COVIC CONVICTED

C O N F I D E N T I A L SECTION 01 OF 02 SARAJEVO 002918

SIPDIS

SIPDIS

EUR FOR DICARLO, EUR/SCE FOR HOH, FOOKS AND STINCHCOMB, NSC
FOR BRAUN, OSD FOR FLORY

E.O. 12958: DECL: 11/16/2016
TAGS: KJUS PGOV BK
SUBJECT: COVIC CONVICTED

REF: A. 05 SARAJEVO 632


B. 05 SARAJEVO 778

Classified By: DCM Judith B. Cefkin, reasons 1.4 (b) and (d).


1. (C) SUMMARY AND COMMENT: On November 17, Dragan Covic,
ousted Croat member of the Bosnian Tri-Presidency and
Croatian Democratic Union (HDZ-BiH) President, was convicted
on one count of abuse of office. Covic was taken into custody
immediately to serve his sentence of five years. Covic's six
co-defendants, including newly-elected Bosnia and Herzegovina
House of Representatives delegate and President of the Work
for Progress (RzB) party, Jerko Ivankovic-Ljianovic and his
three brothers, were acquitted of all charges. Covic and the
prosecutor both have the right to appeal the verdict and the
sentence, and Covic is expected to exercise that right.
Covic, already weakened by charges he stole the HDZ-BiH
presidential election last year and was responsible for the
defection of HDZ-1990, could be removed as HDZ president to
pave the way for party reunification. If the two HDZs
reunite, it could spell greater difficulties for convincing
Croat parties to vote for the April constitutional reform
package. END SUMMARY AND COMMENT.


CASE BACKGROUND
--------------


2. (U) In March, 2005, Dragan Covic, then Croat member of
the Bosnian Tri-Presidency and President of HDZ-BiH, was
indicted by the Bosnian State Prosecutor for abuse of office
and accepting bribes while he was the Federation Minister of
Finance (1998-2000). On September 19, 2006, the indictment
was amended and the trial held on the basis of three counts
of abuse of office and exceeding official authority. The
charges revolved around Covic helping the Lijanovic brothers'
meat-packing company avoid import taxes and other levies
depriving the Federation budget of more than 38 million BAM.
The charges alleged that in the summer of 2000, Covic
responded to a request from the Lijanovic company requesting
an interpretation of the customs law that would allow them to
avoid payment of special import taxes. Covic, in his
capacity as Finance Minister, allegedly issued a binding
instruction to the Federation Customs Administration,
ordering it not to apply a special import tax on Lijanovic
company imports of boneless chicken parts. Covic's actions
violated the Law on Foreign Trade Policy, which specifies
that the Foreign Trade Ministry, not the Federation Finance
Ministry, has jurisdiction over import levies. The Lijanovic
company also falsely declared on its customs declarations
that it was importing unprocessed meat when, in fact, it was
importing finished products.


THE VERDICT
--------------



3. (U) The prosecution was unable to prove Covic wrote the
illegal order, or personally profited from providing
favorable treatment to the Ljianovic company. He was
convicted only of the final charge, that after repeated
warnings from the Ministry of Foreign Trade and many reports
of irregularities by customs officials, Covic refused to
withdraw the illegal order. Such action, the court found,
amounted to abuse of office, and Covic received a sentence of
five years. Covic faced a possible sentence of three to
fifteen years. The verdict was handed down by a three judge
panel, including an American, Bosnian and Belgian judge. The
prosecution was lead by a Canadian secondee. Covic was taken
into custody to immediately begin serving his sentence.
Covic's six co-defendants, including Party of Work for
Progress (RzB) President and newly-elected member of the
House of Representatives Jerko Ivankovic-Lijanovic and his
three brothers, were acquitted on all counts, because the
prosecution failed to prove the Lijanovic company sought or
received Covic's assistance to circumvent import tax laws.

THE FUTURE
--------------


4. (C) The HDZ party statute contains no specific provisions
that require Covic to step down as party president as a
result of the conviction. He could, however, be brought
before the party's "High Court of Honor," composed of
high-ranking party officials nominated by Covic and confirmed
by the party congress. Covic is the chair of the Court of
Honor, but would have to recuse himself from his disciplinary

SARAJEVO 00002918 002 OF 002


procedures. Covic's past behavior suggests he may attempt to
cling to power as long as possible. Covic refused to step
down from the Tri-Presidency after being indicted (he was
forcibly removed by HighRep Paddy Ashdown last May),and
refused to resign the party presidency after accusations of
election irregularities. Should Covic refuse to resign, it
is unclear how HDZ disciplinary proceedings would proceed, as
any party tribunal would contain hand-picked Covic allies.
The leadership of the breakaway HDZ-1990 tell us they are
confident Covic will be forced out and the two parties will
reunite under Bozo Ljubic (HDZ-1990's president and Covic's
opponent in last June's HDZ presidential election). However,
Ljubic and his allies have predicted Covic's demise before
and have underestimated his staying power.


5. (C) COMMENT: If Covic resigns or is ousted, HDZ-Croatia
and the nationalist wing of HDZ-BiH could push the party
toward reunification with HDZ-1990. Alternatively, Covic
could manage to hold on to the party presidency, but with
diminished influence over day-to-day operations and
decision-making. In such a scenario, we would expect HDZ's
right wing to exert more influence over choosing coalition
partners at all levels of government, as well as on the
selection of delegates to the House of Peoples. Such an
outcome would benefit HDZ-1990 in the short term, and over
the long term would present challenges for advancing U.S.
objectives in Bosnia, including constitutional reform.
Ironically, although this is a positive step in the battle
against corruption, it may have the unintended side effect of
benefitting nationalist forces among Bosnian Croats. END
COMMENT.
MCELHANEY