Published in Nacional number 742, 2010-02-02

Autor: Marko Biočina

CORRUPTION scandal takes a new twist

SDP also embroiled in the Hypo affair

A SIGNIFICANT PART of the intelligence report on the Hypo Alpe Adria bank affair is dedicated to the involvement of people from within the SDP in the Austrian bank's dealings in Croatia

SDP PRESIDENT Zoran Milanovic with Slavko Linic, who is mentioned in the intelligence reportSDP PRESIDENT Zoran Milanovic with Slavko Linic, who is mentioned in the intelligence report"The decision of SDP head Zoran Milanovic to call for the resignation of the Chief State Prosecutor Mladen Bajic, is one that is truly difficult to understand. Namely, the State Prosecutors Office and USKOK are at the moment carrying out at least twenty large-scale investigations into allegations of corruption within the highest echelons of the state authority, Bajic's dismissal under these circumstances would appear to both the Croatian public, but also to international institutions, as a step backwards in this final confrontation with corruption that has obviously begun in recent months. It is realistic to believe that even Milanovic is aware of this, which makes it unclear what he was trying to achieve with this attack on Bajic, unless the issue in question is an attempt to apply pressure to Bajic.

Namely, until now the scope of the corruption investigations had been solely on events that took place during the governance of the HDZ, but it has not been ruled out however that USKOK, in its investigation, will come to the conclusion that some tentacles of the so-called corruption-octopus, pertaining to individual cases such as the Hypo affair, will lead to respected members of the SDP. This, for political reasons, is definitely is not what the SDP needs right now, and could be the reason behind Milanovic's nervousness," said a Nacional source, well informed as to the situation in legal circles in the Croatian judiciary, commenting an interview given to the Jutarnji list daily last week by Zoran Milanovic, in which the head of the SDP called for the removal of Mladen Bajic from the post of Chief State Prosecutor, saying that he had been blocking corruption investigations for years. However, despite the fact that in that interview Milanovic asserted that corruptibility had been the primary trait of the HDZ's government over the past six years, information has been making its way to the public of late that would suggest that in some scandals, such as the one dealing with the Hypo bank and its business dealings in Croatia, the HDZ was not alone, with key roles also played by members of other Croatian political parties.

For months now a Hypo Alpe Adria Bank business report has been circulating among the domestic media. This 80 page document, which analyses in detail the Hypo Bank's operations in Croatia, describes the ties between the bank's leadership and numerous powerful figures from the highest level of Croatian political and social life, and the lucrative deals and enormous profits the bank made thanks to these connections. And while the identity of the report's author and the person who requested it are unknown, its content and style of writing lead to the assumption that it is the work of someone from the intelligence community, and that it was put together in 2007, when the German Bayerische Landesbank assumed ownership of the Hypo Bank. Certain segments of the report, that deal with the bank's long standing relationship with former Croatian Prime Minister Ivo Sanader, and the financing of business deals for Vladimir Zagorec and Ivic Pasalic, have already been published in the domestic media, however, a significant portion of the report deals with the relationship between the bank's leadership and high-ranking figures from within the Ivica Racan coalition government, such as the then Deputy Prime Minister for Economic Affairs Slavko Linic, and the Istria County Prefect and then European Integration Minister Ivan Jakovcic.

In the report it is asserted that they both, with the help of some other individuals, such as businessmen Walter Wolf and Milan Naperotic, as well as the then vice president of the Croatian Privatisation Fund Kresimir Starcevic, through illegal actions allowed the Hypo Bank to make exorbitant profits - hundreds of millions in euro. Specifically, from 2002 to 2003 during the reign of the Ivica Racan coalition government, the Hypo Bank acquired a number of very valuable pieces of real estate, and according to the assertions made in the report, the bank came into possession of the bulk of these pieces of real estate by buying cheap agricultural land that was later re-zoned into commercial or residential land, or by assuming ownership over failing companies situated on land in attractive locations. According to the report, Hypo Bank had the support of representatives from both state and local units of government in both models, primarily on the basis of the good personal relations between the bank's top officials and Linic, Jakovcic and other people from the highest levels of state politics. However, according to the information in the report, the bank carried out the majority of these deals through a middleman. In a large number of cases this go-between was Austrian businessman Walter Wolf. In the 1990's Wolf was highly respected in Croatia because of his role in helping procure weapons for the Croatian armed forces during the Homeland war.

