“ Balkan Anti-Corruption Civic Initiative ”

“Balkan Anti-Corruption Civic Initiative” Project financed by EU Commission within IPA Programme. Project implemented by Partnership for Social Development Croatia, Open Society Fund Serbia, Centre for Development of Non-Profit Sector Serbia, Romanian Academic Society Serbia and Open Society Fund Bosnia and Herzegovina

BACCI Balkan Anti-Corruption Civic Initiative Project financed within EU IPA 2008 Programme Civil Society Facility: Support to Partnership Actions “Fight against Corruption, Organised Crime and Trafficking”

Conflict of Interest and Corruption: Phenomenon and level of influence on public administration’s work and public interest in the Republic of Croatia.

Understanding corruption and conflict of interest is a pre-condition for fight against them. Simplification of transfer of legal solutions, individual measures or organisational systems on corruption suppression, without prior defining of the state of affairs and national or local diagnostics of the phenomenon, leads to eternal frustration due to eternal fight without visible results.

EU Commission in its Progress Reports for Western Balkan countries continuously states that “conflict of interest is not understood on all levels” What is it that we don’t understand?

Conflict of interest is conflict between one or more interests in a venture, where a less important interest(s) or a less principled interest(s) overcomes the most important or most principled interest(s) and in doing so venture suffers damage or its effectiveness is reduced. • Corruption is every activity which lies on misuse of public powers for private gain or use by official(s) or person deciding on public interest. • Conflict of interest, even though not representing corruption per se, it represents the basis of organised and systemic corruption. • By reducing corruption to bribery, we, by ourselves, are reducing potential impact of measures for suppression of corruption.

Effective corruption suppression, i.e. conflict of interest suppression, is based on transparent public sector work, availability of data and possibilityto distribute these data and give opinion on public sector’s workso the public can make judgement on how certain public bodies and officials work.

World Bank Indicators

World Bank – democracy scores, 1999/2000–2010

Last 10 Years of Fight against Corruption in Balkans • Period 2000-2003 coincides with big changes in Balkan countries and adoption of the first package of basic laws for suppression of corruption (Freedom for Access to Information Act, improved public procurement laws, Law on Suppression of Conflict of Interest). • After the first uplift of reforms, all parameters measuring development of democracy, freedom, human rights and fight against corruption had been stagnating up to 2007/2008, when a negative trend started which continued even till today. • Even a superficial data analysis shows that the money, work and resources spent haven’t produced expected results and that it is needed to seriously consider the reasons which are making fight against corruption stagnating.

Freedom for Access to Information Act (FOIA)

FOIA (in total 91 requests for information) 44% of answers to requests were incomplete In 31% of cases,access to information was not possible 25% of answers to requests were incomplete, data requested for research was not delivered (e.g. names of members of committees for public procurement)

Law on Suppression of Conflict of Interest • Law on Suppression of Conflict of Interest, with its new amendments, holds its focus on officials’ assets and not on detection and sanctioning of conflict of interest and as such, it will not bring relevant changes in relation to current state of affairs

Conflict of Interest and the New Law • Committee, or political subjects via Committee, remain the only parties empowered to start investigations on conflict of interest. Based on claims Committee can, but doesn’t have to start investigations. • Small number of officials are obliged to abide by the law on national and local level, which leaves a lot of space for manoeuvre for political and/or organised corruption via those deciding on public interest and those responsible for protection of public interest. • Example: one of crucial institutes responsible for protection of public interest on Croatian Radiotelevision (HRT) – almost completely out of the scope of the Law (HRT Management as executive body of HRT). • Amendments don’t follow Council of Europe recommendations regulating conflict of interest, i.e. difference between real, potential and spurious conflict of interest, and material and immaterial advantage deriving from them (the Law deals with property and ownership).

Conflict of Interest and the New Law - sanctions • Annulment of legal acts deriving from conflict of interest is possible only in public procurement procedures while employment, appointment or other legal acts adopted in conflict of interest remain in force. • Removal of or paying for damages deriving from conflict of interest is not defined by law. • Sanctioning of untrue data on property/assets in Declaration of Assets is possible, but sanctioning of untrue data tied to interests and potential immaterial advantage for officials is not possible.

