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Reference ID	Created	Released	Classification	Origin
03ZAGREB450	2003-02-28 09:36	2011-08-30 01:44	CONFIDENTIAL	Embassy Zagreb

This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000450 
 
SIPDIS 
 
C O R R E C T E D COPY (TEXT CHANGE) 
 
E.O. 12958: DECL: 02/27/2013 
TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL
SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS 
LOOKS REMOTE 
 
REF: A. (A) STATE 50887 
 
     ¶B. (B) ZAGREB 275 
 
CLASSIFIED BY: NICHOLAS HILL, POLECON COUNSELOR, FOR REASONS 
1.5 (D) AND (D). 
 
SUMMARY 
------- 
 
¶1.   (C) THE RACAN GOVERNMENT IS DIGGING IN ITS HEELS ON THE 
SUCCESSION AGREEMENT, AND MAY WELL IGNORE OUR REQUEST FOR A 
HOLD HARMLESS BEFORE THE USG UNBLOCKS DISPUTED NBY ASSETS 
THIS SPRING.  THAT IS THE INDICATION WE RECEIVED IN SEPARATE 
MEETINGS WITH THE GOC'S REPRESENTATIVE ON THE FINANCIAL 
COMMITTEE OF THE SUCCESSOR STATES AND THE TOP LEGAL ADVISOR 
AT THE MFA.  THE AMBASSADOR PLANS TO DELIVER DEMARCHE (REF A) 
TO THE FOREIGN MINISTER EARLY NEXT WEEK. THE CROATIANS 
TOLD US THAT THE MEETING OF THE SUCCESSOR STATES' FINANCIAL 
EXPERTS ON FEBRUARY 13 UNDERSCORED THAT THE GOC'S HARD LINE HAD 
WIDE SUPPORT.  THEY CLAIMED OTHER SUCCESSOR STATES NOW WISH THEY 
HAD NOT RATIFIED THE SUCCESSION AGREEMENT (ASI) SIGNED IN 
VIENNA IN JUNE 2001.  END SUMMARY. 
 
¶2.   (C) WE SPOKE TO ZDRAVKO ROGIC, DEPUTY GOVERNOR AT 
CROATIA'S NATIONAL BANK, ON FEBRUARY 25 AND ANDREJA 
METELKO-ZGOMBIC, HEAD OF THE MFA'S LEGAL AFFAIRS OFFICE, ON 
FEBRUARY 26 CONCERNING USG PLANS TO UNBLOCK DISPUTED SFRY 
ASSETS.  THEY BOTH INDICATED THAT THE GOVERNMENT HAD 
                       CONFIDENTIAL 
 
PAGE 03        ZAGREB  00450  01 OF 02  281911Z 
CONSIDERED OUR REQUEST FOR A HOLD HARMLESS PRIOR TO THE 
UNBLOCKING OF NBY ASSETS IN THE SPRING AND HAD CONCLUDED THAT 
IT WAS IMPOSSIBLE, EVEN IF THIS MEANS CROATIA COULD LOSE OVER 
$50 MILLION.  BOTH INDICATED THAT IT WAS A MATTER OF 
"PRINCIPLE."  ROGIC, WHO REPRESENTS CROATIA ON THE JOINT 
FINANCIAL COMMITTEE OF THE SUCCESSOR STATES, SAID A HOLD 
HARMLESS AGREEMENT ABSENT RATIFICATION OF THE SUCCESSION 
AGREEMENT WOULD REPRESENT A "USURPATION OF LEGISLATIVE 
PREROGATIVE."  METELKO-ZGOMBIC ECHOED HIM LATER. 
 
