Tracking Yugoslavia's Dirty Money

BELGRADE - There is an imposing jacaranda wood table in the ornate main conference room of the National Bank of Yugoslavia, where for more than a hundred years, financial leaders gathered to make weighty decisions that shaped the future of the country. The red-carpeted room is paneled in oak and Italian marble, and on its walls hang oil portraits of the institution's previous governors -- sombre, grey-haired men in dark suits and wire-rimmed spectacles.

There is an awesome sense of history about the place, which is probably why Mladjan Dinkic, the current National Bank governor, does not want to meet in the room, even though his entourage of secretaries and press attachés automatically direct visitors there.

Mr. Dinkic, who will be 37 years old later this month, is the youngest National Bank governor in the country's history, and perhaps the least traditional central bank head anywhere in the world. He plays electric guitar and sings in his own rock band, called Monetary Shock.

For Yugoslavia, his appointment symbolizes a break from the past, and he has said he is determined to change the course of history.

All this might explain why he has little patience for the formalities associated with his lofty post, and prefers to meet in his cluttered office where fat file folders crowd his desk, and young assistants, clutching mobile phones, dash in and out handing him important messages on pieces of paper.

Mr. Dinkic became National Bank governor in November, 2000, a month after a massive popular uprising ousted former Yugoslav strongman Slobodan Milosevic from power.

He is a former economics professor at the University of Belgrade, part of the group of young, earnest academics who helped Yugoslavia's current president, Vojislav Kostunica -- himself an academic -- sweep to power, backed by bold promises to kick-start the economy and end the institutionalized corruption, theft and warmongering that became the legacy of Mr. Milosevic's rule.

In 1997, Mr. Dinkic founded G17, a leading economic think-tank that was an important element in the opposition alliance that swept federal elections in September, 2000, and a few weeks later, helped organize the popular uprising that wrenched power away from Mr. Milosevic.

When the dust settled and Mr. Dinkic was appointed to head the central bank, the plain-spoken technocrat, whose fingernails are bitten to the quick, knew he had his work cut out for him. Even before he climbed the marble stairs of the National Bank building for the first time, he knew he had inherited a disaster -- a bankrupt institution, runaway inflation and an economy teetering on the edge of ruin.

He's a stocky man, dressed casually in a burgundy sweater and light grey suit."We had to clean up the old banking system and relaunch a new one. The people had absolutely no trust in the old system and we inherited a culture of tax evasion."

That was not the only problem. During the 13 years of Mr. Milosevic's rule, the National Bank was used primarily as a clearing house for organized government theft, Mr. Dinkic says.

Today, Mr. Dinkic is presiding over an unprecedented financial cleanup and investigation into Mr. Milosevic, his family and a coterie of well-connected politicians and businessmen who are alleged to have stolen and laundered as much as US$20-billion over the years Mr. Milosevic ruled the country.

Last Tuesday, a Serb banker and Canadian landed immigrant named Bogoljub Karic became the most high-profile Milosevic-era crony to face criminal charges.

In his capacity as National Bank governor, Mr. Dinkic delivered a sealed indictment to the country's Attorney-General, officially launching a criminal investigation into Mr. Karic's business dealings, particularly those connected to the banking institution he controls, called Astra Bank.

According to the lawyer who prepared the indictment against Mr. Karic, the details are being kept secret because the charges relate to commercial crimes.

"We want to be careful because of the collection of evidence. We don't want to tip anyone off to what we know, for fear that they will destroy documentation," says Dusan Lalic, general manager of the legal department at Yugoslavia's National Bank.

The criminal proceedings against Mr. Karic mark the first time in more than a decade that Yugoslav authorities have prosecuted anyone for corruption and commercial crime.

"If you look at the last 10 years, there has never been such a case," says Mr. Lalic. "It is important for the public to know that we are serious about ending corruption."

For his part, Mr. Karic, formerly a close Milosevic family friend who tried to move part of his business empire to Canada during the 1990s, has said Mr. Dinkic's allegations are nothing more than political attacks.

On Wednesday night, Mr. Dinkic took on Mr. Karic in a two-hour live national television debate. Mr. Dinkic accused Mr. Karic of abusing his position as a banker, claiming he had redirected funds from the accounts of his bank, straight into his own pocket.

Mr. Karic denounced the government's investigation and the charges against him. Mr. Karic called Mr. Dinkic "a little Milosevic" for his actions in shutting down his bank, and "a manipulator with political ambitions who is financially destroying Serbia." He also said Mr. Dinkic is acting as "judge, jury and executioner."

Recently, Mr. Karic's lawyers began a legal process to challenge the government law that resulted in the closure of Astra Bank, and they are considering legal action against Mr. Dinkic personally. So far, the constitutional court's 10 judges are split on their decision regarding the legitimacy of the government-imposed profit tax. There are unconfirmed reports that at least one of the judges was offered money in exchange for his vote.

It is not as if the current government targeted Mr. Karic unfairly, says Mr. Dinkic. The Astra Bank was one of 19 banks to be closed down since the National Bank began its investigation into banking irregularities last March.

National Bank officials admit it will be difficult to prove where money from Mr. Karic's bank and other financial institutions used by Mr. Milosevic has gone. They suspect that about a quarter of all of the money raised through corrupt business schemes in the Milosevic era went to finance paramilitary forces, who in the three brutal wars that led to the breakup of Yugoslavia in the 1990s, were responsible for some of the most heinous human rights abuses in modern times. The rest was allegedly hidden in offshore banks, front companies and real estate developments in Russia, Cyprus, the United Kingdom and Canada. Now all they have to do is prove it.

As of this week, the Yugoslav investigation into Milosevic-era corruption became an important plank in the case against Mr. Milosevic, who is awaiting trial on charges of genocide and war crimes at the International Criminal Tribunal for the Former Yugoslavia at The Hague.

