UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS LOOKS REMOTE

C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000450 SIPDIS C O R R E C T E D COPY (TEXT CHANGE) E.O. 12958: DECL: 02/27/2013 TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS LOOKS REMOTE REF: A. (A) STATE 50887 ¶B. (B) ZAGREB 275 CLASSIFIED BY: NICHOLAS HILL, POLECON COUNSELOR, FOR REASONS 1.5 (D) AND (D). SUMMARY -------------- ¶1. (C) THE RACAN GOVERNMENT IS DIGGING IN ITS HEELS ON THE SUCCESSION AGREEMENT, AND MAY WELL IGNORE OUR REQUEST FOR A HOLD HARMLESS BEFORE THE USG UNBLOCKS DISPUTED NBY ASSETS THIS SPRING. THAT IS THE INDICATION WE RECEIVED IN SEPARATE MEETINGS WITH THE GOC'S REPRESENTATIVE ON THE FINANCIAL COMMITTEE OF THE SUCCESSOR STATES AND THE TOP LEGAL ADVISOR AT THE MFA. THE AMBASSADOR PLANS TO DELIVER DEMARCHE (REF A) TO THE FOREIGN MINISTER EARLY NEXT WEEK. THE CROATIANS TOLD US THAT THE MEETING OF THE SUCCESSOR STATES' FINANCIAL EXPERTS ON FEBRUARY 13 UNDERSCORED THAT THE GOC'S HARD LINE HAD WIDE SUPPORT. THEY CLAIMED OTHER SUCCESSOR STATES NOW WISH THEY HAD NOT RATIFIED THE SUCCESSION AGREEMENT (ASI) SIGNED IN VIENNA IN JUNE 2001. END SUMMARY. ¶2. (C) WE SPOKE TO ZDRAVKO ROGIC, DEPUTY GOVERNOR AT CROATIA'S NATIONAL BANK, ON FEBRUARY 25 AND ANDREJA METELKO-ZGOMBIC, HEAD OF THE MFA'S LEGAL AFFAIRS OFFICE, ON FEBRUARY 26 CONCERNING USG PLANS TO UNBLOCK DISPUTED SFRY ASSETS. THEY BOTH INDICATED THAT THE GOVERNMENT HAD CONFIDENTIAL PAGE 03 ZAGREB 00450 01 OF 02 281911Z CONSIDERED OUR REQUEST FOR A HOLD HARMLESS PRIOR TO THE UNBLOCKING OF NBY ASSETS IN THE SPRING AND HAD CONCLUDED THAT IT WAS IMPOSSIBLE, EVEN IF THIS MEANS CROATIA COULD LOSE OVER $50 MILLION. BOTH INDICATED THAT IT WAS A MATTER OF "PRINCIPLE." ROGIC, WHO REPRESENTS CROATIA ON THE JOINT FINANCIAL COMMITTEE OF THE SUCCESSOR STATES, SAID A HOLD HARMLESS AGREEMENT ABSENT RATIFICATION OF THE SUCCESSION AGREEMENT WOULD REPRESENT A "USURPATION OF LEGISLATIVE PREROGATIVE." METELKO-ZGOMBIC ECHOED HIM LATER. BAD FAITH IN VIENNA -------------- ¶3. (C) BOTH REPEATED THEIR WELL KNOWN VIEW OF WHAT HAPPENED IN VIENNA. IT COMES DOWN TO BAD FAITH BEING SHOWN BY BELGRADE AUTHORITIES AT THE TALKS. FOR THE GOC TO SECURE PARLIAMENTARY APPROVAL OF THE AGREEMENT NOW THE AGREEMENT WOULD HAVE TO BE REVISED. ROGIC SAID AT THE VERY LEAST THIS WOULD INVOLVE AMENDING THE INCORRECT INFORMATION ABOUT THE DEPOSITS IN THE NBY JOINT