US embassy cable - 05ZAGREB377

UNCLAS  ZAGREB 000377 
 
SIPDIS 
 
 
SENSITIVE 
 
DEPT FOR EUR/SCE: JMITCHELL 
BELGRADE FOR DSALAZAR 
 
E.O. 12958: N/A 
TAGS: PREF, PGOV, HR, Organized Crime/Corruption, Refugee 
SUBJECT: Prosecutors Investigate Refugee Housing Scam 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE HANDLE ACCORDINGLY. 
 
 
SUMMARY and COMMENT 
 
1. (SBU) In mid-February, the Croatian Office for Combating 
Corruption and Organized Crime (USKOK) began investigating 
possible illegal sales of refugee Serb houses to the 
Croatian State Agency for Refugee Property (APN). 
Intermediaries in Serbia and Montenegro (SAM), supposedly 
representing Serb owners of property in Croatia, allegedly 
used forged documents to sell houses to APN without the 
owners' knowledge.   Officials from APN and the GoC's 
Office for Displaced Persons and Refugees (ODPR), private 
agencies and one Croatian bank may have been involved in 
the fraud, which could affect thousands of families.  While 
it is encouraging that these cases are finally being 
investigated, and a sign that the GoC is willing to respect 
the rule of law even where the Serbian minority is 
concerned, the problem may prove both embarrassing and 
expensive for the GoC: eventual compensation for defrauded 
owners could run into millions of dollars.  End Summary and 
Comment. 
 
HOUSING SCAM RUMORED, THEN UNCOVERED 
 
2. (SBU) In December 2004, ethnic Serb MPs publicized the 
cases of two Croatian Serbs living in SAM whose houses were 
sold based on falsified power of attorney.  They asked APN 
to freeze further activity until the State Prosecutor and 
State Auditor could investigate contracts on 8,300 houses 
purchased since 1997, for which the state spent about 200 
million Euros.  An estimated 80 percent of these contracts 
were signed through power of attorney and a large 
percentage is potentially fraudulent.  The MPs suspect that 
between four and eight million Euros ended up in the 
pockets of APN officials and mediating agencies.  The NGO 
Association for Civil Alternatives and Ethnic Relations has 
taken the lead in helping potential victims, presenting 59 
cases to USKOK in which power of attorney was falsified. 
USKOK is investigating those cases and APN's role, although 
they told Post they do not have capacity to check thousands 
of suspect contracts.  USKOK has indications of hundreds of 
cases where the mediating agencies paid significantly less 
to owners than APN paid for the property. 
 
MODALITIES OF FRAUD 
 
3. (SBU) Perpetrators developed several schemes to make 
money from home sales.  The most extreme form consisted of 
forging documents and selling homes without the owners' 
knowledge.  More commonly, APN allegedly teamed up with 
intermediary agencies and drafted double contracts, which 
differed only in price.  The higher-priced contract was 
filed and the lower-priced contract was given to the owner, 
with the APN official and the intermediary splitting the 
difference.  Croatian Serb refugees with dual citizenship 
were best equipped to establish such intermediary agencies 
and travel between the two countries. 
 
4. (U) The press reported that an agency owned by siblings 
from Kostajnica, Dusanka and Dusko Borojevic, operating in 
Sabac in SAM, made a fortune on such contracts.  The 
prosecution's investigation showed that they concluded at 
least 450 contracts and the average difference ranged 
between 15,000 and 20,000 German marks per contract.  A 
Serbian lawyer representing the owners filed a criminal 
report for Croatian prosecutors in 2001 against the 
siblings (who are dual citizens of Croatia and SAM) and 
three APN staff, but only the siblings were indicted. 
 
5. (SBU) A third form of fraud was the purchase of 
nonexistent property, discovered during the internal APN 
audit in 2001.  For example, former APN Director Davor 
Rajcic signed a purchase of a house in Glina, but the audit 
showed only land at that location, where no house ever 
existed.  On other occasions, agencies forged powers of 
attorney for deceased individuals to sell houses. 
 
APN'S ROLE 
 
6. (SBU) APN has been notorious for its lack of 
transparency; rumors of impropriety have circulated for 
years.  The media and NGOs are now highlinghting serious 
procedural omissions in APN's contracting.  Namely, 
contracts often lacked significant data about owners' 
identity, such as their unique identification number. 
Observers point out that cumbersome bureaucratic procedures 
(such as home assessments, two inspections, price 
 
negotiation and notarization) could be completed in one or 
two days in a notoriously-protracted Croatian bureaucracy; 
closing on the purchase of a house at the speed of light 
heightened suspicion about APN's role in the frauds. 
Documents indicate that APN staff provided certain agents 
in SAM with information needed to forge sales documents. 
Based on this information, SAM officials arrested the head 
of the MiS NS Real Estate Agency in Novi Sad. 
 
TAKING CORRECTIVE ACTION 
 
7. (SBU) PM Sanader appointed APN's current President 
Vladimir Goatti in September 2004 after complaints began to 
mount about irregularities in APN's conduct.  Goatti said 
he intends to get to the bottom of the scandal and has 
recently introduced a number of measures to prevent further 
illegal activity.  One such measure is a freeze on all 
further activity.  Another is to limit APN's acceptance of 
powers of attorney to three courts in SAM and the Croatian 
Consulate.  However, Post has been told that on several 
occasions APN has refused to hand over contract copies to 
unwitting owners whose houses were sold, and refused 
several requests through power of attorney from the 
mentioned courts, quoting internal procedures.  Goatti has 
also said that he will take steps to annul falsified 
contracts, presumably after court action. 
 
8. (SBU) USKOK is proceeding with its investigation, which 
it expects will take several months.  Dinko Cvitan, Deputy 
of USKOK estimated that "several hundred" individuals could 
have been swindled, although USKOK will not be able to 
examine thousands of documents.  Defrauded owners, he 
explained, must file a criminal suit against the GOC.  Even 
so, the barriers remain daunting: deceived owners can only 
annul forged contracts by filing a criminal suit against 
the GOC, which requires documents from APN files (not 
obtainable at the moment because of the ongoing 
investigation) or from inefficient local land registries. 
In addition, court fees are based on the property value and 
average 2,000 Euros - prohibitively expensive for many 
refugees.  In addition, many owners may not be aware that 
their property was sold. 
 
9. (SBU) The international community, with the GOC, is 
exploring options to ease the burden of owners who are 
victims of the scams.  Post and others may suggest that APN 
provide copies of relevant documents to owners, that the 
GOC and its SAM counterparts verify powers of 
attorney, or, as Goatti indicated, that the GOC find an 
amicable settlement with owners to nullify false contracts.FRANK 
 
 
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