Bulgarian corruption troubling the European Union

Views on BG | October 16, 2008, Thursday // 00:00

From the International Herald Tribune

By Doreen Carvajal and Stephen Castle

SOFIA: Politics is played to the death in Bulgaria, where the lives of politicians can be as cheap as spent bullets and murky business groups wage a murderous struggle for their cut of everything from real estate deals to millions in European aid.

During a furious political season last year, the home of the chairwoman of a municipal electoral committee was set on fire and the garages of mayors were firebombed. The mayor of a golf resort town in central Bulgaria was shot and killed with seven bullets - the same number that killed the wealthy city council chairman in the outwardly idyllic Black Sea port of Nessebar.

"Other countries have the mafia," said Atanas Atanasov, a member of Parliament and a former counterintelligence chief who is a magnet for leaked documents exposing corruption. "In Bulgaria, the mafia has the country."

By almost any measure, Bulgaria is considered the most corrupt country in the 27-member European Union. Since it joined last year, it has emerged as a cautionary tale for Western nations confronting the stark reality and heavy costs of drawing fragile post-Communist nations into their orbit, away from the influence of Russia.

The United States helped Bulgaria into NATO, has rotated troops through for joint exercises since 2004 and has tried to encourage commerce, education and democracy. It has just announced that it will invest more than $90 million in the next two to three years in facilities and equipment for joint military exercises in Bulgaria.

The EU, eager to improve the lives of the 7.5 million Bulgarians, dangled €11 billion, or nearly $15 billion, in aid. Far from halting crime and violence, the money effectively spread the corruption.

Once Bulgaria's shady business types realized how much EU money was at stake, said many of Sofia's anti-corruption reformers, they moved from buying off politicians directly into politics.

And so, this summer, European officials froze almost €500 million in financing and may halt the flow of billions more, alarmed at freewheeling criminals who practice so-called elegant white collar crime and maintain links to the very highest reaches of power.

The nation's homegrown mobs of men in black - the "mutri," or mugs - control construction projects in city halls and questionable business networks have moved from shrinking black markets for smuggled cigarettes and alcohol to legal investments in booming real estate. Now, those groups are muscling into public office.

One business group
Investigators with the EU's anti-fraud office are focusing on the Nikolov-Stoykov group, a sprawling conglomerate of dozens of companies with interests from meat processing and cold storage to scrap metal and a Black Sea resort.

The group's leading partners - who were both briefly detained last year on suspicion of fraud - boast top connections. Ludmil Stoykov helped finance the campaign of President Georgi Parvanov, organized a supporting business group and maintained ties to a former deputy minister of foreign affairs.

Stoykov, who has not been charged with any crime since his arrest in Bulgaria last year on five charges of fraud dealing with EU funds, denies knowing about criminal activities involving EU funds. "I categorically object to these attempts to stain my name and to be grated as a criminal. I do not manage and I do not finance companies that have unlawful activity," he said in answer to written questions.

He acknowledges giving 25,000 leva, about $17,000, as a campaign contribution to Bulgaria's president. "I participated with a donation according to all requirements by the law," he said. "And no one is saying the opposite."

His partner, Mario Nikolov, who is scheduled to stand trial in Bulgaria on fraud charges next week, forged discreet alliances to Prime Minister Sergey Stanishev, investigators say, by steering more than 200,000 leva to Stanishev's Socialist Party as contributions from his companies, according to contracts and bank deposit slips turned over to prosecutors last week by Boyko Borisov, the mayor of Sofia who is a fierce rival of the prime minister.

In unusually blunt language in a five-page report leaked last summer, the EU fraud investigators accused the Stoykov-Nikolov group of being a front for a "criminal company network composed of more than 50 Bulgarian enterprises and various other European and offshore companies."

Among the EU investigators' accusations were tax and subsidy fraud - qualifying for development aid to buy new equipment and then passing off ancient equipment from the former East Germany to pocket the difference. The companies were also accused of illegally importing huge quantities of Chinese rabbit meat for export to France and Germany with fake health certificates from Argentina.

The EU investigators say the cost of the fraud and attempted fraud could top €30 million. Reached at his office at Eurofrigo, a cold storage company in Sofia, Nikolov repeatedly declined to comment on the documents indicating contributions to the prime minister, which Bulgarian prosecutors said Wednesday are under formal investigation.

After the European fraud report was leaked, Nikolov said, "I became public enemy No. 1. I am afraid for my life."

Stanishev, the prime minister, also did not respond to 10 attempts to seek a response over a six-day period. He said he would reply on Thursday. A former journalist educated at the London School of Economics, Stanishev was called "Mr. Clean" by President George W. Bush in 2007 for his efforts to combat organized crime. After European nations started complaining about aid fraud, Stanishev said publicly that there was no "umbrella" of protection for rich businessmen or organized crime figures.

But when he made those comments, it was not known that he met in 2005 with Nikolov. A five-minute video shows Stanishev greeting Nikolov at his meat factory, inspecting equipment and a table laden with goose liver sausages before sitting down to lunch.
A few weeks later, according to deposit slips handed to prosecutors by Borisov, contributions to Stanishev's party started to flow.

The records spelled out an agreement to donate almost 250,000 leva to the Socialist Party "continuing according to our agreement." The names of 15 people are listed - by their family names, they appear to be interrelated - each pledging 10,000 leva. In addition, the contract promised 45,000 leva in cash and 38,000 for election materials.

