Nesting of Kleptocracy-prone Practices Within Croatian Diplomatic Aggregate

Josko Paro
Former Ambassador of the Republic of Croatia to the US

Ignoring and breaching government regulations on contractual recruitment of external consultants, engaging external consultants for work that is listed in diplomats’ job statements, shady deals and payments, external consultant having access to government classified information and thereby national security compromised, sloppy and reckless bookkeeping, missing receipts and explanations of payments made, unexplained and unsupported expenditures, writing off assets with “gone missing” (no explanation), no proper asset registers, selling off Croatian government’s real estate assets much below the price of its value … All this and more in the Audit Report from the audit of Croatia’s ministry of Foreign and European Affairs for 2016, released a couple of months ago (PDF of Audit Report)! All this would have been in audit reports of communist Yugoslavia’s government departments had they been made public or done at all. Sadly, nothing much has changed on that front!

The breaches of Croatian government regulations on contracts for external consultants were found for the Croatian Embassy in Washington DC. The then Croatian Ambassador in Washington Josko Paro seems to not even having copped a slap on the wrist because of the breaches! Instead of being removed or suspended from diplomatic posts altogether after such audit findings (findings of shady deals and serious breaches of regulations that cost the Croatian taxpayers in payments and health care plan to same external consultant over US$280,000 over three years [2013-2016], which is a substantial amount of money by Croatian standards) he seems to be under consideration for a new ambassadorial post at the Croatian embassy in Belgium, given that his Washington one has expired a few months ago! When on her US visit to US in 2017 Croatia’s President Kolinda Grabar-Kitarovic stated that she did not want Ambassador Paro around her and yet he appears to be on her books for a new post!

Go figure!

No use expecting an enforcement of proper morality in Croatia’s diplomatic core – it’s still the admirers of former communist regime and public service practices that appear to keep winning presidential and government grins hands down! How sad and hopeless for democracy in Croatia!

The Audit Report emphasises the following findings:

  • In some cases throughout the various diplomatic posts, expenses in business books were not recorded at all or not recorded in accordance with accounting principles and rules;
  •  In Washington DC, the locally engaged person/consultant to be in charge of administrative work, and other jobs was engaged without a signed contract between August 2016 and May 2017 and payment to that person made to the tune of US$28,800 (previous contract had been extended to the same consultant several times and all the while corrupt practices flourished, i.e. often in breach of government regulations);
  • The locally engaged person acted as economic advisor;
  • The aforementioned local person had access to information systems of the Ministry and classified information even though the provisions of Article 77 of that Ordinance prescribe that a locally engaged person should not have access to classified information;
  • Considering that the jobs of an economic consultant are part of jobs that diplomatic staff are paid to do, hiring an external local consultant to engage in this work by Washington DC Croatian diplomatic mission was in breach of the Ministry’s regulations;
  • Audit has established irregularities and omissions within the process of government procurement of services and goods that warrant the conditional audit report;
  • The register of government procurement of services and goods is untidy, incomplete and in breach of government regulations; etc.!

And these are the auditor’s findings for just one of several ministries or government departments of Croatia. It is safe to conclude that audits of others would not have findings that differ much from this one. Thieves of the state embedded in the state bureaucracy are the root and the foliage of government corruption in Croatia (as they would be anywhere where corruption thrives). This has not improved at all from the days of former Yugoslavia it seems. To top the kleptocracy that exists in the unchecked government bureaucracy stands the threat to national security imposed by giving access to classified information to an external consultant as practiced in the Washington DC Croatian mission while Josko Paro was the ambassador!

Indeed, such acute corruption within the government echelons may in fact lie at the root of some of the most dangerous and disruptive security challenges for a nation. Without doubt, the enablers of kleptocracy, corruption, keep the whole rotten scenarios going. Until someone stops them!

One would have expected that once the Croatian government had received such an Audit Report that specifies a raft of serious breaches of government regulations and a raft of examples that point to practices which give room to corruption and theft and nepotism, the detailing of practices that sustain a sophisticated system for kleptocracy, alarm bells would go off and investigations mounted and staff associated suspended from duties, at least pending independent investigation findings! I have come across no information that would suggest the government of Croatia is, after receiving such a damning audit report, taking proper measures to ensure the culprits suffer the consequences and the nation is spared from ongoing corruption. One can almost say that there is no better way of stamping out corrupt practices than by combing each as they present themselves to the authorities. Josko Paro, on the other –sorry- hand, is reportedly in the running for a new diplomatic post! Even though, among other serious breaches of administrative protocol his actions had, according to the auditor, jeopardised the sanctity of national security classified information.

What is the reason for this disappointing and frustrating state of affairs, one might ask.