VENTURE BANKS BEFORE THE CROATIAN PARLIAMENT TAKES UP THE MATTER. HE CONCEDED THAT ANY EFFORT TO OBTAIN COMPENSATION FOR THE "MISSING" MONEY WAS PROBABLY "OUT OF THE QUESTION." WHILE UPSET WITH THE FRY NEGOTIATORS IN VIENNA, HE WAS ALSO QUICK TO CRITICIZE THE CROATIAN TEAM. HE ALL BUT CALLED THE GOC'S TOP NEGOTIATOR, BOZO MARENDIC, INCOMPETENT. HE SAID THE OTHER NEGOTIATORS IN VIENNA, EXCEPT POSSIBLY THE SLOVENES, HAD LITTLE BANKING EXPERTISE AND WERE PROBABLY HOODWINKED TOO. ¶4. (C) ROGIC ACKNOWLEDGED THAT "DEPOSITS" DID NOT EQUAL RECOVERABLE ASSETS. WHEN ASKED IF THE GOC WAS INDULGING IN CONFIDENTIAL PAGE 04 ZAGREB 00450 01 OF 02 281911Z SEMANTICS, HE SAID NO. "IT'S POLITICS." UNLIKE ASSETS WHICH CAN BE ERODED BY BAD MANAGEMENT, HE CONTINUED, DEPOSITS CAN ONLY BE DECREASED BY TRANSFERS. THE NBY, HE STRESSED, SHOULD HAVE RECORDS OF THOSE TRANSFERS AND PRODUCE THEM. WHEN WE TOLD HIM THAT OFAC DECIDED NOT TO CONDUCT AN INVESTIGATION OF THE NBY ACCOUNTS, ROGIC EXPRESSED DISAPPOINTMENT. HE NOTED THAT THE U.S. PARTICIPANTS PLAYED AN IMPORTANT ROLE IN VIENNA AND SHOULD PLAY A ROLE IN UNRAVELING THE MYSTERY IN THE NBY ACCOUNTS NOW. HE IMPLIED THAT THE ONLY PARTICIPANTS WHO KNEW WHAT WAS GOING ON IN VIENNA WERE THE AMERICANS, THE SERBS, AND POSSIBLY THE SLOVENES. UNFAIR KEY? -------------- ¶5. (C) AT THE MFA, METELKO-ZGOMBIC TOOK AN EVEN TOUGHER LINE. FIRST, SHE SAID THE ASI NEEDED TO BE RATIFIED. THE DEAL STRUCK IN VIENNA WAS BASED ON A LIE -- THAT THERE WAS OVER $600 MILLION IN JOINT VENTURE BANK ACCOUNTS TO BE DISPERSED TO THE SUCCESSORS WHEN NO SUCH MONEY EXISTED. BASED ON THE FALSE INFORMATION -- AND THE FALSE PROSPECT THAT CROATIA STOOD TO GAIN OVER $200 MILLION WHEN THE MONEY WAS DISTRIBUTED -- CROATIA HAD ACCEPTED A PROBLEMATIC KEY. CROATIA WOULD RECEIVE ONLY 23 PERCENT OF THE SFRY'S ASSETS, CONFIDENTIAL CONFIDENTIAL PTQ0036 PAGE 01 ZAGREB 00450 02 OF 02 281912Z ACTION EUR-00 INFO LOG-00 COR-01 NP-00 AF-00 AID-00 CIAE-00 COME-00 INL-00 DODE-00 DOTE-00 SRPP-00 DS-00 EAP-00 EB-00 FAAE-00 FBIE-00 VC-00 TEDE-00 INR-00 IO-00 LAB-01 L-00 VCE-00 M-00 NSAE-00 NSCE-00 P-00 IRM-00 SS-00 DSCC-00 PRM-00 DRL-01 NFAT-00 SAS-00 SWCI-00 /003W -------------- 3D3606 281912Z /07 O 280936Z FEB 03 FM AMEMBASSY ZAGREB TO SECSTATE WASHDC IMMEDIATE 9564 INFO AMEMBASSY BELGRADE PRIORITY AMEMBASSY BRUSSELS PRIORITY AMEMBASSY LJUBLJANA PRIORITY AMEMBASSY LONDON PRIORITY AMEMBASSY NICOSIA