Croatia

Croatia Corruption Report

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Snapshot

Croatia_149x73.jpgModerate to high corruption risks, political patronage and inefficient bureaucracy are among the challenges companies may face when doing business in Croatia. Corruption and bribery are especially prevalent in the judiciary, public procurement, and the building and construction sector. The primary legal framework regulating corruption and bribery is contained in the Criminal Code and the Corporate Criminal Liability Act, which make individuals and companies criminally liable for corrupt practices including active and passive bribery, money laundering and abuse of functions. Facilitation payments are prohibited, and gifts may be considered illegal depending on their value or intent. Companies report that gifts in the form of drinks or food are common bribes and occasionally help to get things done.

Last updated: November 2017
GAN Integrity

Judicial System

There is a high risk of encountering corruption in the Croatian judiciary. Businesses perceive that irregular payments and bribes in return for favorable judicial decisions do occur (GCR 2015-2016). Businesses express low levels of confidence in the judiciary's independence and very low levels of trust in the efficiency of the legal framework in relation to settling disputes and challenging regulations (GCR 2017-2018). The long duration of proceedings, the possibility of political influence on judicial officials, and the possibility of bias in decisions of judges all lead to low levels of trust in courts and prosecutors (GRECO 2016). One in ten surveyed judges reported having been under inappropriate pressure to decide a case in a certain way (ENCJ 2017). About two out of five judges believe that appointments within the institution are made on the basis of other factors than experience and merit; more than half of judges believe the same regarding promotions (ENCJ 2017). The inefficient and at times unpredictable legal system is one of the greatest challenges facing companies seeking to invest in Croatia (ICS 2017). Even simple matters can take a long time to resolve, due to the courts backlog of several hundreds of thousand cases (ICS 2017). The judiciary has general and specialized courts, including four courts responsible for adjudicating corruption and organized crime cases in Zagreb, Rijeka, Split, and Osijek. The cases receive high priority in the justice system (ICS 2017). Croatia recognizes binding international arbitration, which may be included in investment agreements (ICS 2017). Enforcing a contract in Croatia takes longer than the regional average, but the costs involved are significantly lower (DB 2017).

In 2016, the Security and Intelligence Agency (SOA) identified twenty judges who posed a potential threat to national security and were believed to be engaged in potentially corrupt practices (NiT 2017). The judges were not named, and the report was largely ignored (NiT 2017). In a bid to downplay the report, the Minister of Justice suggested that this indicates that corruption in the judiciary is only a minor problem (NiT 2017). The report was released in the context of several allegations of inappropriate contacts between judges, including some belonging to the Constitutional Court, and parties with a stake in the cases (NiT 2017).

Croatia has signed the New York Convention of 1958 and is party to the International Center for the Settlement of Investment Disputes (ICSID).

Police

Corruption within the police force is a low to moderate risk for companies (UNODC 2013). Five percent of surveyed businesses gave money, a gift or counter favor on at least one occasion to the police (UNODC 2013). Half of Croatians believe the police is corrupt, but very few reported actually paying a bribe to the police (GCB 2013). The reliability of the police services to protect companies from crime is seen as adequate (GCR 2017-2018). Croatian authorities maintain effective control over the police and there have not been any recent reports of impunity (HRR 2016).

Public Services

There is a moderate to high risk of corruption in Croatia's public services sector. One in six companies expect to give gifts to public officials to get things done (ES 2013). Rather than cash, companies report that gifts in forms of hospitality are common bribes (UNODC 2013). Nearly four out of five business executives agree that bribery and corrupt practices happen widely in businesses in Croatia (EY 2017). Businesses seeking to invest in Croatia should further note that political patronage and nepotism are widely exercised in the public sector (BTI 2016). About one in seven civil servants surveyed admitted to having obtained their job with the help of a bribe (EUACR 2014). Inefficient government bureaucracy and policy instability are the most frequently cited problematic factors for businesses (GCR 2017-2018). Croatia has a large inefficient government bureaucracy with low regulatory transparency (ICS 2017). Dealing with bureaucracy and regulation can be complex and time consuming, although the government is actively removing unnecessary regulations (ICS 2017). It is estimated that Croatia loses almost fifteen percent of its GDP to corruption each year (RAND Europe 2016).

Starting a business takes significantly more steps but also requires less time than the regional average (DB 2017). Dealing with construction permits similarly involves more steps but requires less time than elsewhere in the region (DB 2017).

Land Administration

There is a moderate to high risk of corruption in Croatia's land administration. Corruption in Croatia is especially prevalent in the building and construction sectors (ICS 2017; UNODC 2013). Around one in seven firms expect to give gifts when obtaining a construction permit (ES 2013). When buying land, investors should beware of the Agricultural Land Act, which imposes additional fees on purchases of agricultural land when used for construction purposes (ICS 2017). There may also be unresolved legacy issues with this type of land (ICS 2017). At times, inheritance laws have created situations where dozens of people have a claim to the same piece of land (ICS 2017). With a complex and still developing land registry system, companies are advised to seek explanation of ownership rights before acquiring property (ICS 2017). The government is undertaking reforms to the land registry system (ICS 2017).

Due to a lengthy process of registering the title transfer at the Land Registration Court and at the municipal tax administration, registering property takes three times the regional average (DB 2017).

Tax Administration

There is a moderate to high risk of corruption in Croatia. Irregular payments are perceived as common practice during meetings with tax officials (GCR 2015-2016). One in twenty surveyed businesses report to have occasionally offered tax officials money, a gift or a favor (UNODC 2013). Nearly half of Croatians believe corruption is widespread among tax officials, but only one percent of Croatians surveyed indicated having paid a bribe to the tax agency in the preceding year (Eurobarometer 2014, GCB 2013). Tax regulations are considered an obstacle to doing business (GCR 2017-2018). The tax administration plays a proactive role in fighting corruption (ICS 2017); Croatia established the Office for Fighting Tax Evasion in late 2014 (BTI 2016).