BAD FAITH IN VIENNA 
------------------- 
 
¶3.  (C) BOTH REPEATED THEIR WELL KNOWN VIEW OF WHAT HAPPENED 
IN VIENNA.  IT COMES DOWN TO BAD FAITH BEING SHOWN BY 
BELGRADE AUTHORITIES AT THE TALKS.  FOR THE GOC TO SECURE 
PARLIAMENTARY APPROVAL OF THE AGREEMENT NOW THE AGREEMENT 
WOULD HAVE TO BE REVISED.  ROGIC SAID AT THE VERY LEAST THIS 
WOULD INVOLVE AMENDING THE INCORRECT INFORMATION ABOUT THE 
DEPOSITS IN THE NBY JOINT VENTURE BANKS BEFORE THE CROATIAN 
PARLIAMENT TAKES UP THE MATTER.  HE CONCEDED THAT ANY EFFORT 
TO OBTAIN COMPENSATION FOR THE "MISSING" MONEY WAS PROBABLY 
"OUT OF THE QUESTION."  WHILE UPSET WITH THE FRY NEGOTIATORS 
IN VIENNA, HE WAS ALSO QUICK TO CRITICIZE THE CROATIAN TEAM. 
HE ALL BUT CALLED THE GOC'S TOP NEGOTIATOR, BOZO MARENDIC, 
INCOMPETENT.  HE SAID THE OTHER NEGOTIATORS IN VIENNA, EXCEPT 
POSSIBLY THE SLOVENES, HAD LITTLE BANKING EXPERTISE AND WERE 
PROBABLY HOODWINKED TOO. 
 
¶4.   (C) ROGIC ACKNOWLEDGED THAT "DEPOSITS" DID NOT EQUAL 
RECOVERABLE ASSETS.  WHEN ASKED IF THE GOC WAS INDULGING IN 
                       CONFIDENTIAL 
 
PAGE 04        ZAGREB  00450  01 OF 02  281911Z 
SEMANTICS, HE SAID NO.  "IT'S POLITICS."  UNLIKE ASSETS WHICH 
CAN BE ERODED BY BAD MANAGEMENT, HE CONTINUED, DEPOSITS CAN 
ONLY BE DECREASED BY TRANSFERS.  THE NBY, HE STRESSED, SHOULD 
HAVE RECORDS OF THOSE TRANSFERS AND PRODUCE THEM.  WHEN WE 
TOLD HIM THAT OFAC DECIDED NOT TO CONDUCT AN INVESTIGATION OF 
THE NBY ACCOUNTS, ROGIC EXPRESSED DISAPPOINTMENT.  HE NOTED 
THAT THE U.S. PARTICIPANTS PLAYED AN IMPORTANT ROLE IN VIENNA 
AND SHOULD PLAY A ROLE IN UNRAVELING THE MYSTERY IN THE NBY 
ACCOUNTS NOW.  HE IMPLIED THAT THE ONLY PARTICIPANTS WHO KNEW 
WHAT WAS GOING ON IN VIENNA WERE THE AMERICANS, THE SERBS, 
AND POSSIBLY THE SLOVENES. 
 
UNFAIR KEY? 
----------- 
 
¶5.   (C) AT THE MFA, METELKO-ZGOMBIC TOOK AN EVEN TOUGHER 
LINE.  FIRST, SHE SAID THE ASI NEEDED TO BE RATIFIED.  THE 
DEAL STRUCK IN VIENNA WAS BASED ON A LIE -- THAT THERE WAS 
OVER $600 MILLION IN JOINT VENTURE BANK ACCOUNTS TO BE 
DISPERSED TO THE SUCCESSORS WHEN NO SUCH MONEY EXISTED. 
BASED ON THE FALSE INFORMATION -- AND THE FALSE PROSPECT THAT 
CROATIA STOOD TO GAIN OVER $200 MILLION WHEN THE MONEY WAS 
DISTRIBUTED -- CROATIA HAD ACCEPTED A PROBLEMATIC KEY. 
CROATIA WOULD RECEIVE ONLY 23 PERCENT OF THE SFRY'S ASSETS, 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ0036 
 
PAGE 01        ZAGREB  00450  02 OF 02  281912Z 
ACTION EUR-00 
 
INFO  LOG-00   COR-01   NP-00    AF-00    AID-00   CIAE-00  COME-00 
      INL-00   DODE-00  DOTE-00  SRPP-00  DS-00    EAP-00   EB-00 
      FAAE-00  FBIE-00  VC-00    TEDE-00  INR-00   IO-00    LAB-01 
      L-00     VCE-00   M-00     NSAE-00  NSCE-00  P-00     IRM-00 
      SS-00    DSCC-00  PRM-00   DRL-01   NFAT-00  SAS-00   SWCI-00 
        /003W 
                  ------------------3D3606  281912Z /07 
O 280936Z FEB 03 
FM AMEMBASSY ZAGREB 
TO SECSTATE WASHDC IMMEDIATE 9564 
INFO AMEMBASSY BELGRADE PRIORITY 
AMEMBASSY BRUSSELS PRIORITY 
AMEMBASSY LJUBLJANA PRIORITY 
AMEMBASSY LONDON PRIORITY 
AMEMBASSY NICOSIA PRIORITY 
AMEMBASSY ROME PRIORITY 
AMEMBASSY SARAJEVO PRIORITY 
AMEMBASSY SKOPJE PRIORITY 
AMEMBASSY VIENNA PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
 
