CORRUPTION IN MONTENEGRO

UNCLAS SECTION 01 OF 05 PODGORICA 000195

SENSITIVE
SIPDIS

STATE FOR EUR/SCE AND INL/C

E.O. 12958: N/A
TAGS: PGOV PREL PHUM KCRM KCOR MW
SUBJECT: CORRUPTION IN MONTENEGRO

REF: A: PODGORICA 49; B: PODGORICA 105

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1. (SBU) SUMMARY: Few countries in Europe have as bad a
reputation for fighting corruption as Montenegro. As in other
transition societies in this region, egregious weaknesses
include extensive cronyism and nepotism, weak controls over
conflicts of interest, perceived legal impunity for individuals
linked to the ruling parties, and the failure of the judicial
system to effectively and consistently punish corrupt officials.
Montenegro is by no means a lost cause, however. The GoM has
put in place a legal framework that has generally been praised
by the EU; it has established a high-level commission to monitor
progress; and there has been an increase in arrests and
investigations in recent months. Moreover, allegations of
corruption are publicly and prominently aired by NGOs and in the
national media -- coverage that has prompted the authorities to
act in several recent cases. Nevertheless, as Montenegro draws
increasingly closer to the EU and NATO, it will have to
strengthen its record in coming years -- particularly in the
enforcement area -- if it is to pass muster for full membership.
END SUMMARY.



Corruption: The General Picture

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2. (SBU) The nature and extent of corruption in Montenegro is
difficult to quantify, but a variety of reporting indicates that
corruption occurs at most levels of government. Numerous
international surveys have pinpointed corruption as one of
Montenegro's most serious challenges. Transparency
International's "Corruption Perception Index" ranks Montenegro
with Serbia and Albania, and slightly behind Macedonia, Romania,
and Bulgaria (but ahead of Bosnia). Freedom House's "Nations in
Transit" ranks Montenegro ahead of only Kosovo in the region.
Global Integrity places Montenegro in its lowest category -
"very weak." A recent USAID-commissioned report conducted by
Management Systems International noted that "corruption in
Montenegro is pervasive at the grand and administrative levels."




3. (SBU) There are many factors feeding into Montenegro's record
on corruption. First and foremost, it is a post-socialist
transitional society with still-evolving, but fairly weak,
democratic institutions. Years of conflict in the region led to
sanctions and sanctions-busting, undermining law enforcement
entities and enriching a criminal class. For instance, PM
Djukanovic and other senior officials have been investigated by
Italian prosecutors for cigarette smuggling during the period of
Milosevic's rule in Belgrade. (Several former officials have
been indicted by Italian authorities, but not the PM.)
Likewise, manipulation of the economic transition by
well-connected people brought riches to senior politicians and a
small group of oligarchs.




4. (SBU) In addition, Montenegro's small size (population of
650,000) and a land mass the size of Connecticut makes it
inevitable that "everybody knows everybody" in some way. In
fact, the use of "veze" (connections) is a widely accepted way
to get things done in Montenegro. The tradition of "veze,"
however, contributes to an environment which reduces
competition, multiplies conflicts of interest, and encourages
nepotism in hiring. According to a Gallup Balkan Monitor poll
conducted in September and October 2008, 53 percent of
Montenegrins believe that it is acceptable to use the help of
connections to get better care in the hospital, 48 percent
believe it is acceptable to do so in order to get a profitable
government contract, and 43 percent believe it is acceptable in
order to avoid paying traffic fines.




5. (SBU) These factors have been exacerbated by the fact that
the same two parties have been in power in Montenegro over the
last decade, giving rise to bad habits that the weak and
disunited opposition has had little success in checking.
Further, many who wield political power are prominent in the
business world as well, generating significant conflict of
interest issues. By way of example, Svetozar Marovic, DPS Vice
President and now the Deputy Prime Minister for Political
Affairs, is reportedly linked to 22 separate companies, either
directly or through family members. Common rumor has it that no
significant deal can be done in Budva, the largest municipality
on the coast, without Marovic's blessing. PM Djukanovic himself

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owns just under three percent of shares in the prominent local
bank, Prva Banka. His brother has a nearly 47 percent stake in
the bank, while and his sister has a one percent stake, giving
the family controlling interest. Prva Banka was the only
Montenegrin bank to benefit from a GoM bailout package (40
million Euros total) as a result of the global economic crisis.
Many other senior politicians have substantial business
interests as well, including in state-owned companies.