PRIORITY AMEMBASSY ROME PRIORITY AMEMBASSY SARAJEVO PRIORITY AMEMBASSY SKOPJE PRIORITY AMEMBASSY VIENNA PRIORITY DEPT OF TREASURY WASHDC PRIORITY C O N F I D E N T I A L SECTION 02 OF 02 ZAGREB 000450 SIPDIS C O R R E C T E D COPY (TEXT) E.O. 12958: DECL: 02/27/2013 TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL CONFIDENTIAL PAGE 02 ZAGREB 00450 02 OF 02 281912Z SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS LOOKS REMOTE WHILE IT ASSUMED 28.5 PERCENT OF THE SFRY'S DEBT. METELKO-ZGOMBIC SAID THAT THIS ASYMMETRY WAS UNFAIR WHEN THE DEAL WAS STRUCK, BUT COULD BE SWALLOWED GIVEN THE MONEY CROATIA STOOD TO GAIN. AFTER ALMOST $545 MILLION TURNED UP MISSING, SHE ARGUED, THIS RENDERED THE ASYMMETRY IN THE KEY UNACCEPTABLE. LEGAL ROAD -------------- ¶6. (C) THE LEGAL ADVISOR, WHOSE POSITION HAS REMAINED BASICALLY UNCHANGED IN THE ALMOST SIX MONTHS SINCE WE HAVE BEEN DISCUSSING THE ISSUE, OUTLINED WHAT LEGAL COURSE THE GOVERNMENT WAS TAKING. SHE EMPHASIZED THAT THE GOVERNMENT WAS PREPARED TO FIGHT THE OFAC UNBLOCKING INITIATIVES IN U.S. COURTS. ON THE PROPERTY AND INTERESTS IN PROPERTY THAT WERE UNBLOCKED ON FEBRUARY 25, IT WAS TRUE THAT THE GOVERNMENT HAD NOT SOUGHT AN INJUNCTION IN COURT, BUT THIS SHOULD NOT BE TAKEN AS INDICATION THAT THE GOC WAS ROLLING OVER. THE GOC STILL ASSERTS THAT $40 MILLION OF THE $102 MILLION THAT WAS UNBLOCKED BELONGED TO THE SFRY AND SHOULD BE DISPERSED TO ALL THE SUCCESSORS. TOGETHER WITH OTHER SUCCESSOR STATES AND THEIR U.S. LAWYERS, THE INSTITUTIONS HOLDING THESE ASSETS HAVE BEEN APPROACHED. THE INSTITUTIONS -- J.P. MORGAN, BANK OF NEW YORK, AND AMERICAN EXPRESS BANK -- PROMISED TO INFORM THE SUCCESSOR STATES IF BELGRADE AUTHORITIES SOUGHT TO WITHDRAW THE MONEY. BASED ON THESE ASSURANCES, THE GOC DECIDED NOT TO FILE AN INJUNCTION NOW, BUT WILL WHEN REQUIRED. CONFIDENTIAL PAGE 03 ZAGREB 00450 02 OF 02 281912Z ¶7. (C) ON THE NBY ASSETS, METELKO-ZGOMBIC SAID THE USG DECISION TO UNBLOCK THEM THIS SPRING CONTINUED TO BE INEXPLICABLE TO HER. MANY COUNTRIES HAD FROZEN SFRY ASSETS AND WERE NOT IN SUCH A HURRY TO UNBLOCK THEM NOW. THESE COUNTRIES -- SHE WOULD NOT IDENTIFY WHICH -- WERE NOT PRESSING THE SUCCESSOR STATES, CONTENT INSTEAD TO WAIT FOR A SUCCESSION AGREEMENT TO COME IN TO FORCE. WHY WERE THE AMERICANS IN SUCH A RUSH? IF FREEZING THE ASSETS WAS SUCH A HEADACHE FOR U.S. AUTHORITIES, SHE ASKED, WOULD IT BE POSSIBLE FOR THE BANK