ALFRED GUSENBAUER Delivered important information about Vladimir Zagorec to Zoran Milanovic in 2007ALFRED GUSENBAUER Delivered important information about Vladimir Zagorec to Zoran Milanovic in 2007Wolf took advantage of that respect to impose himself as one of the key investors into the privatisation process in Croatia, and in only a short period had bought up a plethora of Croatian firms. In this manner, Wolf at one point owned the Karlovacka Bank, the Lamjana refitting shipyard on the island of Ugljan, the Karlovac footwear factory KIO, Maraska from Zadar, the Borik hotel company and Puris of Pazin. In the report it is asserted that in acquiring these companies, Wolf received considerable help from Linic, who from 2000 to 2003, on the basis of his position in government, served as the president of the steering committee for the Croatian Privatisation Fund, and who allegedly ensured a low price and favourable conditions of sale for the Austrian businessman. No sanctions were outlined in those contracts, in the event that Wolf did not meet his contractual obligations and promises of further investment into the companies, and to maintain their basic product. Wolf did not manage to achieve those conditions for any of the companies he bought, and given that he bought the companies through loans from the Hypo Bank, when the bank activated its mortgage rights it became the owner of the companies. In the report on the Hypo Bank's dealings in Croatia, it is asserted that this was a previously agreed upon plan, and that Wolf was in reality only a front for the bank which wanted to acquire these companies because of the attractive real estate each of them owned, with absolutely no intention of saving the companies or retaining their employees.

It is claimed that in this manner Wolf, for a mere 4 million euro, assumed ownership of KIO solely for its real estate, just as it was with the Lamjana shipyard, which he obtained for the price of one kuna through the direct personal assistance of Linic. Both companies ended up in the ownership of the Hypo Bank, with KIO's assets sold to pay off its outstanding debts, while the Lamjana shipyard was sold a few years later to the Jupiter Adria British investment fund. Cooperation between the Hypo Bank and Walter Wolf ended in 2004, when the bank activated its mortgage rights on the last of his companies in Croatia, Maraska in Zadar. According to the claims in the report, Istrian businessman Milan Naperotic played a role similar to the one played by Wolf for the Hypo Bank in Croatia. From 2000 to 2003 Naperotic allegedly bought huge swaths of agricultural land in Istria for the Hypo bank through companies registered in his name and in the names of his associates. These lands were then later, through the assistance of Istria County Prefect Ivan Jakovcic, and the leadership of the SDP, re-zoned into valuable commercial or residential land. The most famous of these cases was the purchase of one million square meters of land in Barbariga and Dragonera, which the AB Maris and Darija companies, registered in Lichtenstein, bought for 5 euro per square meter.

The value of that land grew enormously after the urban planning commission re-zoned it into commercial and residential land, and even more so when the state announced the Brijuni Riviera tourism project. The project, valued at one billion euro, included the building of a number of hotel complexes, golf courses and accompanying content on Istria's southwestern coastline, across from the Brijuni islands. It is estimated that through these murky dealings the value of the land was increased by 95 million euro. Despite numerous protests, the project received strong support from the SDP and IDS, and it was speculated at the time that Slavko Linic in fact played the key role in all of this, with his influence over then Prime Minister Ivica Racan. Racan himself visited Istria in July of 2003 to personally lobby local members of the SDP to back the project, who were against him on the issue. In the meantime it has been revealed that the transactions to purchase the real estate were financed by money from the Hypo bank, and that the bank holds a 26 percent interest in these companies, which have now announced the development of huge tourism projects on the cheaply purchased land. In fact, last year a giant tourist complex named Porto Mariccio was to have been opened under the well-known Kempinski brand.

ISTRIA COUNTY PREFECT Ivan Jakovcic, the report states, enabled the Hypo Bank multi-million euro profits through illegal dealingsISTRIA COUNTY PREFECT Ivan Jakovcic, the report states, enabled the Hypo Bank multi-million euro profits through illegal dealingsIn the end however, this did not happen. Works on the project have not begun, and last year the Istrian media began to speculate about the possibility that AB Maris and Darija might sell the land. As a potential buyer of the land, just as in the case of the sale of Hypo's shipyard in Lamjana, there is mention of the mysterious British investment fund Jupiter Adria. Along with the allegations that he was a key player for the Hypo bank's dealing in Istria, the report also alleges that Naperotic served as a middle-man in the privatisation of some other large companies, such as Dioki, for which Naperotic allegedly lobbied Linic in favour of Rijeka-based businessman Robert Jezic, and where yet again Hypo was involved as the financier of the transaction. Despite the fact that the report deals with the business dealings of the Hypo bank, it also contains an abundance of information that deal with alleged illegalities in the privatisation process during the rule of the coalition government. As such it is asserted that the Croatian Privatisation Fund under Linic's control signed a number of damaging contracts for the privatisation of certain hotel companies. Specifically, the accusations deal with the case of the privatization of the Hotelier-tourism company Primosten and Starigrad's Hotel Alan, companies that were allegedly sold at an unfavourable price, and under a poorly formulated contract, which later allowed the purchaser to avoid meeting the investment conditions that they committed to when they submitted their bid, i.e. to sell their stakes before meeting any of their obligations.

