VZCZCXYZ0000
RR RUEHWEB

DE RUEHBW #0774/01 1521510
ZNR UUUUU ZZH
R 011510Z JUN 07 ZDK
FM AMEMBASSY BELGRADE
TO SECSTATE WASHDC 0939

UNCLAS BELGRADE 000774 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/SCE 
 
E.O. 12958: N/A 
TAGS: ECON KIDE KPRV SR
SUBJECT: PROPERTY RESTITUTION: SERBIAN GOVERNMENT DRAFT 
PROTECTS ILL-GOTTEN GAINS, LIMITS ACTUAL RESTITUTION 
 
 
SUMMARY 
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¶1.  On May 10, the outgoing Serbian government approved a 
draft law that would restitute property seized by wartime 
Nazi occupation forces and Tito's subsequent communist 
regime.  The law, if approved by the new government and 
adopted by the parliament, would establish a legal 
procedure for establishing claims to seized property. 
Regional commissions would then adjudicate all claims and 
award in-kind restitution where possible and compensation 
in the form of tradable bonds in all other instances. 
Despite the fact that claimants and their representatives 
have generally responded favorably to the draft, several of 
the law's provisions could be used to limit significantly 
the number of eligible claimants and protect those who 
acquired thousands of valuable properties - often illegally 
- during the Milosevic era.  END SUMMARY. 
 
A RATHER STRAIGHTFORWARD PROCEDURE 
---------------------------------- 
¶2.  The draft "Law on Denationalization and Construction 
Sites" is based on the principle that property seized by 
the Nazis after April 6, 1941, or the Communists after 
January 1, 1945, "shall be restored to the former owner's 
possession and actual control (i.e., restitution in-kind), 
and should that be impossible in accordance with the 
present law, the former owner shall be entitled to an 
indemnity."  In order to be eligible for restitution, the 
former owner or heirs must register a claim with one of 
four regional denationalization commissions before December 
31, 2008.  In order to be considered complete, all claims 
must include a description and approximate value of the 
property, a copy of the official act seizing the property, 
and legal grounds for making the claim.  The law 
criminalizes any act that would prevent potential claimants 
from immediate access to legal and cadastral records for 
the purpose of making or supporting their claim. 
 
¶3.  Commissions will be chaired by active judges. The 
Ministries of Justice, Finance and Local Self-Government 
will nominate one member to each commission, which will 
also include an unspecified number of experts, such as 
government lawyers, members of the geodetic survey office, 
and civil engineers.  The law stipulates that these 
commissions must adjudicate each claim within six months of 
receiving all necessary documentation from the claimant. 
In the event of "complex" claims, the commission may 
deliberate for up to one year. 
 
RESTITUTION OR INDEMNITY: BURIED IN DETAILS 
------------------------------------------- 
¶4.  Restitution in-kind is to be immediate, although the 
law provides an opportunity for appeal of any decision to 
the state-level Restitution Authority (to be established by 
subsequent enabling legislation) within 15 days of the 
commission's decisions.  Appellate judgments, which must be 
delivered within 60 days, may be appealed to the Serbian 
Supreme Court.  Compensation in bonds is reserved for 
claimants whose properties have been a) used for public 
works (roads, parks, schools, etc.), b) purchased in good 
faith by natural persons (such properties purchased by 
legal persons are eligible for in-kind restitution), or c) 
otherwise made ineligible for in-kind restitution (the 
current draft is not specific on reasons).  Claimants whose 
properties cannot be restituted may request that the 
government hand over a similar property in its place; 
however, the law is not clear how this would be 
accomplished.  Bond compensation is capped at EUR 1 million 
per claimant and EUR 1 million per property.  The 20-year 
bonds will bear a 4.5 percent annual interest and mature in 
¶2028.  [NOTE: The government has already announced it is 
setting aside EUR 4 billion for such payments. End Note.] 
 
¶5.  With regard to improvements made to such properties 
since the time of seizure, such development will not be 
subject to restitution.  [NOTE. This would appear to 
include, in addition to the many legitimate projects, all 
developments carried out by beneficiaries of Milosevic-era 
largesse. End Note.]  In such cases, claimants may choose 
to buy out the current possessors, award a market-value 
percentage of the overall ownership stake to the current 
possessor commensurate with the value of the development, 
or negotiate another solution.  Properties on which legal 
persons own residential buildings will be restituted in- 
kind; those on which legal persons hold usage rights will 
be converted into a one-year lease arrangements, during 
which the two parties should reach an agreement. [Note:  We 
are concerned over the lack of a dispute resolution 
mechanism for those cases where a claimant cannot reach a 
deal with current possessors. End Note.]  Commercial 
properties unencumbered by leases will be restituted in- 
 
kind.  Leased commercial properties will also be returned; 
however, the current lease will remain in effect for one 
year. 
 
¶6.  Although the law declares immediate, in-kind 
restitution as its guiding principle, the current draft 
falls short in several areas.  A plain reading of the 
language defining eligible claimants would exclude 
thousands of people who received "apartment rights" during 
Communist times and, thus, have a basis to establish 
ownership rights to those apartments as they are 
denationalized, regardless of any discrepancy in value 
between their current and former properties. 
 
¶7.  In addition, the law explicitly legalizes all property 
transactions occurring before October 5, 2000, including 
the Milosevic-era distribution of assets to friends of the 
regime.  In cases of mala fides transactions which preclude 
restitution in-kind, the law relieves the individual party 
to the transaction from any personal liability.  It also 
exempts developers who have demolished claimed buildings 
subsequent to June 8, 2005 - the date on which the "Law on 
Declaring and Registering Seized Property" entered into 
force - from personal liability.  The law transfers the 
cost of restitution in these cases from developers to the 
taxpayer via compensation in bonds. 
 
¶8.  The compensation provisions also present concerns.  The 
current provisions would issue EUR 4 billion in securities, 
about 20 percent of GDP, thereby adding almost 50 percent 
to Serbia's debt load. In addition, our Treasury adviser is 
concerned that the bonds should be structured to mature 
only beginning in 2016, after the last frozen foreign 
currency bonds mature, to ease the burden on debt 
servicing.  (However, the bonds should be completely 
tradable, permitting claimants to sell bonds immediately at 
whatever price the market sets.) 
 
COMMENT 
------- 
¶9.  In its current form, the law would do the bare minimum 
possible to satisfy US and EU concerns about restitution 
while preserving as fully as possible the real estate 
status quo.  In effect, possessory interests acquired 
during the Milosevic period, legally or otherwise, will be 
converted into partial-to-complete ownership rights.  It 
will be the Serbian taxpayer who bears the burden of 
substituting bond payments for restitution in many cases. 
End Comment. 
 
POLT