The 7th betrayal

Second in a series. The first, in our Oct. 18 issue, told of six betrayals of small Balkan countries by big powers over the past two centuries.

SARAJEVO, Bosnia-Herzegovina—Sarajevo, site of the Winter Olympics in 1984 and Sniper Alley 10 years later, stands amid a beautiful landscape of mountains and rivers, terra-cotta roofs and copper-domed mosques. Whistle-blower Irina Lovric sees none of that day after day, as she sits in a 6-foot-square room without natural light or fresh air. What keeps her going is family history and frustration: “My father died in 1992 fighting for this country. I can’t stand that those in need aren’t getting money and those who have a lot get more.”

Lovric chain-smoked at a hotel’s outdoor table as she told me her story: When five cigarettes filled an ashtray and a waiter took it away and returned with a new one, she began filling the second. She told of her life as a secretary at the Fund for Return, where refugees driven out during the 1991-1995 civil war sought money to go home. (For four years Serbian snipers on nearby hills had made a sport of shooting those zigzagging from homes to stores or running too slowly past the Holiday Inn.) She says her boss misappropriated $6 million to $7 million in all, and she says even money donated to remove land mines is stolen. Since the United States has been one of the donors, she reported abuses to the U.S. embassy in 2009.

Five years later officials still steal and she still gets a paycheck: A whistle-blower law protects her against firing but not against a boss uttering profanity and threats, not against a dead cat left on her doorstep, not against internal bleeding and stress-related ailments. What Lovric feels viscerally other Bosnians feel generally: Polls show more than three of four see their political parties and even their medical and health services as “corrupt” or “extremely corrupt.” Bosnians created an Anti-Corruption Agency to implement anti-corruption laws, but many feel that agency itself is corrupt.

That’s the way it is throughout the Balkans, where I interviewed persons from many walks of life this summer. Unemployment is usually more than 20 percent, and in Bosnia the rate has averaged 43 percent over the past seven years. Starting a business is bureaucratically hard. (In Bosnia, it requires going through 14 levels of administration and obtaining 17 permits.) Bribery is a way of life for both CEOs and journeymen. One survey showed companies in Bosnia paid bribes an average of seven times per year. One lawsuit featured 20 employees of the national electricity supplier charged with taking bribes to install devices that made electric meters display consumption 70 percent below actual usage.

The youth unemployment rate throughout the Balkans is even worse: It reached 63 percent in Bosnia (officially called Bosnia and Herzegovina) this past winter, and is more than 50 percent in Serbia and Macedonia. Unemployment underlay violent protests in Sarajevo and the northern Bosnian town of Tuzla in February. As the BBC reported: “Demonstrators in Bosnia-Herzegovina have set fire to government buildings, in the worst unrest since the end of the 1992-95 war. Hundreds of people have been injured in three days of protests over high unemployment and the perceived inability of politicians to improve the situation. Police used rubber bullets and tear gas to quell unrest.”

But unrest is not quelled—many expect more rioting this winter—nor is corruption an internal matter only. Bulgaria, Croatia, Greece, Romania, and Slovenia are part of the European Union (EU). Montenegro, Serbia, and Macedonia are official candidates for EU membership. Albania, Bosnia, and Kosovo are candidate members. EU members and aspirants are required (on paper) to fight corruption, develop the rule of law, and take action against money laundering, smuggling, human trafficking, and other vices. In June, Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism put Bosnia on its blacklist, alongside North Korea and Iran, for not fighting money laundering and terrorism financing.

THE UNITED STATES is also involved in the Balkans in many ways. The United States sends to Balkan lands about $2 billion in foreign aid annually. Six Balkan countries are members of NATO, and others (such as Montenegro) want to be. The United States brokered the Dayton Accords that ended the Bosnian civil war, bombed Serbia in support of independence for Kosovo, and still has 700 or so soldiers stationed in Kosovo. Global Financial Integrity and other groups have shown that about $10 billion each year flows illicitly from the Balkans into foreign accounts, and the United States is a repository for some of the wealth leaders steal from their countrymen. Balkan oligarchs have bought Manhattan condos or suddenly become collectors of expensive art. They have created shell companies with addresses in Delaware, Nevada, or Wyoming, the three easiest states in which to launder funds.

The U.S. government has supported and sometimes funded Balkan oligarchs if they stayed off the front pages of American newspapers and provided public relations benefits for administrations seeking to win foreign policy applause by building coalitions. For example, the Bush administration wanted to show a broad group of countries supporting U.S. efforts in Afghanistan, so when Montenegro sent 31 soldiers and medical workers, the White House reciprocated by applauding its corrupt leaders.

U.S.-based corporations have also been complicit. Philip Morris is still paying off $1.25 billion it agreed to pay the EU in return for dropping lawsuits against the company for cigarette smuggling. The maker of Marlboros and other brands allegedly sent hundreds of millions of cigarettes to the Balkans, from which they were smuggled into Italy and other EU countries that have high import duties. A yet-unresolved lawsuit makes similar allegations against Reynolds American, maker of Camels and other name brands, with revenue going to the company and criminal gangs.

Many in the Balkans now distrust not only communism and the ethnic hatred that roiled the region in the 20th century, but market systems that they now see as tools of “crony capitalism.” Many have sadly concluded what Bosnian columnist Zlatko Dizdarevic observed: “We are insignificant pawns in the great game played by Europe and the United States.”

