GORAN STROK, a businessman and the owner of the Adriatic Luxury Hotels Company, met with Ivo Zeravica and Antun Kralj on several occasions at his Palace hotel, and decided to record the meetings when he grasped that he was being asked for a bribe Nacional has in its possession exclusive audio and video recordings in which Ivo Zeravica, the assistant head of the State Administration Office in Dubrovnik, and Antun Kralj, a Dubrovnik construction magnate, sought a bribe from businessman Goran Strok to help him take care of documentations needed to open the Bellevue hotel. Thanks to these recordings USKOK got involved in the case and secured additional recordings on the basis of which Zeravica and Kralj were arrested in late December of 2007 and the entire case made centre stage as the "Five Stars" corruption scandal.

Zeravica and Kralj started asked Strok from bribe money in order to secure him with the issue of final permits for the Bellevue Hotel. The first time round they sought 120 thousand euro, and then the amount was increased to 200 thousand euro. Strok was unwilling to pay the bribe and consulted with his associates how to avoid doing so. Among others, he spoke with William Montgomery, a member of the board of directors at Strok's Adriatic Luxury Hotels, who advised him to record the conversations with persons seeking bribes from him. The recordings were to serve Strok as the initial confirmation that he was not concocting the stories of bribery, and based on which USKOK would subsequently get involved in the case. Strok decided to take Montgomery's advice.

He met with Zeravica and Kralj on several occasions at his Palace hotel. He decided to record the meetings, but as he had never done so before in his life, he encountered difficulties initially in doing so. The people that were seeking bribes from Strok felt so powerful that they did not even suspect that they could face problems on that account. That is why they agreed to meet with Strok in a practically public place. All of the meetings Strok recorded were held in the foyer of the Palace, in the well-appointed Sunset bar. There were always other hotel guests nearby.

the first conversation in which Zeravica asked Strok for bribe money Strok was unable to record because Strok was unacquainted in these matters. Strok accepted Zeravica's suggestion that they sit at a table near the artificial waterfall in the hotel bar. They sat too close, and only the sound of running was recorded. Nothing else could be heard because Strok recorded the conversation using a digital recorder he had placed in the pocket of his jacket. He recorded the conversation as a journalist would an interview, but rather than place the recorder on the desk, he had concealed it in his pocket. That in itself deteriorated the quality of the recording, and with them seated by the artificial waterfall, there was no saving the recording.

Strok recorded another interview with Zeravica. The discussed bribe money he was to pay. That recording was a good one, but Strok unintentionally destroyed it when he tried to play it back to his associates. He simply did not know how to operate a recorder. It was for him an uncomfortable and stressful situation. In the end he managed to record at least three conversations that sparked off the "Five Stars" scandal. The last of these conversations was recorded by USKOK as well as by Strok. USKOK asked the management of the Palace hotel to save the security camera recordings of Zeravica waiting for Strok at the hotel reception, and later of Strok and Zeravica as they leave the hotel and part in front of the Palace.

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STROK AND ZERAVICA The businessman and the assistant head of the State Administration Office in Dubrovnik recorded by the security cameras at the hotel Palace As the investor in the reconstruction of the Bellevue, Strok procured location and construction permits, but during the actual construction deviated from them in part. That is why he did not pass the technical inspection of the hotel, which is a prerequisite to getting the final permit. After that Zeravica and Kralj started seeking bribes from him to help him solve his predicament. Initially they asked for a 120 thousand euro bribe, which grew to 200 thousand euro just after the first technical inspection in November of 2006.

