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In a leaked cable from 2009, a US embassy official wrote that the bank owned by the family of the then prime minister of Montenegro, Milo Djukanovic, was an “emblematic example” of “major blind spots” in a new conflict of interest law.
The new law is better than the previous one from 2004, but it still has “massive loopholes”, official Steve Kontos wrote in a cable from the US embassy in Podgorica to the State Department in the beginning of 2009.
The Wikileaks cable was published on Tuesday by the Montenegrin daily Vijesti.
According to Kontos, one of the major problems was that the law concerned only public officials and members of their "household" (i.e. immediate family) - but not other relatives, and did not limit officials who placed property or assets in a blind trust.
Because the law did not address other relatives, it failed to limit public officials from transferring right of property and income to third persons, Kontos wrote in the cable entitled: “New conflict of interest law in Montenegro: improved, but not enough”.
In a section of the cable entitled “blind to the biggest conflict?”, Kontos explained the problem, which he said had been brought into "stark relief" in the controversy surrounding Prva Banka.
According to lawyers consulted by an anti-corruption NGO, then prime minister Djukanovic had not broken the old nor the new law on conflict of interest when the government approved a specially designed loan to help Prva Banka, whose majority owner was the prime minister’s brother.
Djukanovic had not violated the laws because his brother, Aco Djukanovic, does not live in his household. Meanwhile, for the prime minister’s personal 3 per cent stake in Prva Banka to be free of conflict of interest, it was enough to transfer the executive power over his stake to a third person.
"Help" from state-owned company, government loan
In the leaked cable, Kontos wrote that prior to the loan, then state-owned energy company Elektroprivreda, EPCG, invested in the recapitalization of the financially troubled Prva Banka. Opposition parties complained that EPCG "invested" in the bank at a time when the energy company itself faced serious financial difficulties. (It had just made the decision to raise electricity prices for consumers, Kontos pointed out).
As part of the recapitalization of Prva Banka, Aco Djukanovic and EPCG invested €20 million, raising its initial capital from €26 to 46 million. Through this transaction, EPCG’s share in the bank rose from 9 to 18 per cent, while the prime minister’s brother reached 46 per cent ownership, which made the Djukanovic family the majority owner.
Kontos explained in the cable that in October 2008, Parliament approved a new law that allowed the government to issue loans to banks in return for shares. Following the recapitalization of Prva Banka, the Ministry of Finance signed off on a loan for the bank from the state budget, with an interest rate of 2.5 per cent for a period of three months, later extended to one year. This new law has so far only been used to help Prva banka.
In the US government dispatch, marked “sensitive”, Kontos wrote that Djukanovic told the parliament that the loan was issued to Prva Banka in order to protect the interest of the clients who deposited money in the bank, not the interests of the bank’s owners.
Kontos noted that prior to Prva Banka's financial troubles,"critics contend that DPS [the ruling Democratic Party of Socialists] officials encouraged state-owned companies (and private companies as well) to shift deposits to Prva Banka."
Improvement on previous law?
Kontos said that numerous interlocutors, including opposition leaders, told him that the new law was better than the older version.
However, outside observers, including the European Commission and GRECO, the group of states against corruption, have criticised the new legislation because it does not cover all public officials, and have questioned the independence of the commission tasked with reviewing income statements from officials and possible conflicts of interest. They noted as well that the fines envisaged by the law are limited, and the commission cannot remove officials from office.
Kontos also pointed out that at least one opposition party had filed a complaint to the Commission over the controversial decision to give a government loan to the bank majority-owned by the Djukanovic family.
Assessing the law's effectiveness, Kontos explained that the Commission had forwarded to the state prosecution only five cases in the period from 2004 to 2008, while noting that the media had recently written that less than 20 per cent of public functionaries had filed the required income statements.
“It is clear that authorities should do a better job of enforcing the provisions that the law does stipulate,” Kontos wrote.
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