The New Government's Challenges

Hunting Down the Rich

Milosevic's 13-year rule brought nine-tenths of the Serbian population to the brink of poverty. What will the democratic government do with the several thousand who simultaneously amassed enormous wealth?

AIM Belgrade, May 6, 2001

Journalists and editors of Serbian media outlets have for weeks been pestering their most precious connections, the type nurtured for critical situations. Their goal is to get hold of a list containing the names of the 200 wealthiest individuals and companies in Serbia who made their fortune during the Milosevic era. The reason is a bill on levying a one-time tax on profit and property they gained by their proximity to the Milosevic regime, which will soon be debated by Serbia's Legislature. In other words, the bill will affect those who, while ostensibly working to the benefit of the people and the state, became rich overnight in the midst of rampant poverty and a decaying country. The Serbian legislature should debate and pass the bill by the end of April, unless the current obstruction of the legislative branch of government -- led not by the former rulers, Slobodan Milosevic's Socialists, but by Vojislav Seselj's Radicals – continues forever.

The Radicals can make as much noise as they please: their participation in the Milosevic government was limited and strictly controlled, and, consequently, their chances of finding themselves on the aforementioned list were greatly reduced. In addition, the first series of arrests, investigations and charges targeted primarily the Socialists and members of the Yugoslav Left party: Vojislav Seselj is free to spend the next decade protesting the confiscation of an armored sports utility vehicle he claims was given to him by the Serbian Interior Ministry. The vehicle was allegedly given to the Ministry by the former head of the Federal Customs Service, Mihalj Kertes, and it originally belonged to American William Walker, the chief of the OSCE mission in Kosovo and Metohija until the NATO bombing of Yugoslavia in 1999.

Most of those whose wealth, businesses and property could come under the scrutiny of the new authorities are avoiding publicity. They do not deny reports about their attempts to establish, renew, or strengthen their ties with the new authorities; they just keep quiet about everything.

Serbian Vice Premier Vuk Obradovic is in charge of curbing corruption; he is the head of the government committee for investigating abuses in the economy and the finance sector, and the committee had drawn up the bill, which should tax all those who acquired their wealth after Jan. 1,

1. In one of his recent statements, Obradovic denied the existence of the "List of 200," saying that relevant data indicates that in the period in question the national wealth was concentrated in the hands of some 7,000 families, with the lion's share held by about 200 people. According to him, the list, if there were any, would include much more than 200 people.

Obradovic often says that this wealth was not a result of breaking the law, but of privileges businesspeople close to Milosevic enjoyed and amply used. During its two months of operation, the committee probed some 20 cases of suspicious privatization and business and financial transactions; Obradovic admits that his earlier estimates that the people and the state deserve a refund of about DM200-300 million, have been exceeded several times. After the initial probes he now believes that about DM3-5 billion ought to result from the implementation of the new bill. Even these latest estimates, however, could turn out to be modest, if claims that during the Milosevic rule the state was robbed of up to US$30 billion, are confirmed.

At a press conference last week Yugoslav National Bank governor Mladjan Dinkic in his habitual manner openly mentioned the case of Dragan Tomic, general manager of the Vranje-based Simpo factory, asking where his son got DM35 million for the purchase of the Skopje steel mill, and how his wife had the money to buy a large department store in Prague. Mrs. Tomic has denied owning such a store; but as far as the Skopje steel mill was concerned, no denials were issued.

Similar questions can be asked about many "business empires" and "successful companies" that emerged from nowhere, that is, that were the result of misappropriation of national wealth. Serbian Premier Zoran Djindjic was once fined for "slandering" Mirko Marjanovic, then Serbian premier, because he publicly asked by what right Marjanovic, who was also the director of the Progres company, had issued to himself permits for the sale of the state wheat reserves and the import of oil and oil derivatives. The business career of the chairman of Delta Holding contains a shady episode in which he was in charge of selling tires manufactured by the Krusevac Trajal company... And so on and so forth, all the way to patriots of the Zeljko "Arkan" Raznatovic variety who were bestowed with gas stations by the heads of the State Security Service, or the likes of Marko Milosevic, whom the fact that he was the Yugoslav president's son "qualified" to be in charge of duty free stores.

Milosevic's rules for amassing wealth were simple and clear: a comparison with the Mafia would be no exaggeration. The bill to tax excessive wealth has 26 articles. If for nothing else, it deserves attention for being so concise. In principle, it pertains to all who acquired their property after Jan. 1, 1989, using benefits unavailable to ordinary citizens. The ways used - for what is usually termed as the Serbian version of the initial accumulation of capital – are specifically listed.

