http://www.guardianunlimited.co.uk/serbia/article/0,2479,464930,00.html Ian Traynor in Belgrade Thursday March 29, 2001 The Guardian
Search for the missing millions
The United States has set Belgrade a deadline of this Saturday for arresting the former Yugoslav despot Slobodan Milosevic. The Guardian opens a three-part investigation into the crimes of his regime. Today: the plundering of Serbia.
Slobodan Milosevic, the former leader of Yugoslavia, lost three wars in the disastrous drive to create a Greater Serbia. He is indicted at the Hague tribunal for crimes against humanity. His legacy is still visible in flattened buildings and destroyed communities from Kosovo to Bosnia and beyond. Now he could be put in the dock - for buying himself a new back garden. Two days before Nato started bombing Belgrade two years ago last weekend, Milosevic bought 8,000 square metres of prime land behind his Belgrade villa in the elite suburb of Dedinje for around £3,000. He could face charges of abuse of power for buying the plot at such a knock-down price.
"It's absurd," snorts Braca Grubacic, a veteran Belgrade analyst. "The butcher of the Balkans goes on trial for illegally buying an outhouse and a bit of garden."
A fortnight ago Milosevic received a summons to the investigating magistrate looking into the alleged property fiddle. He ignored it. It was his first brush with the law at home. It won't be the last, for the property affair is the tip of an iceberg of allegations and indictments concerning the crimes of the Milosevic era.
The former president is being hounded from several directions: from inquiries into political assassinations of opponents under his regime, to claims that he committed electoral fraud and probes into alleged war crimes against Bosnia, Kosovo, and Serbs themselves. And then there are the allegations of large-scale embezzlement, running perhaps to hundreds of millions of pounds over the past decade.
"Financial crimes will be the main and the most promising charges against Milosevic," says Goran Vesic, a lawyer, politician and chief aide to the current Yugoslav interior ministry.
The Guardian has pieced together the jigsaw of Milosevic's missing millions. Our investigation, drawing on interviews with many of his closest advisers, including his personal banker and Serbian ministers, as well as with Hague investigators and senior western officials, has tracked the labyrinthine route in which money was gathered and then salted away.
The scale of the plundering of Serbia is awesome. Investigators at the Yugoslav central bank have posited an overall figure of $4bn. Regime insiders, including Milosevic's close relatives, are believed to have hundreds of millions of pounds held abroad in private, numbered or alias accounts in Cyprus, Switzerland, Lebanon, Russia, Greece, and Israel, to name a few of the most favoured destinations.
Cyprus was the hub of an intricate money system. Through Cyprus, billions were spirited out of Serbia in cash and redistributed around the world.
The banker masterminding the system was Borka Vucic, 73, retired, a Milosevic family friend. Before returning to head Serbia's biggest bank, Beogradska Banka, in 1998, she spent nine years in Cyprus as head of the bank's offshore subsidiary.
Speaking in her elegant Belgrade flat around the corner from Milosevic's villa, she admits managing a vast surreptitious exercise in cash dispersal.
"I am not authorised to say how much," she smiles. "All the banks did the same to survive. A lot of people were taking money into Cyprus. There were other people on airplanes carrying the money, but not with me. If someone was taking money without the permission of the bank or the companies, it's not my responsibility."
Milosevic's brother, wife and daughter have bank accounts, now frozen, in Switzerland, according to Yugoslav government sources and western diplomats in Belgrade. So do Mirko Marjanovic, the former Serbian prime minister who controlled the lucrative grain export business to Russia throughout the 1990s, and Dragan Tomic, a Milosevic aide and former parliament speaker.
Two key Milosevic supporters, Nikola Sainovic, a former deputy prime minister who controlled the precious metals trade and is indicted for war crimes in Kosovo, and Dusan Matkovic, ex-deputy leader of Milosevic's Socialist party and head of the giant Sartid steel works at Smederovo outside Belgrade, have bank accounts in Beirut, according to a former banker inside the regime. Mladjan Dinkic, the new central bank governor who is on a crusade to recover the cash, estimates the overall sum at $4bn. The bulk was used not for personal gain, but to keep Serbia trading through a decade of United Nations economic sanctions.
"Milosevic does not have billions stashed abroad. The money was spent on survival and some people got enormously wealthy," says a knowledgeable Serbian source who asked not to be named.