For the most part, Croatia’s desperate situation in relation to corruption (that includes nepotism) has been attributed to two causes. First and foremost, abundant corruption was an inherent part of communist Yugoslavia regime, where for fifty years communist leaders and public officials had imposed corruption as the way of life. Many observers regard moral decrepitude and incorrigibly self-serving greed, along with an almost total failure to meet standards of good democratic governance, to have been at the heart of communist Yugoslavia’s failure to live up to its initial economic and political promise. Second, distressing failure of post-Homeland War leaders in Croatia to undertake earnest efforts to promote good governance and reliable democracy in Croatia. With sound reasons, many leaders have been accused of facilitating the spread of corruption and intensifying its harmful effects upon the citizens. The currently predominant strategy for remedying Croatia’s record of corruption and bad governance rests upon the prosecution of few highly positioned public figures, upon unravelling any conflicts of interests of highly positioned public figures while lack of proper and independent checks and balances and the tightening and policing of administrative and other operational practices don’t get a chance to see the light of day. Furthermore, the politicians and other public activists who dare to point a finger at the sorry and undemocratic, corruption prone, public governance are looked upon by many as abnormal, are often ridiculed within the circles of power. All powers that be in Croatia keep spinning the same yarn – we need to stamp out corruption! But do little, if anything.

And yet, persons like Josko Paro, who has been associated with several practices that raise alarm bells within the realms of facilitating or enabling corruption (breaches of government regulations or acting against the interests of the nation and its security are among them) are still in with a chance for a new diplomatic post or a high public position! Not a picture of the vision of prosperous and democratic Croatia paid for with blood in the Homeland War of 1990’s! Not a picture where diplomats must work and act in the interests of their state, in all aspects. Croatian diplomatic postings are in dire need of major overhaul and slaying the beast of corruption and kleptocracy is a task to which many must rise if Croatia is to prosper and citizens have trust in their government. Ina Vukic

Pot Calls Kettle Black – Agrokor Corruption And Political Wile In Croatia

Agrokor’s owner Ivica Todoric,
leaves Westminster Magistrates Court in London,
Britain November 7, 2017.
Photo: REUTERS/Simon Dawson

High corruption risks and practices, political patronage and nepotism, and inefficient bureaucracy rolled over from former communist days are among the challenges that Croatia has not truly dealt with yet. To deal with that lustration would be an absolute essential.  Corruption and bribery are especially prevalent in the judiciary, public procurement, and the building and construction sector. While the primary legal framework regulating corruption and bribery is contained in the Criminal Code and the Corporate Criminal Liability Act, which make individuals and companies criminally liable for corrupt practices including active and passive bribery, money laundering and abuse of functions. Facilitation payments are prohibited, and gifts may be considered illegal depending on their value or intent. The mechanisms and practice of policing and monitoring compliance with the relevant legislation is practically non-existent. Hence, the road to what is there today with the Agrokor concern – too late to save the company or the livelihood of tens of thousand employees.

Media is running flaming hot in Croatia and abroad regarding the Tuesday 7 November corruption and fraud charges arrest at London Met Police of Ivica Todoric, majority owner of Agrokor business concern whose plummeting towards bankruptcy has also been threatening to bankrupt the country as a whole. One wonders, though, how much of this concentrated hype against Todoric has been designed to hide away from the media spotlight and responsibility of those not related to Todoric family or Agrokor staff. How many in the current and past governments, how many currently sitting in the Croatian Parliament have had their fingers in the Agrokor pie since its foundation during the time of former communist Yugoslavia.

How much of this concentrated media and government effort against the Todoric clan (however justified under law and justice) is in effect a ploy to save the government from falling! Friday 10 November is bound to be a day of upheaval and patience generally running very thin as the yet another vote (in about 18 months’ time span)  of no confidence in the government jumps onto the agenda for the day’s proceedings. Reportedly the opposition Social Democrats are seeking a vote of no confidence against the HDZ- led government.

As both Social Democrats/SDP and Croatian Democratic Union/HDZ have held government power in Croatia since independence from communist Yugoslavia and, many of their leading individual powerful members had held positions of power in the former communist regime, which institutionalised corruption and theft in that country, one truly cannot trust that Social Democrats’ motives are noble in this. How many thieves and corrupt individuals are they trying to hide, one wonders.

Croatia’s richest businessman Ivica Todoric, the founder and owner biggest private food and retail company, the drowning Agrokor that’s been shaking Croatia’s economy for months, threatening to bankrupt the country, was arrested after reportedly handing himself in to the Met Police Tuesday 7 November 2017 in London amid allegations of corruption, fraud. It is alleged that he has embezzled millions from his large retail company, leading it into a massive bankruptcy that is now an issue of national concern in Croatia and the countries around it. Todoric appeared in Westminster Magistrates’ Court and District Judge Richard Blake granted him freedom on 100,000 British pounds ($132,000) bail.