OF INTERNATIONAL SETTLEMENTS (BIS) TO ARRANGE TO HOLD THE MONEY PENDING A SUCCESSION AGREEMENT? SHE STRESSED AGAIN THAT ONLY BELGRADE AGREED WITH THE U.S. DECISION ON THE PHASED UNBLOCKING. COMMENT -------------- ¶8. (C) TO HEAR IT FROM THE CROATIANS, THIS UNBLOCKING COULD TURN INTO A FOOD FIGHT -- OR AT LEAST A VERY LUCRATIVE PROPOSITION FOR CROATIA'S, AND POSSIBLY OTHER SUCCESSOR STATES', AMERICAN LAWYERS. PRESS REPORTS HERE INDICATE THAT THE GOC IS PAYING UP TO $500 AN HOUR FOR LEGAL COUNSEL. BOTH TECHNICAL EXPERTS RATHER THAN POLITICAL PLAYERS, ROGIC AND METELKO-ZGOMBIC WERE NOT IN VIENNA, BUT THEY CONTINUE TO COME ACROSS AS COMPLETELY CONVINCED OF THE RIGHTEOUSNESS OF THEIR CAUSE -- THAT THE NEGOTIATIONS UNFOLDED UNFAIRLY. THEY STRESSED THAT ALL THE OTHER SUCCESSORS, MINUS BELGRADE, ARE ANGRY TOO -- AND URGED US TO TALK TO THEM DIRECTLY, PARTICULARLY THE BIH AND MACEDONIAN REPRESENTATIVES ON THE JOINT FINANCIAL COMMITTEE. CONFIDENTIAL PAGE 04 ZAGREB 00450 02 OF 02 281912Z ¶9. (C) ANOTHER POSSIBILITY RAISED BY THE SERBIAN AND MONTENEGRIN AMBASSADOR HERE IS THAT THE GOC LOOKED AT ANNEX G OF THE SUCCESSION AGREEMENT -- WHICH CALLS FOR COMPENSATION FOR THOSE WHO LOST PRIVATE PROPERTY AND ACQUIRED RIGHTS, INCLUDING DISPLACED ETHNIC SERB REFUGEES -- AND REALIZED THE FINANCIAL IMPLICATIONS: THIS GOVERNMENT COULD BE TAKING ON FINANCIAL OBLIGATIONS FAR IN EXCESS OF THE $50 MILLION IT STANDS TO GAIN FROM RATIFYING THE ASI AND RECEIVING CROATIA'S SHARE OF THE NBY ASSETS. INDEED, ANNEX G, JUXTAPOSED AGAINST WHAT THE GOC HAS BEEN TELLING US OVER MANY MONTHS ABOUT ITS FINANCIAL CONSTRAINTS IN COMPENSATING ETHNIC SERBS FOR LOST PROPERTY AND TENANCY RIGHTS, LOOKS LIKE IT WAS AGREED TO BY SOMEBODY NOT WORKING ON INSTRUCTIONS FROM ZAGREB. WE ASKED METELKO-ZGOMBIC IF THE GOC HAD OTHER CONCERNS IN THE ASI -- APART FROM THE MONEY MISSING IN THE JOINT VENTURE BANKS -- AND EVEN MENTIONED ANNEX G. SHE SAID NO. WE DO NOT QUESTION HER PERSONAL EARNESTNESS, BUT MORE BROADLY REMAIN SKEPTICAL ABOUT THE GOC'S APPROACH TO THE ASI. ¶10. (U) BELGRADE MINIMIZE CONSIDERED. ROSSIN CONFIDENTIAL > @@@OASYS@@@ CONFIDENTIAL PTQ7806 PAGE 01 ZAGREB 00450 01 OF 02 280957Z ACTION EUR-00 INFO LOG-00 NP-00 AF-00 AID-00 CIAE-00 COME-00 INL-00 DODE-00 DOTE-00 SRPP-00 DS-00 EAP-00 EB-00 FAAE-00 FBIE-00 VC-00 TEDE-00 INR-00 IO-00 LAB-01 L-00 VCE-00 M-00 NSAE-00 NSCE-00 P-00 IRM-00 SS-00 DSCC-00 PRM-00 DRL-01 