So where did the money come from? Flawed privatisations have been suggested as one important source. Vuk Obradovic, a Serbian politician, is heading a commission of inquiry into what happened to hundreds of millions of pounds that was never booked into government accounts as part of the proceeds from eight privatisations in the 90s.
Vanished
Another common technique involved customs receipts. Boris Begovic, chief economic adviser to the Yugoslav government, ordered an audit of the customs service for last year. He claimed tens of millions of German marks in government revenue had vanished because traders favoured by or working for the regime were exempted from customs duties.
"I was stunned by the gap between the nominal customs burden and the effective customs burden," he says. "And this had been going on for 10 years. They be came more greedy as time went on. The last two years were the bonanza time."
There were preferential loans to crony companies and individuals plus windfalls from manipulating the foreign exchange black market. Beobanka, an offshoot of Mrs Vucic's Beogradska, was ordered to give "loans" to the TV company owned by Milosevic's daughter Marija, and to the trading company owned by his notorious son Marko.
Under Milosevic in 1993, Yugoslav inflation was at the inconceivable annualised level of 286 billion per cent, with the central bank issuing 50-million dinar notes. More routinely in recent years the real value of the national currency was a fifth of the official rate, with the regime controlling the black market and using it to hoover up hard currency when it needed it. State-controlled banks were ordered to provide unsecured D-mark loans at the official rate to countless crony firms and individuals who could then use the black market to make an instant 400% profit.
A regime insider and banker who helped orchestrate the 1990s operations and had his own bank account in London frozen reckons that $20m has been embezzled by Milosevic associates. Others put the figure much higher.
"We were never charged with taking private funds outside the country," says the banker. "We were hiding government funds, preserving them from the sanctions, playing games with the European Union and the US."
When UN sanctions were imposed on Yugoslavia in May 1992 because of the Bosnia war, Milosevic had already anticipated the embargo and established the infrastructure for exploiting the international banking and trading systems to bust sanctions and keep importing vital commodities.
The elaborate operation was centred on Cyprus because of its banking secrecy, offshore companies culture, and the sympathy of Greek Cypriots for the plight of their fellow Orthodox Serbs. Cyprus was the conduit for billions of dollars in cash from Serbia. The funds were then dispersed globally or into the accounts of scores of anonymously owned offshore companies registered in Cyprus.
In the early 1980s, Milosevic was president of Beogradska Banka and Mrs Vucic was his deputy. She lays fair claim to being the most formidable banker communist Yugoslavia ever produced. Shrewd and well connected, Mrs Vucic boasts of knowing 4,000 bankers around the world and shows off photo albums and a silver platter she received from Barclays Bank. If there is no doubt that Mrs Vucic was the linchpin of the Milosevic money system, she vehemently denies handling Milosevic family money or doing anything illegal. She insists she was only doing her patriotic duty in helping her country to evade sanctions.
"I know Mr Milosevic quite well and I know the family. He was a fighter, a good banker and a good president," she says. "But we had no business at all with the family. I believe they have some other banks but not Beogradska."
After the toppling of Milosevic last October, Mrs Vucic, by then overall president of Beogradska Banka in Belgrade, declined to vacate her office. "I refused to hand over the bank to those unauthorised men, five of them who came with guns," she explains.
Serb officials and western diplomats in Belgrade tell a different story. Mrs Vucic, they say, was evicted from the bank, returned with a team of armed guards for a "midnight excursion", broke into her old office in the early hours, and emptied the safe of documents. On Tuesday Belgrade prosecutors announced they were opening an inquiry into whether some of Mrs Vucic's activities as bank chief were against the national interest.
All through the 1990s she headed Beogradska Banka's offshore subsidiary in Cyprus, the biggest offshore bank on the island, handling the accounts of the myriad Serbian offshore companies established there, such as Yugometall, the state company trading in metals.
Its shareholders secret, the company was managed in Nicosia by Edo Alibegovic, now based in Zurich and running a different company which is currently involved in a Swiss inquiry into alleged illegal Serbian gold exports. Key clients of Mrs Vucic and Mr Alibegovic in Cyprus were the Bor copper and gold mining complex in southern Serbia, a state enterprise that is the fiefdom of Sainovic, and the Sartid steel works run by Matkovic.
A former Beogradska Banka executive and an authoritative Yugoslav diplomatic source say Sainovic and Matkovic have private bank accounts in Beirut, where Sainovic's son is a trader. Both men were frequent visitors to Beirut in the mid to late 90s, as was Mrs Vucic. "I like Beirut. I've been there many times," she says.