C O N F I D E N T I A L SECTION 02 OF 02 ZAGREB 000450 
 
SIPDIS 
 
C O R R E C T E D COPY (TEXT) 
 
E.O. 12958: DECL: 02/27/2013 
TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL
                       CONFIDENTIAL 
 
PAGE 02        ZAGREB  00450  02 OF 02  281912Z 
SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS 
LOOKS REMOTE 
 
WHILE IT ASSUMED 28.5 PERCENT OF THE SFRY'S DEBT. 
METELKO-ZGOMBIC SAID THAT THIS ASYMMETRY WAS UNFAIR WHEN THE 
DEAL WAS STRUCK, BUT COULD BE SWALLOWED GIVEN THE MONEY 
CROATIA STOOD TO GAIN.  AFTER ALMOST $545 MILLION TURNED UP 
MISSING, SHE ARGUED, THIS RENDERED THE ASYMMETRY IN THE KEY 
UNACCEPTABLE. 
 
LEGAL ROAD 
---------- 
 
¶6.  (C) THE LEGAL ADVISOR, WHOSE POSITION HAS REMAINED 
BASICALLY UNCHANGED IN THE ALMOST SIX MONTHS SINCE WE HAVE 
BEEN DISCUSSING THE ISSUE, OUTLINED WHAT LEGAL COURSE THE 
GOVERNMENT WAS TAKING.  SHE EMPHASIZED THAT THE GOVERNMENT 
WAS PREPARED TO FIGHT THE OFAC UNBLOCKING INITIATIVES IN U.S. 
COURTS.  ON THE PROPERTY AND INTERESTS IN PROPERTY THAT WERE 
UNBLOCKED ON FEBRUARY 25, IT WAS TRUE THAT THE GOVERNMENT HAD 
NOT SOUGHT AN INJUNCTION IN COURT, BUT THIS SHOULD NOT BE 
TAKEN AS INDICATION THAT THE GOC WAS ROLLING OVER.  THE GOC 
STILL ASSERTS THAT $40 MILLION OF THE $102 MILLION THAT WAS 
UNBLOCKED BELONGED TO THE SFRY AND SHOULD BE DISPERSED TO ALL 
THE SUCCESSORS.  TOGETHER WITH OTHER SUCCESSOR STATES AND 
THEIR U.S. LAWYERS, THE INSTITUTIONS HOLDING THESE ASSETS 
HAVE BEEN APPROACHED.  THE INSTITUTIONS -- J.P. MORGAN, BANK 
OF NEW YORK, AND AMERICAN EXPRESS BANK -- PROMISED TO INFORM 
THE SUCCESSOR STATES IF BELGRADE AUTHORITIES SOUGHT TO 
WITHDRAW THE MONEY.  BASED ON THESE ASSURANCES, THE GOC 
DECIDED NOT TO FILE AN INJUNCTION NOW, BUT WILL WHEN REQUIRED. 
                       CONFIDENTIAL 
 
PAGE 03        ZAGREB  00450  02 OF 02  281912Z 
 
¶7.   (C) ON THE NBY ASSETS, METELKO-ZGOMBIC SAID THE USG 
DECISION TO UNBLOCK THEM THIS SPRING CONTINUED TO BE 
INEXPLICABLE TO HER.  MANY COUNTRIES HAD FROZEN SFRY ASSETS 
AND WERE NOT IN SUCH A HURRY TO UNBLOCK THEM NOW.  THESE 
COUNTRIES -- SHE WOULD NOT IDENTIFY WHICH -- WERE NOT 
PRESSING THE SUCCESSOR STATES, CONTENT INSTEAD TO WAIT FOR A 
SUCCESSION AGREEMENT TO COME IN TO FORCE.  WHY WERE THE 
AMERICANS IN SUCH A RUSH?  IF FREEZING THE ASSETS WAS SUCH A 
HEADACHE FOR U.S. AUTHORITIES, SHE ASKED, WOULD IT BE 
POSSIBLE FOR THE BANK OF INTERNATIONAL SETTLEMENTS (BIS) TO 
ARRANGE TO HOLD THE MONEY PENDING A SUCCESSION AGREEMENT? 
SHE STRESSED AGAIN THAT ONLY BELGRADE AGREED WITH THE U.S. 
DECISION ON THE PHASED UNBLOCKING. 
 