I SAW THAT FRUSTRATION in country after country. Croatian special forces Col. Sasha Radovic, now an anti-corruption author, told me how he fought for his country 20 years ago and saw $10 billion worth of destruction, but Croatian oligarchs have now stolen $30 billion and deposited it in foreign accounts. In October 2010, Radovic was riding his motorbike after reporting that the company of 1990s Croatian President Franjo Tudjman had received more than $500 million for smuggling oil. A car came from behind and hit him. He went into a wall and had 16 fractures. The following year he spent two months in prison, and is now sentenced to two more for telling the truth. “I’m a pawn,” he concluded.

(Croatian seaport cities such as Rijecka and Split are major import centers for drugs. Bank owner Sandi Sola has allegedly embezzled more than $13 million. One list shows 364 persons, many of them doctors, received financial inducements to prescribe expensive medications. Politicians have a great incentive to hold onto power, because, if their enemies take over, lawsuits can result: Former Prime Minister Ivo Sanadar is serving a nine-year prison sentence for taking $14 million in bribes from Hypo Bank and a Hungarian oil company.)

In Serbia, dissident political leader Dusan Gamser explained how money from Western Europe and the United States enables profiteers at best and plunderers at worst. The difference: Profiteers build a road that’s more expensive than it should be, because politicians and crony companies have all taken their cut, but at least there’s a road. Plunderers (also known as parasites) take the money and build nothing. When I asked Gamser why he didn’t join the ruling party and get his cut, he hemmed, hawed, and finally said with a bitter laugh, “I’m a little bit ashamed to say that I’ve got some ideals. I’m a stupid guy. I’m a fool. I’m a bloody fool.”

(One recent survey showed 90 percent of Serbs called corruption routine in their country, and more than half said giving bribes is “the only way to overcome the extensive bureaucracy [or] unjust laws.” Serbia’s post-communist privatization law did not require buyers to disclose their identities, so use of shell companies was common: Some owners plucked all they could and then closed the doors, leaving workers unemployed. On the other hand, some that remained state-owned, such as the Kolubara coal mining company, offered more-than-full employment: Investigators alleged that the company issued salaries to more than 1,000 nonexistent employees and bought equipment for prices three to six times higher than normal.)

In Romania, Member of Parliament Florica Chereches spoke of a society filled with disincentives to work. It starts right after high school, where last year only 56 percent of students passed the standard finishing exams, and many of those who failed registered immediately for unemployment benefits: “In this way we support laziness and don’t create a culture of work.” Those who do go to work find that the tax rate on even low salaries is more than 50 percent, since someone has to pay for the unemployment benefits: Chereches says the high tax rate “encourages the black economy and under-the-table, unregistered sources of money.”

(More than three of four Romanians see political parties as corrupt or very corrupt, and nearly that many say the same about Parliament—but legislators over the past year have changed the country’s criminal code to exempt themselves from corruption charges and pardon many high-level officials under investigation. With one out of five county council heads arrested or under investigation for corruption, Parliament also passed laws allowing mayors and county council heads to delegate contract-signing to subordinates. That allowed them to dodge corruption charges by having their subordinates sign deals with the chiefs’ companies. The law also stipulated that prosecutors from the National Anti-Corruption Department could not investigate the subordinates of mayors and local officials: Only local authorities will have the opportunity to be shocked, shocked by what they discover.)

THOSE ARE PROBLEMS OF CROATIA, SERBIA, AND ROMANIA, and it would be easy to offer similar reports about other Balkan lands, country by country. Corruption has not only robbed countries of current revenues but stifled the development of new ones: Retired Croatian banker Goran Gazivoda notes that when it takes months or years to get permission for startups that should require not more than a week to approve, economies suffer and unemployment grows.

This is all known within the U.S. State Department. A diplomatic cable released by WikiLeaks last year read, in part: “Organized crime has a corrupting influence on all Bulgarian institutions, including the government, parliament and judiciary. In an attempt to maintain their influence regardless of who is in power, OC [organized crime] figures donate to all the major political parties. As these figures have expanded into legitimate businesses, they have attempted—with some success—to buy their way into the corridors of power. … OC ‘owns’ a number of municipalities and individual members of parliament.” As Bulgarian Parliament member (and former counterintelligence head) Atanas Atanasov put it, “Other countries have the mafia; in Bulgaria the mafia has the country.”

Clearly, Western Europe and the United States are not responsible for inefficiency and corruption at all levels of government and society: The conspiracy-minded speak about U.S. involvement in the assassination of a reform-minded Serbian prime minister a decade ago, but that’s a whisper, not a fact. Yet since Balkan oligarchs—and their counterparts in Africa, South America, and Asia—find safe havens for their ill-gotten gains in Switzerland, Austria, Luxembourg, Liechtenstein, the United States, and several offshore islands, these jurisdictions could readily make that process harder. The United States, with its financial power, has a great opportunity to bring about more transparency in international banking—and in the spidery world of secret bank accounts, does great power carry with it great responsibility?

Foreign policy “realists” might dismiss this concern as a search for compassionate conservatism in foreign policy, but some are worried about the growing number of “mafia states.” The Carnegie Endowment’s Moises Naim, in a Foreign Affairs article two years ago, critiqued the “mistaken assumption … that international crime is strictly a matter of law enforcement, best managed by police departments, prosecutors, and judges. In reality, international crime is better understood as a political problem with national security implications. The scale and scope of the most powerful criminal organizations now easily match those of the world’s largest multinational corporations. … Illicit groups have never before managed to acquire the degree of political influence now enjoyed by criminals in a wide range of African, eastern European, and Latin American countries, not to mention China and Russia. … Crime has become a significant source of global instability, especially with the emergence of mafia states.”

The third article in our series will detail the positive steps the United States is starting to take to avoid furthering a seventh betrayal of the Balkans, as well as betrayal of other poor people preyed upon by leaders with secret bank accounts.