VZCZCXRO6441
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHBM #0789/01 1900927
ZNR UUUUU ZZH
R 090927Z JUL 07
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC 6960
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEAUSA/DEPT OF EDUCATION WASHDC

UNCLAS SECTION 01 OF 04 BUCHAREST 000789 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE DEPT FOR EUR/NCE - AARON JENSEN 
STATE DEPT FOR H - PASS TO CONGRESSMAN LANTOS 
 
E.O. 12958: N/A 
TAGS: PGOV KCOR PREL EINV ECON RO
SUBJECT: RESTITUTION AND THE PROPERTY FUND: ENVOY CHRISTIAN 
KENNEDY MEETS WITH ROMANIANS ON HOLOCAUST ISSUES 
 
¶1.  (SBU) Summary: Special Envoy for Holocaust Issues 
Christian Kennedy discussed Holocaust education and property 
restitution with Romanian officials on June 6-8.  The 
minority Liberal government on June 28 forced through an 
emergency ordinance that should enable the Property Fund to 
start the process of becoming listed on the stock exchange -- 
potentially becoming the largest investment fund in Eastern 
Europe as early as spring 2008, if the Liberals have their 
way.  Both restitution and Holocaust education are nascent 
Romanian projects where progress remains slow. 
Unfortunately, property restitution has produced many 
illegitimate results.  It remains to be seen whether the 
Property Fund, if ever reified, will be abused for 
illegitimate private interests as well.  End summary. 
 
Holocaust Education 
------------------------- 
 
¶2.  (SBU) Special Envoy Kennedy discussed Holocaust education 
with Ministry of Education State Secretary Gabriella Pasztor, 
Director General Liliana Preoteasa, and Education Inspector 
Doru Dumitrescu on June 8.  Holocaust education is now first 
introduced in compulsory history courses in 7th grade as a 
dimension of World War II.  It receives a full chapter in 9th 
grade history, is connected to WWII in 10th grade, and is 
thematically approached in 11th grade.  The 12th grade has an 
optional course available to teachers who wish to teach the 
"History of Jews and Holocaust" which was announced in 
October 2005.  Since Congressman Lantos' visit in February 
2007, Pasztor said, the Ministry has revised the 12th grade 
compulsory history course to specifically discuss the 
Holocaust in Romania based on the Wiesel Commission's Final 
Report.  She added, "of course we will be criticized by the 
extremist parties." Pasztor said there were four centers in 
Romania for training teachers how to teach the Holocaust and 
that each year one or two teachers go to Yad VaShem for 
training and others go to Paris and the Holocaust Memorial 
Museum in Washington.  She said the challenge was training 
teachers to teach a subject that they never learned 
throughout their education. 
 
¶3.  (SBU) The Elie Wiesel National Institute for the Study of 
the Holocaust co-hosted with the Embassy a roundtable on the 
"Holocaust in Romania: Unresolved Issues?" that received good 
TV and press coverage. The press reported the continuing 
problems with anti-Semitism, restitution, and the need for 
Holocaust education that were raised by Kennedy, Wiesel 
Institute Director Mihail Ionescu, Radu Ioanid of the 
Holocaust Memorial Museum, and others, including a Holocaust 
survivor.  A poll conducted by the Wiesel Institute in May 
2007 showed the need for such awareness raising as only 65 
percent of Romanians have heard of the Holocaust, and of 
those, only 28 percent agreed that the Holocaust happened in 
Romania. 
 
Property Restitution 
------------------------ 
 
¶4.  (SBU) National Authority for Property Restitution (ANRP) 
President Ingrid Zaarour and Vice President Theodor Nicolescu 
reviewed Romanian property restitution with Kennedy.  The 
ANRP monitors the restitution of forests, agricultural land, 
religious group's properties, and housing when possible or 
provides alternative compensation to those who had their 
property taken by the Communist government during 1945-90. 
According to Nicolescu, Romania was the first state in Europe 
to restitute properties taken from Jews during the Holocaust, 
with Antonescu's law 641 in 1944.  That law rescinded the 
Anti-Jewish laws of 1940, restituting property that had been 
taken shortly before the Communist's re-taking in 1945.  The 
ANRP does not consider property taken prior to 1945, with the 
exception of claims dating back to 1940 from ethnic 
communities, such as the Jewish Communities Federation, which 
has filed over 1800 claims.  Restitution has been a very slow 
process in Romania, but with gradual improvements in the laws 
governing it.  Even though the restitution process started in 
1991, documentation other than titles to establish ownership 
has only been accepted since 2005.  The 1995 law allowing 
Romanians to buy the housing they then occupied solidified 
the housing privileges people enjoyed during Communism and 
further complicated restitution, especially of the more 
valuable estates that were legally subject to restitution 
instead. 
¶5.  (SBU) Since the process of restituting forest and 
agricultural land started in 1991, about 90 percent of the 
800,000 restitution requests submitted by the November 2005 
 
