Whistleblowers And The Unravelling Corruption In Croatia


Fear of reprisals for reporting wrongdoing, whistleblowing on corruption or possible corruption, breaches of legislative regulations etc. is a real concern when fighting corruption and this fear is very pronounced in Croatia. Croatia (like all former Yugoslavia member states) is a country riddled with entrenched corruption stemming from the communist public service and administration culture and it needs a stronger whistleblowing regime. To have a strong whistleblowing regime it means freedom from damaging consequences for those who report wrongdoing and it also means that the number of whistleblowers present and active needs to be high. That is, the number of people raising complaints and pointing to wrongdoing.  That means Croatia needs better protection laws for whistleblowers; better freedom of information laws; a third party to report wrongdoing to in a process of operational  “checks and balances”; cultural change at the organisational and individual levels; and compensation for those suffering retaliation for speaking out.

According to the Croatian justice ministry’s June 2017 issue of Action Plan for 2017-2018 under the Implementation of the Anti-Corruption Strategy for 2015-2020 (PDF of Action Plan), the law that would, among other, make provisions for the protection of whistleblowers should reach the parliament chambers in the third and fourth quarters of 2018. The justice ministry has already established a working group under the government’s Advisory Committee On Combating Corruption.

The above anti-corruption strategy recognises and acknowledges the fundamental role of whistleblowers in highlighting corrupt practices and in contributing to enhance transparency and political accountability. The strategy stresses the “need” to guarantee whistleblowers effective judicial protection, including measures to strengthen judicial transparency, enhance the reporting system for illegal conduct, and complete the regulatory framework to safeguard whistleblowers.

Croatia’s economy is presently overcast by thick clouds of unease and suspicions of major corruption emerging from the Agrokor affair. Related to the Agrokor and its majority owner Ivica Todoric affairs threatening to bankrupt the country once debt recovery claims, especially those from foreign banks such as Russia’s Sberbank, come knocking on the door sits, of course, Pandora’s box of corruption at the highest levels of political echelons. Should the lid of that Pandora’s box be lifted then even if all the “evils” escape into the open the mythical hope (for justice and good) that should remain inside the box is likely to be weak and flimsy, if at all existing.

To open Pandora’s box means to perform an action that may seem small or innocent, but that turns out to have severely detrimental and far-reaching negative consequences for those who open the box and for those associated with them in dealings. It was about one month ago that a former member of the Liberal Party in Croatia, Bruno Mirtl,  revealed to the public that over 10 years ago he received 50,000 kuna (about 6,500 Euros) for the party’s funding from Ivica Todoric of Agrokor, In the days before Todoric’s arrest in London, it was announced that Agrokor – which had enjoyed privileged treatment by all Croatian governments for decades – had filed false accounts, hiding a loss of several billion Euros.

As Mirtl rightly observes, if even such a small party as his own obtained unlawful funding by Todoric, then there is no doubt that the main, more influential parties (Croatian Democratic Union/HDZ and Social Democratic Party/SDP) received much more substantial sums from the same source.

Mirtl’s testimonial account could trigger a domino effect on the Croatian political scene, forcing drastic and forced exodus from the major parties of significant members and political power-brokers come wheelers and dealers. But the domino effect in a political playground can only happen if those fighting against corruption possess hope that such battles can in effect be won. If one was to judge the strength of that hope upon past experiences then cover-ups, stalling of legal processes etc. that have occurred in similar circumstances, that hope will evaporate into thin air. It would seem that major political players from the major political parties, supported by the bent mainstream media are digging their heels in and trying to suppress the Mirtl and Todoric affair under similar connotations that permitted Todoric to pull wool over everyone’s eyes when it came to the origins of his enormous personal wealth.

This goes without saying that if the whistleblower protection is inserted into the legislation draft, one really never knows how even the tightest of plans for such legislation to go ahead can be hacked out of existence, the HDZ government and SDP opposition (as both have governed the country over periods in the last two decades, after Homeland War and may have had their fingers deeply immersed in the corruption pie) would no doubt try their damnedest to  find solutions that ensure wolves (guild owners, managers, senior political officials) remain fully satisfied and the sheep, though perhaps reduced in number, remain anaesthetised.

