Concerns Raised over Proposed Acquisition Involving Money Laundering or Terrorist Financing

The Croatian National Bank (CNB) has announced plans to scrutinize the criminal records of potential acquirers of a qualified holding in the country’s banking sector. The move comes amid concerns that the proposed acquisition could increase the risk of money laundering and terrorist financing.

Background

Under the Credit Institutions Act, banks operating in Croatia are required to maintain a minimum capital adequacy ratio, with initial capital requirements set at least EUR 5 million. However, experts warn that lax regulations and inadequate supervision can lead to vulnerabilities in the financial system, making it easier for criminals to exploit.

Basel III Framework

The Basel III framework has been implemented in Croatia, with a focus on strengthening risk management practices and improving regulatory oversight. However, concerns persist over the potential for money laundering and terrorist financing through the banking sector.

Organizational Requirements

Clear Lines of Authority and Responsibility

Banks operating in Croatia are required to establish effective organizational systems.
The CNB also requires banks to maintain recovery plans and remuneration policies that promote appropriate risk management.

However, experts warn that inadequate governance structures and weak oversight can create opportunities for criminal activity. The proposed acquisition could further exacerbate these risks if the acquiring entity lacks robust anti-money laundering and terrorist financing controls.

The Companies Act in Croatia allows companies to grant loans to members of their management board, procurators, and immediate family members, subject to approval by the supervisory board.
Experts warn that this can create conflicts of interest and opportunities for abuse if not properly managed.

Risk Management Provisions

Risk Committee Oversight

Under the Credit Institutions Act, banks operating in Croatia are required to establish risk committees to oversee risk management practices.
The committee must review the bank’s business model and risk strategy, as well as review whether pricing claims and liabilities to clients reflects the risks assumed by the bank.

However, experts warn that inadequate risk management practices can create vulnerabilities for money laundering and terrorist financing. The proposed acquisition could further exacerbate these risks if the acquiring entity lacks robust risk management controls.

Conclusion

The proposed acquisition of a qualified holding in Croatia’s banking sector raises concerns over potential money laundering and terrorist financing risks. While regulatory frameworks are in place, experts warn that inadequate governance structures, weak oversight, and lax regulations can create vulnerabilities for criminal activity.

As such, it is crucial that the CNB conducts thorough due diligence on the proposed acquirer to ensure that they have robust anti-money laundering and terrorist financing controls in place. The public’s trust must be maintained by ensuring that our financial institutions operate with integrity and transparency.