VZCZCXRO6944
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHPOD #0195/01 2451340
ZNR UUUUU ZZH
P 021340Z SEP 09
FM AMEMBASSY PODGORICA
INFO RUEHC/SECSTATE WASHDC PRIORITY 1448
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEHPOD/AMEMBASSY PODGORICA 1537

UNCLAS SECTION 01 OF 05 PODGORICA 000195 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/SCE AND INL/C 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PHUM KCRM KCOR MW
SUBJECT: CORRUPTION IN MONTENEGRO 
 
REF: A: PODGORICA 49; B: PODGORICA 105 
 
PODGORICA 00000195  001.2 OF 005 
 
 
¶1. (SBU) SUMMARY: Few countries in Europe have as bad a 
reputation for fighting corruption as Montenegro.  As in other 
transition societies in this region, egregious weaknesses 
include extensive cronyism and nepotism, weak controls over 
conflicts of interest, perceived legal impunity for individuals 
linked to the ruling parties, and the failure of the judicial 
system to effectively and consistently punish corrupt officials. 
 Montenegro is by no means a lost cause, however.  The GoM has 
put in place a legal framework that has generally been praised 
by the EU; it has established a high-level commission to monitor 
progress; and there has been an increase in arrests and 
investigations in recent months.  Moreover, allegations of 
corruption are publicly and prominently aired by NGOs and in the 
national media -- coverage that has prompted the authorities to 
act in several recent cases.  Nevertheless, as Montenegro draws 
increasingly closer to the EU and NATO, it will have to 
strengthen its record in coming years -- particularly in the 
enforcement area -- if it is to pass muster for full membership. 
 END SUMMARY. 
 
 
 
Corruption: The General Picture 
 
------------------------------- 
 
¶2. (SBU) The nature and extent of corruption in Montenegro is 
difficult to quantify, but a variety of reporting indicates that 
corruption occurs at most levels of government.  Numerous 
international surveys have pinpointed corruption as one of 
Montenegro's most serious challenges.  Transparency 
International's "Corruption Perception Index" ranks Montenegro 
with Serbia and Albania, and slightly behind Macedonia, Romania, 
and Bulgaria (but ahead of Bosnia).  Freedom House's "Nations in 
Transit" ranks Montenegro ahead of only Kosovo in the region. 
Global Integrity places Montenegro in its lowest category - 
"very weak."  A recent USAID-commissioned report conducted by 
Management Systems International noted that "corruption in 
Montenegro is pervasive at the grand and administrative levels." 
 
 
 
¶3. (SBU) There are many factors feeding into Montenegro's record 
on corruption.  First and foremost, it is a post-socialist 
transitional society with still-evolving, but fairly weak, 
democratic institutions.  Years of conflict in the region led to 
sanctions and sanctions-busting, undermining law enforcement 
entities and enriching a criminal class.  For instance, PM 
Djukanovic and other senior officials have been investigated by 
Italian prosecutors for cigarette smuggling during the period of 
Milosevic's rule in Belgrade.  (Several former officials have 
been indicted by Italian authorities, but not the PM.) 
Likewise, manipulation of the economic transition by 
well-connected people brought riches to senior politicians and a 
small group of oligarchs. 
 
 
 
¶4. (SBU) In addition, Montenegro's small size (population of 
650,000) and a land mass the size of Connecticut makes it 
inevitable that "everybody knows everybody" in some way.  In 
fact, the use of "veze" (connections) is a widely accepted way 
to get things done in Montenegro.   The tradition of "veze," 
however, contributes to an environment which reduces 
competition, multiplies conflicts of interest, and encourages 
nepotism in hiring.  According to a Gallup Balkan Monitor poll 
conducted in September and October 2008, 53 percent of 
Montenegrins believe that it is acceptable to use the help of 
connections to get better care in the hospital, 48 percent 
believe it is acceptable to do so in order to get a profitable 
government contract, and 43 percent believe it is acceptable in 
order to avoid paying traffic fines. 
 
 
 
¶5. (SBU) These factors have been exacerbated by the fact that 
the same two parties have been in power in Montenegro over the 
last decade, giving rise to bad habits that the weak and 
disunited opposition has had little success in checking. 
Further, many who wield political power are prominent in the 
business world as well, generating significant conflict of 
interest issues.  By way of example, Svetozar Marovic, DPS Vice 
President and now the Deputy Prime Minister for Political 
Affairs, is reportedly linked to 22 separate companies, either 
directly or through family members.  Common rumor has it that no 
significant deal can be done in Budva, the largest municipality 
on the coast, without Marovic's blessing.  PM Djukanovic himself 
 
PODGORICA 00000195  002.2 OF 005 
 
 
owns just under three percent of shares in the prominent local 
bank, Prva Banka.  His brother has a nearly 47 percent stake in 
the bank, while and his sister has a one percent stake, giving 
the family controlling interest.  Prva Banka was the only 
Montenegrin bank to benefit from a GoM bailout package (40 
million Euros total) as a result of the global economic crisis. 
Many other senior politicians have substantial business 
interests as well, including in state-owned companies. 
 