It had already been considered unusual by Strok's associates that the woman who had carried out the inspection had not given unambiguous objections to some deficiencies, but did not complain too much as they were themselves aware that they had not followed the construction documentation. They were given 90 days to fix the faults, and had by then resolved about 90 percent of the deficiencies there had been objections to. Strok later told USKOK investigators that Kralj and Zeravica had reassured him that it could be taken care of without any problems, because the changes were outside of what was allowed by the location and construction permits, but within what was permitted by the existing GUP (municipal zoning plan). Strok, however, quickly learned that Zeravica expected bribe money from him to resolve the problem. That is what Zeravica told him on 9 January 2007 at a meeting at the hotel Palace. Zeravica during that conversation openly told him that he should pay the bribe in order to pass the technical inspection, and that it would cost him 1.5 million kuna to do so. The following are excerpts from the conversation from which this is evident:

Zeravica: There are a lot of games and you are now in a position and now are simply buying something... You have been put into this situation.
Strok: Yes?
Zeravica: You have been put in a position to buy something.
Strok: To buy something?
Zeravica: Yes. Now you are buying something. As things have turned out, that's how it is. This technical inspection, now you practically have to...
Strok: Ok, ok, I have to buy it.
Zeravica: Practically, if you will, you have to buy it.
Strok: Yes, yes, I know, I know. I know I have to buy it. It's all clear to me...
Zeravica: When everything is tallied up, Antun should have a million and a half kuna on his account.
Strok: Fuck, that's two hundred thousand euro.

During the conversation Zeravica explained to Strok how and to whom the bribe should be paid. He said that the sum should be paid to the Konel Company, owned by Antun Kralj, which was the sub-contractor on the reconstruction of the Bellevue. The amount would be invoiced as a somewhat increased cost of construction, which, without the bribe, would have been 11 million kuna. Zeravica also told Strok that he had spoken of the matter with Kralj. He described this conversation with Kralj to Strok as follows: "I do not know now how much he wants… I asked him openly: 'Antun, what kind of figure are we talking about?' He said that it was about 11 million kuna. I told him: 'Antun, I think that we can find quite decent material here to do this. He told me that was ok. So, that is something that you… I am speaking openly now, just like at confession."

Strok tried to agree that he pay the sum somewhat later, at the end of 2008, when construction work is scheduled to start on the renovation of the Kompas hotel, but Zeravica rejected the idea, telling Strok that Kompas was a separate issue "at prices that you will again adjust".

AFTER THE MEETING a security camera a half hour later recorded Goran Strok seeing Ivo Zeravica out of the Palace hotel. The continued their conversation in front of the hotel

Strok was particularly angered that the price had gone ups from 120 to 200 thousand euro. He spoke of this with Antun Kralj. Kralj also visited him at the Palace hotel in early January. Parts of the conversation are not very friendly, because Kralj was unhappy that the money had not been paid to him yet. Part of the conversation went as follows:

Kralj: You got a cold shower, like you said about the Bellevue.
Strok: I did! Very much so.
Kralj: Listen! You'll be taking more cold showers, pal...

Kralj then reminded him that he had set up face to face meetings with Anuska Sutalo and Bozidar Benic, who were involved in the technical inspection of the Bellevue, and that that made Strok a precedent in Dubrovnik. That conversation indicates that Kralj practically controls officials who play key roles in the procedures that precede the issue of final permits in Dubrovnik, that he can see to it that these officials has unofficial meetings with investors and help them "overcome" deficiencies in their projects. Suspicions that an inappropriate relationship and legally questionable activities on the part of civil servants are at issue have been raised by this part of the conversation between Kralj and Strok:

Kralj: Look, nobody before you, they sat down with no one. And I am telling you, after you they will sit down with no one else.
Strok: Fine.
Kralj: And you depend on them for the Bellevue. I told you, Goran, please, see them. I said nothing else. Have a conversation with them.
Strok: And I...
Kralj: You had a decent discussion with them and all that, but remember – you are the first one in this city!
Strok: Fine.
Kralj: Otherwise there is no discussion with them.