Conflict of Interest and the New Law - sanctions Sanctions for breaking the Law tied to property/assets, gifts, fees, other work, membership in managing bodies and committees, limitation of business activities for enterprises and obligations to inform about gaining assets are: warning notice, suspension of one part of monthly salary (2.000 – 40.000 kuna) for a maximum time limit of 1 year, publishing of Committee’s decision

Conflict of Interest and the New Law - sanctions Only in cases when an official rejects to execute Committee’s decision about correction of Declaration of Assets, the Committee can make a proposal to remove the official from his/her office. Responsible body within which the official in question is working is not obliged to implement this proposal. Possibilities for removal of an official in cases of conflict of interest don’t exist. Request for removal of an official – Committee can ask for his/her removal only in cases tied to non-fulfilment of Committee’s requests related to data in Declaration of Assets. – Similar opportunities related to conflict of interest don’t exist.

Conflict of Interest and the New Law Conflict of interest management mechanisms (what to do when a potential conflict of interest arises) cannot provide answers to real situations of officials. Sole clear regulation of conflict of interest lies in public procurement procedures when they include direct conflict of interest, while the rest of procedure is more or less outside the scope of efficient legal acts. Transfer of rights (owner’s share in enterprises) on someone else is only temporary and it doesn’t prevent the enterprise to get rich during the mandate, i.e. the official is not prevented to indirectly get rich during his/her mandate after he/she returns his/her share in the enterprise after his/her political mandate. Limitation to conclude agreements only applies to enterprises in which officials gained share up to 2 years before his/her mandate. In short, the Law is not based on practice and issues related to conflict of interest in Croatia, but on solutions taken from other countries which function within completely different legal framework.

Conflict of Interest and Civil Society There are only few CSOs working in the field of fight against corruption, they are often under capacitated and mainly operate on national level. In most local communities they don’t even exist. Tendency of the state to “capture” even this small number of CSOs is visible in ministries (public procurement) as well as in public enterprises. “Cooperation” between civil society and the state in fight against corruption gets down to “showing” CSOs on conferences and projects which don’t have any real effect on problem of corruption. Voices criticising the work of the state and local administration are often not welcomed thus the fight against corruption is left outside the scope of public criticism and judgement (except in rare cases related to lower level of state management).

Conflict of Interest and Media and Civil Society Research in Croatia as well as in other countries in the region, according to all analysed indexes and results of conflict interest analysis, point to media captured by political interests as well as by private capital interests and personal (immaterial) officials’ interests. Affairs like FIMI media (and a lot more similar models of influence on media), state of affairs on HRT, prosecution, firing and attacks on investigator journalists as well as complex relationship between officials and private media groupings on national level disable the basic assumption of fight against corruption – distribution of information for the public and formation of adequate public judgement on officials’ morale. Research showed that local media are financially, politically as well as by ownership depending on political establishment. Conflict of interest related to media, media ownership, media financing as well as other relations, has been detected in all analysed cities.

Research Results in Croatia: Ministry of Finance, Ministry of Administration, Ministry of the Interior and Ministry of Health and Social Welfare Financial Management, Public Procurement and Conflict of Interest

Ministries’ budgets: budget reporting – non transparent items Source: official website of State Audit Office and Ministry of Finance

Ministries: Potential conflict of Interest in Public Procurement Procedures Source: Quantitive – Ministry of Economy, Labour and Entrepreneurship; Qualitative – media analysis and interviews

Ministries: Differences in Published Contract Value – Credibility in Reporting Source: Ministry of Economy, Labour and Entrepreneurship and official website of State Audit Office

Ministries’ Budget Reporting In total, cca 900 million kuna or5,5% of the total budget resources are not available for the public in the reports.

Ministry of Finance: Budget Reporting – non transparent items Source: official website of State Audit Office and Ministry of Finance