BUCHAREST 00000789  002 OF 004 
 
 
deadline have been "solved" by local commissions and most are 
now waiting to be validated by the county commissions, which 
have validated only 210,000 requests.  Once a person's right 
to land has been validated, the local commission must then 
develop plans to restitute the property.  About one-third of 
the requests have been rejected, which may be pursued in the 
courts.  In rare cases, the ANRP has applied some sanctions, 
totaling about a million euros, to roughly 10 percent of 
Romania's mayors -- who preside over the local commissions. 
 
¶6. (SBU) According to Zaarour, the emerging jurisprudence now 
favors the former owners, as Romania was fined several times 
by the European Court of Human Rights for not respecting 
property rights and the ANRP has started to work with the 
Superior Council of Magistracy to educate judges on the 
applicable laws.  (Note: In practice, however, post has seen 
little being done to sanction those who corruptly enrich 
themselves at the expense of those seeking restitution.  Post 
is aware of numerous cases involving local barons, mayors, 
prefects, prosecutors, and judges preventing or accepting 
bribes for restitution, or more blatantly, just grabbing 
prime real estate for themselves. One example among the 
thousands illustrates the stark reality: in 2006, the Supreme 
Court effectively upheld the anti-Jewish 1940 confiscation 
law by ruling against an American regaining a USD 200,000 
house in Braila due to insufficient evidence that his family 
"retook possession" after 1944, before it was again 
confiscated when the family left for Israel in 1964; 
meanwhile a former judge occupies the house.  MFA State 
Secretary Anton Niculescu, in a separate June 6 meeting, 
 
SIPDIS 
described it more simply as, "Romania is losing lots of 
trials in Strasbourg for failing to restitute property -- 
this forces Romania to act." He also gave examples of mayors 
delaying restitution through administrative means.  He 
alleged mayors were "inclined to use such tools to build 
their power." 
 
¶7.  (SBU) Religious groups filed over 14,700 claims by the 
January 2006 deadline for property restitution, including 
schools, buildings, and other real estate apart from places 
of worship.  Only 2,500 have been solved, mostly with the 
return of the property itself.  Less than 50 claims have been 
resolved by awarding shares in the Property Fund.  (Note: 
Specifically excluded from the ANRP's competency are the 
Greek Catholic Churches confiscated in 1948 by the government 
and given to the Orthodox Church.  The Orthodox Church has 
consistently refused to restitute these properties.  Instead, 
this confiscation may become codified in law as the Religion 
Law of December 2006 contains a provision that might prevent 
the Greek Catholics from ever getting back these churches. 
End note.) 
 
¶8.  (SBU) Zaarour noted that Romania's process of repairing 
the damage done by Communism sped up when the Democratic 
Alliance replaced the Social Democratic (PSD) government at 
the end of 2004.  While 30,000 restitution requests were 
"solved" from the introduction of the dwelling restitution 
law in 2001 through 2004, the total has reached 95,000 by mid 
¶2007.  Restitution requests by physical persons for urban 
properties totaled 201,750 by the February 2002 deadline 
(claims not filed by the deadline have recourse now only 
through the courts), so the ANRP is almost half way through 
determining the rights to property seized from individuals. 
However, the ANRP has restituted only 15,000 actual 
properties seized by the Communists and provided alternative 
compensation to an additional 5,500 people.  It has rejected 
about 35,000 claims.  The remaining 39,000 have been awarded 
claim certificates that, once independently evaluated, 
challenged, and re-evaluated by a third evaluator, determine 
the amount of shares the ANRP instructs the Central 
Commission to provide in the still unlisted Romanian Property 
Fund. 
 