COMMENT 
------- 
 
¶8.   (C) TO HEAR IT FROM THE CROATIANS, THIS UNBLOCKING COULD 
TURN INTO A FOOD FIGHT -- OR AT LEAST A VERY LUCRATIVE 
PROPOSITION FOR CROATIA'S, AND POSSIBLY OTHER SUCCESSOR 
STATES', AMERICAN LAWYERS.  PRESS REPORTS HERE INDICATE THAT 
THE GOC IS PAYING UP TO $500 AN HOUR FOR LEGAL COUNSEL.  BOTH 
TECHNICAL EXPERTS RATHER THAN POLITICAL PLAYERS, ROGIC AND 
METELKO-ZGOMBIC WERE NOT IN VIENNA, BUT THEY CONTINUE TO COME 
ACROSS AS COMPLETELY CONVINCED OF THE RIGHTEOUSNESS OF THEIR 
CAUSE -- THAT THE NEGOTIATIONS UNFOLDED UNFAIRLY.  THEY 
STRESSED THAT ALL THE OTHER SUCCESSORS, MINUS BELGRADE, ARE 
ANGRY TOO -- AND URGED US TO TALK TO THEM DIRECTLY, 
PARTICULARLY THE BIH AND MACEDONIAN REPRESENTATIVES ON THE 
JOINT FINANCIAL COMMITTEE. 
                       CONFIDENTIAL 
 
PAGE 04        ZAGREB  00450  02 OF 02  281912Z 
 
¶9.   (C) ANOTHER POSSIBILITY RAISED BY THE SERBIAN AND 
MONTENEGRIN AMBASSADOR HERE IS THAT THE GOC LOOKED AT ANNEX G 
OF THE SUCCESSION AGREEMENT -- WHICH CALLS FOR COMPENSATION 
FOR THOSE WHO LOST PRIVATE PROPERTY AND ACQUIRED RIGHTS, 
INCLUDING DISPLACED ETHNIC SERB REFUGEES -- AND REALIZED THE 
FINANCIAL IMPLICATIONS: THIS GOVERNMENT COULD BE TAKING ON 
FINANCIAL OBLIGATIONS FAR IN EXCESS OF THE $50 MILLION IT 
STANDS TO GAIN FROM RATIFYING THE ASI AND RECEIVING CROATIA'S 
SHARE OF THE NBY ASSETS.  INDEED, ANNEX G, JUXTAPOSED AGAINST 
WHAT THE GOC HAS BEEN TELLING US OVER MANY MONTHS ABOUT ITS 
FINANCIAL CONSTRAINTS IN COMPENSATING ETHNIC SERBS FOR LOST 
PROPERTY AND TENANCY RIGHTS, LOOKS LIKE IT WAS AGREED TO BY 
SOMEBODY NOT WORKING ON INSTRUCTIONS FROM ZAGREB.  WE ASKED 
METELKO-ZGOMBIC IF THE GOC HAD OTHER CONCERNS IN THE ASI -- 
APART FROM THE MONEY MISSING IN THE JOINT VENTURE BANKS -- 
AND EVEN MENTIONED ANNEX G.  SHE SAID NO.  WE DO NOT QUESTION 
HER PERSONAL EARNESTNESS, BUT MORE BROADLY REMAIN SKEPTICAL 
ABOUT THE GOC'S APPROACH TO THE ASI. 
 
¶10.   (U) BELGRADE MINIMIZE CONSIDERED. 
 
ROSSIN 
 
                       CONFIDENTIAL 
 
> 
@@@OASYS@@@ 
 
                           CONFIDENTIAL     PTQ7806 
 
PAGE 01        ZAGREB  00450  01 OF 02  280957Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AF-00    AID-00   CIAE-00  COME-00  INL-00 
      DODE-00  DOTE-00  SRPP-00  DS-00    EAP-00   EB-00    FAAE-00 
      FBIE-00  VC-00    TEDE-00  INR-00   IO-00    LAB-01   L-00 
      VCE-00   M-00     NSAE-00  NSCE-00  P-00     IRM-00   SS-00 
      DSCC-00  PRM-00   DRL-01   NFAT-00  SAS-00   SWCI-00    /002W 
                  ------------------3CE1A1  280957Z /75 
O 280936Z FEB 03 
FM AMEMBASSY ZAGREB 
TO SECSTATE WASHDC IMMEDIATE 9563 
INFO AMEMBASSY BELGRADE PRIORITY 
AMEMBASSY BRUSSELS PRIORITY 
AMEMBASSY LJUBLJANA PRIORITY 
AMEMBASSY LONDON PRIORITY 
AMEMBASSY NICOSIA PRIORITY 
AMEMBASSY ROME PRIORITY 
AMEMBASSY SARAJEVO PRIORITY 
AMEMBASSY SKOPJE PRIORITY 
AMEMBASSY VIENNA PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
 
