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Organized Crime and Montenegro’s Construction Industry

November 8, 2005

By Vanja Calovic*

According to the 2005 TI Global Corruption Report “estimates of the total size of the global construction market are around US $3,200 billion per year.” This turnover has thus made the construction industry very attractive for organized crime structures. As for Montenegro, the public largely fears that the money taken out of the country during the transition process is coming back in, and is being laundered through construction of buildings by the transition “winners.” At the same time, this is the reason why those who dare speak about corruption in the construction industry are very few.

In the Montenegrin construction industry there is an obvious presence of the Russian oligarchs who are especially interested in the construction of hotels and residential buildings on the coast. The experiences of other countries show that this kind of business is very attractive for organized crime syndicates, because it is both highly profitable and a favorable means of money laundering. Russian criminal groups have rich experience in this field.Inadequate implementation of laws and undeveloped national companies enable the formation of monopolies and establishment of control over the process of planning and developing space by the mafia. In such a situation, politics becomes just another kind of business.

Montenegrin and Russian officials have confirmed several times that during the sanctions imposed on Yugoslavia, money was transferred from Montenegro to Russia, and that the public was never informed regarding the amount of money involved and the way in which it had left the country. According to daily newspaper Vijesti on October 6, 2004 Prime Minister Milo Djukanovic lamented:

“between 100 and 150 million euros are kept in outside banks or in accounts outside Montenegro. We must encourage people to invest the money into business. If the money does not come from criminal activities or something similar, which is the task of the authorized bodies to determine within the defined legal procedure, then these people should not have any fears.”

Ironically, Djukanovic himself has been accused of corruption in the past. In July 2003, he was accused by Italian prosecution for having links with the Italian mafia. According to the London Guardian, “the prosecutors’ office in Naples named Mr Djukanovic as a linchpin in the illicit trade which used Montenegro as a transit point for smuggling millions of cigarettes across the Adriatic Sea into Italy and into the hands of the Italian mafia for distribution across the EU.”

As a sort of response to the prime minister’s statement, Russian Emergency Services Minister Sergei Soygu pointed out the context of the investments on October 19, 2004. According to Vijesti, Soygu said:

“since Montenegrin and Serbian business transferred most of their money to Russia during the sanctions, nobody in Russia said that it was dirty money obtained owing to the war. We tried to support development of the Montenegrin business as much as we could.”

Since control of property and determination of origin of capital invested in the economy has not started functioning yet in Montenegro, the public largely fears that the money is being returned and laundered through the construction of buildings, both by the Russian and Montenegrin “winners” of the transition process. There is no data as to whether there have been any investigations of money laundering in the construction industry, however.

International experience show that money laundering in the construction industry is especially present in administrative and industrial centers where population migrations from inland are evident, something which naturally causes increased demand for homes and thus more construction activities. Construction companies can hire sometimes illegal immigrants in order to avoid paying taxes and fees, something which enables a higher competitiveness through reduction of costs, but which also encourages trafficking in human beings.

Construction and Trafficking in Human Beings in Montenegro

At present, there is an ongoing trial for organized crime in the Higher Court in Podgorica that started in January 2005. The trial concerns the criminal act of trafficking in human beings, on the basis of the indictment of the Special Prosecutors for fighting organized crime. According to the indictment, between April 2003 and August 17, 2004, four Montenegrin citizens were dealing with trafficking in human beings in an organized way, with the purpose of gaining profit.

The crime of abuse by forced labor was leveled against the indicted persons for their appalling treatment of several dozen Ukrainian construction workers who they had lured to Podgorica under false promises. They established companies called “Pavlo-V” and “Mojmilo-Kompani” in order to import foreign workers for their construction sites, known as “A.D. Gorica” and d”Lunex-Monta.” The Ukrainians were forced to work 12 hours a day for 2 months- without ever receiving any pay.

According to the indictment, one of the accused owned a company that cooperated with 2 uncertified Ukrainian tourist guides who had been indicted for trafficking in human beings in Ukraine as well. They put an advertisement in a newspaper offering construction work in Podgorica, and offered a salary of between 500-1,000 euros a month. The interested workers had to pay 800 euros, allegedly for passports and for arranging their stay and work in Montenegro.

Then the Ukrainian workers were transferred by bus to Montenegro, where their passports were immediately taken away from them. They were kept in the huts of A.D. “Gorica” and provided only the most basic food. When the workers asked for their salaries, they were threatened that they would be deprived of food and accommodation if they refused to work, and were warned that they would be abused. Thus, they were kept in the position of slaves, according to the indictment.

Spanish Police versus the Construction Industry: Operation “White Whale”

A relevant case from Spain illustrates another dimension of the problem. In April 2005, the town of Malaga came under investigation regarding suspected money laundering in a veritable orgy of local construction. Investigators suspected that the industry’s economic infusion was coming primarily from money laundering.

Half of the new construction sites in Spain are on its Mediterranean shore. During an operation codenamed “White Whale,” the police for the first time established a direct link between organized crime and the dramatic explosion of the Spanish construction industry.

Operation “White Whale”, the height of the eighteen-month investigation that included police forces from seven countries, caught 41 suspects and seized 251 pieces of real estate. The combined value of these was estimated at 250 million euros. The seized properties included luxurious villas, weekend flats and shopping centres. Bank deposits of 30 million euros were frozen, and contents of several bank safes were seized by inspectors.

