-Caveat Lector-
August 17, 1999--NYTimes
Up to $1 Billion Reported Stolen
by Bosnia Leaders
By CHRIS HEDGES
SARAJEVO, Bosnia-Herzegovina -- As much as a
billion dollars has disappeared from public funds
or been stolen from international aid projects through
fraud carried out by the Muslim, Croatian and Serbian
nationalist leaders who keep Bosnia rigidly partitioned
into three ethnic enclaves, according to an exhaustive
investigation by an American-led antifraud unit.
The antifraud unit, set up by the Office of the High
Representative, the international agency responsible for
carrying out the civilian aspects of the Dayton peace
agreement, has exposed so much corruption that relief
agencies and embassies are reluctant to publicize the
thefts for fear of frightening away international donors.
The report names several officials linked to the
governing nationalist parties that it says profited from
the fraud. Even though the Office of the High
Representative has dismissed 15 officials or prevented
them from holding office, most retain authority.
In one incident cited in the report, 10 foreign embassies
and international aid agencies lost over $20 million
deposited in a Bosnian bank, but only the Swiss
embassy has publicly acknowledged its losses.
The antifraud unit, which requires special security
measures and does not make public who is working for
the organization in Bosnia, is now investigating 220
cases of fraud and corruption. It documents the current
cases in a 4,000-page report that has not been released
to the public. Its contents were made available to The
New York Times.
Organizations as diverse at the Office of the High
Representative, the United Nations and the United
States Agency for International Development, all
dedicated to rebuilding the country, have lost tens of
millions of dollars, the report says.
The widespread corruption is viewed by many here as
a severe blow in the long, frustrating struggle to build a
democratic Bosnia, a country that has received $5.1
billion in international aid since the end of the war in
1995. The corruption has also played a pivotal role in
driving away foreign investment, seen as the only way
to free Bosnia from dependence on foreign assistance.
The missing funds were supposed to have been used to
rebuild Bosnia's roads, buildings and schools, as well
as to provide municipal services in towns throughout
Bosnia.
Alija Izetbegovic, the Bosnian President, along with
other senior nationalist leaders, has dismissed the
allegations of official corruption made by the
international investigators. While conceding that
corruption takes place, the President disputes the scale
of the charges, denying that as much as a billion dollars
has been misappropriated as stated in the long and
detailed report.
Izetbegovic has repeatedly denied these charges, most
recently in a local press interview. "It would be
nonsense to claim that there is no corruption, or that it
is irrelevant, in a country that has just come out of the
war," he said, adding that Bosnia is a country "which
does not have established borders, where joint
institutions are still not functioning, and which has at
least two armies and two police forces."
The Dayton agreement, which was signed by Muslim,
Croatian and Serbian warring factions in 1995, called
for the creation of a single state and the return of two
million refugees and displaced people to their homes.
But Bosnia remains partitioned into three antagonistic
ethnic enclaves.
Serb-held Bosnia continues to operate as a separate
entity.
The internationally created Muslim-Croat Federation
has no authority and has been unable to raise revenues.
The two million refugees and displaced people have
not gone back to their homes. And the Office of the
High Representative has been reduced to promising
money and aid projects to towns and cities that say they
will allow some refugees to return, promises that are
usually never kept.
"Dayton stopped the violence, but it did not end the
war," said Jacques P. Klein, the chief United Nations
representative here, "and the war is still being fought
bureaucratically through obfuscation, delay and
avoidance by a group of leaders who do not want to
lose power. Bosnia and Herzegovina is a patient on life
support assistance -- political, military and economic."
International donors say the endemic fraud is making it
harder to justify continued aid levels. Without the huge
infusions of money, it is unlikely that the Muslim,
Croatian and Serbian enclaves will be able to continue
to pay pensions and salaries and reconstruct the
country. The Sarajevo Government, for instance, has
asked the World Bank for loans to make pension
payments.
"Time is running out," said James Lyon, the director of
the international Crisis Group, an independent research
organization. "The international community has no
enforcement mechanism. The international
administrators beg, plead, cajole and in some case
engage in what looks like bribery, promising cities
infrastructure projects if they allow some refugees to
return. This tactic might work if we continue the present
aid levels, about a billion dollars a year, over the next
20 years. But as aid declines, what will make these
people even promise to comply?"
Tuzla, a Muslim city. is one case study of widespread
corruption that infects many local governments, the
report says. The investigators' report charges that $200
million was missing from this year's budget, in addition
to $300 million missing over the last two years.
Tuzla's schools were painted four times last year alone
by the city government, although they were rebuilt and
painted by international aid organizations as well.
Tuzla officials paid two or three times the normal price
for such work and sold many of the cans of paint on the
local market, the auditors found. Many of the schools,
meanwhile, still lack heat, and students must wear their
coats to class in the winter.
In the town of Sanski Most, heavily damaged during the
war, municipal funds are being used to build a horse
racing track, much to the consternation of aid agencies,
the report said.
The report charges the town's Mayor, Mehmed Alagic,
with 358 counts of corruption. The charges include the
theft of $450,000 in relief aid from Saudi Arabia. That
money was supposed to be used to provide feed and
farm equipment, but the report alleges that the Mayor
gave the money instead to his brother to start a bank.
