Croatia: Defense Ministry Seeks Explanation from Zagorec for 116 Million Korunas
EUP20010531000374 Zagreb Globus in Serbo-Croatian 01 Jun 01 pp 10-14
[Article by Igor Alborghetti: "Crime in RH Alan? How, As Ordered by General Zagorec, HRK116 Million Disappeared from RH Alan"]
[FBIS Translated Text]
All orders for monetary transfers from the foreign exchange account of the firm "RH Alan" in 1997 and 1998, amounting to a total of 116 million kunas, to the mysterious firm "Nevada Trading Limited," allegedly registered in Israel, contain the signature of Vladimir Zagorec, then the director of that enterprise and former deputy minister of defense in the HDZ [Croatian Democratic Union] government. No documentation that would justify the transfers in millions that Vladimir Zagorec approved and signed, exists for that monetary transfer, as domestic media reported last week, citing parts of reports, obtained from the Internet, of the Financial Police, who investigated the operations of "RH Alan" for 2 months.
In simple terms, retired Major General [general-bojnik] Zagorec transferred that money to someone else's account and there is not a single official paper in the files of the MORH [Ministry of Defense of the Republic of Croatia] or "RH Alan" with which authorized financial organs could at least approximately determine the reason that money was spent.
THE "MISSING" 116 MILLION
The story of the "missing" 116 million kunas began back in 1998, when the first official letter of the deputy minister of defense for finance and the budget then arrived from the MORH to "RH Alan" and the hands of Vladimir Zagorec. It claimed that, with a review of relevant documentation, it had been determined that 140,738,000 kunas had been paid into the account of "RH Alan" in the period 11 March 1997 to 9 May 1998, but that only a small part of that sum was secured. According to the papers, payments of part of the funds for Tudjman's Challenger (23 million kunas) and the procurement of special equipment (1.8 million kunas) for a Croatian security service were documented.
Therefore, the Ministry of Defense is seeking the return of the rest of the sum, 116 million kunas, from Vladimir Zagorec, as director of "RH Alan."
Keeping in mind the untouchable position then of Gen. Zagorec in the state, that unusual procedure deserves all the epithets of unimagined bureaucratic courage. Unfortunately, the official letter of the deputy minister at that time, Miljenko Galic, had no effect at all.
Naturally, Zagorec has not returned the money. He has expressed himself in a letter. He wrote Miljenko Galic on 23 February 1999 that he did not possess the true figures, because the difference of 116 million was spent on the payment of debts to various weapons suppliers in the 1991-1995 period.
"...money was used to cover debts on funds spent for the purchase of equipment for the Armed Forces of the RH [Republic of Croatia] in conditions of an embargo and based on the verbal order of Minister Gojko Susak," wrote Zagorec.
MILJAVAC'S AGREEMENT
Globus's sources have serious reasons to doubt that this letter of Zagorec's is truthful. First, all transactions for weapons were paid immediately and in full. Second, what businessmen would wait for years for Zagorec to pay off such a large debt to them? They would first attempt to collect in some other way. Third, because of the fact that the transaction was announced after the end of the Homeland War, at least an approximate specification of costs must have existed. But none of that exists, as is known, in the MORH or "RH Alan."
It is interesting that Zagorec's letter about the expenditure of 116 million kunas was also fortified by the signature of the minister of defense then and the president of the assembly of "RH Alan," Pavao Miljavac. Therefore, he agreed with everything that Zagorec wrote then; this could be regarded from today's perspective as a complete risk, because it is obvious that various forms of proof about the illegal operations of Vladimir Zagorec and his firm are becoming available to state institutions.
"I remember that letter," said Pavao Miljavac in a telephone conversation with Globus, confirming the existence of that document. He explained that, at one of the assemblies of "RH Alan," he asked Zagorec to submit specifications for those expenses, but the latter said that none existed because of the sensitivity of the whole business and that he paid debts for weapons and ammunition with that money. "I asked that Zagorec's words at the 'RH Alan' assembly be entered in the official record, in order to clarify the situation, but I could not do more than that because everything happened before my arrival at the head of the MORH, and Zagorec persistently referred to the verbal order of Gojko Susak, who was already deceased, and to the fact that no papers existed.
