US embassy cable - 04ZAGREB1936

C O N F I D E N T I A L ZAGREB 001936 
 
SIPDIS 
 
 
DEPT FOR EUR/SCE - KABUMOTO 
 
E.O. 12958: DECL: 11/07/2014 
TAGS: PGOV, PREL, HR, Organized Crime/Corruption, Political Parties/Elections 
SUBJECT: BUSINESS AS "ZUZUL" - FM FACES CORRUPTION SCANDAL 
 
Classified By: Ambassador Ralph Frank for reasons 1.4 (b) & (d). 
 
1. (C) SUMMARY AND COMMENT: Opposition parliamentarians today 
filed a motion for a vote of no-confidence in Foreign 
Minister Miomir Zuzul after a week of swirling corruption 
accusations.  Zuzul has denied all wrongdoing in the business 
deal at the center of the controversy, but the chief state 
prosecutor has launched an investigation and PM Ivo Sanader 
has backed off from earlier unconditional support for his FM, 
saying he is "awaiting the facts."  While those facts remain 
murky, it is clear that attacks on Zuzul are taking a 
political toll.  With opposition claims that the Serb and 
Pensioner parties from the ruling coalition will join the 
hunt for Zuzul, Sanader may soon find the scandal too costly 
for the GoC and seek the FM's resignation himself. 
 
2.  (C) Zuzul has been a consistent friend of the U.S. and 
his experience as Croatian Ambassador to the U.S. has 
naturally made him one of Post's key interlocutors within the 
GoC.  Zuzul's pro-American views, however, have become a 
liability in the press, and his perceived inability to keep 
his business deals separate from his official duties will 
likely make him an increasingly ineffective advocate for U.S. 
interests.  END SUMMARY AND COMMENT. 
 
THE IMOSTROJ/MTS CASE ) CONFLICT OF INTEREST? 
--------------------------------------------- 
 
3. (U) The current scandal revolves around the sale of two 
companies: Imostroj, a bankrupt arms manufacturer whose 
assets were purchased by businessman and Zuzul relative Ivan 
Karin at auction in June, and MTS, a consultancy company 
owned by FM Zuzul's wife.  Zuzul's accusers claim that after 
Karin agreed to purchase 50 percent of MTS for 500,000 kuna 
(approximately USD 80,000), the FM influenced the GoC's 
September decision to write off a substantial portion of 
Imostroj's debt.  While Zuzul has denied any connection 
between the deals, his credibility dropped when the press 
immediately disproved his claims that Karin never actually 
paid for his share of MTS.  The GoC has defended the debt 
write off as a simple social measure to allow employees to 
receive their salaries. 
 
4. (SBU) Zuzul has been dogged by negative press stories 
since becoming FM late last year, and his efforts to defend 
himself have become increasingly awkward.  When the press 
discovered he had under-declared rental income, Zuzul blamed 
his accountant.  When the press lambasted him for his 
vociferous arguments for contracting directly with Bechtel 
for a new segment of the Split-Dubrovnik road, Zuzul, who had 
worked until a few months before the November 2003 elections 
for a law firm which lobbied for Bechtel, claimed the Foreign 
Minister played a natural role in all large international 
deals.  After Sanader was pressured into nixing the direct 
contract and putting the roadwork out for bid, Zuzul's 
perceived conflict of interest became an article of faith 
among many in the press and public. 
 
OPPOSITION SMELLS BLOOD, RULING PARTY ASSESSING DAMAGE 
--------------------------------------------- --------- 
 
5. (U) Leaders from the opposition Social Democratic Party 
(SDP), Croatian Peasant Party (HSS), and Croatian People's 
Party (HNS) claim they can muster 79 votes in a no-confidence 
measure against Zuzul (two more than the required simple 
majority), including votes from the Croatian Party of 
Pensioners (HSU) and the Independent Serbian Democratic Party 
(SDSS) of the ruling coalition.  According to current 
parliamentary rules, the Speaker must call the no-confidence 
vote within 30 days of a request.  The presidency of 
Sanader's Croatian Democratic Union (HDZ) will m