C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000450 
 
SIPDIS 
 
E.O. 12958: DECL: 02/27/2013 
TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL
SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS 
LOOKS REMOTE 
 
                       CONFIDENTIAL 
 
PAGE 02        ZAGREB  00450  01 OF 02  280957Z 
REF: A. (A) STATE 50887 
     ¶B. (B) ZAGREB 275 
 
CLASSIFIED BY: NICHOLAS HILL, POLECON COUNSELOR, FOR 
REASONS 1.5 (D) AND (D). 
 
SUMMARY 
------- 
 
¶1.   (C) THE RACAN GOVERNMENT IS DIGGING IN ITS HEELS ON THE 
SUCCESSION AGREEMENT, AND MAY WELL IGNORE OUR REQUEST FOR A 
HOLD HARMLESS BEFORE THE USG UNBLOCKS DISPUTED NBY ASSETS 
THIS SPRING.  THAT IS THE INDICATION WE RECEIVED IN SEPARATE 
MEETINGS WITH THE GOC'S REPRESENTATIVE ON THE FINANCIAL 
COMMITTEE OF THE SUCCESSOR STATES AND THE TOP LEGAL ADVISOR 
AT THE MFA.  THE AMBASSADOR PLANS TO DELIVER DEMARCHE (REF A) 
TO THE FOREIGN MINISTER EARLY NEXT WEEK., WHO IS OUT OF 
ZAGREB FOR MUCH OF THIS WEEK.  THE CROATIANS TOLD US THAT THE 
MEETING OF THE SUCCESSOR STATES' FINANCIAL EXPERTS ON 
FEBRUARY 13 UNDERSCORED THAT THE GOC'S HARD LINE HAD WIDE 
SUPPORT.  THEY CLAIMED OTHER SUCCESSOR STATES NOW WISH THEY 
HAD NOT RATIFIED THE SUCCESSION AGREEMENT (ASI) SIGNED IN 
VIENNA IN JUNE 2001.  END SUMMARY. 
 
¶2.   (C) WE SPOKE TO ZDRAVKO ROGIC, DEPUTY GOVERNOR AT 
CROATIA'S NATIONAL BANK, ON FEBRUARY 25 AND ANDREJA 
METELKO-ZGOMBIC, HEAD OF THE MFA'S LEGAL AFFAIRS OFFICE, ON 
FEBRUARY 26 CONCERNING USG PLANS TO UNBLOCK DISPUTED SFRY 
ASSETS.  THEY BOTH INDICATED THAT THE GOVERNMENT HAD 
CONSIDERED OUR REQUEST FOR A HOLD HARMLESS PRIOR TO THE 
UNBLOCKING OF NBY ASSETS IN THE SPRING AND HAD CONCLUDED THAT 
                       CONFIDENTIAL 
 
PAGE 03        ZAGREB  00450  01 OF 02  280957Z 
IT WAS IMPOSSIBLE, EVEN IF THIS MEANS CROATIA COULD LOSE OVER 
$50 MILLION.  BOTH INDICATED THAT IT WAS A MATTER OF 
"PRINCIPLE."  ROGIC, WHO REPRESENTS CROATIA ON THE JOINT 
FINANCIAL COMMITTEE OF THE SUCCESSOR STATES, SAID A HOLD 
HARMLESS AGREEMENT ABSENT RATIFICATION OF THE SUCCESSION 
AGREEMENT WOULD REPRESENT A "USURPATION OF LEGISLATIVE 
PREROGATIVE."  METELKO-ZGOMBIC ECHOED HIM LATER. 
 