"Therefore, I was surprised when I recently read in the newspapers that Vladimir Zagorec has that documentation, nevertheless," disclosed the last HDZ minister of defense, emphasizing also that it was right during his mandate in the MORH when the State Auditors entered "RH Alan" for the first time in order to try to investigate the operations of Zagorec's firm according to what little documentation was found.
MYSTERIOUS FIRM IN ISRAEL
Indeed, after the findings of the Financial Police about "RH Alan" were published, Zagorec and his lawyer, Miroslav Separovic, stated that the complete documentation about the payments to Israel was submitted to authorized organs back in February. They also warned that, in case of the initiation of a criminal or repressive lawsuit against Zagorec, they would reveal the real state of matters to the public; this could bring about serious international disagreements and thus place the reputation of the Republic of Croatia in jeopardy.
It would certainly be interesting to hear Separovic's explanation of how those documents, marked military secret, to which Zagorec refers, remained in his possession despite the fact that he was replaced long ago as director of "RH Alan." But, unfortunately, the lawyer remained unavailable to Globus.
"Nevada Trading Limited," to which Zagorec paid those 116 million kunas from the account of "RH Alan," is not, as we have managed to learn, a firm registered in Israel but a classic off-shore company with an open account in that country.
The money was transferred from Croatia, more exactly, from the foreign exchange account of "RH Alan" at the Zagreb Economic Bank, to Bank Leumi Le Israel, branch office 844 in Tel Aviv. The first draft, amounting to $5 million, contained the name, written by hand, of yet another Israeli city, Kfar Shmaryahua.
The purpose is also written on the form: payment for legal services and goods, with a remark that the documentation was kept in "RH Alan," but no one can find it there, as we have written.
After the first payment, Zagorec approved several more payments in various amounts: the largest was $5.4 million, and the smallest $450,000.
CERMAK'S SIGNATURE
Lack of documentation has always been a business characteristic of Zagorec's "RH Alan." That special purpose enterprise was officially founded, by decision of the government of the RH, in January 1993; it did not keep business books at all up to the end of 1995, leaving room for serious doubts about the amount and purpose of the money that was relinquished in order to buy military equipment and arms.
But, those were times of war. The UN embargo on the import of weapons denied the Republic of Croatia access to legal markets, and Zagorec and his associates cooperated effectively with world smugglers. In such transactions, in which suspicious types and criminals of all nations mainly predominate, business is done only in cash. No credit lines exist, and prices are contracted for according to an important criterion: speed and certainty of delivery. Commissions are very high, because the risk is too, although the final earnings are high when the shipment arrives at its destination. One more detail: middlemen on both sides can profit well, because the buyer, as is customary with trade in weapons, realizes the right to a commission (it amounts to up to 7.5 percent in legal transactions), in that he wants to buy someone's goods on the illegal market. And "RH Alan" and Zagorec personally, without a doubt, bought a lot of them between 1991 and 1995.
According to Globus's sources, state organs have managed only recently to gather part of the documentation, it is assumed, on the purchase of weapons from the earlier period (1991 to 1994), when the most money was spent from the state budget for defense. Naturally, these documents were not kept in state archives, so it has been necessary to invest a lot of effort to obtain them. Jozo Rados literally had to form a "special squad," which persistently sought proof on crime in the MORH, so that some of those responsible for misuse would answer to the court. Time passes quickly on such an extensive job and results must be long awaited.
