- Removing Croatia from the FATF ‘grey’ list should have been a priority for the Ministry of Finance and HNB.
- However, the final step must still be taken by the Ministry of Foreign and European Affairs.
- Due to the ‘grey’ list and additional security checks, opening online accounts for Croatian companies is becoming increasingly difficult.
Next year, we are expecting the last important membership, that in OECD. For that, we must make some ‘sacrifices’, more precisely, smooth out things we otherwise would not, such as changing the law on the management of state-owned enterprises and fixing deficiencies in the system for preventing money laundering and financing terrorism. The latter is not going well for us. Perhaps it would if media attention were focused on the topic all the time, rather than from case to case.
Namely, some coverage was given when we were placed on the so-called grey list of countries with a lot of tasks left to do in preventing money laundering by FATF (Financial Action Task Force) last June. Then, it was again covered recently when the placement on the grey list began to reflect quite practically – with the cancellation of cooperation by some, primarily American, banks with Croatian clients and the announcement of account closures. The topic became short-term attractive, especially since one of the most visible startup founders, Albert Gajšak, owner and director of the IT startup CircuitMess, spoke openly about it, although the reaction of American banks affected at least 40 companies, mostly from the startup and fintech community. A month after the ‘affair’, not a word was mentioned, and clients of those banks, primarily Mercury, were left to fend for themselves. There is no doubt they will, but that is not the point of the case.
As Goran Jeras, an expert in ethical and digital financing, says, the problems with Croatia’s inclusion on the ‘grey’ list are only becoming more seriously visible after various financial institutions worldwide, due to the instructions of their regulators, began to introduce additional requirements for doing business with Croatia into their internal procedures or, as seen in some cases, are starting to completely suspend it.
– The case of the Mercury digital payment platform, which unilaterally closed accounts for Croatian companies, was most mentioned in the media. This case resonated because startups are generally visible, and Mercury was a kind of ‘standard’ of business in the startup community. Less visible, but also widespread, is a whole range of investment platforms that prevent Croatian citizens from opening investment accounts with them. Similarly, companies from Croatia that operate with cryptocurrencies and various alternative types of investments are facing account closures, which prevents them from providing normal services.
The most widespread form of problems that the largest number of firms and individuals have certainly encountered are special procedures of banks and transactional platforms that require adding recipients to the ‘white list’ before the bank executes a transaction to that client or requests for additional checks on transactions coming to Croatia from non-EU countries. Such procedures often create problems in business, as the execution of transactions is delayed and leads to misunderstandings with clients and customers. We can expect that such a set of problems will continue to occur as more financial institutions begin to align with the FATF list, which means that the implementation of recommendations necessary to remove Croatia from the FATF list should be one of the highest priorities for the Ministry of Finance and the HNB, which are primarily responsible for their implementation – Jeras points out.
Measures at Their Own Discretion
However, the HNB responds that state bodies are actively working in accordance with the deadlines set in the FATF Action Plan to implement all other measures aimed at strengthening the effectiveness of the Croatian system for preventing money laundering and financing terrorism.
– Regarding the problems that arise in the business of certain Croatian entrepreneurs due to Croatia being placed on the so-called ‘grey list’, it is very important to emphasize that FATF does not prescribe or recommend the implementation of special measures against individuals or legal entities from countries on that list, such as, for example, additional checks, refusal to establish or terminate already established business relationships. It is clear that some foreign financial institutions apply these measures at their own discretion, or according to stricter criteria than FATF.
The Croatian National Bank cannot influence the actions of foreign financial institutions towards Croatian business entities, as such actions fall within their business decisions, and the Croatian National Bank is not responsible for their supervision. Regarding the tasks of the Croatian National Bank, it is important to note that none of the remaining measures in the FATF Action Plan for the Republic of Croatia relate to measures that banks or the Croatian National Bank as their supervisor should take. However, the bank actively collaborates with all stakeholders in the system for preventing money laundering and financing terrorism involved in the implementation of the Action Plan, all in accordance with its legal competencies and obligations. Among other things, the Croatian National Bank also participated in drafting the new Law on Restrictive Measures – the HNB stated.
The Problem Needs to Be Solved – MVEP?
However, from the fintech community, we learn that the problem is not in the HNB or the Ministry of Finance but in the last step that must be taken by the Ministry of Foreign and European Affairs! It was supposed to forward everything received from the competent institutions to FATF. And it did not.
– We understand that the Ministry of Foreign Affairs is not specialized in financial operations nor does it have such staff, but its only task was to forward everything it received from the HNB and the Ministry of Finance. However, they have fallen asleep at the wheel! Last year, when we appeared on the grey list, the government stated that it was a priority and that the whole matter would be resolved in three to four months, but more than a year has passed, and such purely procedural matters have still not been resolved, as they are clearly not a priority. Our community has organized itself after that last summer blow, startups like Gajšak’s will also manage to find another bank where they can open an account, but what kind of message is that to the business community? Figure it out yourself, because politics is not doing its job? – asks our interlocutor from the fintech community, adding that companies dealing with new technologies are often categorized as high-risk, so when companies enter into a business relationship with some foreign bank/platform, they must go through a set of additional procedures and criteria, among other things due to the law on preventing money laundering.
If a company is from a country that is on the ‘grey’ list like Croatia, the bank must introduce additional checks, which is a pure cost for it, so it is easier and cheaper for it to close accounts for such clients, which has now happened, or to refuse them if they are new potential clients.
To the USA for an Account
The HNB adds that by being placed on the ‘grey list’, Croatia has not become high-risk but has committed at the highest political level to improve the system for preventing money laundering and financing terrorism in accordance with the adopted FATF Action Plan.
– FATF continuously monitors and assesses Croatia’s progress and has noted in its previous reports that Croatia has made visible and measurable progress in implementing the measures from the FATF Action Plan. Since June 2023, Croatia has implemented a series of measures to improve the effectiveness of the system for preventing money laundering and financing terrorism: a National Risk Assessment of money laundering and financing terrorism has been adopted; an Action Plan for addressing the risks identified in the National Risk Assessment of money laundering and financing terrorism has been adopted; a legislative framework for the implementation of UN targeted financial sanctions has been established without delay by adopting the Law on Restrictive Measures; effective implementation of United Nations targeted financial sanctions has been ensured; the risk of the non-profit sector for financing terrorism has been assessed; an effective system for conducting parallel financial investigations in potential cases of terrorism or financing terrorism has been established – the HNB specifies.
However, practical problems for domestic companies have not disappeared. Due to positioning on that grey list and additional ‘security’ requirements and checks that foreign banks/platforms must seek due to their regulators, opening online accounts will become increasingly difficult. This means that entrepreneurs will even have to physically travel, say to the USA (which is neither close nor cheap), although even that is not a guarantee that their account will ultimately be opened. And politics usually does not understand or care. Therefore, it would be very wise, and extremely useful for future relations between politics and entrepreneurs, to force those unknowns who have put the ‘papers’ in a drawer to get on the road for negotiations about opening accounts. Surely they would then understand what they have done. More precisely, what they have failed to do.