Romania's Property Fund -- About to Launch Largest Fund in 
Eastern Europe 
------------------------------ 
 
¶9.  (SBU) The Property Fund's assets constitute sizeable 
ownership positions in major industries yet to be privatized 
and significant state holdings in some privatized firms. 
According to Zaarour, the Minister of Economy and Commerce 
Varujan Vosganian has promised to sign an emergency ordinance 
by the end of June to enable the Property Fund to proceed 
with becoming listed on the stock exchange.  Until then, 
shareholders enjoy all rights apart from the crucial ability 
to trade their shares for currency.  No taxes are to be paid 
 
BUCHAREST 00000789  003 OF 004 
 
 
on the receipt of restituted property or compensation and the 
first transaction of shares in the Property Fund are not to 
be taxed. 
 
¶10.  (SBU) Property Fund President Alexandru Paunescu told 
Kennedy on June 6 that Romania's Property Fund is the most 
important private firm in the country, comprising minority 
stakes in all public utilities (natural gas, oil, 
electricity, maritime transportation, railways 
transportation, air transportation, etc.).  The Fund owns 
stakes of 10 percent in Petrom and Nuclearelectrica, 12 
percent in Electrica branches, and 20 percent in 
Hidroelectrica.  With a potential value of four to six 
billion euros, it could be the largest investment fund in 
Eastern Europe and would double the value of the Bucharest 
Stock Exchange.  The Fund,s seven-member board operates 
under the supervision of the Ministry of Economy and Finance. 
 Unproductive assets constitute only about 0.2 percent of the 
portfolio the Fund received from the various state 
ministries.  The GOR has pledged to the Fund a 9.9 percent 
stake in the National Savings Bank (CEC) privatization 
proceeds, but it postponed privatization after rejecting low 
bids last year.  On the positive side, the Fund has received 
88 million euros from the successful privatization of the 
Romanian Commercial Bank (BCR) and should receive a further 
160 million euros. 
 
¶11.  (SBU) As of May 30, 2007, the Fund had registered only 
2,256 shareholders, who hold about 3 percent of the Fund,s 
total portfolio.  Two of the largest ANRP certificate 
holders, AmCit families Malaxa and Auschnitt -- whose 
combined certificates could account for about 8 percent of 
the Fund, have opted not to become shareholders due to 
unfavorable U.S. tax implications, according to Paunescu. 
(Note: News reports, however, say more precisely that they 
are considering complaining to the European Court of Human 
Rights that the GOR has yet to make the Property Fund a 
reality by listing it on the stock exchange. End note.) 
Unlike the National Authority for Property Restitution which 
represents the state, the Fund is a private enterprise where 
the state's holdings will diminish and private shareholders 
will gradually increase.  Paunescu believes the Fund,s real 
value will likely double in the next two to three years. 
 
¶12.  (SBU) Paunescu said the Fund would hire an international 
manager only after the GOR passed a government ordinance 
amending the Fund,s legislative framework -- a step which he 
described as being "imminent" for almost a year.  He said the 
problem was that the National Securities Commission (CNVM), 
which regulates and supervises the capital market, had not 
been happy with the Fund,s initial legislation.  While the 
Fund was established by the National Liberal Party (PNL), the 
CNVM is a Parliament-controlled body managed by political 
appointees -- and the top position belongs to the political 
opposition Social Democrats (PSD) who had publicly vowed to 
dismantle the fund.  However, Paunescu could not understand 
why the Liberals had not yet issued the emergency ordinance, 
since it was becoming obvious that the PSD would not vote 
down the government for fear of facing early elections. 
Paunescu explained the GOR's initial delay as due to former 
Finance Minister Sebastian Vladescu,s animosity toward the 
Fund, in principle, despite several explanatory meetings.  In 
Paunescu's opinion, if the GOR would pass an emergency 
ordinance and delay Parliament's debate on it until at least 
the Fall, the Fund could "buy enough time" to issue more 
shares to international shareholders and select an 
international fund manager so that it would become impossible 
for the PSD or any other "enemies of the project" to 
terminate it.  As a solely Liberal project, it would be up to 
the current Liberal government to fully enact the Fund.  The 
Democrats (PD) never got involved in the Fund while in the 
coalition government and the other political parties were not 
even consulted prior to establishing the Fund. 
 