And the fact that the recently established Parliamentary Inquiry Committee (which is in no way independent of political parties as it should be) on Agrokor is about to be extinguished lends itself to more unrest and recriminations across parliamentary benches. The governing HDZ insists that the applicable legislation requires for the Committee to stop operations once legal proceedings directly related to the reason why the Committee is set up commence, the Committee has no further jurisdiction. The SDP opposition, on the other hand, think differently and says the Committee can continue its operations regardless of separate legal proceedings held in court. Given SDP’s history as well as HDZ’s one doubts that when it comes to unearthing details of corruption in this case the dispute between the two major political parties about whether the Committee can or cannot continue appears blatantly contrived.  It does leave room for speculation as to the genuineness within the motives to set up such an inquiry in the first place and how much of its rushed start has to do with throwing dust in public’s eyes, giving the outlook of real search for corruption was afoot when, in fact, it was all an exercise to win on time.  The real crunching of corrupt culprits and their ill-gotten wealth may never even reach the door that leads into the room where justice and consequences for corruption are dished out as a matter of normal governance of Croatia.

Not all the sluggishness and lack of action from Croatia’s leadership when it comes to affirmative matters and getting things done for whistleblowers, upon whose existence fighting corruption largely depends, can be attributed to the governments of present and past. Croatia’s presidents since year 2000 have not stepped up to the action mark either. And this goes for the present president Kolinda Grabar-KItarovic as well. Shortly after taking office as president of Croatia, Kolinda Grabar Kitarovic appointed Vesna Balenovic as her commissioner/adviser for whistleblowing issues. Vesna Balenovic is a well-known whistleblower, who few years ago denounced some of the executives of the INA oil company (of national importance) where she was employed. She was immediately dismissed, ending up with defamation charges by then Chairman of INA’s Board of Directors Tomislav Dragicevic and former Minister of Finance Slavko Linic. Later on, Chairman of INA’s Supervisory Board Davor Stern advanced the idea that Vesna Balenovic could be re-admitted into the company as commissioner for the fight against corruption. This never happened, but Balenovic has remained present in public life as founder and president of the Zviždač association (Whistleblower Association). INA has stopped being a public company for some time, as the administrative rights were transferred to Hungarian MOL (this matter is the subject in criminal proceedings for corruption waged now for years against former Prime Minister Ivo Sanader). This deal was accompanied by extensive corruption (refer for example to former Prime Minister Ivo Sanader case) that still weighs not only on the bilateral relations between Croatia and Hungary, but also on domestic politics and the work of the Croatian judiciary, which is definitely not equipped to face these kinds of challenges on a fair-and-square basis as it itself is said to be corrupted and filled with former communist operatives that should be lustrated out of the judicial corridors and benches.

Four months after being appointed as commissioner/adviser for corruption by president Grabar-Kitarovic, Balenovic left that office in protest, arguing that she had not even seen a glimpse of the president in the entire time she worked in her cabinet. One could (should) be a cynic here and say that Balenovic had obviously not realised that her only task was to be a trophy in Grabar-Kitarovic cabinet, who obviously has close ties with many persons responsible for or who have contributed to the sluggishness and alarming inaction when it comes to real fighting with corruption that would see deposition, lustration and even imprisonment of quite a number of political elitists.

Taking into account the constant quest to create a climate conducive to entrepreneurship, that would save the ailing economy, both HDZ and SDP political echelons, as well as president Grabar-Kitarovic, it is truly – in the climate where institutions and big business pander to the will of the governing elite and where public administration is heavily politcised – unrealistic to expect any increases to workers rights that include the protection of whistleblowers. Not increasing protection of whistleblowers in law and practice would, without a doubt, devastate further the very core of any economic or business culture recovery or hope for it. Ina Vukic


Croatia: HDZ Sets Entrepreneurial Tone For Reforms To Drive Economy


Tomislav Karamarko Leader of HDZ/Croatian Democratic Union

Tomislav Karamarko
Leader of HDZ/Croatian Democratic Union

Croatia’s largest political party in opposition – HDZ (Croatian Democratic Union) – had Monday 29 June released its platform or program for economic recovery (employment growth and investments …) and that, in itself, one could say is nothing special – we’ve seen it all before, especially during pre-election times and Croatia is heading for elections either end of this year or early 2016.

However, although all details have not been presented at this time, this particular initiative by HDZ contains the contours of very promising elements, placed at the helm of the program, that could noticeably revive the sluggish, dying economy to a buzzing atmosphere of doing business in Croatia. In particular, propping up and supporting small and medium size business, as a priority, through new avenues of financial subsidies and sources, and de-institutionalising and reforming public administration and government front-line services – making them more user-friendly – are two elements that stand out as promising! While the current Social Democrat led government had in its election campaign of 2011 relied on the so-called Plan 21, which contained some of the elements of HDZ’s economic platform, it would seem that HDZ’s platform has a better chance of achieving real outcomes as goals are more focused and better defined while the similar goals put out by Social Democrats were in fact too generalised and lost among too many goals and aims.