Strok then complained to Kralj that Zeravica had hiked the price of the bribe from 120 to 200 thousand euro. Kralj indicated he understood his indignation:

Kralj: Zera need not have raised that for me.
Strok: Who?
Kralj: Zera, Zeravica. I call him Zera... The two – that woman and that man. It's my reputation. This should not cost you. This is something I am doing for Goran Strok. And nobody is to find out.
Strok: But nobody knows!
Kralj: Look, these two...
Strok: Nobody knows!
Kralj: They are not in his department. One is from another ministry, and the other is from the interior ministry! He is from the interior ministry!

Kralj and Strok met early in March of 2007 to discuss the method of transferring the bribe money for the final permit. The bribe was evidently already to have been paid, but that did not happen. The Medimurje Company, the chief contractor, was to have received the money on its account, and then transfer it to Kralj's Konel. On 5 March 2007, Kralj spoke with Strok on the matter:

Kralj: They did not make the transfer. Aaa, I am at war with them now, definitely. Can you organise it so that Medimurje transfers the money to me?
Strok: I can.
Kralj: To muscle them and tell them: "Transfer the whole lot!"
Strok: Fine.
Kralj: Part of it goes to him.
Strok: To whom?
Kralj: For Ivo (Zeravica, ed. note).
Strok: Aha.
Kralj: It is no longer two hundred.
Strok: Fine.
Kralj: I told him he had been unfair. Then he retorted – that it is likely that as they went through the documentation, when they went to pick it up, that there are plenty of problems here.
Strok: But...

THE HOTEL BELLEVUE on which Antun Kralj's (right) company worked as a sub-contractor: the bribe was to have been aid as extra money to his account Zeravica told Strok that the price of the bribe had gone up because Strok had not paid Stijepo Butijer, who is responsible for urban planning at Dubrovnik City Hall and is a long-time member of the Croatian Physical Planning Council, and is the owner of a group of companies called Alfa-plan, 60 thousand euro for the issue of documentation for the renovation of the Dubrovnik Palace hotel. Butijer is a close business associate of Kralj's and they are co-owners of the Dubrovnik Investment Group (DIG) Company. Butijer is in Dubrovnik considered to be the most influential éminence grise in the department that issues location, construction and final permits. Strok was very flustered by the increased bribe, going so far as to call Butijer to hear an explanation of why he should pay the money, especially as there had been no problems around the renovation of the Dubrovnik Palace, nor had anyone sought bribes from him before. Butijer, however, immediately informed Zeravica of the matter.

That is evident from a part of the conversation that Zeravica had with Strok on 28 November 2007 at the hotel Palace. The conversation was recorded by Goran Strok, and USKOK agents had already gotten involved in the entire operation, also recording the conversation. Zeravica told Strok the details of his meeting with Butijer.

Zeravica: You at one point sat down with Mr. Butijer, but you achieved an utterly negative outcome.
Strok: No, no, it... I absolutely agree here.
Zeravica: You buried yourself, and you were not even aware that you had buried yourself.
Strok: Why? I'll tell you why. Ivo, I came to him and said, Stijepo, it is not fair on your part to have told me that you had squared your accounts, what you had to settle and pay. You neither settled it, nor paid it, and that is unfair.
Zeravica: It's his reputation.
Strok: And there you have it, I told him that it was unfair.
Zeravica: Yesterday evening, he represented, this is your problem...

Later, during that same conversation, Strok and Zeravica discussed various technical aspects of Strok's problems with the Bellevue hotel, but came back to working out the details of the payment of the bribe for the final permit. As USKOK was involved in the case at that point, the following conversation will be used as evidence in the proceedings against Kralj and Butijer. That part of the conversation of 28 November 2007 went as follows:

Strok: Does it stay, does it stay, just a moment to discount our deal. OK?
Zeravica: If you mean when you gave me your hand...
Strok: Yes.
Zeravica: I passed that on to the people and it is enough for them.
Strok: 150 thousand (euro, ed. note).
Zeravica: And?
Strok: Is 150 thousand all right? Come again?
Zeravica: 120.
Strok: 120 thousand. 120. Fine. There.
Zeravica: That's what you said.
Strok: I agree. It was – later we went to 200. And then you said that wasn't enough...
Zeravica: Oh, no, no, no. That was not mine, there's no chance.
Strok: But you said in the end 200.
Zeravica: I did, but look, I am a courier...
Strok: Did I not say, it is tough for me. It's too much.
Zeravica: I do not want to be a courier.
Strok: Fine.
Zeravica: Don't misunderstand me.
Strok: Agreed. That means 120 thousand when it is done – you got them.
Zeravica: But your architect has to sign a request and be ready round the clock.
Strok: And will be. And will be...
Zeravica: They will go positively. May we? Let's go hand in hand… Without wrangling.
Strok: Agreed.

Based on this and other conversations Kralj and Zeravica had over the past months, USKOK arrested them late last year. After the arrest of the suspects it was revealed that the "Five Stars" scandal is much wider than the case it currently covers. The "Five Stars" scandal in fact set the stage for a detailed USKOK investigation into serious suspicions that bribes have to be paid for the lion's share of tourism industry investments in Dubrovnik to a well-networked local construction and judicial lobby, with business and interest links to the local HDZ government, but also the IGH Company. The way in which the former US ambassador and military commando William Montgomery conceived the entire operation has led to a conflict between the HDZ national leadership with the party's local branch. He came up with the idea of a meeting between himself, Strok and Ivan Jarnjak then president of Parliament's Interior Policy and National Security Committee and HDZ Secretary General. When Jarnjak heard the recording he immediately secured an official vehicle and driver that took his guests to USKOK headquarters.

They chose this scenario because they knew very well that Zeravica, Kralj and Butijer were only the local players of a much more influential construction lobby. Butijer and Kralj are co-owners of the Dubrovnik Investment Group company, and are, together with Petar Dukan, the biggest stakeholders in IGH, the most influential construction, architecture and urban development group in Croatia, whose stock is also owned by Marina Matulovic-Dropulic, the environment protection, physical planning and construction minister. And while Dukan has no formal ties with the dishonourable doings of Butijer and Kralj, their business relationship lead one to think that they might enjoy the protection of some influential HDZ members.

WILLIAM MONTGOMERY, a member of the board of directors of Strok's Adriatic Luxury Hotels and the former US ambassador to Croatia, set up the strategy of the entire operation thanks to which the Dubrovnik blackmailers were arrested The operation has subsequently revealed numerous links between the suspects and the local police and justice department. Not long after the scandal broke Pero Miloglav, until then the president of County Court, resigned his post. He had been recorded taking instructions from Kralj to alter one of his rulings in a court case related to a construction project, because the ruling did not suit Kralj. Miloglav was told off the record that it would be better if he resigned than be dismissed. Not long before that the now ex-president of the Commercial Court Niksa Mozara left his post to enter the service of notary public. Other investments in Dubrovnik have come under scrutiny. It remains to be seen where the investigations into these cases will lead.

Not long after the scandal broke Zeravica and Kralj were, in mid-January, released to defend themselves as free men. A part of the judiciary explains this by the influence of their powerful informal patrons. While in detention, Kralj stayed in the office of the local police chief, sipped wine and waited for a drive to Split police detention. After being released from detention the investigating judge did not confiscate his passport. And on 30 January he flew from Dubrovnik to Zagreb, and then, allegedly, to Sweden. At the occasion he met with Goran Strok, who was also travelling to Zagreb. They were both in business class. They sat one behind the other. Kralj with a measure of irony asked Strok if he could carry his luggage for him. Strok retorted saying that there was not enough money in them, so that there was no need.

And although a part of the justice department has taken a benevolent disposition towards the suspects, the recordings of the conversations that Nacional possesses show that they should, nevertheless, not have much room for optimism in the coming court proceedings.