Financial Crime World

Money Laundering and Terrorist Financing Risks in Croatia’s Legal Sector

Introduction

A recent report has highlighted the vulnerability of lawyers in Croatia to money laundering (ML) and terrorist financing (TF). This is due to factors such as ease of access to legal professionals, legal professional privilege, and confidentiality. The sector has seen a small number of suspicious transaction reports (STRs), primarily due to insufficient legislative provisions, lack of awareness, and infrequent supervision.

Risk Perception Among Lawyers

Recent developments have shown an increase in risk perception among lawyers, with 41% declaring compliance with Anti-Money Laundering and Terrorist Financing Law (AML/TF law) in 2018. However, the medium risk of ML/TF remains in the sector, with transactions related to real estate purchase/sale and company establishment being considered high-risk.

Notaries at Risk

Notaries also face a risk of ML/TF, particularly in transactions involving trusts, companies, foundations, or similar structures, and real estate transactions for customers. The Financial Inspectorate filed four indictments between 2014–2018, primarily related to determining the beneficial owner, data and records keeping, due diligence measures, risk assessment, STRs, and monitoring.

Key Findings and Recommendations

  • Increased Risk Perception: Lawyers in Croatia have shown an increase in risk perception, but more work is needed to ensure compliance with AML/TF law.
  • Notary Sector Vulnerabilities: Notaries face a risk of ML/TF in transactions involving trusts, companies, foundations, or similar structures, and real estate transactions for customers.
  • Financial Inspectorate Action: The Financial Inspectorate should continue to file indictments and monitor the sector to prevent ML/TF.
  • Education and Supervision: Education and supervision are crucial to enhance awareness of ML/TF risks among lawyers and notaries.
  • Due Diligence Measures: Proper due diligence measures and suspicious transaction reporting are essential in preventing ML/TF.

Conclusion

By addressing these issues, Croatia can further reduce the risk of ML/TF in the legal and notary sectors. It is essential to prioritize education, supervision, and compliance with AML/TF law to prevent money laundering and terrorist financing activities.