The then vice president of the Croatian Privatisation Fund Kresimir Starcevic is mentioned as the second most responsible person in these cases, who allegedly carried out the operational end of these privatisation processes. Starcevic, a law graduate, assumed the post in 2000, following many years of work in the well-known law offices of Marijan Hanzekovic, Porobija and Porobija, and in the TDR tobacco company. After Hrvoje Vojkovic (HSLS) was removed from the top post in the fund as a result of the disintegration of the coalition government, Starcevic spent the ensuing year and a half as the acting head of the fund, and later became a member of the board of directors at the Hypo bank. It is precisely on the basis of this kind of career advancement that Starcevic is presented in the report as the connection between Linic and the Hypo Bank. The report further asserts his responsibility for the losses in the cited privatisation deals, especially given the fact that the buyer of the Alan hotel, for the Splicanka Tours account, was in fact the Hypo bank. These transactions have been written about in the domestic media on numerous occasions, with USKOK engaging in a investigations of sorts. No responsibility, however, on the part of the then employees of the fund was established. Commenting the entire situation, Linic stated that the hotel was sold for 8.8 million kuna because buyers only took an interest in the hotel in the fourth attempt at its sale, and that the hotel was sold following a unanimous decision by the fund's steering committee, and that at the time there were no other bids.

Regarding ties between Slavko Linic and some other members of the SDP with the top people in the Hypo Bank, the report in question also mentions the conflict between the Governor of the Croatian National Bank Zeljko Rohatinski with the top people from the German Bayerische Landesbanke, to which Rohatinski did not want to give permission to assume Hypo bank's dealings in Croatia. Rohatinski did this because he felt that the BLB had not acted fairly in the Rijecka Bank case, which BLB owned but then abjured its ownership after the bank incurred enormous losses. Because of this Rohatinski established firm conditions that the Germans would have to meet in order to receive his permission to assume Hypo Bank's dealings in Croatia. Allegedly one of those conditions was a detailed review of these operations. However, according to the report, Rohatinski quickly found himself the target of criticism from the ruling HDZ, but also from the SDP. It is asserted that Slavko Linic and Mato Crkvenac publicly lobbied for BLB, claiming that the Germans were more important allies to Croatia than the Austrians, and that the German bank had acted correctly in the case of the Rijecka Bank. In fact, Linic allegedly accused Rohatinski of representing and acting on behalf of American-Jewish banking interests to the direct detriment of Croatian national interests, which Rohatinski resented because both had participated in salvaging the Rijecka Bank.

It is interesting that the report also claims that the newly elected president of the SDP Zoran Milanovic agreed with this kind of behaviour on the part of Linic. Because of this, following Milanovic's attack on Bajic, a number of texts appeared on domestic Internet portals in which Milanovic's motives for taking this position are analysed in the context of the previous ties between top officials in the SDP and the Hypo Bank. In those texts it is speculated that in calling for Bajic's removal, Milanovic wishes to protect his political mentor Slavko Linic, who, using his influence within the party, is one of the most responsible for bringing Milanovic to the post of SDP president. These assertions are largely based on yet another claim from the secret report on the Hypo bank's business dealings in Croatia, where it is asserted that Milanovic, during a visit to Austria in 2007, received exclusive information from the then Austrian Prime Minister Alfred Gusenbauer, with regards to the business dealings of Vladimir Zagorec, which are described as a "real bomb" and which could be used during the election campaign. If this information is correct, it turns out that Milanovic has for two years now had vital information regarding the murky business dealings of Vladimir Zagorec that he has failed to reveal to the public. Given the already established ties between Zagorec's business dealings and the Hypo Bank, it is now speculated that Milanovic withheld the information precisely because of his desire to protect his colleagues from an investigation in relation to their connection with that bank. Given that these accusation are based largely on the assertions from the report, and that the author of that report remains unknown, it will be very difficult to establish their credibility. It appears as though the best way resolve this case is for USKOK and DORH to execute a quick and detailed investigation into all of the allegations listed in the report.

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