Published in Nacional number 636, 2008-01-21

Autor: Berislav Jelinić, Marko Biočina

BACKGROUND OF THE 'FIVE STARS' AFFAIR

William Montgomery as key strategist of the offensive against the Dubrovnik mafia

Nacional reveals how Strok's close associate and former US ambassador conceived the operation of unmasking the organised group that has for years been racketeering Dubrovnik companies

William Montgomery as key strategist of the offensive against the Dubrovnik mafia BACKGROUND OF THE 'FIVE STARS' AFFAIR Nacional reveals how Strok's close associate and former US ambassador conceived the operation of unmasking the organised group that has for years been racketeering Dubrovnik companies

IN THE JAWS OF CRIME William Montgomery, a member of the board of directors in Strok's company, and Goran Strok, gave their depositions at Split County Court on 16 JanuaryIN THE JAWS OF CRIME William Montgomery, a member of the board of directors in Strok's company, and Goran Strok, gave their depositions at Split County Court on 16 January William Montgomery, a former US ambassador, and a member of the board of directors of Goran Strok's Adriatic Luxury Hotels, is the chief strategist behind the scenes in the Five Stars corruption scandal, an affair that goes far beyond the scope of the current case, and one that includes Strok's problems related to opening the Hotel Bellevue. Montgomery's role in the Five Stars affair in fact set the stage for a thorough investigation by USKOK into grounded suspicions that bribes have to be paid for the lion's share of tourism investments in Dubrovnik to a well-networked local construction and judiciary lobby, which has business and interest ties to the HDZ-led local government, but also to the company IGH. The way the former US ambassador and army commando conceived the entire operation has also led to a conflict between the HDZ national leadership and the party's local branch, which holds power in Dubrovnik.

IVO ZERAVICA, the arrested assistant head of the State Administration Office in DubrovnikIVO ZERAVICA, the arrested assistant head of the State Administration Office in Dubrovnik It was in fact, by all accounts, William Montgomery who advised Goran Strok to record one of his conversations with Ivo Zeravica, the assistant head of the State Administration Office in Dubrovnik, during which he asked Strok for a bribe in return for which he would take care of papers needed to open the Hotel Bellevue. Ivo Zeravica began seeking bribes from Strok in the summer of 2006 and did so, together with Antun Kralj, a Dubrovnik construction contractor, three times.

After they sought bribes from him three times and when he saw where things were headed, Strok consulted with his associates, and spoke in person with William Montgomery. After consulting with Montgomery, Strok decided on his own initiative to record a conversation with Ivo Zeravica in which he was asked for bribe money. A recording of the conversation was taken by Montgomery and Strok to Ivan Jarnjak, then president of Parliamentary Committee for Interior Policy and National Security and HDZ Secretary General.

When Jarnjak heard the recording he immediately secured an official vehicle and driver that took his guests to USKOK headquarters. And so USKOK's operation Five Stars was formally initiated by Ivan Jarnjak. It was he in fact that moved quickly to launch USKOK's hunt of persons that are practically a part of the local Dubrovnik government where his HDZ party is in power, and which have business and interest connections at other levels with his party colleagues from the HDZ leadership and from Government.


By all accounts the meeting with Jarnjak was organised, set up and planned by William Montgomery. He most likely decided to make the move because he 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 Dubrovacka investicijska grupa (Dubrovnik Investment Group) company, and are, together with Petar Dukan, the largest stakeholder in IGH, the most influential construction, architecture and urban development group in Croatia, whose stock is also owned by Marina Matulovic-Dropulic, Minister of Environment Protection, Physical Planning and Construction. 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. That is probably the reason that Strok and Montgomery decided to visit Jarnjak and face him with the compromising recording of persons that some of his party colleagues might try to protect. By the move they laid the groundwork for a speedy action on the part of USKOK without any possible political interventions.

ANTUN KRALJ concealed his face when being taken in to Split police custodyANTUN KRALJ concealed his face when being taken in to Split police custody USKOK officials did not hesitate for a moment to launch a secret investigation that no one in Dubrovnik was informed of. The protagonists of the affair were put under secret surveillance. Among other measures, their phones were tapped over a lengthy period of time. Ivo Zeravica, the assistant head of the State Administration Office in Dubrovnik, was recorded by USKOK investigators from three cameras in different positions as he sought a bribe in Dubrovnik from well known hotelier Goran Strok to help him get the papers needed to open the Hotel Bellevue, and that is not the only recording that deeply implicates and compromises him in Dubrovnik's Five Stars corruption scandal. Antun Kralj, the owner of the Konel construction company and the second protagonist in this corruption affair has been recorded by USKOK, among other things, as he spoke over the phone with a Dubrovnik judge and instructed him to alter a ruling in a court case related to a construction project, as the ruling did not suit Kralj. Monitoring the development of the situation, USKOK has learned that the judge subsequently altered the ruling. This and other information that USKOK has collected in secret surveillance of the protagonists of the Five Stars corruption affair, has led USKOK investigators to the conclusion that Zeravica and Kralj are just a small part of a well-oiled corruption lobby that has close personal ties, and probably interest links, with the local justice department and police.

