VZCZCXRO5110
RR RUEHAG RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ
RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVB #0525/01 1161114
ZNR UUUUU ZZH
R 261114Z APR 06
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 6055
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 ZAGREB 000525 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EUR/SCE: JMITCHELL 
DEPT FOR EUR/SCE: ROLSON 
BELGRADE FOR SCHEEVER 
 
E.O. 12958: N/A 
TAGS: PREF PGOV HR
SUBJECT: Refugee Housing Scandal: No Investigative Progress 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE HANDLE ACCORDINGLY. 
 
¶1. (SBU) Summary and Comment.  Over the past year the 
Croatian Office for Combating Corruption and Organized 
Crime (USKOK) made only marginal progress in investigating 
thousands of potential cases of illegal sales of ethnic 
Serb houses to the Croatian State Agency for Refugee 
Property (APN).  Intermediary agencies in SAM, representing 
ethnic Serb refugee owners, allegedly forged documents and 
sold houses to APN without owners' knowledge.  One USG- 
supported NGO has gathered documents and evidence on about 
20 cases and forwarded them to USKOK for further 
investigation.  USKOK concluded those cases constituted 
fraud but have not determined that corruption occurred. 
About 700 individuals have approached the NGO for 
assistance; a total of 70 cases are active in the judicial 
system.  Recently, the Municipal Court in Nova Gradiska 
decided in favor one ethnic Serb woman who received her 
house back.  Another two similar verdicts were reached in 
lower courts. 
 
¶2. (SBU) USKOK's investigation of APN appears half-hearted 
at best, underlined by the fact that they have not analyzed 
the one APN computer that was confiscated.  The scandal has 
surfaced and faded from the public eye several times since 
2001 with no clear resolution.  Prosecutors have rejected 
all out-of-court settlements despite a previous commitment 
to accept them.  Local and international observers agree 
that a fraud scheme of this scope would have been 
impossible without the complicity of many individuals, 
including those in state administration.  If proven, the 
scandal would incur significant cost to the GOC, both 
financial and political.  One newspaper estimated that if 
half the 6,000 homes were sold illegally, damages could 
cost the GOC $150 million.  USKOK - a specially-formed 
public prosecutors office - and state prosecutors - both 
represent and investigate the GOC and are in an awkward 
role: they may face pressure to minimize state losses, 
rather than pursue state compensation for owners.  Post 
will continue to raise this issue in its regular meetings 
with the State Prosecutor.  Recent press reports have brought 
the scandal to light again, but so far USKOK has been unable 
or unwilling to seriously delve into this problem. 
End Summary and Comment. 
 
Inconclusive Investigation, Despite Evidence 
 
¶3. (SBU) In February 2005, the then-acting head of USKOK, 
Dalibor Cvitan, told us he expected solid results from his 
investigation of APN employees within months.  But over a 
year later there are no indictments.  Sasa Lalic, Head of 
the Association for Civic Initiatives and Ethnic Relations, 
ACIER and Zarko Puhovski, Head of the Croatian Helsinki 
Committee, believe the problem is not lack of evidence, but 
a lack of will to prosecute.  One clerk's computer was 
seized (based on ACIER information) and investigated with 
no conclusive results.  Cvitan told us he is investigating 
those cases brought to him by ACIER, but will not open 
investigations on others.  He also told Puhovski and Lalic 
that USKOK's goal is not to prosecute individuals but to 
provide relief to victims. 
 
¶4. (SBU) Approximately 6,000 homes were sold using powers 
of attorney, but the scope of the problem remains unknown 
as USKOK is not investigating all cases but rather those 
that the Vukovar-based NGO brings to them.  Many owners may 
be unaware that their homes were sold, and the cumbersome 
process of obtaining documents remains a barrier.  Apart 
from APN officials and the GOC's office for refugee issues 
(ODPR), intermediary agencies and one Croatia bank may have 
been involved in the profit network.  The head of one 
intermediary agency was convicted in Novi Sad last year, 
but there have been no convictions in Croatia. 
 
¶5. (SBU) Nor does USKOK intend to prosecute APN employees, 
even though the agency was intimately involved in all 
property sales.  There are currently about 30 cases 
proceeding through the court system.  An additional 40 
individuals submitted their cases to prosecutors and are 
requesting an out of court settlement.  So far, local 
prosecutors have rejected all of the 70 or so offers, 
forcing plaintiffs to open private lawsuits that cost 
between  $1,700 and $ 3,000.  In addition to the active 
cases, ACIER is now processing about 700 other requests. 
Based on one of their lawsuits, the Municipal Court in Nova 
Gradiska reached the first valid verdict returning a house 
to a woman who now lives in Serbia.  Two other appealable 
 
ZAGREB 00000525  002 OF 002 
 
 
verdicts in favor of plaintiffs have been reached elsewhere 
in Croatia. 
 
NGO: Trying to Overcome Many Obstacles 
 
¶6. (SBU) Lalic is optimistic that more lawsuits may follow 
as he is able to obtain documentation.  Post has provided 
funds through its Democracy Commission to facilitate 
research and case preparation; OSCE Zagreb and U.S. Embassy 
Belgrade are providing similar support.  He remains 
pessimistic about the Prosecutors' will to investigate APN. 
Earlier reports in the media indicated that APN was 
involved in providing data needed to forge documents and 
that it probably split profits with SAM intermediary 
agencies. 
 
¶7. (SBU) Lalic complained that USKOK has been obstructing 
the work of his NGO by refusing to allow access to APN 
files on thousands of contracts done through 
intermediaries, which are potentially fraudulent. 
Potential plaintiffs are instead asked to go to local land 
registry offices and courts; however, those offices do not 
have some data that would best reveal fraud and the process 
of obtaining documents is cumbersome.  Compounding the 
problem, prosecutors did not follow through on their 
promise made last year to grant out-of-court settlements to 
all well-substantiated cases in order to ease the situation 
for generally impoverished owners.  Post has requested reports 
from the State Prosecutor on the investigation's progress 
and will continue to do so. 
FRANK