CROATIA: TACKLING MONEY LAUNDERING
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In June 2023, Croatia was added to the Financial Action Task Force (FATF) grey list, which identifies jurisdictions with strategic deficiencies in their anti-money-laundering (AML) and counterterrorism-financing (CTF) regimes. The grey list serves as a public warning that a country may not be managing its AML/CTF risks effectively and requires that countries address their deficiencies before they can be removed. At the time, Croatia was the only EU country on the list, with Bulgaria joining it a few months later. Croatia’s Mutual Evaluation Report (MER), published in 2021, highlighted significant weaknesses in the country’s AML/CTF framework. These include:
- Uneven understanding of money laundering and terrorist financing risks.
- A low number of money-laundering convictions.
- Deficiencies in detecting and investigating terrorist financing.
- Issues with identifying non-profit organisations vulnerable to terroristfinancing abuse.
The report also identified tax crime, corruption and drug trafficking as the main predicate crimes in Croatia. It is important to note that, in addition to the MER, other reports have expressed concerns about the robustness of Croatia’s financial system. GRECO (the Council of Europe’s Group of States against Corruption), in its 2020 report, made recommendations for Croatia to prevent corruption in government and the police. The EU’s National Recovery and Resilience Plan for Croatia also prioritised combating corruption as a critical reform initiative.
Croatia now faces the challenge of addressing these vulnerabilities and ensuring the financial integrity of the country, a task which is particularly important in light of Croatia’s aspirations for membership of the OECD.
Recognising the key role that civil society organisations (CSOs) can play in holding the government accountable for delivering the changes needed, the Centre for Finance and Security at RUSI, together with CROSOL (Croatian Platform for International Citizen Solidarity), held a roundtable in June 2024. This roundtable brought together local CSO representatives and investigative journalists to discuss the latest mutual evaluation of Croatia and the repercussions of its grey listing. This conference report reflects the key points from both the roundtable discussion and one-on-one meetings held in Croatia. This engagement is part of RUSI’s Restricting Kleptocracy project5 and is supported by the National Endowment for Democracy. None of the comments in this report are attributable. Croatia in Close Review.
In framing the discussion, participants highlighted several critical challenges for Croatia in ensuring its financial integrity.
First, participants noted that Croatia is no stranger to corruption scandals. In 2022, the European Public Prosecutor’s Office launched 23 investigations in Croatia related to fraud and corruption involving EU funds, with total estimated damages exceeding €313 million. Additionally, investigations against four individuals were opened in 2023. Croatia’s score in Transparency International’s Corruption Perception Index is below the EU average, highlighting the perceived scale of corruption in the country.
Second, judicial independence and opacity, particularly regarding the selection of judges, has been a major concern in the country. In the 2023 EU Justice Scoreboard, Croatia was placed last among EU countries for perceived judicial independence. It was noted by participants that some judges have been investigated and prosecuted for corruption, further undermining confidence in the judicial system.
Third, the issue of corruption and money laundering through the real estate sector was highlighted. House prices in Croatia have risen substantially over the last decade, and according to 2023 statistics, the country experienced the highest annual increase in the real estate sector among the 27 EU member states. A participant noted that one of the drivers of this price rise is the influx of foreign investment in the Croatian real estate market, particularly from neighbouring Eastern European and Balkan states. In some of these cases, it may be that illicit funds from other countries are laundered through investment in properties in Croatia using cash. This trend was also reflected in Croatia’s MER, which identified one of the key money laundering issues as foreign criminals funnelling funds into the Croatian financial system through real estate investments. One participant also felt that Croatia’s demographic challenge of a 10% population decline due to emigration partly stems from housing issues, which are worsened by associated corruption. However, journalist participants noted that when seeking to report on these problems, they face obstacles due to outdated beneficial ownership information in property registers, complicating efforts to identify the true owners of real estate.
