CROATIAN ANTI-CORRUPTION EFFORTS NET 53 SUSPECTS

C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000240 SIPDIS SIPDIS E.O. 12958: DECL: 02/27/2018 TAGS: ECON KCOR HR SUBJECT: CROATIAN ANTI-CORRUPTION EFFORTS NET 53 SUSPECTS IN LAST 6 MONTHS REF: A. 07 ZAGREB 643 ¶B. 07 ZAGREB 1092 Classified By: Economic Officer Nicholas Berliner; 1.4 b and d. ¶1. (C) Summary: Croatia's Office for the Suppression of Organized Crime and Corruption (USKOK) has made a string of arrests over the last six months, charging a total of 53 suspects in five separate anti-corruption operations. USKOK, by its own admission, does not have the resources to eradicate corruption in Croatia, but nevertheless hopes that these actions will have a chilling effect across the country. This is the first time the GOC has acted in such a strong and sustained manner against corruption. However, much more remains to be done to tighten laws and reform the state administration so as to reduce the scope of opportunity for corruption. In the final analysis, all of the recent cases are textbook examples of the problem of corruption in a country where the state is the inefficient gatekeeper of permits and privileges and whose citizens master the art of cheating the system before they finish secondary school. End Summary. Five Catchy Operations Bear Fruit -------------- ¶2. (C) The Office for the Suppression of Organized Crime and Corruption (USKOK) was established in late 2001 within the Croatian State Prosecutor's Office to carry out efforts against corruption and organized crime. For most of its first five years, USKOK had little to show for its efforts, reinforcing skeptics' opinions that the government lacked the will to prosecute corruption. However, over the past six months five separate USKOK operations across the country have netted 53 suspects on charges of corruption. These arrests removed the lid on what have long been considered some of the primary sources of corruption in Croatia - privatization, construction permitting and HEALTH care/benefits. ¶3. (C) In a meeting with Econ Officer USKOK director Dinko Cvitan provided an update on the operations, each known by its press-ready USKOK moniker: Operations Diagnosis I and II: Fourteen individuals in Split and Osijek were charged with bribery and the falsification of documents. Among the accused are several doctors who accepted bribes of between 3,500 and 8,000 euros to issue official diagnoses of disability that enabled their beneficiaries to enjoy special disability pensions for veterans of Croatia's independence war. Disabled Croatian veterans receive substantially larger pensions than standard retirement pensions, regardless of age. Their number, as well as the overall number of Croatian veterans, has continued to grow steadily more than ten years after the end of the war. The total number of official veterans is now over 490,000, more than ONE tenth of Croatia's entire population. Investigations are on-going with several of the suspects remanded to custody. Operation Five Stars: Three people are under investigation in a case in which a construction company owner in Dubrovnik tried to extort 200,000 euros from Goran Strok, a wealthy hotel magnate. The accused allegedly told Strok that only cash would get his hotel the necessary operating permits. The construction company owner allegedly colluded with an official in Dubrovnik's construction permitting office who made sure that the company's projects received necessary permits and licenses quickly at the expense of its competitors, whose projects were either blocked altogether or stalled indefinitely. USKOK was tipped off to the case by Strok himself, who reported the attempted extortion. Gruntovec: Taking its name from the Croatian word for land office, 26 suspects were charged in a still on-going investigation involving land registration in Zagreb. Among those charged are several land registry employees who accepted bribes in order to speed up the notoriously slow registration of property ownership. Zagreb has been experiencing a real estate boom with rising demand and soaring prices. Maestro: USKOK has brought 10 indictments in this case in which several vice presidents of the Croatian Privatization Fund allegedly accepted bribes and rigged tenders in order arrange the sale of state-owned property under favorable terms. This case has uncovered a larger problem in that subsequent revision of privatization files has revealed. Many coastal properties sold by the fund included significantly larger parcels of land than were priced in the original tenders, for which the state was never paid. The land in question is now valued at several hundred million dollars, but it remains to be seen whether or not the state will take steps to address this issue. ZAGREB 00000240 002 OF 002 Only Administrative Reform Can Solve Corruption Problem -------------- -------------- ¶4. (C) Cvitan conceded that he does not expect USKOK to eradicate corruption in Croatia, or even to catch more than a small number of those engaged in corrupt practices. He said that as long as the bureaucracy is inefficient and weak, people will try to find shortcuts or take advantage of the system to secure benefits to which they would not otherwise be entitled. Reacting to criticism, including from Croatian President Mesic, that USKOK has only gone after "small fish" Cvitan said that he does not believe that the problem of corruption comes from the top down, despite the fact that there are some politicians who are no doubt compromised. Citing the example of the Maestro case, he said that, more often than not, it was in the middle levels of the state administration where corruption was most rampant - levels not usually subjected to public and media scrutiny, but with substantial decision making authority that can translate into millions of dollars for those people with a stake in the outcome. ¶5. (C) Most recent USKOK operations have relied heavily not only on informants, but also on electronic eavesdropping technology, with the cooperation of Croatia's intelligence services. Not only do these operations provide the hard evidence needed for successful prosecutions, but Cvitan hopes they also have a chilling effect throughout the country, leading corrupt officials to wonder if their phone is tapped, if their office is bugged or if the person offering them a bribe is not really an USKOK agent. Comment -------------- ¶6. (C) Corruption does not permeate every aspect life in Croatia. President Mesic is likely correct in raising doubts about some public procurement practices, and the media frequently features innuendo of high-level corruption, but in the end little hard evidence has surfaced of major corruption at the highest levels since the end of the war in Croatia. Even at the mid-levels, many transactions occur, permits are issued and contracts awarded without the exchange of bribes or favors. The major problem stems from the fact that the state remains the keeper of the keys to the economic realm of which it is not an efficient custodian. Corruption appears where ordinary procedures do not work as they should, where it takes years to get building permits or title to property, or where benefits are distributed without proper controls to detect fraud and abuse. Together with the fatalism of a people who long ago learned the art of getting by in a system of "self-managed socialism" that was, by its very nature, dishonest, corruption is a crime of opportunity and habit. USKOK's operations have brought an end to a previous culture of virtual impunity and reforms in the state administration such as the introduction of many on-line services are making a difference. In the long term, however, it is a smaller and more effective state role in the economy that will reduce the demand side of corruption. Until that happens, USKOK will still have plenty of work to do. Bradtke