The Mayor has denied the charges and accused the
Office of the High Representative of mounting a
campaign against him.
The most sensitive case under investigation by the
antifraud unit concerns the Bosnia and Herzegovina
Bank, or BiH, in Sarajevo. The bank took in tens of
millions of dollars from international agencies and 10
foreign embassies. The money, the investigators say,
was lent to fictional businesses or given as personal
loans to friends by the two owners.
The bank has now collapsed. The collapse underscores
a near-total failure to establish a viable banking
industry. Of the some 50 banks in Bosnia, Western
diplomats say, only six are solvent.
The Agency for International Development, which has
not made its losses public, had at least $4 million in the
BiH bank, according to Western diplomats. At least
half of the $20 million lost by international
organizations deposited in the bank was to have been
used for reconstruction projects, the investigators said.
"Our fear is that once the extent of the theft is known,
international donors will get disgusted and walk away,"
said an official at the Office of the High
Representative, who asked not to be identified.
AID has also filed suit in Bosnian courts against 19
Bosnian companies, which have failed to repay loans
worth more than $10 million. The loans, ranging from
$100,000 to $1 million, are part of a $278 million
revolving credit established in 1996 by AID to help
kick-start the economy. The agency, unable to collect
$1 million in loans from Hidrogradnja, one of Bosnia's
largest companies, is trying to seize its assets.
The rampant corruption has discouraged foreign
investment. Most foreign companies, including
McDonald's, have refused to set up operations after
demands by officials to pay bribes and do business
exclusively with local party officials. Other companies
-- like the Italian construction company Aluveneto and
Gluck Norm, Germany's largest maker of door and
window frames -- have pulled out with heavy losses,
complaining of interference from the state, an inability
to collect debts and demands by officials for kickbacks
and bribes to stay in business.
Volkswagen is also considering pulling out of Bosnia,
according to European diplomats. Volkswagen officials
would not comment. The German Government pushed
hard to get the company to reopen its heavily damaged
plant in the Sarajevo suburb of Vogosca. Volkswagen
did so on condition that the Bosnian Government buy
official cars from the plant. Not only has the
Government reneged on its promise, forcing
Volkswagen to go to court, but the state company in
partnership has refused to pay the $1 million it
promised to invest.
The money-losing Volkswagen plant does only final
assembly on car bodies shipped from the Skoda auto
works in the Czech Republic. Sixty workers assemble
about six cars a day from the kits. Few sell, in part
because of the thousands of stolen cars brought into the
country from Europe by local gangsters.
The used car market in Stolac, which convenes every
Sunday in the Croat-controlled part of Bosnia, has one
of the largest collections of stolen vehicles in Europe,
according to the international police.
On one recent Sunday, some 400 cars, most with forged
registration papers and German, Swiss and Italian
license plates, were being sold for large wads of
German marks. The gangs that bring the cars into
Bosnia oversee the sales.
The Office of the High Representative has outlawed the
market. It pressed in January to have the market's
organizer, Jozo Peric, arrested. But the local Croatian
court released him a few days later and dismissed the
charges. Now Peric is in hiding. When federal tax
officials showed up last year to try carry out an audit,
they were beaten so badly they were hospitalized.
Officials of the Office of the High Representative and
Western diplomats say one of the wealthiest and most
powerful men in Bosnia is Bakir Izetbegovic, the son of
President Izetbegovic. He controls The City
Development Institute, in charge of determining the
occupancy rights of 80,000 publicly owned apartments
in Sarajevo. The apartments, many of which belonged
to Serbs or Croats before the war, have been given to
members of the governing Muslim-led Social
Democratic Party. Others who want occupancy rights
must pay Izetbegovic $2,000, said several Bosnians
who have paid the fee.
Izetbegovic owns 15 percent of Bosnia Air, the state
airline, and takes a cut of the extortion money paid out
by local shopkeepers to Sarajevo gangsters, these
diplomats said. Izetbegovic has consistently denied any
involvement in such activities.
When foreign aid agencies or even the Office of the
High Representative try to turn to Bosnian courts for
redress, they run up against an overwhelmed and
corrupt system.
The Agency for International Development is moving
against several large state-owned companies. But
creditors are rarely able to collect. The Tuzla courts,
for instance, have a backlog of more than 30,000 cases
of organized and violent crime. There were 1,050
convictions last year, and in most of the cases, those
convicted were released on parole.
Even when laws are passed to try to contain the fraud,
politicians have blocked or ignored them. For instance,
last year the Bosnian Assembly passed a law to allow
the Government to tax the oil and gas trucked in from
Croatia. The revenue was expected to be in the
hundreds of millions of dollars. But when the law
appeared in the official gazette, the articles stipulating
the taxation were inexplicably missing. The Croatian
mafia that brings in the oil and gas continues to pay no
taxes. Although the case is in a Sarajevo court,
diplomats say the judges, fearing retribution, are afraid
to try it.
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Shalom, A Salaam Aleikum, and to all, A Good Day.
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