 
 
 
 
Conflict of Interest 
 
-------------------- 
 
 
 
¶6. (SBU) Despite the passage of an improved Conflict of Interest 
Law in January (reftel A), the issue continues to plague 
Montenegro.  The most problematic aspect is that public 
officials including GOM officials, judges, State Prosecutors and 
Deputies, and parliamentarians can serve in remunerated 
positions as president or members of governing and control 
bodies and executive directors or managers in public 
corporations where the state or a municipality has a stake. 
Also, the law appears to concern only public officials and 
members of their "household" (i.e. immediate family) - but not 
other relatives and does not limit officials who place property 
or assets in a blind trust.  Another problem is that many public 
officials either fail to report their assets as required by law, 
or under-report them, with little or no legal consequences. 
Critics also question the independence of the commission charged 
with reviewing conflict of interest cases and have expressed 
concern over the absence of more severe penalties. 
 
 
 
Perception vs. Reality 
 
---------------------- 
 
 
 
¶7. (SBU) GoM officials routinely acknowledge to us that 
corruption is a genuine challenge here, but they claim that the 
criticisms are greatly exaggerated.  There is some evidence to 
suggest that the reality of corruption may not be as dire as the 
perception.  Corroborating what we are frequently told 
anecdotally, surveys over the last year revealed that only a 
minority of Montenegrins claim to have actually witnessed or 
participated in acts of corruption.  For instance, nine percent 
of Montenegrins acknowledged bribing an official in the previous 
twelve months (note: presumably including bribes to traffic 
police for speeding violations, a commonly-acknowledged 
practice).  Similarly, a survey by a GoM-affiliated entity 
(Directorate for Anti-Corruption Initiative - DACI) found in 
2008 that more than one-third of the professionals and one 
quarter of corporate managers believe that the judicial system 
in Montenegro is often or always corrupt.  However, only 11 
percent of parties, 8.5 percent of lawyers, and seven percent of 
companies reported that judicial officials had solicited or 
accepted bribes, illegal payments, or some other corrupt act. 
Nonetheless, it is notable that a greater number of citizens in 
Montenegro consider the use of bribes, connections, and 
influence acceptable than in other Balkan countries. 
 
 
 
 
 
Weaknesses in Law Enforcement 
 
----------------------------- 
 
 
 
¶8. (SBU) As in other transitional societies in the region, 
Montenegro's law enforcement institutions have had only limited 
success in prosecuting and punishing perpetrators of corrupt 
acts, particular at more senior levels.  In the first six months 
of 2009, out of 111 charges of corruption brought against 173 
individuals, only one verdict was handed down. 
 
The low number of verdicts reached for corruption cases 
indicates, possibly, lack of political will and/or weak 
institutions.  Other factors include: 
 
PODGORICA 00000195  003.2 OF 005 
 
 
 
 
 
-          The courts are overburdened and there is a backlog of 
cases. 
 
-          Judges are selected and dismissed by the Judicial 
Council, which is partly organized by Parliament-thus making the 
process vulnerable to politicization. 
 
-          Conflicts of interest between judges and the cases 
they handle are not sufficiently examined. 
 
-          Regulatory officials, such as zoning inspectors, do 
not routinely report discrepancies to law enforcement 
authorities, while the police and prosecutors rarely act on 
complaints by property owners and other citizens. 
 
-          The police lack expertise in conducting financial 
investigations, a significant impediment to anti-corruption 
efforts. 
 
-          A Code of Ethics, revised according to EC standards 
and adopted in 2008, is reputed to be poorly understood and 
followed. 
 
-          Until this July, the police and investigative judges, 
rather than the prosecutors, have been in charge of 
investigations. A new Criminal Procedure Code shifting control 
of investigations to prosecutors has just been adopted, but a 
smooth and efficient transition to such a system will take time. 
 
-          A law to protect "whistleblowers" is not in place. 
 
 
 
 
 
Corruption and Construction Go Hand in Hand 
 
------------------------------------------- 
 
 
 
¶9. (SBU) By all accounts, Montenegro's property boom this decade 
has spawned substantial corruption.   According to the GOM, 
Montenegro has had the highest rate of foreign direct investment 
per capita in Europe for several years - FDI reached 685 million 
euro in 2008. The resultant boom in tourism and real estate has 
stimulated illegal construction.  Much of it has proceeded 
without intervention by authorities or, in some cases, with the 
illicit complicity of authorities. Part of the problem lies with 
the Law on Spatial Planning, which provides mechanisms for 
monitoring construction projects. It provides for public access 
to information and documents, defines the processes for issuing 
permits and conducting inspections, defines insurance 
requirements, and much more. But the legislation is complex and 
confusing (even for those charged with implementing it), and the 
process of issuing construction permits and registering property 
is labyrinthine. Bribes and other acts of corruption may speed 
up the bureaucratic process.  Inspectors and other local 
officials may be intimidated, even by their own neighbors. 
 
 
 
Anti-Corruption Efforts 
 
----------------------- 
 
 
 
¶10. (SBU) There are, however, some bright spots to report. 
 