Ministry of Finance: Officials and Conflict of Interest Customs Director Mladen Barišić arrested and under investigation because of “FIMI media” affair, however there has been no investigation and sanctions related to conflict of interest. According to interviews and media articles – employments and appointments in Directorate Generals within Ministry of Finance were influenced by politics (political parties within the ruling coalition) and sometimes by personal interests of officials (e.g. appointment of Ante Šimunović in Financial Agency (FINA) under the influence of former minister Šuker) Distribution and advertising of Personal Identification Number (OIB) (Ministry of Finance Project) via Croatian Post Office, without public procurement tender, with the contract with Croatian Post Office for media campaign of OIB, which included even the broadcasting via news even though the OIB Project was the project of Ministry of Finance. Contract on adverstising was signed with MASSOL ltd. which is connected, according to the media, with Ratko Maček, former Spokesperson of the Government and one of leaders of pre-election campaigns for HDZ. This kind of situations apparently successfully avoid the radar and, organs of criminal prosecution and Law for Suppression of Conflict of Interest, and also the public didn’t have a chance to be informed on affairs tied to Croatian Post Office. Even though available data with names of potential witnesses (insiders) were forwarded to USKOK, there is still no epilogue.

Ministry of Administration: Budget Reporting – non transparent items Source: official website of State Audit Office and Ministry of Finance

Ministry of Administration: Differences in Published Contract Value – Credibility in Reporting Source: Ministry of Economy, Labour and Entrepreneurship and official website of State Audit Office

Ministry of Administration: Officials and Conflict of Interest According to research methodology, researchers weren’t able to detect conflict of interest of Ministry’s officials

Ministry of Interior: Budget Reporting – non transparent items Source: official website of State Audit Office and Ministry of Finance

Ministry of Interior: Public Procurement – credibility in reporting Source: Ministry of Economy, Labour and Entrepreneurship and official website of State Audit Office

Ministry of Interior: Officials and Conflict of Interest During project implementation, Minister tried to make a direct pressure on this research by sending answers to offical requests for information to private address of M.P. via Foreigners Office instead to PSD address which is a legal carrier of the research! Also, the Ministry has completely answered to only 2 out of 9 requests

Manifestations and Impact of Conflict of Interest in Managing Public Goods During research, we have connected Minister Tomislav Karamarko with ownership of 4 enterprises: STABILIS CONSULTUM d.o.o., DORON NET d.o.o., IPPON SECURITY d.o.o., SOBOLI d.o.o. As these enterprises are not listed in Minister’s Declaration of Assets, we went to Court Register to search for legal acts on transfer of rights (management rights), but nothing was there, except documents stating that Minister is no longer the owner of these enterprises. When asking Court Register clerks about missing documents they told us that they didn’t know but that those documents should have been there and they asked us to come back the next day. Next day, clerks told us that those acts are missing but everything is “in accordance with the law”.

Minister Karamarko is also the Vice president of Basketball Club Zagreb. In its assembly there are also: Davor Jelavić (City of Zagreb), suspect in affair related to changes of documents of urban planning Željko Čović (Pliva); Josip Petrović (Agrokor & Ina) – participants in “Verona” affair, together with Ivo Sanader related to selling of Pliva to American Barr Marijan Hanžeković – the wealthiest Croatian lawyer with large contracts for state companies and institutes Branko Vojnović; Geoprojekt and Zagrebgradnja, underUSKOKinvestigation due to malversations with properties in Zagreb Ninoslav Pavić, co-owner of EPH and one of the biggest media owners in Croatia. Suspect inGRUPO & HYPO affairs. Tomislav Karamarko, while not in the Office, was in close business relations withNinoslav Pavić. Ivica Toljan, HEP, suspected by Regional Attorney’s Office for “Flats” affair for damages toHEP amounting over 8 million kuna. Basketball Club Zagreb is one of the wealthiest clubs in Croatia, for which often Minister Karamarko takes credit stating how this is due to private, not public money. Sponsorship list is long, and some of sponsors are: Pavo Zubak, PZ auto – media questioned acquisition of cars for Ministry of the Interior corresponding to PZ auto (Škoda cars). DALEKOVOD, under investigation due to construction of electric power stations for HAC (Croatian Highways) amounting over 1 billion kuna. HEP – under investigation for damaging contracts on electricity selling - TLM, Stanova, DIOKI and other smaller affairs. Croatia Osiguranje & Hrvatska Lutrija, under investigation for FIMI Media affair and lots of other affairs. City of Zagreb, under constant suspicion and criminal claims without epilogue. According to media, over 250 claims are currently in State Attorney’s Office. INA – under investigation because of privatisation (Ina & Podravka affairs) where Ivo Sanader and Damir Polančec are suspects Jamnica, Ivica Todorić (owner)-suspect in HYPO credit affair KAMGRAD These data are also nowhere to be found in Minister’s Declaration of Assets

