During the 1991–1995 Bosnian War and Croatian War, Montenegro participated with its police and military forces in the attacks on Dubrovnik, Croatia and Bosnian towns along with Serbian troops, aggressive acts aimed at acquiring more territories by force, characterized by a consistent pattern of gross and systematic violations of human rights. Montenegrin General Pavle Strugar has since been convicted for his part in the bombing of Dubrovnik. Bosnian refugees were arrested by Montenegrin police and transported to Serb camps in Foča, where they were subjected to systematic torture and executed. In May 1992, the United Nations imposed an embargo on FRY: this affected many aspects of life in the country.

Due to its favourable geographical location (access to the Adriatic Sea and a water-link to Albania across Lake Skadar) Montenegro became a hub for smuggling activity. The entire Montenegrin industrial production had stopped, and the republic's main economic activity became the smuggling of user goods – especially those in short supply like petrol and cigarettes, both of which skyrocketed in price. It became a de facto legalized practice and it went on for years. At best, the Montenegrin government turned a blind eye to the illegal activity, but mostly it took an active part in it. Smuggling made millionaires out of all sorts of shady individuals, including senior government officials. Milo Đukanović continues to face actions in various Italian courts over his role in widespread smuggling during the 1990s and in providing safe haven in Montenegro for different Italian Mafia figures who also allegedly took part in the smuggling distribution chain.