Challenges on the Ground
Beyond identifying the key challenges Croatia is facing, participants also focused on specific areas that create barriers for journalists and CSOs in holding the government to account and in engaging in the FATF process.
Lack of Pressure Mechanisms
A member of the EU since 2013, Croatia joined the Eurozone in January 2023. While Croatia’s EU accession was a long-awaited achievement, participants agreed that it also means that, with this process completed, there are currently not enough ‘sticks and carrots’ from the EU to effectively pressure Croatia. One participant noted that it was surprising to see the country completing all criteria for joining the Eurozone but then being put on a grey list a few months later for deficiencies in its AML/CTF system. Despite this, however, CSO participants acknowledged the utility of the EU’s Rule of Law Report and their ability to contribute to it, highlighting this as a key avenue to voice their concerns and elevate them at the EU level. Similarly, it was agreed that there was a lack of pressure from within the country to tackle money laundering and terrorist financing. This was noted to be due to both insufficient knowledge and awareness of the FATF processes at the CSO level and the public’s desensitisation to corruption news stories due to their frequency. Consequently, there is a general apathy towards these issues, reducing the willingness to call for significant action.
It was also highlighted that, at the government level, there is a tendency to downplay issues related to corruption and financial crime. For example, after Croatia’s grey-listing, the Ministry of Finance stated, ‘Placement under additional supervision, the so-called grey list, does not mean that Croatia has become a high-risk country, but that Croatia commits itself to the FATF to actively cooperate and quickly implement certain measures within the agreed time frames.’ One participant commented that this statement reflects the government’s inclination to minimise the significance of the grey-listing. Another journalist participant particularly emphasised this, observing that any questions addressed to the relevant government officials by journalists regarding financial crimes often receive responses downplaying the issue as exaggerated or irrelevant. Journalists, in return, are frequently bombarded by officials with data/facts which do not address the substance of their questions, further complicating their efforts to hold the officials accountable.
However, participants also highlighted that the country’s application for OECD membership represents a potential mechanism capable of exerting additional pressure. Croatia’s acceptance into OECD membership has been a top political priority, with Prime Minister Andrej Plenković announcing that the process will be finalised by the end of 2025, with a target of achieving formal membership in 2026. This was identified by the participants as a potential entry point to advocate for change.
Lack of Data Accessibility
Participants also highlighted the issue of accessing data to call for accountability and ensure fiscal transparency and integrity, and the ways in which this lack of access limits the work of journalists and CSOs. In fact, Croatia’s fourth Open Government Partnership Initiative Action Plan identifies open data as a crucial area requiring reform, aiming to expand the quantity of open data and promote its reuse. It was argued during the roundtable that collecting quantitative data posed a problem in many areas, with a lack of capacity in relevant government agencies to methodically gather the data. The EU’s 2023 Open Data Maturity Report noted that Croatia and Romania were the only two EU countries without an action plan to support the delivery of the policies and goals in their open data strategies; this underscores the concerns of participants. This challenge was also echoed in the MER report, which found that the absence of quantitative data affected the money-laundering/terrorist-financing risk assessment and understanding.
The poor quality of the existing data and the difficulty in identifying key contact points for effective communication with the government were also identified by participants as key problems limiting journalists’ ability to verify information or grasp the significance of topics within the broader context. Participants agreed that insufficiently maintained statistics hinder informed reporting and comprehensive analysis by journalists in Croatia.
The Media Landscape
The lack of media independence was identified by participants as a key concern in the country. Participants noted two significant trends within the media landscape: insufficiency of financial resources for independent journalists; and pressure from various actors to shape narratives, particularly regarding sensitive topics such as financial crime and corruption.
