SERBIAN AUTHORITIES ARREST RULING PARTY MAYOR FOR

UNCLAS SECTION 01 OF 02 BELGRADE 001040

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV KCOR SR
SUBJECT: SERBIAN AUTHORITIES ARREST RULING PARTY MAYOR FOR
CORRUPTION

REF: BELGRADE 617

Summary
--------------


1. (SBU) Popular ruling party mayor Goran Knezevic was arrested
October 1 and charged with participating in a criminal conspiracy.
The arrest comes less than a month after statements by top officials
of the ruling Democratic Party (DS) announcing a crackdown on
corruption. The media and observers were rife with speculation
about possible political motivations since Knezevic was reportedly a
rival to DS Vice President Bojan Pajtic. Despite charges of
political motivation, the new government may be making good on
campaign promises to fight corruption. End Summary.

Mayor Charged with Defrauding Municipality
--------------


2. (U) Goran Knezevic, mayor of Zrenjanin in Vojvodina and a member
of the main board of the ruling Democratic Party (DS),was arrested
along with ten others on October 1 on charges of criminal
conspiracy, abuse of office, forging public documents, and bribery.
Among the ten are other Vojvodina public officials and businessmen,
including Branko Savkovic, who is known as "Legija's banker" for his
close association with the career criminal Milorad "Legija" Ulemek
(reftel). In a press release, the Office of the Special Prosecutor
for Organized Crime alleged that Knezevic participated in a scheme
to sell choice plots of public land in Zrenjanin at cut-rate prices
to select businessmen who would then sell them to corporations for
an enormous profit. The "Construction Mafia" is also suspected of
hiring a public security company, Gvozden, for public events and to
protect municipal buildings without going through a public tender.
The group allegedly made a 3.5 million Euro profit through these
schemes. Knezevic specifically is accused of falsifying tender
documents and paying and taking bribes. News outlets reported on
October 3 that Knezevic and most of the other suspects had denied
all allegations during questioning. One of the suspects, chief of
Zrenanjin urban planning Nikola Halas, admitted to taking a bribe
and said he told Knezevic about it, according to press reports.


3. (U) According to the Special Prosecutor's announcement, police
in Zrenjanin, Vojvodina's capital Novi Sad, and Belgrade were
involved in the investigation. Interior Minister Ivica Dacic said
the investigation was already well underway when he took over as
minister in July. An investigative judge will determine whether to
initiate a court investigation and order investigative detention.
Local daily Blic reported on October 3 that the investigation of the
"Construction Mafia" was ongoing and involved criminal groups in
Belgrade.

Government Announces Anti-Corruption Campaign
--------------


4. (U) Speeches by top government leaders foreshadowed the arrests.
President Tadic (DS) announced at the party's main board meeting in
September that his government would decisively address corruption
and crime and he would begin by uncovering corruption within the
party. Soon after the board meeting, Oliver Dulic, Environmental
Protection and Urban Planning Minister and one of Tadic's close
advisors, gave an interview in the weekly magazine Vreme announcing
the government's fight against corruption. In the interview, he
said the government needed to recognize the great harm corruption
inflicted on citizens.


5. (U) In an October 2 press release, DS said the fight against
corruption was one of the government's highest priorities and that
the state would carry out its duties without regard to a suspect's
status or party membership. Interior Minister Dacic said that
further actions to combat organized crime would occur, regardless of
political affiliation, whenever the police discovered evidence. On
October 2, Tadic told press that he was personally affected by the
arrest of so prominent a DS member but that no one would be
protected from the government's efforts to rout corruption. Tadic
said Serbia had to address corruption and other issues before it
could join the EU. Belgrade Mayor Dragan Djilas (DS) told the press
he was certain similar abuse of office occurred in Belgrade and
would not be surprised if a similar operation resulted in the arrest
of officials in the capital. Dulic said the arrests should serve as
a signal to other officials that the time had come to launch a
serious crackdown on abuse of office.

Speculations on Government Motive
--------------


6. (U) Belgrade was awash with speculation on October 2 about the
motivations for the arrest. Knezevic, a highly popular mayor, has a
reputation as a high flyer, and there is speculation that his
success may have sparked jealousy among his political rivals. Goran

BELGRADE 00001040 002 OF 002


Jesic, DS Mayor of another Vojvodina municipality, Indjia, claimed
that the fight was political and if the government had been serious
about fighting the "Construction Mafia," it would have started the
investigation in Belgrade and Novi Sad, where the root of the
problem lay. Conspiracy theory-loving tabloid Kurir posited two
theories on the reason for the arrest: a) Pajtic had ordered
Knezevic's arrest because Knezevic had been a serious alternative to
Pajtic for the position of president of the Vojvodina Executive
Council, or b) Knezevic was only the first of many Vojvodina
officials -- including Pajtic -- who would be targeted by DS in
Belgrade for their efforts to decentralize power in Serbia.

Popular Mayor Led Municipality's Growth
--------------


7. (U) Knezevic is popular in Zrenjanin. He served a successful
term as mayor from 2004-2008, and he won reelection in May by a wide
margin. From 2000-2003, he was President of Zrenjanin's Executive
Council. He also served as a member of the Serbian Parliament from
2003 to 2007. Until last year, he was the head of DS's Vojvodina
branch. He resigned from this position in mid-2007 amid rumors of a
political fight with Bojan Pajtic, a DS vice president and president
of Vojvodina's Executive Council. Dusan Elezovic, a close friend of
Pajtic, replaced Knezevic as the head of DS in Vojvodina.


8. (U) Zrenjanin is the largest municipality by area in the
province of Vojvodina. A participant in USAID's Municipal Economic
Growth Activity (MEGA) program, Zrenjanin has been successful in
attracting investment. It received the Serbian Chamber of
Commerce's Municipalities of the Future award for economic
development in 2007. In a 2007 report of the World Bank on "Doing
Business" in South East European cities in 2008, the World Bank
ranked Zrenjanin the second highest among 22 cities in terms of ease
of doing business. Knezevic is given much of the credit for
Zrenjanin's successful development. In the summer of 2008 he
received the Executive with Vision award from the Serbian Economic
Journalists' Club and Agrobank.

Comment
--------------


9. (SBU) Corruption, which opinion polls consistently show is
widely believed to be rampant in Serbia, was a top campaign theme in
the presidential and parliamentary elections earlier this year.
Anti-corruption efforts also fit in with Tadic's EU integration
agenda. Knezevic's political spat with other top DS officials and
his fellow mayor's surprising outspokenness about the political
element invite the conclusion that the government is starting with
convenient targets, but the arrest is not likely purely political.
Some of Knezevic's co-defendants are unsavory, suggesting that
Knezevic cannot be an innocent victim. Tadic may be making good on
his campaign promises and starting by cleaning house. It is still
too early to tell, however, if this arrest heralds a comprehensive
campaign. End Comment.

MUNTER