Current Croatian Government's Failed Plan Of Economic Recovery And  Public Structure Reforms

Current Croatian Government’s
Failed Plan Of Economic Recovery And
Public Structure Reforms

When the Social Democrat led, Zoran Milanovic government came to power in December 2011, it held a fairly progressive, albeit too wide to my thinking, policy aim to rekindle economic growth and create a more equal society. For this, a vibrant investment program was to be created to raise capacity and improve productivity, as well as some redistribution to the lower wage earners that would boost consumption and demand. But the government went about achieving fiscal consolidation as a priority (sacked its finance minister  Slavko Linic, mid-stream, who preferred structural reforms to fiscal consolidation) and most of the economic growth goals fell by wayside and weren’t getting picked up by anyone, not in any sense that would produce noticeable results. Hence, in the atmosphere of persistent recession, this approach added to increasing loss of production capacity particularly through company winding downs or bankruptcies. The danger of continuing with the current government’s policy in that the resulting lower level of output and productivity engendered by the long recession coupled with an incompetent government may become a permanent feature of the Croatian economy and Croatia will never get on stable and solid feet economically.

The bright point in HDZ’s newly released economic platform, which gives priority to stimulating small and medium business growth, is that such a path can not only preserve the existing capacity to produce but also cause growth in production capacity which, in turn, would respond positively to a path of resumption of economic growth in Croatia and the EU. Zoran Milanovic’s government simply did not offer adequate attention to developing the small and medium business sector but let that idea slide. Perhaps because that is not in the left-wing ideology or belief (?).

Small and medium business enterprises are seen as agents that stimulate domestic demand through job creation, innovation, and competition, which makes them a driving force behind a resilient national economy. Access to finance is a critical factor in the development of small and medium business enterprises upon which a country’s economy relies. HDZ seems to have recognised this challenge and in their economic platform address new sources of financial stimulation and support for small and medium business, including smart and invigorated path in the usage of available EU funds.

Overall, the current centre-left government has had a dismal record in managing the Croatian economy, which has continued to drag in recession for over six years, far longer than most European countries. One would have thought that the recession itself would have been motive enough to get up and work harder at bettering the Croatian economy – but this did not seem to be the case with the government in Croatia. So, the picture we have now is this: an increasing number of young people are neither in education, employment nor training, leaving Croatia in search of work, while the proportion of people at risk of poverty and social exclusion has increased to levels significantly above the EU average. During the last six to seven years Croatia has lost above 13 per cent of its gross domestic product. Unemployment is above 17 per cent of the workforce, and among young people the rate is close to 50 per cent.

This is a social disaster enveloped in an inefficient public sector that keeps people in jobs that serve no obvious public purpose beyond disguising true levels of unemployment. Not much different to what it used to be under former Yugoslavia – multitudes of jobs without real purpose, without real productivity, without earning the wage through sales of products produced. This is a problem that is magnified by a severe shortage of private sector companies capable of creating jobs by competing successfully in EU markets.

The objective of the economic program of the Croatian Democratic Union (HDZ) is to launch employment, instigate a serious economic growth and deal with everyday problems Croatians are faced with. According to HDZ the backing for this enviably bold platform includes new investments and new finance sources for entrepreneurs. The German Munich-based IFO Institute was reportedly engaged by HDZ to contribute in the drawing up of the program.
If we win government, our tax policy will be directed towards stimulating small and medium business, that is, stimulating the creation of new jobs,” said Tomislav Karamarko, leader of HDZ.

HDZ thinks, it seems, similarly to Carlos Pinerua, head of the World Bank’s office in Zagreb, who recently said that the main problem was the poor business environment, stifled by frequently changing regulations and red tape, particularly on the local level, which made it difficult to set up businesses.

Such an unfavourable climate especially hurts small- and medium-sized enterprises and they should become the main growth and employment driver,” Pinerua said.

