Identifier
Created
Classification
Origin
07BELGRADE774
2007-06-01 15:10:00
UNCLASSIFIED
Embassy Belgrade
Cable title:  

PROPERTY RESTITUTION: SERBIAN GOVERNMENT DRAFT

Tags:  ECON KIDE KPRV SR 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHBW #0774/01 1521510
ZNR UUUUU ZZH
R 011510Z JUN 07 ZDK
FM AMEMBASSY BELGRADE
TO SECSTATE WASHDC 0939
UNCLAS BELGRADE 000774 

SIPDIS

SIPDIS

DEPT FOR EUR/SCE

E.O. 12958: N/A
TAGS: ECON KIDE KPRV SR
SUBJECT: PROPERTY RESTITUTION: SERBIAN GOVERNMENT DRAFT
PROTECTS ILL-GOTTEN GAINS, LIMITS ACTUAL RESTITUTION


SUMMARY
-------
UNCLAS BELGRADE 000774

SIPDIS

SIPDIS

DEPT FOR EUR/SCE

E.O. 12958: N/A
TAGS: ECON KIDE KPRV SR
SUBJECT: PROPERTY RESTITUTION: SERBIAN GOVERNMENT DRAFT
PROTECTS ILL-GOTTEN GAINS, LIMITS ACTUAL RESTITUTION


SUMMARY
--------------

1. On May 10, the outgoing Serbian government approved a
draft law that would restitute property seized by wartime
Nazi occupation forces and Tito's subsequent communist
regime. The law, if approved by the new government and
adopted by the parliament, would establish a legal
procedure for establishing claims to seized property.
Regional commissions would then adjudicate all claims and
award in-kind restitution where possible and compensation
in the form of tradable bonds in all other instances.
Despite the fact that claimants and their representatives
have generally responded favorably to the draft, several of
the law's provisions could be used to limit significantly
the number of eligible claimants and protect those who
acquired thousands of valuable properties - often illegally
- during the Milosevic era. END SUMMARY.

A RATHER STRAIGHTFORWARD PROCEDURE
--------------

2. The draft "Law on Denationalization and Construction
Sites" is based on the principle that property seized by
the Nazis after April 6, 1941, or the Communists after
January 1, 1945, "shall be restored to the former owner's
possession and actual control (i.e., restitution in-kind),
and should that be impossible in accordance with the
present law, the former owner shall be entitled to an
indemnity." In order to be eligible for restitution, the
former owner or heirs must register a claim with one of
four regional denationalization commissions before December
31, 2008. In order to be considered complete, all claims
must include a description and approximate value of the
property, a copy of the official act seizing the property,
and legal grounds for making the claim. The law
criminalizes any act that would prevent potential claimants
from immediate access to legal and cadastral records for
the purpose of making or supporting their claim.


3. Commissions will be chaired by active judges. The
Ministries of Justice, Finance and Local Self-Government
will nominate one member to each commission, which will
also include an unspecified number of experts, such as
government lawyers, members of the geodetic survey office,
and civil engineers. The law stipulates that these

commissions must adjudicate each claim within six months of
receiving all necessary documentation from the claimant.
In the event of "complex" claims, the commission may
deliberate for up to one year.

RESTITUTION OR INDEMNITY: BURIED IN DETAILS
--------------

4. Restitution in-kind is to be immediate, although the
law provides an opportunity for appeal of any decision to
the state-level Restitution Authority (to be established by
subsequent enabling legislation) within 15 days of the
commission's decisions. Appellate judgments, which must be
delivered within 60 days, may be appealed to the Serbian
Supreme Court. Compensation in bonds is reserved for
claimants whose properties have been a) used for public
works (roads, parks, schools, etc.),b) purchased in good
faith by natural persons (such properties purchased by
legal persons are eligible for in-kind restitution),or c)
otherwise made ineligible for in-kind restitution (the
current draft is not specific on reasons). Claimants whose
properties cannot be restituted may request that the
government hand over a similar property in its place;
however, the law is not clear how this would be
accomplished. Bond compensation is capped at EUR 1 million
per claimant and EUR 1 million per property. The 20-year
bonds will bear a 4.5 percent annual interest and mature in

2028. [NOTE: The government has already announced it is
setting aside EUR 4 billion for such payments. End Note.]


5. With regard to improvements made to such properties
since the time of seizure, such development will not be
subject to restitution. [NOTE. This would appear to
include, in addition to the many legitimate projects, all
developments carried out by beneficiaries of Milosevic-era
largesse. End Note.] In such cases, claimants may choose
to buy out the current possessors, award a market-value
percentage of the overall ownership stake to the current
possessor commensurate with the value of the development,
or negotiate another solution. Properties on which legal
persons own residential buildings will be restituted in-
kind; those on which legal persons hold usage rights will
be converted into a one-year lease arrangements, during
which the two parties should reach an agreement. [Note: We
are concerned over the lack of a dispute resolution
mechanism for those cases where a claimant cannot reach a
deal with current possessors. End Note.] Commercial
properties unencumbered by leases will be restituted in-

kind. Leased commercial properties will also be returned;
however, the current lease will remain in effect for one
year.


6. Although the law declares immediate, in-kind
restitution as its guiding principle, the current draft
falls short in several areas. A plain reading of the
language defining eligible claimants would exclude
thousands of people who received "apartment rights" during
Communist times and, thus, have a basis to establish
ownership rights to those apartments as they are
denationalized, regardless of any discrepancy in value
between their current and former properties.


7. In addition, the law explicitly legalizes all property
transactions occurring before October 5, 2000, including
the Milosevic-era distribution of assets to friends of the
regime. In cases of mala fides transactions which preclude
restitution in-kind, the law relieves the individual party
to the transaction from any personal liability. It also
exempts developers who have demolished claimed buildings
subsequent to June 8, 2005 - the date on which the "Law on
Declaring and Registering Seized Property" entered into
force - from personal liability. The law transfers the
cost of restitution in these cases from developers to the
taxpayer via compensation in bonds.


8. The compensation provisions also present concerns. The
current provisions would issue EUR 4 billion in securities,
about 20 percent of GDP, thereby adding almost 50 percent
to Serbia's debt load. In addition, our Treasury adviser is
concerned that the bonds should be structured to mature
only beginning in 2016, after the last frozen foreign
currency bonds mature, to ease the burden on debt
servicing. (However, the bonds should be completely
tradable, permitting claimants to sell bonds immediately at
whatever price the market sets.)

COMMENT
--------------

9. In its current form, the law would do the bare minimum
possible to satisfy US and EU concerns about restitution
while preserving as fully as possible the real estate
status quo. In effect, possessory interests acquired
during the Milosevic period, legally or otherwise, will be
converted into partial-to-complete ownership rights. It
will be the Serbian taxpayer who bears the burden of
substituting bond payments for restitution in many cases.
End Comment.

POLT