Orders for payment of cash, sent to various Croatian banks, have been obtained with the knowledge of the late minister of finance Jozo Martinovic. On some of these papers, with the official title of the Ministry of Defense of the RH, and orders for the payment of millions of dollars, the signature of the chief of logistics, General Ivan Cermak, is legible. The orders often end with the words that the cash ordered ($5 million is mentioned in one case) has been personally taken by Vladimir Zagorec, then a still unknown deputy chief logistician of the MORH but, obviously, a person of great responsibility.
CLEANING UP THE MORH ARCHIVES
But, how to determine precisely, without complete documentation and from the distance of time, that the money was indeed spent on the purchase of weapons and for what prices, and that part did not end up along the way in the pockets of Croatian middlemen instead of the state treasury?
That is almost impossible, so each future investigation will concentrate only on cases in which the identity of the quantities of weapons received and the appropriate documentation can be determined. Papers have often not corresponded to the actual situation, and accounts have been increased by a million dollars in the mail.
An effective bookkeeping operation must have been led by someone who knew the methods of financial accounts well and who was very close to the MORH, because it is almost unbelievable that such errors could creep in accidentally. It is hard to believe that, in the MORH of that time, they, especially Cermak and Zagorec, did not know that the weaponry paid for was less than that specified. Probably also because of the fact that the documentation on the 1991-1999 period must have "disappeared," since the new government did not find it in the archives of the ministry in January 2000.
WINDOW-DRESSED REPORT
At the first assembly of "RH Alan," presided over by Minister of Defense Jozo Rados, Vladimir Zagorec, according to Globus's sources, prepared and submitted a "window-dressed" report on the operations of the "RH Alan" joint stock company for 1997, 1998, and 1999.
That booklet has no real significance for an insight into the financial operations of that firm, say our sources, but it is a useful indicator of what a government agency of particular importance was engaged in and what taxpayers' money was spent on in the end.
For example, Zagorec spent 8 million kunas for renovating the business building on Bosanska Street; he had the interior trimmed with marble, an underground garage built, and sophisticated security equipment installed. The building is not under the ownership of "RH Alan," but is in his possession; a lawsuit is in progress for the return of that national property. On the other hand, "RH Alan" is registered as owner of the house at Grskoviceva 15, for which, since the change in the government, it is planned under state protocol to replace the residence of President Mesic; he has flatly rejected this. Specifically, the building has served for the discreet accommodation of "RH Alan's" special guests and is furnished as a bordello. The purchasing price of that building was 1.3 million kunas, while in 1996 and 1997 the value increased by 2.3 million kunas.
Nowhere is there a record of the well-known "Villa Marnula" in Opatija, which Zagorec also had at his disposal. The only trace that connects "RH Alan" and that property is payments for custodians, who, according to the Financial Police, have remained indebted to the state for taxes.
MONEY FOR ROJS [General Ljubo Rojs, owner of the Monitor M company]
According to the status in December 1998, only nine people were employed in the firm, but they had a full seven official automobiles: an Audi A-8, worth 250,000 kunas; a Grand Cherokee, two VW Golfs (one is a GTI), and three Seats.
One of the more important sources of earnings for the firm, in addition to buying and selling military equipment and arms abroad, has also been contracts with domestic producers. Specifically, it has been regulated by law that all domestic producers must obtain from "RH Alan" and Zagorec permits for the purchase of raw materials like gunpowder or explosives. On the other hand, Zagorec obtained those materials from MORH stocks, but paid one-third the price for them that he calculated for Croatian factories, while at the same time he refused them permits for purchase from other, less costly sources. He realized enormous profits in such a business relation. He mainly replied to the charges that the majority of Croatian products are not competitive on the world market, but by the same token the fact is that our firms could not even pay world commissions. According to business books, the debt of Croatian buyers on 31 December 1999 had climbed to 24 million kunas, while "RH Alan" had initiated garnishing procedures before authorized courts for another 23 million.