As a banking expert and the leader of a nation who, while putting the blame on others, simultaneously perfected his skills by intrusions into the former Yugoslavia's payment transfer system before it fell apart, during his rule Milosevic provided for selective access to the primary issue of money. For example, privileged users exchanged tons of worthless banknotes for the citizenry's hard currency savings. Or, for the more refined, fictitious money provided for actual transactions enabled the privileged group to acquire wealth unhindered during the 1993 hyperinflation and years of routine, weekend exchange rate shocks. This is why the 1993 hyperinflation did not make it into textbooks on economics, but the record-books of bizarre records. In the streets of Belgrade that fall the famed Kosava wind blew away worthless banknotes as if they were withered leaves. This picture, which in any movie or novel would be perceived as exaggerated and consequently not credible, was something Serbia's citizens have been quite accustomed to for years.

The privileged purchased hard currency from the state at the official rate, ranging in the past decade from 1:3 to 1:45 per German mark, and which provided for "financial transactions" of proportional value. One of their favorite deals were advance payments on imports, fictitious, of course: a privileged importer of strategic goods could thus to take his profit out of the country. It was well known who could import and distribute products on which excise tax was levied -- oil, cigarettes, alcoholic beverages, and coffee -- without paying customs duty, import tax, excise tax or any other fees, and who had access to products which were on the quota regime. Domestic "economic giants" were exempt from paying any fees or reporting their earnings. What was euphemistically called the concealing of profit practically meant that someone could, on behalf of the state and himself, sell copper and gold from the Bor mining and processing complex, iron, nickel, lead and silver from the Trepca complex, or anything else if it was in the "interest of the state." Thus, especially in the last phase of Milosevic's rule, the state commodity reserves were practically exhausted; starvation was avoided only because the harvest was good.

The list of instances in which the rich robbed the populace also includes the embezzlement of public funds, public companies' capital, the budget, and welfare funds. To become a director, that is, to become close to Milosevic and, later, to his wife, gave one the most fantastic opportunities. The result was the destruction of the pension insurance fund and the ruin of the health care system – which ultimately pushed the majority of Serbia's population below the poverty line. "Successful business people" could freely administer the solidarity funds, proceeds from tax on business transactions, and funds gathered to alleviate the consequences of earthquakes. Thus, numerous companies were privatized overnight, houses, apartments, and business offices were "bought" and loans approved. Furthermore, the privileged, as opposed to ordinary people, could withdraw their capital (plus interest) from bankrupt -- and for that purpose created -- para-state banks, in the same fashion in which earlier they used special channels to access money Milosevic had borrowed to rebuild Serbia. They were either not obliged to pay the money back, or obliged only nominally.

The bill taxing such profit and property features tax rates from 30 to 90 percent, depending on the size of the profit and property in question (ranging on its part from DM100,000 to DM10 million or more). The highest rate will automatically apply to apartments and homes larger than 120 square meters, which no person who had a chance to see the luxurious living quarters and mansions owned by the Karic brothers and other "successful business people" in Dedinje and in other elite districts of Belgrade, or "cottages" belonging to former officials in the interior of the country, can oppose. The question is, as always, whether the new authorities, besides their good intentions, will muster sufficient strength to apply the law.

The new business office of TV Pink in Dedinje was given an architecture award at almost the same time when it was determined that it lacked a construction permit. Later it was established that investors built 1,500 square meters of office space more than officially reported. It is now up to the state to determine whether it will tear down the ugly building or issue a permit and charge some DM6 million, which is the market value of the excess space. The simpler cases, such as the one of former Politika publishing house director Hadzi Dragan Antic -- who in several years acquired four luxury apartments without paying off any of the loans he obtained through mysterious channels -- or Vlajko Stojiljkovic, former interior minister -- who lives in a 420 square-meter house -- or numerous other such examples, can be resolved either through nationalization or the sale in favor of the state coffers.

In any case, say Vuk Obradovic and Mladjan Dinkic -- whose role in unveiling the hidden money flows is priceless -- the law will affect only those who used their privileged position to acquire wealth. After they pay for what they acquired, they will be allowed to test their business skills legally, abiding by the rules valid for all others. The judiciary will deal with those who became rich by breaking the law. Given the magnitude of corruption in Yugoslavia, which helped it reach second place on a list of the world's most corrupt countries, and which destroyed the very foundations of society, the intention of lawmakers to start from top cannot be questioned. What is uncertain, however, is whether they will persevere and whether the same rules will apply to officials of the ruling bloc as well, among whom are successful businessmen, such as Serbian Premier Zoran Djindjic or Serbian Interior Minister Dusan Mihajlovic.

Aleksandar Ciric

(AIM)