VZCZCXYZ1618
RR RUEHWEB

DE RUEHLJ #0118/01 0671518
ZNR UUUUU ZZH
R 071518Z MAR 08
FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC 6529
INFO RUEHVI/AMEMBASSY VIENNA 1859
RUEAIIA/CIA WASHDC
RUEAWJB/DOJ WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS LJUBLJANA 000118 
 
SIPDIS 
 
DEPT FOR EUR/NCE 
VIENNA FOR CQUINLIVAN 
TREASURY FOR VIMAL ATUKORALA 
DOJ FOR BSWARTZ 
DS/IP/EUR 
 
DS/CR/CIL 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD PREL PGOV KCOR KJUS ASEC SI
SUBJECT: SLOVENIA CLEANING ITS ECONOMIC HOUSE 
 
SUMMARY 
------- 
 
¶1.  (SBU) The Government of Slovenia (GOS) is making a strong push 
to investigate and convict people guilty of economic crimes.  The 
Office of the State Prosecutor General (Office) has been hampered by 
a lack of coordination between its office and the police, and its 
small work force.  In response to these challenges, the Office has 
decided to focus on three areas: public procurement, tax evasion, 
and the construction industry.  It has also stepped up its 
cooperation with the police.  Over the last few years, the Embassy 
has worked with the Prosecutor's Office and the Ministry of Justice 
to create concrete ways to improve the judicial system in Slovenia. 
The Office's effort has resulted in several large investigations 
that the Office hopes to take to trial.  On February 12, the police 
announced the arrests of the heads of the three largest construction 
companies in Slovenia, as well the head of the Slovenian air traffic 
control company Slovenia Control on bribery charges associated with 
the construction of the new airport control tower.  The Deputy State 
Prosecutor General, Mirko Vrtacnik, who might be meeting with 
Attorney General Michael Mukasey on March 12, has requested 
practical U.S. assistance, especially in investigating tax evasion 
and insider trading.  End Summary. 
 
Crime on the Rise - GOS Seeks Practical Training 
--------------------------------------------- --- 
 
¶2.  (SBU) Vrtacnik, who might be meeting with Attorney General 
Mukasey on March 12, told emboff on March 3 that reports of white 
collar crime to the Prosecutor's Office and tax authorities have 
been on the rise.  Of those reported, he highlighted two cases that 
he hoped would lead to convictions: a corruption charge against the 
construction industry and a tax evasion case involving the use of 
"missing traders."  Vrtacnik admitted that his office has had 
difficulty sifting through the large quantities of material in the 
short time period given to them; he said Slovenian prosecutors did 
not yet have a good enough grasp of how to identify relevant 
information.  As Vrtacnik thanked emboff for the Embassy's 
cooperation over the last two years, he requested practical support 
from U.S. experts on how to investigate subtle crimes such as tax 
evasion and insider trading.  One suggestion he made was to invite 
an American judge with experience in overseeing white-collar 
criminal cases to Slovenia to meet with both prosecutors and 
judges. 
 
A Sweep of the Construction Industry 
------------------------------------ 
 
¶3.  (SBU) The Slovene media reported that on 12 February the police 
and prosecutors from the special unit for organized crime at the 
State Prosecutor's Office searched the homes of dozens of people 
alleged to be involved in corruption surrounding the construction of 
the new control tower at Ljubljana Airport.  Vrtacnik told us that 
the police, working closely with prosecutors, arrested the heads of 
the three largest Slovenian construction companies -- SCT, Primorje 
and Vegrad.  The police had also arrested Tomaz Zibert from air 
traffic control company Slovenia Control.  After questioning, police 
released all detainees except Zibert - although they are all under 
pre-trial investigation.  Vrtacnik said that he hoped the material 
the police seized would provide evidence not only in the corruption 
case against the construction companies involved in building the 
control tower, but also in other cases.  Although the media has 
carried allegations that these prosecutions are politically 
motivated, Vrtacnik explained that rumors of bribery, price fixing, 
and money laundering had been attached to the construction industry 
for years, but his office had not been able to gather enough 
evidence to prosecute until now.  His goal was that the closer 
coordination between the police and prosecutors over the last 15 
months would lead to evidence on other suspicious business deals. 
 
e-Government Makes Tax Evasion Easier 
------------------------------------- 
 
¶4.  (SBU) Vrtacnik explained that tax evasion had become a serious 
problem in Slovenia, but that his office was having difficulties 
proving individual cases.  He lamented that Slovenia's admirable 
on-line business registration system had made tax evasion easier. 
While Vrtacnik applauded the true intention of on-line business 
registration as a way of supporting legitimate businesspeople, he 
said that this new form of registration, which could be done in less 
than 30 minutes sight-unseen, had promulgated the increase of 
"missing trader" companies (MTCs).  In Slovenia, continued Vrtacnik, 
the most common way to avoid taxes was through a chain of 
complicated transactions where the VAT was attributed only to the 
final shell MTC, which no longer existed, saving all the other 
companies from having to pay the 20 percent VAT.  According to our 
understanding, an MTC results when a real company enlists someone to 
register a company; however, the new company is not associated with 
any known address that could be visited by tax inspectors.  After a 
few months, the MTC is de-registered without paying the VAT owed to 
the Tax Authority.  The tax unit is only able to investigate 3.5 
percent of the over 60,000 companies registered in Slovenia per 
year; thus, the likelihood of an MTC being investigated is slim. 
Even with investgations, it is difficult, Vrtacnik claimed. He cited 
the trading company Meltal that prosecutors believed established 
MTCs to avoid paying at least 900,000 dollars and possibly up to 30 
million dollars in value added tax (VAT). 
 
Obstacles to Convictions 
------------------------ 
 
¶5.  (SBU) According to Vrtacnik, prosecutors have had little success 
in the courts - judges have dismissed many cases for insufficient 
evidence.  For example, the High Court has rejected attempts to 
prosecute big Slovene companies such as pharmaceutical company Lek 
and appliance manufacturer Gorenje for insider trading on this 
basis.  Vrtacnik complained about one case where the prosecutors 
missed the deadline for submitting evidence against Lek by minutes. 
He opined that that the courts should give prosecutors more time to 
collect information and submit evidence.  Vrtacnik optimistically 
stated that the recent cases should bring better results because of 
the increased coordination between the police and the prosecutors, 
who had decided to focus resources on a few critical cases. 
 
Comment 
------- 
 
¶6.  (SBU) Slovenia, like many other EU countries, has seen a rise in 
tax evasion and other white collar crimes.  The GOS is serious about 
tackling this growing problem and is committed to sending a strong 
message to businesses that it will not tolerate corruption.  In 
October 2007, three officials from the Ministry of Justice went to 
the U.S. to observe actual court cases and consult with prosecutors 
on the criminal process.  The participants raved about the benefits 
of the program, and the Prosecutor's Office has requested more such 
opportunities for professional consultations.  The Embassy plans to 
continue to work with both the Ministry of Justice and the 
Prosecutor's Office on concrete paths to judicial reforms in the 
coming months.  End Comment. 
 
COLEMAN