Conflict of Interest

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6. (SBU) Despite the passage of an improved Conflict of Interest
Law in January (reftel A),the issue continues to plague
Montenegro. The most problematic aspect is that public
officials including GOM officials, judges, State Prosecutors and
Deputies, and parliamentarians can serve in remunerated
positions as president or members of governing and control
bodies and executive directors or managers in public
corporations where the state or a municipality has a stake.
Also, the law appears to concern only public officials and
members of their "household" (i.e. immediate family) - but not
other relatives and does not limit officials who place property
or assets in a blind trust. Another problem is that many public
officials either fail to report their assets as required by law,
or under-report them, with little or no legal consequences.
Critics also question the independence of the commission charged
with reviewing conflict of interest cases and have expressed
concern over the absence of more severe penalties.



Perception vs. Reality

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7. (SBU) GoM officials routinely acknowledge to us that
corruption is a genuine challenge here, but they claim that the
criticisms are greatly exaggerated. There is some evidence to
suggest that the reality of corruption may not be as dire as the
perception. Corroborating what we are frequently told
anecdotally, surveys over the last year revealed that only a
minority of Montenegrins claim to have actually witnessed or
participated in acts of corruption. For instance, nine percent
of Montenegrins acknowledged bribing an official in the previous
twelve months (note: presumably including bribes to traffic
police for speeding violations, a commonly-acknowledged
practice). Similarly, a survey by a GoM-affiliated entity
(Directorate for Anti-Corruption Initiative - DACI) found in
2008 that more than one-third of the professionals and one
quarter of corporate managers believe that the judicial system
in Montenegro is often or always corrupt. However, only 11
percent of parties, 8.5 percent of lawyers, and seven percent of
companies reported that judicial officials had solicited or
accepted bribes, illegal payments, or some other corrupt act.
Nonetheless, it is notable that a greater number of citizens in
Montenegro consider the use of bribes, connections, and
influence acceptable than in other Balkan countries.





Weaknesses in Law Enforcement

--------------




8. (SBU) As in other transitional societies in the region,
Montenegro's law enforcement institutions have had only limited
success in prosecuting and punishing perpetrators of corrupt
acts, particular at more senior levels. In the first six months
of 2009, out of 111 charges of corruption brought against 173
individuals, only one verdict was handed down.

The low number of verdicts reached for corruption cases
indicates, possibly, lack of political will and/or weak
institutions. Other factors include:

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- The courts are overburdened and there is a backlog of
cases.

- Judges are selected and dismissed by the Judicial
Council, which is partly organized by Parliament-thus making the
process vulnerable to politicization.

- Conflicts of interest between judges and the cases
they handle are not sufficiently examined.

- Regulatory officials, such as zoning inspectors, do
not routinely report discrepancies to law enforcement
authorities, while the police and prosecutors rarely act on
complaints by property owners and other citizens.

- The police lack expertise in conducting financial
investigations, a significant impediment to anti-corruption
efforts.

- A Code of Ethics, revised according to EC standards
and adopted in 2008, is reputed to be poorly understood and
followed.

- Until this July, the police and investigative judges,
rather than the prosecutors, have been in charge of
investigations. A new Criminal Procedure Code shifting control
of investigations to prosecutors has just been adopted, but a
smooth and efficient transition to such a system will take time.

- A law to protect "whistleblowers" is not in place.





Corruption and Construction Go Hand in Hand

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9. (SBU) By all accounts, Montenegro's property boom this decade
has spawned substantial corruption. According to the GOM,
Montenegro has had the highest rate of foreign direct investment
per capita in Europe for several years - FDI reached 685 million
euro in 2008. The resultant boom in tourism and real estate has
stimulated illegal construction. Much of it has proceeded
without intervention by authorities or, in some cases, with the
illicit complicity of authorities. Part of the problem lies with
the Law on Spatial Planning, which provides mechanisms for
monitoring construction projects. It provides for public access
to information and documents, defines the processes for issuing
permits and conducting inspections, defines insurance
requirements, and much more. But the legislation is complex and
confusing (even for those charged with implementing it),and the
process of issuing construction permits and registering property
is labyrinthine. Bribes and other acts of corruption may speed
up the bureaucratic process. Inspectors and other local
officials may be intimidated, even by their own neighbors.



Anti-Corruption Efforts

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10. (SBU) There are, however, some bright spots to report.