¶13.  (SBU) Paunescu was confident that the Fund would get a 
very good, internationally reputed fund manager from one of 
the 30 letters of interest received for that position from 
"big names." He said once the government issued the emergency 
ordinance, the Fund would go through a three- to four-month 
valuation process audited by KPMG, and then a Fund Manager 
could be selected, perhaps six to seven months later.  The 
Property Fund cannot therefore be listed on the Bucharest 
Stock Exchange in 2007, but might get listed by spring 2008. 
 
¶14.  (SBU) The Fund,s next General Shareholders Meeting 
(AGA) scheduled for mid-July will decide how to reinvest the 
 
BUCHAREST 00000789  004 OF 004 
 
 
Fund's dividends.  Until now, all dividends have been merely 
deposited in Romania's top three commercial banks.  The next 
AGA may decide to invest them in CDs or other diversified 
saving instruments.  While the Fund,s former Board only 
preserved the Fund,s portfolio, the new enlarged one 
appointed last month is expected to participate in upcoming 
capital increases of the firms in the Fund's portfolio; 
Paunescu specifically mentioned as an example the next 
capital increase of Transgaz. 
 
The View from the President's Cotroceni Palace 
--------------------------------------------- ------------- 
 
¶15.  (SBU) Presidential Counselor Theodor Baconschi told 
Kennedy on June 7 that he did not have "a clear picture" of 
the Property Fund, but believed there were "dark forces -- 
not political ones" hovering around it.  He said that there 
were currently "high levels of speculation in land, 
buildings, and offices" in Romanian real estate, that justice 
was very slow in resolving restitution cases, and that 
bureaucratic problems hindered the development of Romania's 
private property system.  He said he was not aware of how the 
Property Fund was functioning, but knew it was "very much 
criticized by many." Baconschi said he did not know if it was 
"valuable," but that in general, a Liberal European 
government would encourage such compensation for past 
confiscations. 
 
The View from the PM's Victoria Palace 
--------------------------------------------- ----- 
 
¶16.  (SBU) The Prime Minister's chef-de-cabinet, Mihnea 
Constantinescu, told Kennedy in a June 8 meeting that the 
political piece of the puzzle was easy, but that the problem 
was in the technical details of the functioning of the Fund, 
admitting that Romania "probably doesn't have the expertise 
to handle such a large fund -- the largest in Eastern 
Europe." Constantinescu said the Fund's legal framework had 
to be updated to address some serious complaints.  He said 
the government's pause was due to the fact that "if the Fund 
doesn't function properly, we will face lawsuits." He noted 
that Prime Minister Tariceanu had urged the legal framework 
to be updated two weeks prior and believed "probably in one 
month it would be resettled in a proper way." Constantinescu 
affirmed that the "government will issue an ordinance to 
update this Fund, but the problem is to have support in 
government." He said the government had the duty to ensure 
political support was in place.  Constantinescu said he 
believed there was the political will to resume the process 
of enabling the Fund to work.  Kennedy concluded that while 
getting the Fund going was important, getting it right was 
very important, and ensuring proper financial controls was 
imperative. Subsequently, on June 28, the GOR passed the 
emergency ordinance establishing the Property Fund. 
 
¶17.  (SBU) Comment: Property restitution proceeds at a very 
slow pace.  Officials provided statistics to demonstrate 
progress, but a deeper examination suggests that property 
restitution is still subject to widespread corruption.  Only 
the large cases that exhaust recourse to Romanian courts and 
end up achieving favorable results in Strasbourg appear to be 
pushing Romania slowly towards a greater respect for property 
rights.  As for the Property Fund itself, despite positive 
noises from some GOR officials, it is uncertain that the fund 
will become fully functional even in 2008, given the current 
Liberal government,s political weakness and the need for 
parliamentary approval for the fund,s final form.  Even if 
it eventually becomes fully listed on the capital markets in 
Romania, it remains an open question whether the Property 
Fund will truly become a legitimate tool for restitution or, 
instead, become another way opportunistic "barons" pocket 
portions of the country's remaining valuable assets. 
TAUBMAN