FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF MER Recommendations
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Croatia is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
Croatia was removed from the 4th Round Mutual Evaluation follow-up process in 2019.
US Department of State Money Laundering assessment (INCSR)
Croatia was deemed a ‘Monitored’ Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
Croatia is not an offshore financial center. Although an EU member country, Croatia has not joined the Eurozone. Croatian authorities consider most money laundering in the country to be of domestic origin, involving the proceeds of illegal domestic narcotics sales and economic crimes, including corruption, fraud, and tax evasion. Although Croatia is part of a transit route for drugs entering Europe, there is little evidence these networks have utilized Croatia’s financial system. Money laundering occurs primarily through non-resident accounts, transfers to offshore banks using counterfeit documents, and deposits in foreign currency accounts; it also has been linked to the real estate market and the purchase of luxury automobiles. Public corruption has been linked to money laundering, and several investigations are active. Financial crimes investigations in Croatia are often linked to abuse of power and embezzlement, particularly from state-owned enterprises.
There is not a significant black market in Croatia. Management of Croatia’s ports has improved through the EU accession process, and further upgrades are anticipated as Croatia prepares to join the Schengen region. The Export Border Security Office continues to tighten controls and screening to prevent smuggling.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 47
World Governance Indicator – Control of Corruption 60
Corruption, political patronage and inefficient bureaucracy are among the challenges companies may face when doing business in Croatia. Corruption and bribery are especially prevalent in politics, public procurement, and the building and construction sector. In the course of Croatia's EU accession in 2013, the past few years have witnessed a major anti-corruption crackdown with several high-profile arrests. The primary legal framework regulating corruption and bribery is contained in the Criminal Code and the Corporate Criminal Liability Act, which make individuals and companies criminally liable for corrupt practices including active and passive bribery, money laundering and abuse of functions. Facilitation payments are prohibited, and gifts may be considered illegal depending on their value or intent. Companies report that gifts in the form of drinks or food are common bribes and occasionally help to get things done. For further information - GAN Integrity Business Anti-Corruption Portal
Though still one of the wealthiest of the former Yugoslav republics, Croatia's economy suffered badly during the 1991-95 war. The country's output during that time collapsed, and Croatia missed the early waves of investment in Central and Eastern Europe that followed the fall of the Berlin Wall. Between 2000 and 2007, however, Croatia's economic fortunes began to improve with moderate but steady GDP growth between 4% and 6% led by a rebound in tourism and credit-driven consumer spending. Inflation over the same period remained tame and the currency, the kuna, stable.
Croatia experienced an abrupt slowdown in the economy in 2008 and has yet to recover; economic growth was stagnant or negative in each year since 2009. Difficult problems still remain including a stubbornly high unemployment rate, uneven regional development, and a challenging investment climate. Croatia continues to face reduced foreign investment.
On 1 July 2013, Croatia joined the EU, following a decade-long application process. Croatia will be a member of the European Exchange Rate Mechanism until it meets the criteria for joining the Economic and Monetary Union and adopts the euro as its currency. EU accession has increased pressure on the government to reduce Croatia’s relatively high public debt, which triggered the EU’s excessive deficit procedure for fiscal consolidation. Zagreb has cut spending since 2012, and the government also raised additional revenues through more stringent tax collection and by raising the value-added tax. The government has also sought to accelerate privatization of non-strategic assets, with mixed success.
Agriculture - products:
arable crops (wheat, corn, barley, sugar beet, sunflower, rapeseed, alfalfa, clover); vegetables (potatoes, cabbage, onion, tomato, pepper); fruits (apples, plum, mandarins, olives), grapes for wine; livestock (cattle, cows, pigs); dairy products
chemicals and plastics, machine tools, fabricated metal, electronics, pig iron and rolled steel products, aluminum, paper, wood products, construction materials, textiles, shipbuilding, petroleum and petroleum refining, food and beverages, tourism.
Exports - commodities:
transport equipment, machinery, textiles, chemicals, foodstuffs, fuels
Exports - partners:
Italy 13.4%, Slovenia 12.5%, Germany 11.4%, Bosnia and Herzegovina 9.9%, Austria 6.6%, Serbia 4.9% (2015)
Imports - commodities:
machinery, transport and electrical equipment; chemicals, fuels and lubricants; foodstuffs
Imports - partners:
Germany 15.5%, Italy 13.1%, Slovenia 10.7%, Austria 9.2%, Hungary 7.8% (2015)
Investment Climate - US State Department
Despite continuing challenges, Croatia welcomes foreign investment. The government is willing to meet at senior levels with interested investors and to assist in resolving problems. Strengths in the Croatian economy include low inflation, a stable exchange rate, developed infrastructure, and membership in the European Union (EU). Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals, and banking.
Following a decade of growth from the end of the war in 1995, investment activity in Croatia has slowed substantially since 2008 and has remained under historic levels despite the economy’s emergence from recession at the end of 2015. The banking system weathered the global financial crisis well, but has been saddled recently with financial costs related to the government-mandated conversion of Swiss Franc loans into euros. Croatia continues to maintain a large bureaucracy, significant state-owned sector with underperforming state enterprises, low regulatory transparency, and an inefficient judicial system that contributes to poor economic performance and low levels of foreign investment. Croatia became a member of the EU in 2013; this has enhanced stability and should eventually provide new opportunities for trade and investment, but Croatia has yet to access a substantial amount of the available EU funds, so not all direct economic benefits of EU entry have been felt. Like many newer EU member states, Croatia has struggled to put in place the necessary mechanisms and projects to efficiently absorb EU funds that would spur economic development.
The current government of Croatia came into power in January 2016 and has pledged to take legislative and administrative steps to reduce barriers to investment, streamline bureaucracy and public administration, and to program EU funds more efficiently. The new Prime Minister, who previously spent his entire career in the private sector, has signaled a commitment to wide-ranging structural reforms in line with recommendations from the EU and global financial institutions. The Finance Minister is also a business professional and well-regarded former Finance Ministry official. In addition to cutting the 2016 budget deficit to below EU-recommended levels, the Prime Minister has put forward an agenda including privatization of state-owned assets, reducing non-tax “para-fiscal” fees or levies for corporations, improving Croatia’s credit rating, reforming government procurement procedures, reaching out to potential international investors, and spurring entrepreneurship through additional financing for small and medium-sized enterprises.
Promised reforms to date, however, have been halting in the face of opposition from vested interests and key groups. Investors continue to complain about high “para-fiscal” fees, rigid labor laws, slow and complex permitting procedures, and a slow, sometimes unpredictable legal system. The government’s effectiveness in addressing these issues will play a key part assessing its ability to improve the investment climate in the coming years.
Other Useful Links