The pressure on Croatian journalists has become increasingly worrying, with the Association of Croatian Journalists having issued warnings about the rising number of SLAPPs (Strategic Lawsuits Against Public Participation) brought against them. The Centre for Peace Studies, in its report on persistent challenges in the country, highlighted that ‘efforts to ensure fair allocation of state advertising and combat SLAPPs have seen minimal advancement since the publication of the EU Commission’s Rule of Law Report in 2023’. Croatia’s leading anticorruption NGO, Gong, also produced a report on the topic, emphasising the problems faced by journalists, including self-censorship, pressure from advertisers, selective reporting, and restrictions on content. Nevertheless, one participant pointed out that the difficulty of reporting on corruption goes beyond the media freedom issue and is also rooted in the current prevailing business model of news organisations. Most news agencies in the country operate with limited funding and rely heavily on advertisers. Consequently, journalists face pressure to rapidly produce news on a wide range of topics. This business model discourages them from developing specialist expertise on topics including financial integrity or FATF matters; instead, they are required to be versatile to meet the business’s needs. Next Steps
During the discussion, attending CSOs and investigative journalists also proposed specific action points on how they could contribute to the robustness of the financial system in Croatia. Several actionable ideas were noted:
- EU Rule of Law Report: It was agreed by participants that the EU’s Rule of Law Report is the best entry point to highlight the on-the-ground challenges because it offers a direct channel for civil society to submit concerns and ideas around the issue of financial justice. Recognising the report’s publication timing in July, which typically receives less media attention, CSO participants proposed organising public events and conferences to amplify its impact and foster informed public discourse, underlining in particular the content related to financial integrity.
- Changing the public narrative: CSO participants recognised the importance of connecting the technicalities of Croatia’s grey-list status with tangible, everyday concerns that resonate with the public. CSOs proposed focusing advocacy efforts on specific topics that resonate locally, such as access to real estate or the cost of living crisis, and demonstrating how these issues intersect with money laundering or other relevant financial crimes. By integrating these discussions into broader conversations on the rule of law, wider societal engagement, particularly among younger demographics, could be achieved.
- Tracking and effective coordination: CSO participants committed to mapping all relevant reports outlining actions Croatia must take to combat financial crime, including the GRECO report and commitments requested in the EU’s National Recovery and Resilience Plan. In addition to this mapping exercise, they committed to establishing robust coordination mechanisms among themselves, forming strategic partnerships with the media. Each organisation agreed to proactively monitor specific issues, ensuring accountability for those responsible, and driving effective action.
- Utilising other networks at the European level: CSO participants recognised the strategic advantage of their streamlining issues and advocating for themselves at the EU level through established CSO networks such as Eurodad. The CSOs noted that leveraging these broader networks enhances their advocacy impact, particularly in addressing complex issues like tax crimes. Croatia’s grey listing by the FATF underscores the need for substantial measures to enhance the country’s financial integrity. Persistent issues like corruption scandals, a lack of confidence in the judicial system and money laundering in the real-estate sector remain significant challenges in the country. While CSOs and investigative journalists recognise their potential role in driving change, they face obstacles due to a lack of existing pressure mechanisms, limited data access and restricted media freedom. Despite these complexities, all participants agreed that meaningful change could be achieved through the collective efforts of CSOs on the ground in identifying key entry points and coordinating their actions at the local and EU levels.
About the Author
Arzu Abbasova is a Research Analyst in the Centre for Finance and Security research group at RUSI. Her research focuses on the FATF standards and anticorruption efforts. The views expressed in this publication are those of the author, and do not reflect the views of RUSI or any other institution. Published in 2024 by the Royal United Services Institute for Defence and Security Studies. This work is licensed under a Creative Commons Attribution – Non – Commercial – No – Derivatives 4.0 International Licence. For more information, see http://creativecommons.org/licenses/by-nc-nd/4.0/
The Royal United Services Institute (RUSI) is the world’s oldest and the UK’s leading defence and security think tank. Its mission is to inform, influence and enhance public debate on a safer and more stable world. RUSI is a research-led institute, producing independent, practical and innovative analysis to address today’s complex challenges. Since its foundation in 1831, RUSI has relied on its members to support its activities. Together with revenue from research, publications and conferences, RUSI has sustained its political independence for 193 years.
