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03ZAGREB1031 2003-05-09 13:32:00 CONFIDENTIAL Embassy Zagreb
Cable title:  

CROATIA DECIDES TO ACCEPT UNFROZEN FUNDS "WITHOUT

Tags:   PREL EFIN ECON MK SR BK SI MW HR 
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					  C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 001031 

SIPDIS

TREASURY FOR OFAC
EUR/SCE FOR DNYSTROM

E.O. 12958: DECL: 05/09/2013
TAGS: PREL EFIN ECON MK SR BK SI MW EFIN ECON MK SR BK SI MW HR HRPREL
SUBJECT: CROATIA DECIDES TO ACCEPT UNFROZEN FUNDS "WITHOUT
PREJUDICE" TO RATIFICATION OF ASI
CONFIDENTIAL


PAGE 02 ZAGREB 01031 01 OF 02 091345Z

REF: STATE 117150 (NOTAL)

CLASSIFIED BY: ECONOMIC OFFICER ISABELLA DETWILER: REASON 1.5 (B AND D)

SUMMARY
--------


1. (C) AT A CLOSED SESSION ON MAY 8, THE CROATIAN
CABINET FORMALLY DECIDED TO ACCEPT FUNDS FROZEN IN THE
U.S. UNDER MILOSEVIC-ERA SANCTIONS. ON MAY 7
WE MET WITH MFA SENIOR LEGAL ADVISOR ANDREJA METELKO-
ZGOMBIC AND AMERICA'S DESK DIRECTOR MIROSLAV KOVACIC TO
PRESS FOR CROATIAN ACCEPTANCE. THIS ISSUE WAS ALSO
RAISED DURING THE SECRETARY'S MEETING WITH FM PICULA ON
THE MARGINS OF THE SIGNING OF THE ADRIATIC CHARTER ON MAY


2.



2. (SBU) ON MAY 9 WE CONFIRMED WITH METELKO-ZGOMBIC THAT
THE CABINET HAD DECIDED TO ACCEPT THE FUNDS, WHILE NOT
PREJUDICING THE PARLIAMENT'S DECISION ON WHETHER TO
RATIFY THE AGREEMENT ON SUCCESSION ISSUES (ASI). IN
COMMENTS TO THE PRESS AFTER THE CABINET SESSION,
GOVERNMENT OFFICIALS ALSO ANNOUNCED IT WOULD SEEK LEGAL
ACTION AGAINST ONE OF THE JOINT VENTURE BANKS IN GERMANY,
WHERE DEPOSITS MYSTERIOUSLY ERODED. METELKO-ZGOMBIC
STATED THAT THE PURPOSE OF THE LEGAL ACTION WOULD BE TO
TRY TO FORCE DISCLOSURE OF THE HISTORY OF THE ACCOUNTS,
THOUGH IT WAS POSSIBLE THAT SOME SORT OF RESTITUTION
MIGHT BE SOUGHT. END SUMMARY.



3. (SBU) ON MAY 8, IN A CLOSED CABINET SESSION, THE
CONFIDENTIAL

PAGE 03 ZAGREB 01031 01 OF 02 091345Z
GOVERNMENT DECIDED TO ACCEPT THE APPROXIMATELY $56
MILLION TRANSFER FROM THE USG. DEPUTY FOREIGN MINISTER
IVAN SIMONOVIC WAS QUOTED AS SAYING THAT THE GOVERNMENT
WAS MIXING "PRINCIPLES WITH PRAGMATISM," STRESSING THAT
ACCEPTING THE MONEY DID NOT MEAN THAT CROATIA WOULD
RATIFY THE ASI. SIMULTANEOUSLY, OFFICIALS ANNOUNCED THE
DECISION TO FILE A LAWSUIT AGAINST THE LHB BANK IN
GERMANY, APPARENTLY PARTIALLY OWNED BY SLOVENIA'S
LJUBLJANSKA BANKA. IN RESPONSE TO OUR QUERY, METELKO-
ZGOMBIC CLARIFIED THAT THE PURPOSE OF THE LAWSUIT WOULD
BE TO EXTRACT INFORMATION ABOUT THE DISAPPEARING
DEPOSITS, THOUGH SHE DID NOT EXCLUDE THE POSSIBILITY OF
SEEKING SOME SORT OF COMPENSATION FROM THE BANK.



4. (SBU) THE DAY BEFORE THE DECISION, WE MET WITH MFA
SENIOR LEGAL ADVISOR ANDREJA METELKO-ZGOMBIC AND
AMERICA'S DESK DIRECTOR MIROSLAV KOVACIC TO PRESS FOR
CROATIAN ACCEPTANCE OF THE FUNDS FROZEN IN THE U.S. UNDER
MILOSEVIC-ERA SANCTIONS. WE STRESSED THAT WE SAW THE
DISBURSEMENT OF THE FUNDS IN THE U.S. AS SEPARATE FROM
THE ISSUE OF THE ASI, ALTHOUGH RESOLUTION OF THE LATTER
WOULD CERTAINLY BE IN CROATIA'S INTEREST.