A European Arrest Warrant was issued after the firm collapsed, having amassed debts of over 5 billion euro. Criminal prosecutions have begun in Croatia against 14 senior figures at Agrokor, including Todoric, on suspicions of corruption and forgery. Todoric denies any wrongdoing, is accused of falsifying accounts to hide unsustainable debts estimated at £4.8bn (€5.4bn).

Asked by District Judge Richard Blake whether he consented or objected to the extradition request from Zagreb, Todoric said he would oppose being sent back to his home country, Reuters reports.

Prosecutor Benjamin Seifert, appearing on behalf of the Croatian authorities, told the court Todoric faced three charges back home — false accounting, fraud by false representation and abuse of position — amounting to a total alleged fraud worth about 110 million Euros.

The court heard that there was a worldwide freeze on Todoric’s assets.

This is extremely serious offending,” Seifert said.

The context in which I grant you bail is the knowledge that both within this country and throughout the world, your assets are frozen and your ability to obtain money is limited,” Judge Blake said from the bench. “The security is a very small sum in the context of what sums I have heard being spoken of.”

The judge also set conditions requiring that Todoric wear an electronic tag between midnight and 3 a.m., sign in at a London police station three times a week and give up his travel documents.

Agrokor, which began as a flower-growing operation in the former Yugoslavia in the 1970s, underwent a rapid expansion over the past decades that saw it run up debts of about 6 billion euros ($7 billion). The company employs about 60,000 people throughout the Croatia and neighbouring countries and is so large it now accounts for about 15 percent of Croatia’s gross domestic product. Its debt is too large for the government to rescue it without endangering the state’s financial stability including superannuation or pension funds that have invested in the company.

Although Todoric still formally owns 95 percent of Agrokor, the Croatian government, having rushed in a special law known as “Lex Agrokor” a few months ago has taken over management of the company. It is now trying to keep it alive through restructuring and negotiations with major creditors, which include Russia’s Sberbank and VTB bank, to which it owes 1.4 billion euros and who want their money back.

After he appeared on Europol’s fugitive arrest list, Todoric wrote on his blog that he was not hiding and that his conscience was clear.

As a man whose human rights are deeply violated I have the right to oppose political persecution,” Todoric wrote. “Today, I too am fighting against a corrupt system in Croatia,” he wrote on 6 November 2017, the day before he handed himself in to London Met Police.

Todoric has always claimed that the government illegally took over his company and indicated that he will fight his extradition on the grounds that he is the victim of political pursuit.

Political pursuit, Mr Todoric, has been there always, only before you used it to benefit yourself, to wrongfully create and amass wealth and now you use it to crucify those that helped you in that. Out with the lot of you and your communist heritage – in with lustration! Ina Vukic

 

 

 

The Cooking Of Agrokor’s Books

Agrokor Headquarters Zagreb Croatia

Croatia’s government claims that the results of the financial audit (first audit report released Thursday 5 October 2017) of key companies within Croatia’s ailing concern Agrokor justify the adoption of special law on extraordinary administration, which saw the state take control of the privately-held concern in April. My blogpost at that time emphasised an analysis that “when the government of a former communist country (Croatia) brings about and takes over with forced administration a calamitously failed private company (it subsidised and helped along the way as did the communist Yugoslavia regime via nationalisation of private assets and borrowed money injections) the gut tells you, regardless of the threat of thousands of job losses if that company sinks, you’re more than likely dealing with attempts of cover-ups of major incompetence, possible embezzlement come thefts and politically driven paths to sell and hand over the company or notable parts of it to a new entity.”

The extraordinary law rushed through the parliament then, commonly known as Lex Agrokor, has preserved jobs and contained the spread of systemic risk across the economy, the government said in a statement late on Thursday 5 October, after the Agrokor receiver unveiled the results of the audit conducted by PriceWaterhouseCoopers LLP. The government had said and still maintains that Agrokor is a company of systemic importance for Croatia and its collapse could have a catastrophic impact on the economy.

The audit revealed enormous discrepancies between 2015 financial results of nine key companies within Agrokor reported earlier and the audited figures. Inflated value of assets, understated claims towards group members, over-estimated inventory and undocumented costs were some of the markers for the discrepancies.

UK based branch of PriceWaterhouseCoopers LLP was named as auditor of the concern’s financial statements after preliminary probes revealed possible or likely accounting errors.

The revised financial report for the troubled Croatian retail, food and agriculture giant Agrokor, issued on Thursday, showed that the former management, led by company’s owner and founder Ivica Todoric, did not show the company’s full losses in its financial accounts. State extraordinary manager for Agrokor affairs Ante Ramljak presented the revised financial report for 2015 and 2016 which had been put together by the PriceWaterhouseCoopers audit agency.

Thursday’s report only included Agrokor’s major subsidiaries in the retail, wholesale, agriculture and food industries – Konzum, Tisak, Belje, PiK Vinkovci, Vupik, Ledo, Jamnica, Zvijezda and PiK Vrbovec.