-- The two most widely read dailies report on issues of
corruption nearly every day, and while these articles do not
always lead to action, they do sometimes have a positive effect.
In one example, in September 2008, a local businessman was
arrested because he was conducting construction work without any
permits whatsoever. His company was illegally mining the
mountain side in the town of Lipci, on Kotor Bay, hauling the
stones and debris into the water, reportedly preparing to build
a luxury hotel and beach resort. The illegal construction
continued for nearly two months before any action was taken. One
local daily (often critical of the GoM) cited the businessman's
strong ties to the ruling party as a possible reason for his
success evading authorities for so long. Many speculate that the

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authorities took action only because of the continuing outcry
among the media and public. In another case, media reporting on
excessive compensation taken by officials of the state-run
railways prompted the GoM to take action (reftel B).



-- In recent months there has been a notable increase in
investigations and arrests in corruption or abuse of power
cases. In February, in two separate actions, the Ulcinj Police
arrested five local officials on charges of corruption related
to illegal construction. At the same time, police arrested the
judge from the Higher Court in Bijelo Polje under suspicion of
having taken a bribe to decrease the sentence and release a man
convicted of vehicular homicide. In July, the Basic Prosecutor
from Podgorica pressed charges against the president of the
state-owned Montenegro Airlines for abuse of position. Just few
days later, the head of the Kotor office of the Real Estate
Directorate, his advisor, and a secretary were arrested and
charged with "abuse of official position for personal gain with
corruptive elements." The same day, police inspectors for
commercial crime, along with Special Prosecutor for Organized
Crime Stojanka Radovic launched an investigation against the
director of the State Development Fund, Dragan Lajovic, on
suspicion of involvement in suspicious transactions related to
the approval of loans for six companies.



-- Likely as a result of some of these public "scandals," in
addition to the new Law on Conflict of Interest, the GoM has
adopted new regulations on the compensation of government
representatives sitting on the boards of public companies and
regulatory agencies and other bodies in which state of
Montenegro retains some shares (reftel B). These new
regulations exclusively regulate the rules and limitations for
financial compensations, while the Law on Conflict of Interest
regulates who may or may not serve on these boards.



-- In 2007, the GoM created a National Commission and charged it
with developing and implementing an Action Plan for the Fight
against Corruption and Organized Crime. The Commission, whose
members include representatives of watchdog NGOs in addition to
executive and judicial authorities, regularly reviews progress
at public sessions attended by USG and other international
representatives. For instance, at a recent session, the GoM
reported that 62 percent of Action Plan goals were fully
achieved, ten percent were partially achieved, 15 percent were
not achieved, and that data was incomplete for 13 percent of the
goals. A watchdog NGO, however, alleged that the GoM figures
were too rosy. According to that NGO, only 24 percent of the
Action Plan's goals were achieved in 2008, 37 percent of the
goals were partially fulfilled, 34 percent were not
accomplished, and that data was incomplete for five percent of
the goals.



-- The growing influence of domestic watchdogs such as MANS is
also an encouraging development. MANS and Calovic are
undoubtedly among the most trusted and popular of such public
voices. Calovic finds local newspapers and other media ready to
cover her efforts to test and counter government claims. While
the local NGO sector is still far from robust -- there are only
a few other NGOs as vocal and active as MANS -- its increasing
strength and sophistication has helped raise public awareness of
corruption. More important, a greater number of Montenegrins
realize that it is possible, by means of such grass-roots
initiatives, to constructively challenge the status quo.





Comment

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11. (SBU) With only three years of independence behind it,
Montenegro has instituted significant reforms and is moving
smartly forward on a strongly pro-Euroatlantic path.
Nevertheless, waging an effective fight against corruption will
probably be the toughest hurdle it will have to cross on the
path toward full membership in those institutions. It also will
be key to Montenegro's ability to court legitimate foreign
investment. The country has made significant progress in

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putting in place the requisite legal and institutional
framework. Now, it must use these tools more effectively,
particularly in terms of demonstrating that its law enforcement
system can punish offenders regardless of their background or
connections.




12. Over the last two years, the Embassy has significantly
increased both assistance resources and policy focus on rule of
law issues. Initiatives include, inter alia, greater public
outreach on corruption themes, expanding DOJ programs (notably
the addition of a Resident Legal Advisor),an effort to
establish a US-style anti-crime and corruption task force, a
central U.S. role in amending key legislation, the re-focusing
of some existing USAID programs on a series of anti-corruption
measures, as well as numerous PD-sponsored speaker programs and
democracy commission grants which address themes ranging from
developing whistleblower protection to helping local governments
strengthen their ability to fight corruption.
MOORE