VZCZCXRO2531
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVB #0643/01 1841551
ZNY CCCCC ZZH
R 031551Z JUL 07
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 7888
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000643 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/SCE 
 
E.O. 12958: DECL: 07/02/2017 
TAGS: ECON KPRV KCRM HR
SUBJECT: CROATIAN STATE PROSECUTOR DESCRIBES CORRUPTION 
STING 
 
REF: ZAGREB 593 
 
Classified By: Econ Officer N. Berliner for reasons 1.4 b/d. 
 
¶1. (C) Summary and Comment: The June arrest of eight 
employees of the Croatian Privatization Fund (Fund) on 
charges of corruption marks a significant improvement in both 
the political will and the capacity of the Croatian 
government to fight corruption.  The Fund has long been 
viewed as a font of corruption in the country, a view shared 
with emboffs by Chief State Prosecutor Mladen Bajic, Head of 
the Office for the Suppression of Corruption and Organized 
Crime (USKOK) Dinko Cvitan and Deputy State Prosecutor Josip 
Cule.  Bajic revealed that the year-long operation known as 
"Maestro" that resulted in the arrests at the Fund began with 
his own suspicion, which was later confirmed by a source he 
developed within the Fund itself.  In an operation with 
suspense and intensity worthy of a crime thriller, Bajic and 
his team employed a combination of hi-tech surveillance and 
insider informants, abetted by the apparently insatiable 
greed of the accused.  The success of the operation is a 
strong boost for Bajic's office and its independence from 
political interference.  Bajic said that PM Sanader 
authorized extraordinary financial support for the operation 
without any questions or strings attached, something he 
emphasized would not have been possible just three years ago. 
 End Summary. 
 
Inside Informant Key to Operation 
----------------------------------------- 
¶2.  (C) Emboffs called on Croatian Chief State Prosecutor 
Mladen Bajic, Head of the Office for the Suppression of 
Corruption and Organized Crime (USKOK) Dinko Cvitan and 
Deputy State Prosecutor Josip Cule to discuss the arrests of 
eight employees of the Croatian Privatization Fund.  Bajic 
and his deputies were still ebullient at the success of the 
operation, known as "Maestro" (the operation took this name 
because three of those arrested were vice presidents of the 
Fund, who became known as "The Three Tenors.")  Bajic said 
that it was not a secret that the Fund was a prime source of 
corruption in Croatia, the nexus of a system where rent 
seekers intersect with low-paid bureaucrats responsible for 
disposing of the once vast and still large assets of the 
State.  However, multiple audits of privatization deals had 
never uncovered sufficiently firm evidence of corruption in 
the Fund.  Mere suspicion was not enough for Bajic to 
initiate a successful investigation; he needed an insider. 
Bajic found that insider in a friend who worked in the Fund 
who gave him the information he needed to get the operation 
started. 
 
¶3.  (C) An operation of this scale needed solid indications 
of criminal activity for Bajic to act.  This was also 
essential in order for him to get the crucial approval from a 
judge to have the newly-reorganized security services 
initiate electronic surveillance of the suspects.  Bajic said 
that he made an effort to keep the number of people involved 
in the operation as small as possible.  He said the police 
were involved at the working level, but Bajic and Cvitan ran 
the operation out of a control room that they set up in the 
basement the State Prosecutor's building.  The room was 
locked and not even the cleaning staff could enter. 
 
Strong Political Support 
----------------------------- 
¶4.  (C) The operation tested the ability of USKOK to act 
effectively and could not have been successful without the 
support of the highest levels of the Croatian government. 
The informant, who was set up to pose as a Russian investor, 
needed cash to pay bribes to Fund officials.  USKOK, however, 
did not have ready access to large amounts of cash that would 
not have to be immediately accounted for.  As Bajic and 
Cvitan tell it, Fund officials were taking bribes of 50,000 
euros in cash that would be passed over the desk before any 
business was conducted.  In return, Fund officials would 
write tenders to favor the preferred bidder or disqualify 
competitors.  At one point, with a bribe coming due and no 
cash on hand, Bajic had to go directly to PM Sanader.  He 
told the PM that USKOK needed 50,000 euros in cash 
immediately.  The PM, without asking why, approved the 
request and instructed Finance Minister Suker to give USKOK 
the money.  Bajic said USKOK would never have been able to 
get this kind of money with no questions asked three years 
ago and they was heartened that this marked a true change for 
Croatia. 
 
Insatiable Greed 
------------------- 
¶5.  (C) The greed of those accused seems to have grown 
insatiable over the years that they worked in the Fund. 
 
ZAGREB 00000643  002 OF 002 
 
 
Although the Fund has a politically appointed director and 
four government ministers sit on its supervisory board, many 
of the more routine transactions were handled at the working 
level with relatively little oversight from the top, 
according to USKOK.  In fact, Cvitan said that they heard the 
accused talk about Fund President Grga Ivescic as a 
"political hack" and "fool who doesn't have a clue what's 
going on."  The sense of impunity of those involved grew to 
such extraordinary proportions that one of the accused, Josip 
Matanovic, demanded 5 percent of the value of a privatization 
deal from the informant and went to a notary public to sign a 
"contract" for that amount. 
 
¶6.  (C) Another of the accused, Ivan Gotovac, played a more 
sophisticated game, one that may make it harder for USKOK to 
seize his assets.  Rather than being on the take for cash, 
Gotovac realized that the value of many companies was in 
their potential stock market value or in the land they 
possessed, particularly coastal properties that would later 
be rezoned for resort development.  Gotovac engaged in 
insider trading, but also set up companies to acquire rights 
to privatized properties. 
 
¶7.  (C) With hundreds of hours of video and audio recordings 
of the suspects' activities, Bajic and Cvitan decided to move 
to arrest them when it became apparent that one of them, 
Matanovic, was potentially tipped off.  Matanovic, during a 
meeting with the informant in a local restaurant the day 
before the arrests, insisted on changing tables, was looking 
around himself constantly and saying that he was being 
watched.  That, however, did not prevent him from taking 
another 50,000 euros in cash from the informant. 
 
Success Boosts USKOK 
----------------------------- 
¶8.  (C) Operation Maestro is a huge success for USKOK.  Both 
Bajic and Cvitan clearly feel that their credibility and 
independence are now firmly established, which will enable 
them to go farther.  The investigation in to the Fund is 
still on-going and the arrested are being held in detention 
during the investigation.  Bajic and Cvitan said the Fund was 
the font of corruption in Croatia, a hydra that began to 
extend its tentacles into every part of the economy following 
the collapse of Yugoslavia.  However, they are unlikely to go 
digging too far in the past.  Cvitan said that the next 
things USKOK is likely to look at are the public tenders, 
both at the national level for such projects as road 
construction and within local governments. 
 
Asset Forfeiture Still Uncertain 
------------------------------------- 
¶9.  (C) One of the remaining weaknesses in Croatia's legal 
framework to fight corruption is the difficulty in seizing 
assets.  Under current law, the state can seize all assets 
from an individual when they can make a charge that the 
individual was part of an organized crime group and the 
assets were likely acquired with proceeds from those 
activities.  In this case, however, it would be difficult to 
bring charges of organized crime.  Absent that, the burden of 
proof for asset seizure rests on the state that must prove 
that an asset was acquired with the proceeds of a particular 
criminal act, such as a bribe.  This is extremely difficult 
and could result in some of the Maestro defendants keeping 
millions of dollars in assets. 
BRADTKE