 
 
-- The two most widely read dailies report on issues of 
corruption nearly every day, and while these articles do not 
always lead to action, they do sometimes have a positive effect. 
 In one example, in September 2008, a local businessman was 
arrested because he was conducting construction work without any 
permits whatsoever.  His company was illegally mining the 
mountain side in the town of Lipci, on Kotor Bay, hauling the 
stones and debris into the water, reportedly preparing to build 
a luxury hotel and beach resort.  The illegal construction 
continued for nearly two months before any action was taken. One 
local daily (often critical of the GoM) cited the businessman's 
strong ties to the ruling party as a possible reason for his 
success evading authorities for so long. Many speculate that the 
 
PODGORICA 00000195  004.2 OF 005 
 
 
authorities took action only because of the continuing outcry 
among the media and public. In another case, media reporting on 
excessive compensation taken by officials of the state-run 
railways prompted the GoM to take action (reftel B). 
 
 
 
-- In recent months there has been a notable increase in 
investigations and arrests in corruption or abuse of power 
cases. In February, in two separate actions, the Ulcinj Police 
arrested five local officials on charges of corruption related 
to illegal construction.  At the same time, police arrested the 
judge from the Higher Court in Bijelo Polje under suspicion of 
having taken a bribe to decrease the sentence and release a man 
convicted of vehicular homicide. In July, the Basic Prosecutor 
from Podgorica pressed charges against the president of the 
state-owned Montenegro Airlines for abuse of position.  Just few 
days later, the head of the Kotor office of the Real Estate 
Directorate, his advisor, and a secretary were arrested and 
charged with "abuse of official position for personal gain with 
corruptive elements."  The same day, police inspectors for 
commercial crime, along with Special Prosecutor for Organized 
Crime Stojanka Radovic launched an investigation against the 
director of the State Development Fund, Dragan Lajovic, on 
suspicion of involvement in suspicious transactions related to 
the approval of loans for six companies. 
 
 
 
-- Likely as a result of some of these public "scandals," in 
addition to the new Law on Conflict of Interest, the GoM has 
adopted new regulations on the compensation of government 
representatives sitting on the boards of public companies and 
regulatory agencies and other bodies in which state of 
Montenegro retains some shares (reftel B).    These new 
regulations exclusively regulate the rules and limitations for 
financial compensations, while the Law on Conflict of Interest 
regulates who may or may not serve on these boards. 
 
 
 
-- In 2007, the GoM created a National Commission and charged it 
with developing and implementing an Action Plan for the Fight 
against Corruption and Organized Crime.  The Commission, whose 
members include representatives of watchdog NGOs in addition to 
executive and judicial authorities, regularly reviews progress 
at public sessions attended by USG and other international 
representatives.  For instance, at a recent session, the GoM 
reported that 62 percent of Action Plan goals were fully 
achieved, ten percent were partially achieved, 15 percent were 
not achieved, and that data was incomplete for 13 percent of the 
goals.  A watchdog NGO, however, alleged that the GoM figures 
were too rosy.  According to that NGO, only 24 percent of the 
Action Plan's goals were achieved in 2008, 37 percent of the 
goals were partially fulfilled, 34 percent were not 
accomplished, and that data was incomplete for five percent of 
the goals. 
 
 
 
-- The growing influence of domestic watchdogs such as MANS is 
also an encouraging development.  MANS and Calovic are 
undoubtedly among the most trusted and popular of such public 
voices.  Calovic finds local newspapers and other media ready to 
cover her efforts to test and counter government claims.  While 
the local NGO sector is still far from robust -- there are only 
a few other NGOs as vocal and active as MANS -- its increasing 
strength and sophistication has helped raise public awareness of 
corruption.  More important, a greater number of Montenegrins 
realize that it is possible, by means of such grass-roots 
initiatives, to constructively challenge the status quo. 
 
 
 
 
 
Comment 
 
-------- 
 
¶11. (SBU) With only three years of independence behind it, 
Montenegro has instituted significant reforms and is moving 
smartly forward on a strongly pro-Euroatlantic path. 
Nevertheless, waging an effective fight against corruption will 
probably be the toughest hurdle it will have to cross on the 
path toward full membership in those institutions.  It also will 
be key to Montenegro's ability to court legitimate foreign 
investment.  The country has made significant progress in 
 
PODGORICA 00000195  005.2 OF 005 
 
 
putting in place the requisite legal and institutional 
framework.  Now, it must use these tools more effectively, 
particularly in terms of demonstrating that its law enforcement 
system can punish offenders regardless of their background or 
connections. 
 
 
 
¶12.  Over the last two years, the Embassy has significantly 
increased both assistance resources and policy focus on rule of 
law issues.  Initiatives include, inter alia, greater public 
outreach on corruption themes, expanding DOJ programs (notably 
the addition of a Resident Legal Advisor), an effort to 
establish a US-style anti-crime and corruption task force, a 
central U.S. role in amending key legislation, the re-focusing 
of some existing USAID programs on a series of anti-corruption 
measures, as well as numerous PD-sponsored speaker programs and 
democracy commission grants which address themes ranging from 
developing whistleblower protection to helping local governments 
strengthen their ability to fight corruption. 
MOORE