NFAT-00 SAS-00 SWCI-00 /002W -------------- 3CE1A1 280957Z /75 O 280936Z FEB 03 FM AMEMBASSY ZAGREB TO SECSTATE WASHDC IMMEDIATE 9563 INFO AMEMBASSY BELGRADE PRIORITY AMEMBASSY BRUSSELS PRIORITY AMEMBASSY LJUBLJANA PRIORITY AMEMBASSY LONDON PRIORITY AMEMBASSY NICOSIA PRIORITY AMEMBASSY ROME PRIORITY AMEMBASSY SARAJEVO PRIORITY AMEMBASSY SKOPJE PRIORITY AMEMBASSY VIENNA PRIORITY DEPT OF TREASURY WASHDC PRIORITY C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000450 SIPDIS E.O. 12958: DECL: 02/27/2013 TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS LOOKS REMOTE CONFIDENTIAL PAGE 02 ZAGREB 00450 01 OF 02 280957Z REF: A. (A) STATE 50887 ¶B. (B) ZAGREB 275 CLASSIFIED BY: NICHOLAS HILL, POLECON COUNSELOR, FOR REASONS 1.5 (D) AND (D). SUMMARY -------------- ¶1. (C) THE RACAN GOVERNMENT IS DIGGING IN ITS HEELS ON THE SUCCESSION AGREEMENT, AND MAY WELL IGNORE OUR REQUEST FOR A HOLD HARMLESS BEFORE THE USG UNBLOCKS DISPUTED NBY ASSETS THIS SPRING. THAT IS THE INDICATION WE RECEIVED IN SEPARATE MEETINGS WITH THE GOC'S REPRESENTATIVE ON THE FINANCIAL COMMITTEE OF THE SUCCESSOR STATES AND THE TOP LEGAL ADVISOR AT THE MFA. THE AMBASSADOR PLANS TO DELIVER DEMARCHE (REF A) TO THE FOREIGN MINISTER EARLY NEXT WEEK., WHO IS OUT OF ZAGREB FOR MUCH OF THIS WEEK. THE CROATIANS TOLD US THAT THE MEETING OF THE SUCCESSOR STATES' FINANCIAL EXPERTS ON FEBRUARY 13 UNDERSCORED THAT THE GOC'S HARD LINE HAD WIDE SUPPORT. THEY CLAIMED OTHER SUCCESSOR STATES NOW WISH THEY HAD NOT RATIFIED THE SUCCESSION AGREEMENT (ASI) SIGNED IN VIENNA IN JUNE 2001. END SUMMARY. ¶2. (C) WE SPOKE TO ZDRAVKO ROGIC, DEPUTY GOVERNOR AT CROATIA'S NATIONAL BANK, ON FEBRUARY 25 AND ANDREJA METELKO-ZGOMBIC, HEAD OF THE MFA'S LEGAL AFFAIRS OFFICE, ON FEBRUARY 26 CONCERNING USG PLANS TO UNBLOCK DISPUTED SFRY ASSETS. THEY BOTH INDICATED THAT THE GOVERNMENT HAD CONSIDERED OUR REQUEST FOR A HOLD HARMLESS PRIOR TO THE UNBLOCKING OF NBY ASSETS IN THE SPRING AND HAD CONCLUDED THAT CONFIDENTIAL PAGE 03 ZAGREB 00450 01 OF 02 280957Z IT WAS IMPOSSIBLE, EVEN IF THIS MEANS CROATIA COULD LOSE OVER $50 MILLION. BOTH INDICATED THAT IT WAS A MATTER OF "PRINCIPLE." ROGIC, WHO REPRESENTS CROATIA ON THE JOINT FINANCIAL COMMITTEE OF THE SUCCESSOR STATES, SAID A HOLD HARMLESS AGREEMENT ABSENT RATIFICATION OF THE SUCCESSION AGREEMENT WOULD REPRESENT A "USURPATION OF LEGISLATIVE PREROGATIVE." METELKO-ZGOMBIC ECHOED HIM LATER. BAD FAITH