Refugee Housing Scandal: No Investigative Progress

UNCLAS SECTION 01 OF 02 ZAGREB 000525

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DEPT FOR EUR/SCE: JMITCHELL
DEPT FOR EUR/SCE: ROLSON
BELGRADE FOR SCHEEVER

E.O. 12958: N/A
TAGS: PREF PGOV HR
SUBJECT: Refugee Housing Scandal: No Investigative Progress

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1. (SBU) Summary and Comment. Over the past year the
Croatian Office for Combating Corruption and Organized
Crime (USKOK) made only marginal progress in investigating
thousands of potential cases of illegal sales of ethnic
Serb houses to the Croatian State Agency for Refugee
Property (APN). Intermediary agencies in SAM, representing
ethnic Serb refugee owners, allegedly forged documents and
sold houses to APN without owners' knowledge. One USG-
supported NGO has gathered documents and evidence on about
20 cases and forwarded them to USKOK for further
investigation. USKOK concluded those cases constituted
fraud but have not determined that corruption occurred.
About 700 individuals have approached the NGO for
assistance; a total of 70 cases are active in the judicial
system. Recently, the Municipal Court in Nova Gradiska
decided in favor one ethnic Serb woman who received her
house back. Another two similar verdicts were reached in
lower courts.


2. (SBU) USKOK's investigation of APN appears half-hearted
at best, underlined by the fact that they have not analyzed
the one APN computer that was confiscated. The scandal has
surfaced and faded from the public eye several times since
2001 with no clear resolution. Prosecutors have rejected
all out-of-court settlements despite a previous commitment
to accept them. Local and international observers agree
that a fraud scheme of this scope would have been
impossible without the complicity of many individuals,
including those in state administration. If proven, the
scandal would incur significant cost to the GOC, both
financial and political. One newspaper estimated that if
half the 6,000 homes were sold illegally, damages could
cost the GOC $150 million. USKOK - a specially-formed
public prosecutors office - and state prosecutors - both
represent and investigate the GOC and are in an awkward
role: they may face pressure to minimize state losses,
rather than pursue state compensation for owners. Post
will continue to raise this issue in its regular meetings
with the State Prosecutor. Recent press reports have brought
the scandal to light again, but so far USKOK has been unable
or unwilling to seriously delve into this problem.
End Summary and Comment.

Inconclusive Investigation, Despite Evidence


3. (SBU) In February 2005, the then-acting head of USKOK,
Dalibor Cvitan, told us he expected solid results from his
investigation of APN employees within months. But over a
year later there are no indictments. Sasa Lalic, Head of
the Association for Civic Initiatives and Ethnic Relations,
ACIER and Zarko Puhovski, Head of the Croatian Helsinki
Committee, believe the problem is not lack of evidence, but
a lack of will to prosecute. One clerk's computer was
seized (based on ACIER information) and investigated with
no conclusive results. Cvitan told us he is investigating
those cases brought to him by ACIER, but will not open
investigations on others. He also told Puhovski and Lalic
that USKOK's goal is not to prosecute individuals but to
provide relief to victims.


4. (SBU) Approximately 6,000 homes were sold using powers
of attorney, but the scope of the problem remains unknown
as USKOK is not investigating all cases but rather those
that the Vukovar-based NGO brings to them. Many owners may
be unaware that their homes were sold, and the cumbersome
process of obtaining documents remains a barrier. Apart
from APN officials and the GOC's office for refugee issues
(ODPR),intermediary agencies and one Croatia bank may have
been involved in the profit network. The head of one
intermediary agency was convicted in Novi Sad last year,
but there have been no convictions in Croatia.


5. (SBU) Nor does USKOK intend to prosecute APN employees,
even though the agency was intimately involved in all
property sales. There are currently about 30 cases
proceeding through the court system. An additional 40
individuals submitted their cases to prosecutors and are
requesting an out of court settlement. So far, local
prosecutors have rejected all of the 70 or so offers,
forcing plaintiffs to open private lawsuits that cost
between $1,700 and $ 3,000. In addition to the active
cases, ACIER is now processing about 700 other requests.
Based on one of their lawsuits, the Municipal Court in Nova
Gradiska reached the first valid verdict returning a house
to a woman who now lives in Serbia. Two other appealable

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verdicts in favor of plaintiffs have been reached elsewhere
in Croatia.

NGO: Trying to Overcome Many Obstacles


6. (SBU) Lalic is optimistic that more lawsuits may follow
as he is able to obtain documentation. Post has provided
funds through its Democracy Commission to facilitate
research and case preparation; OSCE Zagreb and U.S. Embassy
Belgrade are providing similar support. He remains
pessimistic about the Prosecutors' will to investigate APN.
Earlier reports in the media indicated that APN was
involved in providing data needed to forge documents and
that it probably split profits with SAM intermediary
agencies.


7. (SBU) Lalic complained that USKOK has been obstructing
the work of his NGO by refusing to allow access to APN
files on thousands of contracts done through
intermediaries, which are potentially fraudulent.
Potential plaintiffs are instead asked to go to local land
registry offices and courts; however, those offices do not
have some data that would best reveal fraud and the process
of obtaining documents is cumbersome. Compounding the
problem, prosecutors did not follow through on their
promise made last year to grant out-of-court settlements to
all well-substantiated cases in order to ease the situation
for generally impoverished owners. Post has requested reports
from the State Prosecutor on the investigation's progress
and will continue to do so.
FRANK