5. (C) METELKO-ZGOMBIC ACKNOWLEDGED THE RESOLUTION OF
SUCCESSION ISSUES WAS IN CROATIA'S INTERESTS, BUT THE
PUBLIC AND THE PARLIAMENT WERE DEMANDING ANSWERS. SHE
REJECTED THE ARGUMENT THAT "EVERYONE IN VIENNA KNEW" THAT
THE NUMBERS IN THE ASI WERE NOTIONAL; WHILE ADMITTING THE
LIMITS OF HER KNOWLEDGE OF BANKING, SHE INSISTED THAT
"ANY VILLAGE BANK" COULD COME UP WITH A FIGURE FOR ITS
DEPOSITS. WHEN CROATIA WENT TO THE OVERSEAS JOINT
CONFIDENTIAL

PAGE 04 ZAGREB 01031 01 OF 02 091345Z
VENTURE BANKS TO ASK FOR AN ACCOUNTING, IT WAS REBUFFED
AND SENT TO THE NATIONAL BANK OF YUGOSLAVIA. METELKO-
ZGOMBIC INSISTED THAT THE NBY WAS EVADING ITS
RESPONSIBILITY, AS LAID OUT IN APPENDIX 1 TO ANNEX C OF
THE ASI, TO FACILITATE THE RELEASE OF INFORMATION FROM
THE JOINT VENTURE BANKS TO THE SUCCESSOR STATES. WE
WONDERED ALOUD WHETHER A FULL ACCOUNTING WOULD REALLY BE
ENOUGH TO CONVINCE THE PARLIAMENT TO SWALLOW AND RATIFY;
METELKO-ZGOMBIC RETORTED IT WAS THE LEAST THE GOVERNMENT
COULD DO.



6. (C) TURNING TO THE DISBURSEMENT OF FUNDS FROM THE
FEDERAL RESERVE BANK OF NEW YORK, METELKO-ZGOMBIC SAID
SHE DID NOT UNDERSTAND THE RELATIONSHIP BETWEEN THE
UNFREEZING OF THE FUNDS, AS WE HAD PROMISED TO DO, AND
THE DECISION TO DIVIDE AND DISBURSE THE FUNDS, WHICH HAD
COME AS A COMPLETE SURPRISE, AND THROUGH A RATHER UNUSUAL
CHANNEL -- THE U.S. BANK COMMUNICATION TO THE CROATIAN
NATIONAL BANK. WE EMPHASIZED THAT THE USG HAD DECIDED
THE QUICKEST AND MOST EFFICIENT WAY TO GET THE SUCCESSOR
STATES BACK THEIR OWN MONEY, UN-ERODED BY LAWSUITS, WAS
THROUGH THIS MECHANISM.



7. (C) WHILE REFUSING TO PREJUDGE THE FINAL GOVERNMENT
DECISION, METELKO-ZGOMBIC SAID THE GOVERNMENT WOULD TRY
TO FIND A WAY TO ACCEPT THE FUNDS WITHOUT PREJUDICING THE

CONFIDENTIAL

CONFIDENTIAL PTQ3465

PAGE 01 ZAGREB 01031 02 OF 02 091345Z
ACTION EUR-00

INFO LOG-00 NP-00 AF-00 AGRE-00 AID-00 CEA-01 CIAE-00
COME-00 CTME-00 INL-00 C-00 DODE-00 DOTE-00 SRPP-00
DS-00 EB-00 EXIM-01 E-00 FAAE-00 FBIE-00 VC-00
FRB-00 H-01 TEDE-00 INR-00 ITC-01 LAB-01 L-00
VCE-00 AC-01 NSAE-00 NSCE-00 OMB-01 OPIC-01 PA-00
PM-00 PRS-00 ACE-00 P-00 SCT-00 SP-00 SSO-00
SS-00 STR-00 T-00 USIE-00 PMB-00 DSCC-00 PRM-00
DRL-01 G-00 NFAT-00 SAS-00 SWCI-00 /009W


--------------------------

628C22 091347Z /38
R 091332Z MAY 03
FM AMEMBASSY ZAGREB
TO SECSTATE WASHDC 0150
INFO AMEMBASSY BELGRADE
AMEMBASSY LJUBLJANA
AMEMBASSY SARAJEVO
AMEMBASSY SKOPJE
DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 02 OF 02 ZAGREB 001031

SIPDIS

TREASURY FOR OFAC
EUR/SCE FOR DNYSTROM

E.O. 12958: DECL: 05/09/2013
TAGS: PREL EFIN ECON MK SR BK SI MW EFIN ECON MK SR BK SI MW HR HRPREL
SUBJECT: CROATIA DECIDES TO ACCEPT UNFROZEN FUNDS "WITHOUT
PREJUDICE" TO RATIFICATION OF ASI
CONFIDENTIAL

PAGE 02 ZAGREB 01031 02 OF 02 091345Z

LEGISLATURE'S DECISION ON RATIFICATION OF THE ASI.
PERSONALLY, SHE FEARED THAT ONCE AN AGREEMENT BEGINS TO
BE IMPLEMENTED WITHOUT RATIFICATION, THE RATIFICATION
LOSES SIGNIFICANCE. IT SETS A PRECEDENT.

MOON

CONFIDENTIAL

>


2003ZAGREB0