IN VIENNA -------------- ¶3. (C) BOTH REPEATED THEIR WELL KNOWN VIEW OF WHAT HAPPENED IN VIENNA. IT COMES DOWN TO BAD FAITH BEING SHOWN BY BELGRADE AUTHORITIES AT THE TALKS. FOR THE GOC TO SECURE PARLIAMENTARY APPROVAL OF THE AGREEMENT NOW THE AGREEMENT WOULD HAVE TO BE REVISED. ROGIC SAID AT THE VERY LEAST THIS WOULD INVOLVE AMENDING THE INCORRECT INFORMATION ABOUT THE DEPOSITS IN THE NBY JOINT VENTURE BANKS BEFORE THE CROATIAN PARLIAMENT TAKES UP THE MATTER. HE CONCEDED THAT ANY EFFORT TO OBTAIN COMPENSATION FOR THE "MISSING" MONEY WAS PROBABLY "OUT OF THE QUESTION." WHILE UPSET WITH THE FRY NEGOTIATORS IN VIENNA, HE WAS ALSO QUICK TO CRITICIZE THE CROATIAN TEAM. HE ALL BUT CALLED THE GOC'S TOP NEGOTIATOR, BOZO MARENDIC, INCOMPETENT. HE SAID THE OTHER NEGOTIATORS IN VIENNA, EXCEPT POSSIBLY THE SLOVENES, HAD LITTLE BANKING EXPERTISE AND WERE PROBABLY HOODWINKED TOO. ¶4. (C) ROGIC ACKNOWLEDGED THAT "DEPOSITS" DID NOT EQUAL RECOVERABLE ASSETS. WHEN ASKED IF THE GOC WAS INDULGING IN SEMANTICS, HE SAID NO. "IT'S POLITICS." UNLIKE ASSETS WHICH CAN BE ERODED BY BAD MANAGEMENT, HE CONTINUED, DEPOSITS CAN CONFIDENTIAL PAGE 04 ZAGREB 00450 01 OF 02 280957Z ONLY BE DECREASED BY TRANSFERS. THE NBY, HE STRESSED, SHOULD HAVE RECORDS OF THOSE TRANSFERS AND PRODUCE THEM. WHEN WE TOLD HIM THAT OFAC DECIDED NOT TO CONDUCT AN INVESTIGATION OF THE NBY ACCOUNTS, ROGIC EXPRESSED DISAPPOINTMENT. HE NOTED THAT THE U.S. PARTICIPANTS PLAYED AN IMPORTANT ROLE IN VIENNA AND SHOULD PLAY A ROLE IN UNRAVELING THE MYSTERY IN THE NBY ACCOUNTS NOW. HE IMPLIED THAT THE ONLY PARTICIPANTS WHO KNEW WHAT WAS GOING ON IN VIENNA WERE THE AMERICANS, THE SERBS, AND POSSIBLY THE SLOVENES. UNFAIR KEY? -------------- ¶5. (C) AT THE MFA, METELKO-ZGOMBIC TOOK AN EVEN TOUGHER LINE. FIRST, SHE SAID THE ASI NEEDED TO BE RATIFIED. THE DEAL STRUCK IN VIENNA WAS BASED ON A LIE -- THAT THERE WAS OVER $600 MILLION IN JOINT VENTURE BANK ACCOUNTS TO BE DISPERSED TO THE SUCCESSORS WHEN NO SUCH MONEY EXISTED. BASED ON THE FALSE INFORMATION -- AND THE FALSE PROSPECT THAT CROATIA STOOD TO GAIN OVER $200 MILLION WHEN THE MONEY WAS DISTRIBUTED -- CROATIA HAD ACCEPTED A PROBLEMATIC KEY. CROATIA WOULD RECEIVE ONLY 23 PERCENT OF THE SFRY'S ASSETS, CONFIDENTIAL CONFIDENTIAL PTQ7809 PAGE 01 ZAGREB 00450 02 OF 02 280958Z ACTION EUR-00 INFO LOG-00 NP-00 AF-00 AID-00 CIAE-00 COME-00 INL-00 DODE-00 DOTE-00 SRPP-00 DS-00 EAP-00 EB-00 