BAD FAITH IN VIENNA 
------------------- 
 
¶3.  (C) BOTH REPEATED THEIR WELL KNOWN VIEW OF WHAT HAPPENED 
IN VIENNA.  IT COMES DOWN TO BAD FAITH BEING SHOWN BY 
BELGRADE AUTHORITIES AT THE TALKS.  FOR THE GOC TO SECURE 
PARLIAMENTARY APPROVAL OF THE AGREEMENT NOW THE AGREEMENT 
WOULD HAVE TO BE REVISED.  ROGIC SAID AT THE VERY LEAST THIS 
WOULD INVOLVE AMENDING THE INCORRECT INFORMATION ABOUT THE 
DEPOSITS IN THE NBY JOINT VENTURE BANKS BEFORE THE CROATIAN 
PARLIAMENT TAKES UP THE MATTER.  HE CONCEDED THAT ANY EFFORT 
TO OBTAIN COMPENSATION FOR THE "MISSING" MONEY WAS PROBABLY 
"OUT OF THE QUESTION."  WHILE UPSET WITH THE FRY NEGOTIATORS 
IN VIENNA, HE WAS ALSO QUICK TO CRITICIZE THE CROATIAN TEAM. 
HE ALL BUT CALLED THE GOC'S TOP NEGOTIATOR, BOZO MARENDIC, 
INCOMPETENT.  HE SAID THE OTHER NEGOTIATORS IN VIENNA, EXCEPT 
POSSIBLY THE SLOVENES, HAD LITTLE BANKING EXPERTISE AND WERE 
PROBABLY HOODWINKED TOO. 
 
¶4.   (C) ROGIC ACKNOWLEDGED THAT "DEPOSITS" DID NOT EQUAL 
RECOVERABLE ASSETS.  WHEN ASKED IF THE GOC WAS INDULGING IN 
SEMANTICS, HE SAID NO.  "IT'S POLITICS."  UNLIKE ASSETS WHICH 
CAN BE ERODED BY BAD MANAGEMENT, HE CONTINUED, DEPOSITS CAN 
                       CONFIDENTIAL 
 
PAGE 04        ZAGREB  00450  01 OF 02  280957Z 
ONLY BE DECREASED BY TRANSFERS.  THE NBY, HE STRESSED, SHOULD 
HAVE RECORDS OF THOSE TRANSFERS AND PRODUCE THEM.  WHEN WE 
TOLD HIM THAT OFAC DECIDED NOT TO CONDUCT AN INVESTIGATION OF 
THE NBY ACCOUNTS, ROGIC EXPRESSED DISAPPOINTMENT.  HE NOTED 
THAT THE U.S. PARTICIPANTS PLAYED AN IMPORTANT ROLE IN VIENNA 
AND SHOULD PLAY A ROLE IN UNRAVELING THE MYSTERY IN THE NBY 
ACCOUNTS NOW.  HE IMPLIED THAT THE ONLY PARTICIPANTS WHO KNEW 
WHAT WAS GOING ON IN VIENNA WERE THE AMERICANS, THE SERBS, 
AND POSSIBLY THE SLOVENES. 
 
UNFAIR KEY? 
----------- 
 
¶5.   (C) AT THE MFA, METELKO-ZGOMBIC TOOK AN EVEN TOUGHER 
LINE.  FIRST, SHE SAID THE ASI NEEDED TO BE RATIFIED.  THE 
DEAL STRUCK IN VIENNA WAS BASED ON A LIE -- THAT THERE WAS 
OVER $600 MILLION IN JOINT VENTURE BANK ACCOUNTS TO BE 
DISPERSED TO THE SUCCESSORS WHEN NO SUCH MONEY EXISTED. 
BASED ON THE FALSE INFORMATION -- AND THE FALSE PROSPECT THAT 
CROATIA STOOD TO GAIN OVER $200 MILLION WHEN THE MONEY WAS 
DISTRIBUTED -- CROATIA HAD ACCEPTED A PROBLEMATIC KEY. 
CROATIA WOULD RECEIVE ONLY 23 PERCENT OF THE SFRY'S ASSETS, 
 