Mr. Dinkic admits the investigation is broad and extremely complex, and the cash-strapped Yugoslav government expects nothing less than the return of at least a portion of the money that was allegedly spirited out of the country during Mr. Milosevic's rule.

The investigation, which has the full support of the International Monetary Fund and the World Bank and is being conducted with policing authorities around the world, is crucial, Mr. Dinkic says, to rebuilding Yugoslavia's shattered reputation in the international community. He also hopes the cleanup will attract badly needed foreign investment and aid in rebuilding the country, which is suffering after a 78-day NATO bombing campaign in 1999 that left vital infrastructure, such as bridges and government offices, in ruins.

"Today, we are saying that everyone must respect the rule of law," says Mr. Dinkic. "In the past, a lot of people believed that the law was not the most important thing, and that connections to government were. Now we want to change that, and that is why we are being very strict and very radical."

According to recent polls, more than 90% of the Yugoslav population support his efforts, and, perhaps most important, believe the perpetrators of past financial crimes should go to jail. The investigation has made the covers of most of Yugoslavia's newsmagazines and dominates television news bulletins and the front pages of the country's newspapers.

"The tycoons who enriched themselves on privileges during the Milosevic period, are now trying to use their dirty money to set up regular businesses," says Mr. Dinkic. "I think it is very important to avoid the scenario that most of Eastern Europe had after communism. We don't want dirty capital here because with dirty capital come dirty people, and they create other social problems. We don't want them."

So far, the investigation's main revelations have focused on Mr. Milosevic, himself a former banker, who came to power in 1989 and presided over a government whose main purpose, investigators say, was to acquire wealth and spirit it out of the country.

A classified report, titled Request for Assistance by the Belgrade Public Prosecutor to the Government of the Confederation of Switzerland, prepared last month and recently obtained by the National Post, says financial institutions in the former Yugoslavia "used offshore business units in Cyprus and other jurisdictions as fronts to hold accounts with banks in Cyprus in order to carry out a variety of financial transactions on behalf of parties related to the Slobodan Milosevic regime and business enterprises controlled by or for Milosevic and the regime.

"National Bank of Yugoslavia officials have concluded that all of the money deposited in these accounts was illegally taken out from the Federal Republic of Yugoslavia," reads the confidential prosecutor's report, which was sent to the Swiss government last month to request the blockade of several Swiss bank accounts allegedly belonging to Milosevic-era tycoons and former members of the Yugoslav ruler's inner circle.

But where did all the money come from? According to Mr. Dinkic and others, there were a variety of sources, all of them resulting from flagrant abuses of power.

A classified criminal investigation conducted by investigators at the Ministry of the Interior has found some members of the Milosevic regime profited from the international sanctions imposed on the country in 1992, orchestrated pyramid schemes and illegally profited from hyperinflation, which resulted from the regime's uncontrolled printing of money during the early 1990s.

Some Milosevic-era cronies also used over-invoicing schemes and kickbacks to raise billions of dollars, which they smuggled out of the country to banks in Switzerland, Greece, Cyprus, Liechtenstein, Lebanon and Canada.

For the Serbian tax authorities who are involved in the investigation, these two methods of illegal enrichment were particularly nasty because they occurred at a time when the majority of Yugoslavs were suffering under the combined weight of international economic sanctions and war in Bosnia, Croatia and then Kosovo.

"The over-invoicing scheme, which resulted in a variety of economic crimes, arose from the need to purchase items necessary to the daily life of the people of Yugoslavia, such as medicines, oil, hospital equipment, petrol, cigarettes, food and clothing," reads the memo from the Belgrade Prosecutor's Office. "Certain favoured members of the Milosevic regime and powerful party members entered into contractual relationships with offshore companies that acted as 'middlemen' charging higher prices for those goods."

The kickback scheme involved accepting bribes from companies vying for government contracts. "After choosing whom they would enter into agreements with, they [government officials] would receive large cash payments in the form of 'donations,' 'directors fees' or 'charitable contributions.' "

These kickbacks, along with the proceeds from over-invoicing schemes, "were diverted to secret funds in the name of the favoured members or their family members throughout the world, including banks in Switzerland, Canada, Austria and elsewhere," reads the memo from the Belgrade Public Prosecutor.

In conjunction with the government of Cyprus, Yugoslav authorities recently identified eight Cyprus-based companies -- Antexol Trade Ltd., Browncourt Enterprises Ltd., Cabcom Marketing Ltd., Hillsay Marketing Ltd., Lamoral Trading Ltd., Southmed Holdings Ltd., Vericon Management Ltd. and Vantervest Overseas Trading Ltd. -- that were reportedly established through the direction of Mr. Milosevic to conceal illegal government profits.

Authorities in Cyprus are moving to block these companies and freeze their bank accounts, a source close to the investigation said. "And now we want to look at Canada," says Alexander Radovic, director of Serbia's Public Revenue Service.

Unlike the imposing 19th-century Gothic structure that houses the National Bank in the city centre, the offices of Serbia's Public Revenue Agency are in a tidy complex in a quiet Belgrade suburb.

During an interview in his office, Mr. Radovic picked up the phone and dialled the Canadian Embassy in Belgrade. In flawless French, the 36-year-old former chartered accountant politely but firmly outlined the terms under which a joint government investigation needed to be carried out. Not only was the Serbian government interested in Mr. Karic's holdings in Canada, there are others who profited from their relationship with Mr. Milosevic and hid the proceeds in Canadian banks, Mr. Radovic says. Canadian authorities need to investigate, he says.

"I must say," says Mr. Radovic. "Before I got involved in this investigation, I never would have put Canada among the world's rogue states. One can almost understand Cyprus, but Canada?"

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