FAAE-00 FBIE-00 VC-00 TEDE-00 INR-00 IO-00 LAB-01 L-00 VCE-00 M-00 NSAE-00 NSCE-00 P-00 IRM-00 SS-00 DSCC-00 PRM-00 DRL-01 NFAT-00 SAS-00 SWCI-00 /002W -------------- 3CE1B2 280958Z /75 O 280936Z FEB 03 FM AMEMBASSY ZAGREB TO SECSTATE WASHDC IMMEDIATE 9564 INFO AMEMBASSY BELGRADE PRIORITY AMEMBASSY BRUSSELS PRIORITY AMEMBASSY LJUBLJANA PRIORITY AMEMBASSY LONDON PRIORITY AMEMBASSY NICOSIA PRIORITY AMEMBASSY ROME PRIORITY AMEMBASSY SARAJEVO PRIORITY AMEMBASSY SKOPJE PRIORITY AMEMBASSY VIENNA PRIORITY DEPT OF TREASURY WASHDC PRIORITY C O N F I D E N T I A L SECTION 02 OF 02 ZAGREB 000450 SIPDIS E.O. 12958: DECL: 02/27/2013 TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS LOOKS REMOTE CONFIDENTIAL PAGE 02 ZAGREB 00450 02 OF 02 280958Z WHILE IT ASSUMED 28.5 PERCENT OF THE SFRY'S DEBT. METELKO-ZGOMBIC SAID THAT THIS ASYMMETRY WAS UNFAIR WHEN THE DEAL WAS STRUCK, BUT COULD BE SWALLOWED GIVEN THE MONEY CROATIA STOOD TO GAIN. AFTER ALMOST $545 MILLION TURNED UP MISSING, SHE ARGUED, THIS RENDERED THE ASYMMETRY IN THE KEY UNACCEPTABLE. LEGAL ROAD -------------- ¶6. (C) THE LEGAL ADVISOR, WHOSE POSITION HAS REMAINED BASICALLY UNCHANGED IN THE ALMOST SIX MONTHS SINCE WE HAVE BEEN DISCUSSING THE ISSUE, OUTLINED WHAT LEGAL COURSE THE GOVERNMENT WAS TAKING. SHE EMPHASIZED THAT THE GOVERNMENT WAS PREPARED TO FIGHT THE OFAC UNBLOCKING INITIATIVES IN U.S. COURTS. ON THE PROPERTY AND INTERESTS IN PROPERTY THAT WERE UNBLOCKED ON FEBRUARY 25, IT WAS TRUE THAT THE GOVERNMENT HAD NOT SOUGHT AN INJUNCTION IN COURT, BUT THIS SHOULD NOT BE TAKEN AS INDICATION THAT THE GOC WAS ROLLING OVER. THE GOC STILL ASSERTS THAT $40 MILLION OF THE $102 MILLION THAT WAS UNBLOCKED BELONGED TO THE SFRY AND SHOULD BE DISPERSED TO ALL THE SUCCESSORS. TOGETHER WITH OTHER SUCCESSOR STATES AND THEIR U.S. LAWYERS, THE INSTITUTIONS HOLDING THESE ASSETS HAVE BEEN APPROACHED. THE INSTITUTIONS -- J.P. MORGAN, BANK OF NEW YORK, AND AMERICAN EXPRESS BANK -- PROMISED TO INFORM THE SUCCESSOR STATES IF BELGRADE AUTHORITIES SOUGHT TO WITHDRAW THE MONEY. BASED ON THESE ASSURANCES, THE GOC DECIDED NOT TO FILE AN INJUNCTION NOW, BUT WILL WHEN REQUIRED. ¶7. (C) ON THE NBY ASSETS, METELKO-ZGOMBIC SAID THE USG DECISION TO UNBLOCK THEM THIS SPRING CONTINUED TO BE CONFIDENTIAL PAGE 03 ZAGREB 00450 02 OF 02 280958Z INEXPLICABLE TO HER. MANY COUNTRIES HAD FROZEN SFRY ASSETS AND WERE NOT IN SUCH A HURRY TO UNBLOCK THEM NOW. THESE