CROATIA WILL NOT ACCEPT TRANSFER OF NBY FUNDS

C O N F I D E N T I A L ZAGREB 000950 SIPDIS FOR EUR/SCE NYSTROM E.O. 12958: DECL: 04/29/2013 TAGS: PREL ECON EFIN SI BK MK SR HK SUBJECT: CROATIA WILL NOT ACCEPT TRANSFER OF NBY FUNDS REF: STATE 99664 (NOTAL) CLASSIFIED BY: POLECON COUNSELOR NICHOLAS HILL, FOR REASONS 1.5 (B AND D) ¶1. (C) ON APRIL 29, WE MET WITH MIROSLAV KOVACIC, HEAD OF THE AMERICAS DEPARTMENT AT THE MFA, AT HIS REQUEST. KOVACIC SAID THE MINISTRY HAD HEARD FROM THE CROATIAN NATIONAL BANK (CNB) THAT IT HAD BEEN REQUESTED TO ACCEPT A TRANSFER OF $54.6 MILLION AS CROATIA'S PART OF UNFROZEN NBY ASSETS IN THE U.S. KOVACIC REFERRED BACK TO OUR DEMARCHES OVER THE LAST SEVERAL MONTHS, WHICH HAD DESCRIBED A PROCESS IN WHICH, IF THE USG DID NOT RECEIVE HOLD HARMLESS ASSURANCES FROM ALL PARTIES, THE USG WOULD PROCEED WITH A GENERAL UNBLOCKING. KOVACIC ASKED FOR CONFIRMATION THAT THE TELEX FROM THE FEDERAL RESERVE BANK IN NEW YORK DID INDEED INDICATE THAT THE USG HAD DECIDED TO DISBURSE THE MONEY TO EACH SUCCESSOR STATE. ¶2. (C) USING REFTEL POINTS, WE CONFIRMED THAT THE USG HAD DECIDED THAT TRANSFERRING THE FUNDS DIRECTLY TO EACH GOVERNMENT WOULD BE THE MOST EFFECTIVE AND EFFICIENT WAY TO GET THE ASSETS TO THE SUCCESSOR COUNTRIES. WE STRESSED THAT WE WOULD BE CONCERNED IF CROATIA TOOK ANY LEGAL STEPS THAT WOULD INTERFERE WITH THIS EFFORT TO RESOLVE ISSUES LEFT OVER FROM THE MILOSEVIC ERA. FINALLY, WE BELIEVED THAT THE ISSUE OF NBY ASSETS FROZEN IN THE US UNDER MILOSEVIC-ERA SANCTIONS AND THE AGREEMENT ON SUCCESSION ISSUES (ASI) SHOULD BE HANDLED SEPARATELY. ¶3. (C) KOVACIC COUNTERED THAT GOC LAWYERS SAID THE TWO ISSUES WERE LINKED. THE GOC COULD NOT ACCEPT THE MONEY, BECAUSE THAT WOULD MEAN ACCEPTING THE KEY OF THE ASI, WHICH HAD NOT BEEN RATIFIED BY PARLIAMENT. HE EXPRESSED HIS STRONG, PERSONAL DISAPPOINTMENT THAT THIS OUTCOME WAS NOT IN LINE WITH WHAT THE USG HAD TOLD THE CROATIAN GOVERNMENT. KOVACIC SAID CROATIA HAD BEEN VERY HOPEFUL WHEN THE USG OFFERED ASSISTANCE TO HELP OBTAIN AN EXPLANATION OF WHAT HAD HAPPENED TO THE NBY DEPOSITS -- AN OFFER THAT SEEMED TO DISAPPEAR SUDDENLY AFTER AN OFAC VISIT TO ZAGREB AND BELGRADE IN DECEMBER. ¶4. (C) WE EXPLAINED THAT THE OFFER WAS RESCINDED AFTER OFFICIAL VISITORS TO CROATIA, DISMAYED BY THE HARD LINE TAKEN BY CROATIAN INTERLOCUTORS, CAME TO THE CONCLUSION THAT CROATIA WAS NOT LOOKING FOR AN EXPLANATION THAT WOULD SMOOTH THE WAY TO RATIFICATION OF THE ASI, BUT RATHER FURTHER REASONS TO BE INTRANSIGENT AND TO DEMAND COMPENSATION. WE REITERATED THAT IT WOULD BE UNWISE FOR CROATIA TO TRY TO BRING A COURT CASE AGAINST THE USG OVER THIS ISSUE. KOVACIC SAID IT WAS TOO EARLY TO SAY, BUT IT MIGHT IN THE END BE NECESSARY. MOON NNNN