ANTUN KRALJ, a Dubrovnik construction magnateANTUN KRALJ, a Dubrovnik construction magnate USKOK has also recorded telephone conversations between Antun Kralj and a colleague of his responsible for issuing occupational permits, among others for the Hotel Bellevue. Kralj spoke with her about how Strok does not stand a chance of getting the papers until he pays. In the end she twice submitted entirely different objections during technical inspections of Strok's Hotel Bellevue, on account of which he could not secure the occupational permit.

All of this information has led USKOK officials to conclude that the chain of corrupt persons embroiled in the affair could be wider and by all accounts also includes some local judges and police officers, and that the problems faced by Goran Strok are just a drop in a sea of crime directed by local officials and business people.

USKOK investigators were particularly shocked when they learned that Antun Kralj was given privileged treatment after been taken into custody by the Cavtat police. The local police did not detain Kralj in a cell, but rather transferred him to Split detention and kept him in the offices of the local police chiefs who treated him to a bottle of wine, to make his stay at the police as comfortable as possible. The episode was the best confirmation for USKOK officials that they were in the right to not informed absolutely anyone in the Dubrovnik-Neretva County area of operation Five Stars, but had rather moved the entire operation to Split. Ivo Zeravica and Antun Kralj began demanding bribes of Goran Strok in order to secure him the issue of occupational permits for the Hotel Bellevue. The first time round they asked for 120 thousand euro.

THE HOTEL BELLEVUE'S PANORAMIC ELEVATOR was the grounds for the extortion of StrokTHE HOTEL BELLEVUE'S PANORAMIC ELEVATOR was the grounds for the extortion of Strok As the investor in the renovation of the hotel, Strok had secured location and construction permits, but made some deviations from them during the actual construction. Strok ordered the contractors to built a panoramic elevator, and to have a part of the storage area turned into a dozen new rooms because a view of the sea had opened up in that part of the hotel after some porous rock had caved in. There were some other deviations of which Strok knew nothing. The fire escape doors, for example, had ordinary handles on them, and should have had transverse handles across their entire width that open when leaned on. There were also problems concerning the separation of fire escape sections of the hotel, some minor defects in individual rooms, such as the lack of wheelchair ramps giving disabled persons access to balconies, and the height of the ceilings in the food preparation area, the kitchen and pastry shop were less that required by law.

The sum of 120 thousand euro, initially requested of Strok, was increased to 200 thousand euro after the first technical inspection, made in November of 2006. Strok's associates thought it strange that the woman who had carried out the inspection had not given unambiguous objections to the height of the ceilings, but did not complain too much as they were themselves aware that they had made violations in the works and accepted the other objections as founded. They were given a deadline of 90 days to fix the faults. They resolved about 90 percent of the deficiencies within that deadline.

ANTUN KRALJ with County Prefect Mira Buconjic and Deputy Mayor Antun Kisic at the opening of the Konel office building in September of last yearANTUN KRALJ with County Prefect Mira Buconjic and Deputy Mayor Antun Kisic at the opening of the Konel office building in September of last year Strok told USKOK investigators that Kralj and Zeravica had, both directly and indirectly, 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 told USKOK investigators that they told him that it would be resolved by issuing him new location and construction permits, adjusted to the construction work that had been carried out.

NEXT DOOR NEIGHBOUR of Konel's Mercante shopping centre in Dubrovnik; the building of the State Administration Office, where Zeravica worked, is located above the centreNEXT DOOR NEIGHBOUR of Konel's Mercante shopping centre in Dubrovnik; the building of the State Administration Office, where Zeravica worked, is located above the centre Immediately following the first technical inspection Strok got into the first arguments with Zeravica and Kralj. This happened when Zeravica told him that the bribe had grown from 120 to 200 thousand euro. Zeravica then told Strok that the price had gone up because Strok had not paid 60 thousand euro for the issue of papers for the renovation of the Dubrovnik Palace hotel to Stijepo Butijer, who is responsible for urbanism at Dubrovnik City Hall, is a long-time member of the Croatian Physical Planning Council, and is the owner of a group of companies called Alfaplan. Butijer is a close business associate of Kralj's and they are co-owners of the company Dubrovnik Investment Group (DIG). Butijer is in Dubrovnik considered to be the most influential éminence grise in the department that issues location, construction and occupational 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. They requested a bribe of Strok once again, which coincided about the time of the second technical inspection of the hotel in April of 2007.

THE KONEL OFFICE BUILDING in Dubrovnik had its gala opening in the presence of top city officialsTHE KONEL OFFICE BUILDING in Dubrovnik had its gala opening in the presence of top city officials As Strok did not pay the requested sum the hotel did not pass the second inspection. There were real reasons for the decision, but Tajana Pendo that time gave some other objections she had not even mentioned in the first technical inspection. For Strok it all indicated that she was in collusion and very well coordinated with Zeravica, Kralj and Butijer. Kralj and Zeravica were arrested in late December and the Five Stars affair found its way into the public spotlight.