TASKS FOR BLASKIC
The oft-mentioned "Monitor M" in Grude, in the capacity of sub-contractor to "RH Alan" in 1997 and 1998, was paid 68 million kunas for construction of stretches of road in Croatia. For example, on the basis of a verbal order from Gojko Susak, 24 million kunas arrived in "Monitor's" account on 18 December 1997. A half-year after this, Andrija Hebrang signed an agreement for 10 million, and 3 months later for another 16 million. For Miljavac's mandate in Herzegovina, a total of 18 million kunas went out twice. Since the agreement between the Croatian Administration for Roads and "RH Alan" was suspended in 1999, another 80 million kunas remained on reserve for "Monitor" and was not disbursed.
"Monitor" was also paid 6 million kunas in December 1996 for the needs of lawyer Ante Nobil and his team in the case of General Tihomir Blaskic, along with another 2.5 million Dutch guilders for special accommodations for the general, but also to the family of the lawyer, Russell Hayman, of the firm "Latham and Watkins," whose hourly charge was $320; this cost the state budget another $3.3 million between August 1996 and July 1998.
PROTECTORS IN THE GOVERNMENT
Having worked for years in "RH Alan," Zagorec created a large circle of business friends. In contrast to money, politics never interested him, so he never acted like a ardent HDZ member. He was almost never seen at party meetings. While some other businessmen pushed themselves into the front ranks, as close as possible to the late Tudjman, Zagorec adhered to the late Susak.
In his few media appearances, he managed mainly to frighten reporters: they had to drag words out of him, but he skillfully hid behind vague phrases about national interests and state secrets.
His friendship with Hrvoje Petrac was well known, and for a time Petrac's firms participated intensely in the purchase of weapons and military equipment for the Republic of Croatia.
He emerged untouched from all the fractional battles for power in the MORH, especially after the death of Gojko Susak. Moreover, when Andrija Hebrang wanted to replace him the minister had to leave the MORH, and not his deputy Zagorec.
Zagorec's untouchability also extended to the period after the departure of the HDZ and the possibility is mentioned increasingly often that he has protectors in the new government who worked with him in past years. One need not wonder at this. Specifically, trading in weapons and large earnings create firm friendships, while governments are transitory anyway. Vladimir Zagorec, a man who loves expensive watches, recently founded a firm in Vienna. He drives around Zagreb in a new BMW all-terrain vehicle with Austrian license plates.
[Box]
Valuable S-300 Technical Documentation
Procurement of the S-300 PMU rocket system was the most ambitious project of RH Alan, but it ended up as a complete catastrophe. Fewer than 30 percent of the components were delivered, and they were completely unusable. Because of the complicated legal status of the whole transaction, supposedly worth several hundred million dollars, the state does not know what to do with the delivered S-300 parts. According to unofficial information, the order for the purchase of that rocket system was issued verbally by Gojko Susak with the agreement of Franjo Tudjman. The transaction was entrusted to Zagorec, who agreed on the delivery with the "Winsley Finance Limited" firm, but a real contract was never concluded. Consultations are currently being conducted at the level of the state about how to resolve the S-300 problem, which everyone is really declining. A container of original technical documentation, which is allegedly in Croatia and for which interest exists on the market, is the most valuable of all.
[Box]
$1 Billion Yearly From the Sale of Weapons
There are divided opinions about the future of RH Alan. Some claim that it is worthwhile simply to shut down the enterprise, because Croatia cannot be competitive on the overly protected market. In truth, the government decided to shut down RH Alan and form a firm under the name of Alan, but that has not yet been accomplished. A scientist from the "Rudjer Boskovic" Institute, Dr. Antun Persin, who has begun with ambitious plans for reorganization, has been appointed to Zagorec's position. This relates primarily to the revitalization of special production, which has been led in recent years to a complete standstill. According to the experts, Croatia could earn about $1 billion yearly from the sale of weapons and military equipment, but considerable time will most probably pass until the government realizes what kind of financial potential exists in that specific branch of industrial production.
[Description of Source: Zagreb Globus in Serbo-Croatian -- popular privately owned weekly; known for its provocative style, investigative journalism]