It’s blatantly clear that the Social Democrat led, centre-left, government lacks the energy, desire, ideology, self-belief and self-confidence to carry out essential reforms such as shaking up the state-owned sector in such a way that it becomes the true servant of the public, propelling a strong injection of opportunities for the development and establishment of private sector small to medium businesses and making business conditions attractive for foreign investors. Privatisation programs are going nowhere and suffer terrible history of corruption, which breeds increasing distrust and unrest among the working people. The conservative opposition, HDZ, had been in government before, just like the Social Democrat, centre-left, had been and each have and will blame the other for any and every economic woe that comes our way. But one and only one thing is for certain: it is most strongly in the conservative blood that driving private business and entrepreneurship runs, not in the left wings of economic politics. Hence, if it raises its front-lines with more truly professional and experienced managers and public administrators and ditches the “I-know-everything-and-I-know-best” personalities (more often than not inherited from the old communist-socialist power-wielding Yugoslav atmosphere) from its establishment, HDZ may yet deliver the breath of fresh air that Croatian business environment so badly needs. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Croatia: Anti-corruption and anti-fraud measures to be tightened for NGO’s

Associations Act Croatia

While to some it may seem relatively minor, this is a very significant development for the advancement of accountability in public funds. It is another step in moving away from the old totalitarian communist system, where only those at the top had insight into the expenditure of public funds, and closer to full democracy.

Croatia’s government on 30 January 2014 has approved the new Accounting Act for non-profit organisations/ perhaps one could say it is a compliment to the Associations Act well known throughout Western democracies. The Act will require non-profit organisations to submit regular income and expenditure and asset reports to the Finance Ministry, including the Catholic Church.

NGO’s are set to be forced out of their comfort zone, which to date had meant that little, if any, accountability measures enforced when it comes to acquittals of government funding.

All non-profit organisations with revenues more than 1.2 million euros per year will have to face audit reports as well, Finance Minister Slavko Linic said. To my liking and to the standards applied in Western democracies, with their government funded organisations the 1.2 million euros seems a most generous benchmark and should be lowered significantly.

The aim is to introduce transparency in the operation of all civilian organisations, regardless of whether it is sports, church or some other companies,” Linic told reporters on January 31st.

Minister Linic has also stated that non-profit associations that achieve an annual trade greater than 230,000 kunas (30,000 euro) will need to form a trading company or some other form of association that is not non-profit.

The reactions to the new requirements for Regular Income and Expenditure reports and Audit Report requirement has caused quite a stir in Croatia over the past fortnight. Some are against it and criticise it, and others are for it. But most seem to see this move as the introduction of new taxes and a new way to fill the collapsing government budget.

GONG’s (an NGO) executive director Dragan Zelic, while in essence supporting the transparency of non-profit sector operations, stated that the new Act needs refining, that “it’s not in keeping with the strategy of stimulating social entrepreneurship because the work of non-profit associations that employ a significant number of people will be made more difficult…”. While it may be that the new Act needs refining, it’s difficult to see how the number of employees would make the NGO’s work more difficult – all it can do is take a longer time to prepare reports but not to the levels of hardships as any extra work would surely be factored into an affected NGO’s budget.

According to SEtimes portal, the parliamentary opposition condemned the announcement of church taxation, saying that the Catholic Church is a force for stability in Croatian society.

The church gathers people and she is credited for Croatian history, and I think this is some kind of further ranting which is completely unnecessary,” said HDZ’s leader Tomislav Karamarko.

Wherever we turn in the world, the debate as to whether the church/religious institutions should pay taxes is as old as the taxation system itself. So, Croatia is no different.

However, it is customary in Western democracies or legal systems to say that a non-profit organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people. Any profit made by the non-profit organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.

Hence, tax exemptions and/or tax concessions come into play.

Putting the issue of tax dues aside, one thing is most important: NGO’s must be subject to financial accountability and transparency. Such processes and their rigour do in fact ensure a path towards minimising the risk of corruption, fraud and misappropriation of public funds. And, God knows, the NGO’s in Croatia have had little if any audits and inspections and proper annual acquittals of government funds received, as far as I can see. Furthermore, I would suggest, the government should not only insist on Financial and Audit Reports from NGO’s but it should also insist on Compliance certification/reports. I.e., that an NGO did what it was funded to do, including what percentage of government funding is expended in direct services/activities as opposed to the indirect, such as purchases and running of luxury vehicles we seem to see everywhere in Croatia. I could not agree more: accountability and transparency of NGOs in Croatia badly need improvements and any disquiet about whether the church or any other non-profit need to pay taxes should be regulated under a string of tax concessions and exemptions avenues made available under the taxation law as is customary in the developed world. It is regretful that much of the public disquiet has revolved around the issue of the church coming under the taxation law rather than on pushing for these reforms for NGO’s because the new Act should be seen as a positive measure in combating corruption, fraud and misappropriation of public funds. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

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