COUNTRIES -- SHE WOULD NOT IDENTIFY WHICH -- WERE NOT PRESSING THE SUCCESSOR STATES, CONTENT INSTEAD TO WAIT FOR A SUCCESSION AGREEMENT TO COME IN TO FORCE. WHY WERE THE AMERICANS IN SUCH A RUSH? IF FREEZING THE ASSETS WAS SUCH A HEADACHE FOR U.S. AUTHORITIES, SHE ASKED, WOULD IT BE POSSIBLE FOR THE BANK OF INTERNATIONAL SETTLEMENTS (BIS) TO ARRANGE TO HOLD THE MONEY PENDING A SUCCESSION AGREEMENT? SHE STRESSED AGAIN THAT ONLY BELGRADE AGREED WITH THE U.S. DECISION ON THE PHASED UNBLOCKING. COMMENT -------------- ¶8. (C) TO HEAR IT FROM THE CROATIANS, THIS UNBLOCKING COULD TURN INTO A FOOD FIGHT -- OR AT LEAST A VERY LUCRATIVE PROPOSITION FOR CROATIA'S, AND POSSIBLY OTHER SUCCESSOR STATES', AMERICAN LAWYERS. PRESS REPORTS HERE INDICATE THAT THE GOC IS PAYING UP TO $500 AN HOUR FOR LEGAL COUNSEL. BOTH TECHNICAL EXPERTS RATHER THAN POLITICAL PLAYERS, ROGIC AND METELKO-ZGOMBIC WERE NOT IN VIENNA, BUT THEY CONTINUE TO COME ACROSS AS COMPLETELY CONVINCED OF THE RIGHTEOUSNESS OF THEIR CAUSE -- THAT THE NEGOTIATIONS UNFOLDED UNFAIRLY. THEY STRESSED THAT ALL THE OTHER SUCCESSORS, MINUS BELGRADE, ARE ANGRY TOO -- AND URGED US TO TALK TO THEM DIRECTLY, PARTICULARLY THE BIH AND MACEDONIAN REPRESENTATIVES ON THE JOINT FINANCIAL COMMITTEE. ¶9. (C) ANOTHER POSSIBILITY RAISED BY THE SERBIAN AND MONTENEGRIN AMBASSADOR HERE IS THAT THE GOC LOOKED AT ANNEX G CONFIDENTIAL PAGE 04 ZAGREB 00450 02 OF 02 280958Z OF THE SUCCESSION AGREEMENT -- WHICH CALLS FOR COMPENSATION FOR THOSE WHO LOST PRIVATE PROPERTY AND ACQUIRED RIGHTS, INCLUDING DISPLACED ETHNIC SERB REFUGEES -- AND REALIZED THE FINANCIAL IMPLICATIONS: THIS GOVERNMENT COULD BE TAKING ON FINANCIAL OBLIGATIONS FAR IN EXCESS OF THE $50 MILLION IT STANDS TO GAIN FROM RATIFYING THE ASI AND RECEIVING CROATIA'S SHARE OF THE NBY ASSETS. INDEED, ANNEX G, JUXTAPOSED AGAINST WHAT THE GOC HAS BEEN TELLING US OVER MANY MONTHS ABOUT ITS FINANCIAL CONSTRAINTS IN COMPENSATING ETHNIC SERBS FOR LOST PROPERTY AND TENANCY RIGHTS, LOOKS LIKE IT WAS AGREED TO BY SOMEBODY NOT WORKING ON INSTRUCTIONS FROM ZAGREB. WE ASKED METELKO-ZGOMBIC IF THE GOC HAD OTHER CONCERNS IN THE ASI -- APART FROM THE MONEY MISSING IN THE JOINT VENTURE BANKS -- AND EVEN MENTIONED ANNEX G. SHE SAID NO. WE DO NOT QUESTION HER PERSONAL EARNESTNESS, BUT MORE BROADLY REMAIN SKEPTICAL ABOUT THE GOC'S APPROACH TO THE ASI. ¶10. (U) BELGRADE MINIMIZE CONSIDERED. ROSSIN CONFIDENTIAL >