In recent years, Croatia has made filing taxes more complicated by eliminating the reduction of the Chamber of Commerce fee for new businesses; companies make nearly twice as many payments compared to the regional average, but the time involved is in line with the regional average (DB 2017).

Customs Administration

There is a moderate to high risk of corruption in Croatia's customs administration. Businesses indicate that bribes during customs procedures do occur (GETR 2016). Bribes are reportedly being used by businesses to overcome lengthy bureaucratic procedures (UNODC 2013). In effect, burdensome procedures at the borders are among the main constraints for importing in Croatia (GETR 2016). Companies express moderate satisfaction with the efficiency of the clearance process, but the time-predictability of import procedures remains lacking (GETR 2016). 

The cost and time required to comply with import procedures are far below the OECD high income average (DB 2017).

Public Procurement

There is a high risk of corruption in Croatia's public procurement sector. More than 60 percent of companies believe that corruption is widespread in public procurement managed both by national and local authorities (European Commission, Feb. 2014). Irregular payments and bribes are commonly made in the process of awarding public contracts and licenses (GCR 2015-2016). Furthermore, companies indicate that favoritism in the decisions of government officials and diversion of public funds are both very common (GCR 2017-2018). Two out of five companies believe they have lost out on a public tender contract due to corruption (European Commission, Feb. 2014). Corruption-related offenses in public procurement has impacted up to 15 percent of the value of public contracts (European Commission, Feb. 2014). The most common form of corruption in public procurement procedures is tailor-made specifications for certain tender participants (European Commission, Feb. 2014). A study found that Croatia's corruption levels are among the highest in Europe and it estimates that the introduction of e-procurement could reduce corruption levels and provide savings of EUR 10 billion yearly (RAND Europe 2016).

A procurement official with the Defense Ministry and a supplier were indicted for bribery in a tender for a maintenance and procurement contract for MiG fighter jets (Balkan Insights, Dec. 2016). The official asked for bribes of EUR 50,000 from applicants; the supplier agreed and paid at least EUR 10,000 on two separate occasions (Balkan Insights, Dec. 2016). Companies are recommended to implement special due diligence procedures to counter the likelihood of encountering corruption in the procurement process.

Natural Resources

In 2015, former Prime Minister Sanader was sent for a retrial for accepting a 10 million euro bribe from the Hungarian oil group MOL in return for allowing them to acquire the majority stake of the Zagreb-based refiner INA Industrija Nafte (Reuters, Jul 2015). This follows an earlier conviction, and overrules an eight and a half year sentence. The Croatian anti-corruption agency also charged MOL Nyrt. Chairman Zsolt Hernadi with bribery; however Hungary has refused his questioning (Bloomberg Business, Aug. 2015). Croatia lost an arbitration case against INA; the case against Sanader remains in court (Reuters, Feb. 2017).

Legislation

The Croatian Criminal Code applies equally to domestic and foreign investors and covers acts such as trading in influence, abuse of official functions, active and passive bribery, embezzlement of public and private property, and money laundering. Private sector bribery is criminalized (CMS 2016). Penalties include imprisonment of up to eight years for individuals (CMS 2016). Companies as entities can be held liable for acts of corruption (CMS 2016). Penalties for companies can include seizure of the benefit obtained, a fine of up to HRK 12 million, among other measures (CMS 2016). Facilitation payments are illegal (CMS 2016). Gifts are in principle considered to be a bribe, except for when their value is below HRK 500 and the gift does not put the official in a dependent position in relation to the donor (CMS 2016). Public officials must declare their assets, but the corresponding sanctioning system has failed to show its effectiveness so far (EUACR 2014). Corruption is also addressed in several laws: the Corporate Criminal Liability Act, the Conflict of Interest Prevention Act, the Money Laundering and Terrorist Financing Act, the Civil Servants Act, the Code of Conduct for Public Officials, and the Code of Judicial EthicsThere is no single law protecting whistleblowers, but whistleblowers are afforded some protections under the Labour ActThe anti-corruption framework is generally considered adequate (ICS 2017). The government effectively implements the provisions of the framework (HRR 2016). Corruption cases have high-priority in courts and several convictions have been enforced against high-ranking officials (ICS 2017; BTI 2016).

Croatia has not signed the OECD Anti-Bribery Convention. It is signatory to the United Nations Convention Against Corruption (UNCAC) and the Council of Europe’s Civil and Criminal Law Conventions against Corruption, and is a member to the peer review organization Group of States Against Corruption (GRECO).

Civil Society

Despite freedoms of press and expression being generally upheld in Croatia, some journalists, especially those reporting on corruption, face unchecked harassment (FotP 2015). Media and government accountability is hampered by a lack of transparency in media ownership (HRR 2016). The state has tolerated harassment against journalists, but physical violence against reporters has significantly decreased in recent years (FotP 2015). The government generally does not censor media outlets (BTI 2016). Croatia's media environment is rated as 'partly free' (FotP 2016).

Non-governmental organizations operate freely in Croatia (HRR 2016). Civil society in Croatia is vibrant and diverse, but ideological polarization between left and right can also be felt in the civil society sector (NiT 2017). The government actively engages with civil society actors (BTI 2016). Even though civil society is continuously increasing its influence on public opinion, the level of social trust remains low among the larger population (BTI 2016). The government and labor unions have a tense relationship and were unable to establish an effective dialogue (NiT 2017).

Sources

Topics: Europe & Central Asia