                       CONFIDENTIAL 
 
                           CONFIDENTIAL     PTQ7809 
 
PAGE 01        ZAGREB  00450  02 OF 02  280958Z 
ACTION EUR-00 
 
INFO  LOG-00   NP-00    AF-00    AID-00   CIAE-00  COME-00  INL-00 
      DODE-00  DOTE-00  SRPP-00  DS-00    EAP-00   EB-00    FAAE-00 
      FBIE-00  VC-00    TEDE-00  INR-00   IO-00    LAB-01   L-00 
      VCE-00   M-00     NSAE-00  NSCE-00  P-00     IRM-00   SS-00 
      DSCC-00  PRM-00   DRL-01   NFAT-00  SAS-00   SWCI-00    /002W 
                  ------------------3CE1B2  280958Z /75 
O 280936Z FEB 03 
FM AMEMBASSY ZAGREB 
TO SECSTATE WASHDC IMMEDIATE 9564 
INFO AMEMBASSY BELGRADE PRIORITY 
AMEMBASSY BRUSSELS PRIORITY 
AMEMBASSY LJUBLJANA PRIORITY 
AMEMBASSY LONDON PRIORITY 
AMEMBASSY NICOSIA PRIORITY 
AMEMBASSY ROME PRIORITY 
AMEMBASSY SARAJEVO PRIORITY 
AMEMBASSY SKOPJE PRIORITY 
AMEMBASSY VIENNA PRIORITY 
DEPT OF TREASURY WASHDC PRIORITY 
 
C O N F I D E N T I A L SECTION 02 OF 02 ZAGREB 000450 
 
SIPDIS 
 
E.O. 12958: DECL: 02/27/2013 
TAGS: PREL PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI PGOV ECON EFIN MK SR HR BK SI MW MWPREL
SUBJECT: UNBLOCKING SFRY ASSETS: GETTING HOLD HARMLESS 
LOOKS REMOTE 
 
                       CONFIDENTIAL 
 
PAGE 02        ZAGREB  00450  02 OF 02  280958Z 
WHILE IT ASSUMED 28.5 PERCENT OF THE SFRY'S DEBT. 
METELKO-ZGOMBIC SAID THAT THIS ASYMMETRY WAS UNFAIR WHEN THE 
DEAL WAS STRUCK, BUT COULD BE SWALLOWED GIVEN THE MONEY 
CROATIA STOOD TO GAIN.  AFTER ALMOST $545 MILLION TURNED UP 
MISSING, SHE ARGUED, THIS RENDERED THE ASYMMETRY IN THE KEY 
UNACCEPTABLE. 
 
LEGAL ROAD 
---------- 
 
¶6.  (C) THE LEGAL ADVISOR, WHOSE POSITION HAS REMAINED 
BASICALLY UNCHANGED IN THE ALMOST SIX MONTHS SINCE WE HAVE 
BEEN DISCUSSING THE ISSUE, OUTLINED WHAT LEGAL COURSE THE 
GOVERNMENT WAS TAKING.  SHE EMPHASIZED THAT THE GOVERNMENT 
WAS PREPARED TO FIGHT THE OFAC UNBLOCKING INITIATIVES IN U.S. 
COURTS.  ON THE PROPERTY AND INTERESTS IN PROPERTY THAT WERE 
UNBLOCKED ON FEBRUARY 25, IT WAS TRUE THAT THE GOVERNMENT HAD 
NOT SOUGHT AN INJUNCTION IN COURT, BUT THIS SHOULD NOT BE 
TAKEN AS INDICATION THAT THE GOC WAS ROLLING OVER.  THE GOC 
STILL ASSERTS THAT $40 MILLION OF THE $102 MILLION THAT WAS 
UNBLOCKED BELONGED TO THE SFRY AND SHOULD BE DISPERSED TO ALL 
THE SUCCESSORS.  TOGETHER WITH OTHER SUCCESSOR STATES AND 
THEIR U.S. LAWYERS, THE INSTITUTIONS HOLDING THESE ASSETS 
HAVE BEEN APPROACHED.  THE INSTITUTIONS -- J.P. MORGAN, BANK 
OF NEW YORK, AND AMERICAN EXPRESS BANK -- PROMISED TO INFORM 
THE SUCCESSOR STATES IF BELGRADE AUTHORITIES SOUGHT TO 
WITHDRAW THE MONEY.  BASED ON THESE ASSURANCES, THE GOC 
DECIDED NOT TO FILE AN INJUNCTION NOW, BUT WILL WHEN REQUIRED. 
 