The full consolidated report, including mother company Agrokor d.d., will be unveiled on Monday 9 October 2017 and then the government is expected to comment in detail

The revised report for the subsidiaries in 2015 showed 250 million euros more losses than Todoric’s management showed in its financial records. The state management’s figures showed that the subsidiary companies finished 2016 with 442 million euros in losses. The former management also inflated the capital worth of the subsidiary companies in 2015 by some 1.2 billion euros.

According to Thursday’s report, the subsidiary companies are worth 1.8 billion euros less than they were before 2015.

I will not say that any [legal] irregularities [in the previous management’s financial records] occurred. I won’t speak about this until we have the figures for Agrokor [d.d.]. Accounting irregularities occurred,” Ramljak answered when asked if there was criminal wrongdoing involved.

DORH [Croatian state attorney office] investigators are familiar with all these numbers,” he added.

Chief state attorney Dinko Cvitan had said in the past week that the full report will be important for DORH’s work.

The company’s role in the economy of Croatia is massive, with revenues of 6.5 billion euros in 2015 – almost 16 per cent of Croatia’s total GDP – and around 40,000 employees.

Agrokor employs another 20,000 people in neighbouring Bosnia and Herzegovina and Serbia, while it is believed that suppliers and companies for the Slovenian retailer Mercator – which Agrokor bought in 2014 – employ around 70,000 people in Slovenia as well.

Croatian news agency HINA reported on Friday 6 October that Maxim Poletaev, deputy chairman of the management board of Russia’s Sberbank – a major creditor of Agrokor, has suggested that Croatia should service the debt of the food-to-retail concern. Poletaev has told Russian news agency Interfax that the debt of Agrokor to the Russian bank is now debt of the Croatian government, which it should pay. Poletaev also said that Croatia should use government bonds to pay back Sberbank, according to HINA. Agrokor owes Sberbank some 1.1 billion euro ($1.3 billion). In August, the bank filed a complaint against Agrokor owner, Ivica Todoric, and, according to media reports, it now plans to sue the auditor which had previously verified Agrokor’s financial statements.

Charging Croatia’s government – that is, Croatian taxpayers and people in general, as debtor for corruption that went on in Agrokor and its subsidiary companies would add to the already calamitous plummeting of Croatia’s economy and living standards.

The web upon which depends a final outlook and solution regarding Agrokor and its possible crushing and devastating effect upon Croatia’s economy that could create a new army of poor, unemployed and devastation is currently in the finishing “touches” stages and nervousness and jitters are felt all the way to the parliament. Whether this nervousness hides attempts to cover up the identification of individuals in past echelons in power who have amassed wealth through theft is yet to be revealed. However, that matters have reached a sticky and nasty point is perhaps clear from Friday’s events in the parliament that saw the parliament’s meeting come to a stop due to inability to reach the needed quorum for the voting on appointment of three constitutional judges. Friday’s sitting of the parliament was geared for voting on appointment of three constitutional judges and on the establishment of a parliamentary inquiry commission for Agrokor. The needed quorum to vote for constitutional judges is two thirds of parliament members while the one needed to vote in the inquiry commission is the normal majority of half plus one. The Social Democratic Party/SDP refused to enter the parliamentary chamber and thus no voting was held on either of the two matters with the announcement by the ruling Croatian Democratic Union/HDZ that they hoped an agreement can be reached with SDP by Wednesday 11 October when it hopes to return the voting to agenda. The agreement relates to SDP’s insistence that former ministers can be appointed into the inquiry commission for Agrokor while HDZ disagrees on grounds of conflict of interest in the event that members of such commission could be called upon as witnesses in the unraveling of Agrokor dealings that has brought the country to its knees.

HDZ and SDP being at loggerheads is of course nothing new, but on this issue of investigating Agrokor’s dealings, obvious corruption, theft that appear to have been going on for decades while enjoying government support and significant financial subsidies and injections, the engaging at loggerheads becomes a marker of attempts to cover up serious past criminal dealings among powerful individuals. There are indications also that in order to achieve an agreement that would bring SDP back sides  on parliamentary seats, so that the voting in of constitutional judges can go ahead, HDZ may compromise and permit that certain category of former ministers may be appointed onto the inquiry commission for Agrokor! This, of course, would spell a disaster for independence of the commission’s dealings and deliverance – after all, all government ministers, regardless of their portfolio, are and always have been members of a tight club in which one covers for the other. 11th October 2017 is set to be a yet another stormy day in Croatia’s parliament on the matter of the establishment of the inquiry commission for Agrokor and its member composition. Monday 9th October when full audit report is expected for the whole Agrokor concern may indeed see the rats running in and out of parliamentary chamber, stalling the establishment of its inquiry commission for Agrokor. Ina Vukic

 

 

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