Mrs Vucic's bank in Cyprus and Banque Saradar in Beirut struck up a cooperation arrangement in the late 90s when the Cypriots were coming under strong US pressure to close down the Serbian operations. A typical scheme to siphon off the money, sources say, was for Mr Matkovic to agree to sell Sartid steel to a Lebanese client. The deal is financed through the Banque Saradar in Beirut. The steel is delivered. The client complains falsely that the steel is sub-standard. Both sides nominally agree to half the price and the other half is split between them.
Lebanese banking secrecy laws proscribe divulging information on accounts unless the funds are suspected of being involved in the drug trade. The Yugoslav airline JAT was required to act as a courier for the shipment of large volumes of US dollars and German marks, in cash in bags and suitcases, from Serbia to Cyprus from where it was taken to Beirut, also in cash, or transferred to Switzerland and other countries using accounts at Cyprus Popular Bank, Serbian and international sources say. JAT's general director, Zika Petrovic, was shot dead outside his Belgrade home in May 1999, allegedly because he knew too much about how the regime used his airline to ship the cash.
The airline is also said to have been used as a courier for drugs, with Milosevic regime associates implicated in international drug trafficking. This month Serbian police found more than 600kg of high-grade heroin deposited in a Belgrade bank vault by Milosevic's secret police. When two key Milosevic henchmen, Rade Markovic, state security chief, and Mihalj Kertes, head of Milosevic's customs service, were arrested earlier this year, police found drugs in their offices.
"There is considerable evidence indicating that Milosevic and his entourage constitute an OC [organised crime] structure and are engaged in drugs dealing, money laundering, and other criminal acts," said a confidential German intelligence report leaked just after last October's revolution.
The hard evidence of corruption and embezzlement against the Milosevic regime is mounting weekly. Seven former Milosevic loyalists were detained this week in Belgrade on suspicion of property fiddles, fraud, and profiteering in medicines. But given that most of the stolen funds are dispersed internationally, the financial case against Milosevic is also being hampered by the lack of a concerted international effort to pool intelligence.
For example, every time Mrs Vucic or someone else took Serbian cash into Cyprus, they had to fill in a Cypriot customs slip which was then lodged with the central bank in Nicosia.
"The customs declarations would be very interesting," says a western diplomat in Belgrade. "Some people at the Cyprus central bank want to cooperate but they are being stopped by people higher up." Cyprus has refused to turn over the customs slips to Serb investigators.
The Hague tribunal, too, has had a small team of financial detectives working confidentially at the Cyprus central bank for the past year. They report personally to Carla del Ponte, the chief prosecutor in the Hague who, highly unusually, was recently given 25 crates of documents on Serbian accounts by the Cypriots.
But Mrs Del Ponte is in a feud with the new Belgrade government and refuses to share her information with Mr Dinkic, preferring to withhold it as leverage to encourage Belgrade to extradite indicted war criminals, most notably Milosevic himself.
If Cyprus was the main hub for the dispersal of regime monies worldwide, there is not much Serbian money left on the island now. So where is it? It is thought to be sitting in moderate amounts in hundreds of accounts across the world, not one of them known to be bearing the name of Slobodan Milosevic. One analyst in Belgrade said last week that more money will be spent searching for the missing millions than is recovered.
'I don't expect much money back at all," says Mr Begovic. "We don't include it in our budget calculations." The authorities appear to be struggling to build a watertight case on the bigger charges, because for more than a decade the hallmark of Milosevic's modus operandi was plausible deniability: never leave a paper trail that might incriminate yourself and always shift the blame for political, military, diplomatic and economic mistakes on to hired-then-fired underlings.
Despite this hurdle, of all the inquiries now under way against Milosevic the financial one looks most promising. Until last October, observers liked to compare Milosevic to Saddam Hussein. Now the common comparison is Al Capone. In the end, the FBI put the racketeer and murderer in jail but could only nail him for financial crimes.
Slobodan Milosevic, meanwhile, is living out what look like his last weeks as a free man, cushioned from the corruption and bloodshed he unleashed throughout a decade of absolute power. Around the corner from Mrs Vucic's flat, the former president of Yugoslavia enjoys the comforts of a government villa at Uzicka Street Number 11, on millionaires' row in the elite Belgrade suburb of Dedinje.
He is not paying his bills or rates, say government officials. He is, however, funding a retinue of private security guards who patrol behind the high metal fences along the street from Milosevic's private home, with its new back garden.