¶7.   (C) ON THE NBY ASSETS, METELKO-ZGOMBIC SAID THE USG 
DECISION TO UNBLOCK THEM THIS SPRING CONTINUED TO BE 
                       CONFIDENTIAL 
 
PAGE 03        ZAGREB  00450  02 OF 02  280958Z 
INEXPLICABLE TO HER.  MANY COUNTRIES HAD FROZEN SFRY ASSETS 
AND WERE NOT IN SUCH A HURRY TO UNBLOCK THEM NOW.  THESE 
COUNTRIES -- SHE WOULD NOT IDENTIFY WHICH -- WERE NOT 
PRESSING THE SUCCESSOR STATES, CONTENT INSTEAD TO WAIT FOR A 
SUCCESSION AGREEMENT TO COME IN TO FORCE.  WHY WERE THE 
AMERICANS IN SUCH A RUSH?  IF FREEZING THE ASSETS WAS SUCH A 
HEADACHE FOR U.S. AUTHORITIES, SHE ASKED, WOULD IT BE 
POSSIBLE FOR THE BANK OF INTERNATIONAL SETTLEMENTS (BIS) TO 
ARRANGE TO HOLD THE MONEY PENDING A SUCCESSION AGREEMENT? 
SHE STRESSED AGAIN THAT ONLY BELGRADE AGREED WITH THE U.S. 
DECISION ON THE PHASED UNBLOCKING. 
 
COMMENT 
------- 
 
¶8.   (C) TO HEAR IT FROM THE CROATIANS, THIS UNBLOCKING COULD 
TURN INTO A FOOD FIGHT -- OR AT LEAST A VERY LUCRATIVE 
PROPOSITION FOR CROATIA'S, AND POSSIBLY OTHER SUCCESSOR 
STATES', AMERICAN LAWYERS.  PRESS REPORTS HERE INDICATE THAT 
THE GOC IS PAYING UP TO $500 AN HOUR FOR LEGAL COUNSEL.  BOTH 
TECHNICAL EXPERTS RATHER THAN POLITICAL PLAYERS, ROGIC AND 
METELKO-ZGOMBIC WERE NOT IN VIENNA, BUT THEY CONTINUE TO COME 
ACROSS AS COMPLETELY CONVINCED OF THE RIGHTEOUSNESS OF THEIR 
CAUSE -- THAT THE NEGOTIATIONS UNFOLDED UNFAIRLY.  THEY 
STRESSED THAT ALL THE OTHER SUCCESSORS, MINUS BELGRADE, ARE 
ANGRY TOO -- AND URGED US TO TALK TO THEM DIRECTLY, 
PARTICULARLY THE BIH AND MACEDONIAN REPRESENTATIVES ON THE 
JOINT FINANCIAL COMMITTEE. 
 
¶9.   (C) ANOTHER POSSIBILITY RAISED BY THE SERBIAN AND 
MONTENEGRIN AMBASSADOR HERE IS THAT THE GOC LOOKED AT ANNEX G 
                       CONFIDENTIAL 
 
PAGE 04        ZAGREB  00450  02 OF 02  280958Z 
OF THE SUCCESSION AGREEMENT -- WHICH CALLS FOR COMPENSATION 
FOR THOSE WHO LOST PRIVATE PROPERTY AND ACQUIRED RIGHTS, 
INCLUDING DISPLACED ETHNIC SERB REFUGEES -- AND REALIZED THE 
FINANCIAL IMPLICATIONS: THIS GOVERNMENT COULD BE TAKING ON 
FINANCIAL OBLIGATIONS FAR IN EXCESS OF THE $50 MILLION IT 
STANDS TO GAIN FROM RATIFYING THE ASI AND RECEIVING CROATIA'S 
SHARE OF THE NBY ASSETS.  INDEED, ANNEX G, JUXTAPOSED AGAINST 
WHAT THE GOC HAS BEEN TELLING US OVER MANY MONTHS ABOUT ITS 
FINANCIAL CONSTRAINTS IN COMPENSATING ETHNIC SERBS FOR LOST 
PROPERTY AND TENANCY RIGHTS, LOOKS LIKE IT WAS AGREED TO BY 
SOMEBODY NOT WORKING ON INSTRUCTIONS FROM ZAGREB.  WE ASKED 
METELKO-ZGOMBIC IF THE GOC HAD OTHER CONCERNS IN THE ASI -- 
APART FROM THE MONEY MISSING IN THE JOINT VENTURE BANKS -- 
AND EVEN MENTIONED ANNEX G.  SHE SAID NO.  WE DO NOT QUESTION 
HER PERSONAL EARNESTNESS, BUT MORE BROADLY REMAIN SKEPTICAL 
ABOUT THE GOC'S APPROACH TO THE ASI. 
 
¶10.   (U) BELGRADE MINIMIZE CONSIDERED. 
 
ROSSIN 
 
                       CONFIDENTIAL 
 
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