SUSPICIONS OF CORRUPTION In Dubrovnik they say that location and construction permits were issued illegally for LibertasSUSPICIONS OF CORRUPTION In Dubrovnik they say that location and construction permits were issued illegally for Libertas After their arrests it was learned that an internal investigation had been carried out of Zeravica last year for serious violations of official duties. The report was filed by Baldo Pusic, the head of the State Administration Office, after several memos from the construction ministry concerning irregularities in the issue of location permits.

Antun Kralj is the founder and owner of the Konel Compnay, which he leads with his sons. The growth of the company is based on numerous contracts in the renovation and the construction in the Dubrovnik hotel resorts sector, but also on large-scale infrastructure projects in Dubrovnik and the surrounding area. This pertains especially to Cavtat, where Konel built the canalisation system and the pier. It is suspected that Kralj's company won the contracts with the help of Luka Korda, head of the Municipality of Konavle, with whom Kralj is alleged to be very close with. Kralj's Konel, IGH, Butijer's Alfaplan, PGM Ragusa and Bilina set up the Dubrovnik Investment Group (DIG), a financial conglomerate whose bids have already appeared at several tenders for the purchase of Dubrovnik hotels.

CITY COUNCILLOR Milo Hrnic says that the investor in the Hotel More secured the necessary permits in a suspicious mannerCITY COUNCILLOR Milo Hrnic says that the investor in the Hotel More secured the necessary permits in a suspicious manner It is said that the business success of Kralj's Konel lies partly in the fact that Kralj and Zeravica would secure the investors with a speedy resolution of the requests for construction and location permits, and in return the investor would take on Konel as the project contractor, often at twice the market price. The extra price paid to Konel allegedly included the bribe money. Considering the high prices of real estate in Dubrovnik investors were often inclined to pay the requested bribe rather than wait upwards of three years while the issue of construction permits was resolved through the usual channels. Kralj is alleged to have used this to blackmail numerous private construction investors in the Dubrovnik area, and the targets of his extortion were allegedly also large tourism firms like Valamar.

ZERAVICA ASKED STROK for a further 60 thousand euro he was allegedly to pay to Stijepo Butijer in City HallZERAVICA ASKED STROK for a further 60 thousand euro he was allegedly to pay to Stijepo Butijer in City Hall On the other hand, all of the projects in which Konel was the contractor went without difficulties, and permits were issued to them in record speed. That is why USKOK also began investigating some other construction projects in the Dubrovnik area that are politically very embarrassing for the local HDZ government. These projects indicate that the law was broken in Dubrovnik to suit individual construction investors who were willing to bribe some local HDZ officials.

USKOK objected to the decision to release Kralj and Zeravica from police custody halfway through last week because one of their witnesses had not given testimony to the investigating judge when the ruling as adopted. That could easily be well-known Dubrovnik architect Vlaho Alamat, who worked with Kralj on a construction project in Dubrovnik's Lapad quarter. Alamat and Kralj did not sign a contract; in question was a verbal agreement. In the end Kralj pushed Alamat out of the project and took on a Zagreb architectural firm to complete the construction, even though he had no right to do so as all of the official documentation and permits cited Vlaho Alamat as the designer. The building was, nevertheless, issued an occupational permit, even though the building deviated from the construction permit in several elements. The same violation saw no issue of a location permit to Goran Strok's Hotel Bellevue. The technical inspection of both buildings was carried out by Tajana Pendo.

IVAN JARNJAK personally escorted Strok and Montgomery to the USKOK officesIVAN JARNJAK personally escorted Strok and Montgomery to the USKOK offices Alamat visited Strok before he decided to call USKOK and told him what had taken place. When USKOK got into the picture Alamat gave his deposition to the investigators. As he was very close with Kralj and had worked with him on other projects, he was probably a precious source of information for USKOK. If he is the witness who has yet to give testimony, USKOK is justified in its concern that Zeravica and Kralj could influence his testimony. Nacional has tried to get into contact with Goran Strok, William Montgomery and Vlaho Alamat, but they have decided to remain unavailable for any comment in connection to the affair.

Conversation with a judge

USKOK recorded a telephone conversation in which Antun Kralj persuaded a Dubrovnik judge to alter his ruling in a case related to a construction project. Monitoring the development of the situation USKOK learned that the judge did in fact subsequently alter the ruling.

Conflict within the HDZ

William Montgomery knew that Kralj and Zeravica were only local players in a much wider construction lobby, connected to the ruling party. That is why he led Strok and the recording of the extortion to HDZ Secretary General Jarnjak, who initiated the USKOK operation.

How Kralj built an empire

Antun Kralj is the founder and owner of the Konel Company, which he leads with his sons. The growth of the company is based on numerous contracts in the renovation and the construction of Dubrovnik hotel resorts sector, but also on large-scale infrastructure projects in Dubrovnik and the surrounding area. The secret behind the business success of Kralj's Konel lies partly in the fact that Kralj and Zeravica would secure the investors with a speedy resolution of the requests for construction and location permits, and in return the investor would take on Konel as the project contractor, often at twice the market price. The extra price paid to Konel allegedly included the bribe money.

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