisely in this complex terrain, our role as legal advisors to banks is to safeguard the legality and security of financing, to assist banks in risk management, and to uphold public trust.
In our daily legal counsel, we advise banks to:
- Maintain and continuously update compliance programs, regardless of market shifts;
- Remain cooperative with the prosecution and document clearly the potential damages— whether financial or reputational—that a criminal investigation could bring;
- Exercise heightened caution in high-risk markets.
It is important to emphasize to the public: banks do not "produce" money—they manage the savings of ordinary citizens, which they invest through lending, always backed by real guarantees (collateral). Nevertheless, even when banks follow all procedures and secure loans with real estate, situations arise where the property (i.e., the tower under construction) becomes subject to criminal seizure due to investigations into money laundering or organized crime.
In such cases, while the real guarantee (mortgage) is supposed to be a security mechanism for the bank in recovering the debt, it may fall victim to criminal confiscation, as property suspected to derive from criminal activity. This poses a serious threat to the legal security of bank financing and citizens' savings.
Albanian courts are increasingly facing this delicate dilemma: how to balance the legitimate rights of banks—as third parties acting in good faith—with the public interest in combating money laundering and organized crime?
This article aims to analyze these developments, offering possible solutions and lessons learned from European practices and cases we've handled in supporting banks in their mission for sustainable economic development and legality.
2. Banks and Developers. The Mortgage Right: The Legal Backbone of Bank Financing
The mortgage, as a legal instrument, is fundamental to the relationship between the developerborrower and the lending bank. It ensures that, in the event of non-payment, the bank has the right and opportunity to execute the property and recover its debt through enforcement procedures.
Article 560 of the Civil Code grants the bank the right to claim repayment of the debt from the debtor's real estate through a real right. This right is acquired and guaranteed before the bank releases funds toward the tower's construction, through its registration with the Immovable Property Registration Office (ASHK), as a note in section "D" of the corresponding property title.
However, in recent years' experience, registration alone has not proven effective. The government attempted a digital register for new constructions in 2020 to protect both banks and buyers, but the project stalled. If the property under mortgage is involved in illegal activities, it may become subject to criminal measures, including preventive seizure and eventual permanent confiscation— transferring ownership to the state.
Thus, the bank's responsibility is not limited to the formal registration of mortgage contracts or security interests. The compliance process within banks must include: (i) Verification of property title; (ii) Registry checks for blocks or other annotations; (iii) Due diligence on the borrower (the developer and shareholders if it's a company) for ongoing or past criminal proceedings.
Without proper verification and proactive actions by the bank, it risks losing the protection offered by the principle of good faith (bona fide).
3. SPAK and the Banks: Allies of the Public Interest or Misunderstood Parties? When the Collateral Becomes a Criminal Object. Should the Whole Tower Be Seized or Only the Suspected Segment?
In Albania, the increasing number of cases where properties used as bank collateral have been seized by the Special Prosecution Office (SPAK), in the context of money laundering or corruption investigations, has raised some fundamental questions:
Is the bank a "protected third party"?
- Should the bank lose its collateral due to the debtor's behavior?
- Have the bank's rights to a fair process been respected?
- Should the entire tower be blocked, or only the respective share/portion?
- Who should decide whether the suspected asset in a tower belongs to the construction materials company?
Cases show that banks are often not invited to participate in criminal proceedings as parties with a legitimate interest, which violates their right to be heard as guaranteed by Article 6 of the European Convention on Human Rights (ECHR). The process of confiscating assets and transferring them to the administration of the Agency for the Administration of Seized and Confiscated Assets (AAPSK), and eventually to state ownership, proceeds without the presence of the bank, thereby depriving it of the right to collect the debtor's obligations.
In a market with investments approaching 1 billion euros in just a few years, if banks begin refusing to finance the tower market out of fear of asset seizure, the domino effect could trigger a construction crisis with serious social and economic consequences.
On the other hand, if the Prosecution begins to automatically freeze towers without involving the banks, this would lead to apocalyptic social and economic scenarios.
We advise banks to take an active role in criminal proceedings where asset seizures or confiscations are ordered over properties on which they hold real rights. Our advice differs from that of other lawyers who merely oppose the Prosecution's seizure or confiscation orders. We advise banks not to enter into the dispute between the Prosecution and the accused or defendant — that dispute is between them. However, if the Prosecution imposes asset security measures, it must recognize the real rights of banks. There is no need for banks to be in conflict with the Prosecution. Both have a public interest to uphold and must work together to safeguard it — the Prosecution to maintain public order, and the bank to protect the money of citizens.