Spanish police believe that through this operation they stopped the biggest chain of money laundering in Europe, one which has branches in the USA and Canada. Candido Conde-Pumpido, the attorney general, described the investigation as being just “the tip of the iceberg.” According to the Financial Times, he said “we are witnessing the silent invasion of mafias on our coast,” adding, “and the big fish have yet to be caught.”

Following the tracks of narco-cartels, the article continues, police raided the offices of Fernanto del Valle, director of the lawyer’s firm in Marbella. The police stated that he established hundreds of companies for foreign criminals so that they could invest their illegal profits and real estate in Spain. The police estimate that more than 600 million euros could have been laundered through del Valle’s firm, and they doubt that many other lawyer’s firms along the shore are not involved in money laundering.

Most sensationally, documents confiscated in Del Valle’s firm point to the fact that large amounts of money were transferred from Yukos, the famous Russian oil group, to a Dutch company and were then invested in Spain.

However, Yukos denied having businesses in Spain and asked for detailed information from the public prosecutor. There are no reliable estimates regarding to what extent organized crime is involved in the Spanish construction industry, but Per Stangeland, head of criminology at the University of Malaga, said that the presence of criminal networks in the construction industry and real estate field cannot be denied. “It is a driving force, perhaps the most important driving force, behind the construction industry,” he said for the FT. “How else is there to explain that [Malaga], with one of the highest unemployment rates and lowest incomes in Spain, can sustain a 1,600% growth in the construction of private housing in five years?”

Budva’s Hotel Splendid and a Russian Magnate

In June 2005, at the construction site of the Hotel Splendid in Budva, Montenegro, three explosive devices were set off within a few days of one another. According to the media, photographs showing the perpetrators exist. So far, the police have arrested several persons suspected of being involved in the explosions. The motives have not been discovered yet. There are several versions regarding who was behind the explosions. According to one, it is a war of local construction lobbies. According to the other, it involves racketeering and money of suspicious origins.

Hotel Splendid was sold to the Russian-Montenegro Company “Montenegro Stars Hotels Group” for 2.4 million euros in 2004. The same Russian-Montenegrin company bought hotels “Blue Star” and “Montenegro.” “We are originally a Montenegrin firm and we remain Montenegrin”, said Darko RaduloviˆšÃ‘‡ at the press conference.

An interlocutor involved in the privatization of several Montenegrin hotels told the Montenegrin weekly The Monitor that the majority owner of the “Splendid” is one Viktor Ivanenko. “The Montenegrin shareholder in the “Montenegro Stars’ has a minority package” states the article, which adds that Ivanenko entered the Montenegrin hotel business through the firm Radan Investors, registered in Switzerland.

Ivanenko, Russia’s 84th wealthiest main according to Forbes’ 2004 report, has an impressive biography. He went a long way from the village of Koltsovka, where he was born in 1947, through the secret Russian police, to the top of the Moscow business and politics. He entered the Russian secret service immediately upon graduation in 1970, during the depressed Communist years. He also stayed on after the disintegration of the USSR, until 1993. Then he went to Yukos and became the First Vice-President of this oil giant. In the 1990’s, private empires appeared in Russia after state property came into the hands of oligarchs through suspicious privatization processes. Ivanenko became one of Yukos’ shareholders.

Russian oligarchs were then recruited from the circles in and around the government, especially from the KBG secret services.

When Russian President Vladimir Putin entered into war against Yukos and its main owner, Mikhail Khodorkovsky, due to unpaid taxed and other alleged suspicious activities, the empire worth billions was destroyed overnight. But Viktor Ivanenko survived.

Khodorkovsky was sentenced to nine years’ imprisonment. Cohort Platon Lebedev is also in prison. Other shareholders of Yukos are under surveillance and many have left Russia and are hiding abroad. Only Ivanenko, along with three other shareholders of Yukos, has stayed in Russia.

At the time when Khodorkovsky was on trial in Russia, at the other end of Europe – Spain – an affair involving the destroyed Russian oil company was unfolding. As we discussed above, several people were arrested last spring in Spain due to the suspicion that they laundered Yukos’ money through construction and tourist businesses in Marbella.

An interesting coincidence: the large board in front of the construction site of “Splendid” has a notice reading that the construction company, the contractor, Unik Trade, in addition to Becici, has jobs in Moscow, Belgrade and Marbella.

A text published in the weekly Nedeljni Telegraf last year on the subject of Russian investments in Montenegro claimed that the Montenegrin shareholder of the “Montenegro Stars,” Zarko Radulovic, said that his Russian partner in the oil business made millions in annual profit. However, Radulovic then protested for The Monitor that, “it is not true that I said that. The whole text was made up.”

At the same time, Radulovic denied claims that his partner is one of the former directors of Yukos. He did not want to reply to the specific question of whether Viktor Ivanenko was the majority co-owner of “Splendid.”

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The author is a native Montenegrin and Executive Director of the NGO MANS. She has worked in the non-governmental sector since 1999 on issues related to poverty and corruption. Ms Calovic is also a member of the Expert Task Force for monitoring implementation of the Plan for Combating Corruption and Organized Crime established by the Ministry of Interior of Montenegro.

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