Croatia Becomes Only Second EU Member To Be Greylisted

June 27, 2023
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The Financial Action Task Force’s (FATF) increased monitoring list has added three new members, including the Balkan State, after the watchdog completed its plenary session.

The Financial Action Task Force’s (FATF) increased monitoring list has added three new members, including the Balkan State, after the watchdog completed its plenary session.

The FATF financial crime body has added Croatia to its list of greylist jurisdictions alongside Vietnam and Cameroon.

The decision means that Croatia is the only EU jurisdiction on the list, and only the second time a member state from the bloc has been included following Malta, which was removed from the list last year.

Other notable jurisdictions currently on the greylist include United Arab Emirates, Turkey and South Africa.

When FATF places a jurisdiction under increased monitoring, it means the country has committed to swiftly resolve the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.

When Malta was added in 2021, it was able to resolve its issues within a year of being listed.

Other countries have been on the greylist longer, such as the Cayman Islands, which has been under increased monitoring since 2021.

Albania, meanwhile, has been on the list since 2020.

Being on the greylist can inevitably have negative effects on countries.

For example, an International Money Fund (IMF) working paper on the impacts of a FATF greylisting warns the move typically has a “significant negative impact on a country’s capital flows”.

“The magnitude of the negative effect is large, on average -7.6 percent of GDP. It varies, however, by type of capital flow,” according to the IMF paper.

Previous VIXIO research found that SWIFT monthly numbers of cross-border payments between 2004 and 2014 show a 7-10 percent reduction in the number of payments sent to a greylisted country by the rest of the world.

Additionally, if Malta is anything to go by, it is likely that there will be an increase in regulatory activity in the country.

For example, VIXIO found that in the months after Malta joined the greylist, regulatory impact based on our indexing of regulatory activity rose tenfold, and way above the global average.

The EU’s AML problem continues

Croatia’s placing on the list will not go down well in Brussels.

The EU has long tried to tighten its anti-money laundering rules, and this is more bad publicity following Malta’s turn on the greylist and scandals such as that of Danske Bank.

When approached by VIXIO, a spokesperson for the European Commission signalled the institution’s support for Croatia, pointing out that FATF’s decision is the result of an assessment of the progress made by Croatia since 2021 to ensure that its national anti-money laundering/counter-terrorism financing (AML/CTF) framework is solid enough to prevent and combat money laundering and terrorist financing.

“Croatia has already demonstrated considerable progress since then,” the spokesperson said, adding that FATF assessed that 41 of the 66 recommended actions contained in the country’s mutual evaluation report have already been addressed.

The remaining deficiencies, meanwhile, mostly relate to the effectiveness of Croatia’s AML/CTF framework, which the commission said typically takes more time to demonstrate.

“Croatia has already initiated the necessary steps to address those remaining deficiencies. We are confident that Croatia will have addressed them by next year and will be delisted by FATF,” the spokesperson said.

“The commission will fully support Croatia on this track. Croatia has a solid regime in relation to many aspects, and it is committed to cooperate with FATF to address the remaining gaps.”

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