At its core, the purpose of criminal legislation regarding asset confiscation is to punish and prevent the perpetrator of the criminal offense from enjoying the benefits and profits that result from violating criminal law. But does the public interest truly benefit from preventing financial institutions from executing their claims over such assets?
In prior years, Albanian court practices largely ignored this issue, relying on a "dry" reasoning that mortgage and collateral matters were entirely civil in nature, leaving the conflict unresolved and directing parties to civil courts. However, when a criminal subject's assets were entirely confiscated, this legal diversion left financial institutions unprotected, as there was no recourse for enforcing their financial claims.
The incinerator cases and several others prosecuted by SPAK and ordinary prosecutors have led to some important developments in line with international practice, maintaining the mortgage rights of financial institutions acting in good faith, even when the asset is transferred to state ownership as a result of confiscation — following the principle that the mortgage follows the fate of the asset.
In a country where a law on civil confiscation exists, but where the judiciary is in a state of collapse and judges face overwhelming caseloads and pressure, it is imperative to have standards in place to protect banks against a criminal system that heavily favors the state as the absolute beneficiary
In Conclusion: The mortgage, as a tool for banks to recover unpaid debts, should not be ignored. Financial stability and the protection of third parties — especially banks that manage the wealth of citizens — are public interests just as vital as the fight against organized crime and the laundering of criminal proceeds. Law enforcement authorities, banks, and courts must work together, recognizing that these two interests are not mutually exclusive. Both can be achieved by conducting thorough due diligence on borrowers at the time of application and isolating only the suspected portion of the property in case of confiscation.
4. The Bona Fide Principle: A Shield or an Illusion?
We advise banks to place great importance on prior verification and to document it thoroughly, because for us as legal professionals, the bona fide principle is a cornerstone of the legal system — particularly in commercial relationships. It aims to protect third parties acting in good faith, relying on officially registered titles. The legal evaluation of this principle, even in the context of criminal investigations, must not remain an illusion but must serve as an effective tool for protecting the interests of third parties.
This legal debate has already been explored by international institutions and courts, and to assess its application, we will analyze several key practices.
Directive 2014/42/EU of the European Parliament on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union states in Article 6 that: "only those natural or legal persons who enter into financial agreements with subjects with knowledge of their legal issues, or with the intent to assist in evading confiscation of the property by enforcement bodies," shall be penalized..
The Palermo Convention, in Article 12, point 8, in the context of due legal process, provides a series of safeguards for individuals subject to preventive property measures and third parties, stating that State Parties must not infringe the rights of third parties acting in good faith during asset confiscation proceedings. The Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism (Warsaw Convention) in Article 21 similarly guarantees protection for third parties acting in good faith.
4.1 Strasbourg (ECHR) Jurisprudence: 21 Strasbourg Cases That Can Guide the Albanian System
In the cases Canea Catholic Church v. Greece (para. 50), Glod v. Romania (para. 46), Albina v. Romania (para. 43), Lungoci v. Romania (para. 48), Yanakiev v. Bulgaria (para. 82), the European Court of Human Rights (ECHR) has stated: "Where a party is not granted access to court in violation of Article 6 of the Convention, and this is linked to the right to property under Article 1 of Protocol No. 1, the Court must not speculate as to what might have happened had the subject been party to the proceedings — it must find a violation ipso jure." Banks should be treated as third parties in these proceedings.
Furthermore, in the cases Andonoski v. North Macedonia, no. 16225/08, §§12 and 36, 17 September 2015; B.K.M. Lojistik Tasimacilik Ticaret Limited Sirketi v. Slovenia, §48; Yasar v. Romania, §49; Aktiva DOO v. Serbia, §7 — the Court found that denying third-party intervention where the confiscated object was the property of such third parties amounted to a permanent deprivation of property, violating the ECHR (notably Article 1 of Protocol No. 1). In Gladysheva v. Russia (2011), the Court emphasized that: "The right of a party who has bought a property in good faith and registered it under the law must be proportionally protected, even if the initial title was defective. The state is responsible for ensuring legal certainty in transactions and must protect those who act in good faith and in accordance with the law.". This is directly analogous to situations where a bank mortgages a property that later becomes subject to criminal investigation. If the bank acted in good faith, it must be protected under the European Convention.
To view the full article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