Public Procurement and joint interests Just prior to “Podravka” affair (Spice affair) , PODRAVKA transfered over 3 million kuna to SOBOLI, for consultancy services! Research detected that during the time of “HAC” affair, SOBOLI produced an Safety Estimate for HAC. According to that Safety Estimate, later the same enterprise won a public procurement tender for works (services) of several million kuna, which is forbidden by the Public Procurement Act. One of owners of DORON NET is Luka Gašpar, former Executive Board member in Ericsson Nikola Tesla, and today the President of the Executive Board in Emerson. Emerson is often a sub-contractor for Nikola Tesla. Nikola Tesla is one of the biggest contractors for ministries. Relationships between DORON NET and other enterprises formerly owned by Tomislav Karamarko and enterprise Emerson and Nikola Tesla was not possible to determine within the methodology of this research. INA and HEP are sponsoring Basketball Club Zagreb, but are also main clients of Emerson (Luka Gašpar). KAMGRAD is one of sponsors as well. KAMGRAD worked on construction of new building for Central Intelligence Agency. Tomislav Karamarko, before becoming a minister acted as the Director of this Agency. However, as stated earlier, it was not possible to determine the relationship between minister Karamarko and enterprises which he had co-owned prior to his minster duties. All these situations pass under the radare of Law on Suppression of Conflict of Interest and are not subject of investigation or other actions by relevant bodies, discipline ones or penal ones.

New Law on Police New Law wants to hold appointed individuals on their positions for at least 5 years under the slogan of depolitisation and harmonisation with EU benchmarks. However, it is important to point out that according to the new Law, current minister completely controles employment and appointment procedures (minister appoints the commission which for its work answers to the minister), without influence or insight of the public in procedures which are marked with the official secret status! With this kind of system for appointment of management structure, minister will completely control the Police for 5 years!

Ministry of Health and Social Welfare: Budget Reporting – non transparent items Source: official website of State Audit Office and Ministry of Finance

Ministry of Health and Social Welfare: Public Procurement – credibility in reporting Source: Ministry of Economy, Labour and Entrepreneurship and official website of State Audit Office

Ministry of Health and Social Welfare : Officials and Conflict of Interest Journalist Nataša Škaričić wrote about minster’s call to all media editors in Croatia in order to agree on “the strategy” how to report on the health care reform. Afterwards, she was fired from the EPH. During his duties as Vice Head of the County, he was parallely acting as the Director of Gospić Hospital thus receiving both salaries (together with his hospital attendances) (in total around 45.000 kuna) Media wrote about minister’s “stalling of public procurement process for purchase of 128 ER vehicles”, i.e. not respecting the criteria of the lowest price but asking for additional reports. Also, there are articles about the minister and his ministry’s “donation” amounting 20.000 kuna to association Youth Sings, organiser of a music festival on which minister’s daughter won. Independant Traffic Union (NCS) is asking for investigation on legality of enforcement of local rates payments by HAC, one of these enforcements is started by community Gospić. According to NCS, ministers Milinović and Kalmeta are “buying votes in their counties and communities”. Part of interviewed people thinks that appointments and employments within the ministry are done exlusively according to politics or private interests.

Committee for Supression of Conflict of Interest has rejected claims against minister Milinović. However, the question arises, will the Committee check in detail minister’s assets according to the new Law. Picture: newly built house of minister Milinović in Gosppić

Research Results in Croatia: Zagreb, Čakovec, Split, Osijek, Sisak Financial Management, Public Procurement and Conflict of Interest

City Budgets: Budget Reporting – non transparent items Source: official website of State Audit Office and Ministry of Finance

City Budget Reporting In total 4.724.387.605kuna or in average 25,24% of total budget resources is not available to the public in the reports of analysed cities in Croatia. These items are most often used for corrupt, political or private purposes within the work of public administration.

Cities: Public Procurement- credibility in reporting Source: Ministry of Economy, Labour and Entrepreneurship and official website of State Audit Office

Cities: Public procurement- potential conflict of interest in procedures Source: Quantitive-Ministry of Economy, Labour and Entrepreneurship, Qualitative- media articles analysis and interviews

“ Balkan Anti-Corruption Civic Initiative ”