One West European diplomat involved in investigations of Bulgarian corruption said that copies of the contracts appeared authentic: "It means they know they won't be prosecuted, so why not have secret contracts?"

The contract was addressed to Rumen Petkov, who headed the Socialists' campaign at the time and a few months ago was forced to resign as interior minister amid revelations that he had met organized crime figures known as the Galevi Brothers. Their properties were among 13 raided this week by Bulgarian special police searching for evidence of financial crimes.

The mutri
Western diplomats and organized crime experts here estimate that there are 20 to 50 wealthy businessmen who are defined in one report as "extreme risk entrepreneurs" with mysterious sources of fabulous wealth. The core of Bulgaria's gray economy, says a report from the Center for the Study of Democracy, an anti-corruption group in Sofia, are loops of politically connected business groups. They form around disparate companies that go in and out of business as opportunities and legal obstacles arise.

Profits from sources such as cigarette or alcohol smuggling are then plowed into legal front companies, such as soccer clubs, where money can be laundered with huge fees paid for transfers of players.

The competition is brutal: All three past chairmen of the soccer club, Lokomotiv Plovdiv, have been killed, one by a sniper near the Black Sea.

In Sofia - a bustling mix of boxy Communist-era apartment high-rises, luxury chain stores and opulent, high-security architecture known as "mutri baroque" - people pay the price of fear and poor law enforcement with ubiquitous guards. Seventy-five percent of Bulgarian businesses have security protection, far ahead of other countries in Eastern Europe, according to Enterprise Surveys, analysts for the World Bank.

As in Russia and some other Balkan nations, corruption has seeped into the fabric of life. Sofia is home to a thriving black market for blood outside emergency rooms, where patients' families haggle over purchases with dealers, according to Bulgarian news reports that track the prices.

Deadly history
The roots of Bulgaria's thriving organized crime date to the collapse of Communism in the early 1990s. The security forces imploded and thousands of secret agents and athletes, including wrestlers once supported and coddled by the state, were cast onto the street. During the United Nations embargo of warring Serbia in the 1990s, those groups seized smuggling opportunities and solidified their networks.

The wrestlers, in particular, developed private security forces and insurance companies that were little more than shakedown protection rackets.

Over time, a hierarchy evolved, organized crime experts said. At the bottom were violent hit men for hire. Next were risk-taking entrepreneurs and shadowy businessmen with close ties to the government. Younger men took charge of the black markets while older men dealt with the political elites.

Today, men nicknamed "thick necks" for their muscular appearance linger in neon-lit Sofia nightclubs like Sin City and Lipstick or keep watch over Mercedes jeeps and Audis outside. Sofia guidebooks offer tips: avoid restaurants that draw businessmen with four or more bodyguards.

Bodyguards halt public traffic when their bosses arrive at Sin City. Caution is essential. Over the last five years, Bulgaria has weathered machine gun assassinations and inventive daylight attacks. Hit men disguised themselves as drunks and Orthodox priests. In 2004, someone planted a bomb on top of an elevator in central Sofia that was activated by mobile telephone, killing a businessman and three bodyguards.

The toll now tops more than 125 contract killings, according to a list compiled by the U.S. Embassy in Sofia, which does not include five people killed this year. Most of the killings are unsolved.

Dead men tell the tale in the leafy Sofia Central Cemetery, where families have erected Italian marble tombs with giant images of men identified with nicknames like "The Doctor," "Daffodil," "The Russian" and "The Godfather."

Seizing power
Admission to the EU did not halt the carnage, but emboldened a power grab. According to anti-corruption reformers and election observers - who also take courage from outside European support - votes can be traded, depending on the town, for marijuana cigarettes or sold for up to 100 leva. Voters snap checked ballots with cellphones to guarantee their sale, according to Iva Pushkarova, executive director of the Bulgarian Judges Association.

"They trade votes freely on the streets, kill and threaten people with no shame," Pushkarova said. "It is cheaper to run your own business and much more secure than to trust a politician to do it for you."
While corruption affects many corners of society, with improvements in some and deterioration in others, the impact is particularly stark in the legal system where some people without political connections have resorted to hiring decoy lawyers, for fear that their legal documents would vanish if presented to particular clerks by lawyers recognized as working for them.

Kremikovtzi, a Communist-era steel plant and one of Bulgaria's largest companies, has become a test case. Foreign creditors - many of them American hedge funds - are pursuing a €350 million claim against the insolvent plant, whose former chief executive is under investigation by the Bulgarian authorities for fraud and embezzlement.

"When your law enforcement system isn't cleaning up the corruption in the legal system, who do we go to?" said Justin Holland, an advisor to the Kremikovtzi investors committee, "Literally we cannot go to anybody in Bulgaria."

Stefan Popov, executive director of Riskmonitor, an anti-corruption organization in Sofia, said: "These are not solid structures like in Sicily or New York. The bad guys are insiders. It's one thing to have some mafia guy corrupting officials. It's quite different if the mafia guy becomes the public official."

Impatience with Sofia
Among Western nations, impatience is growing - particularly at the lack of high-level trials of government officials accused of corruption.

Franz-Herman Bruener, director-general of the EU's anti-fraud agency, Olaf, warned in a report leaked to the Bulgarian press that "influential forces within the Bulgarian government and or state agencies do not have an interest in seeing the punishment of anyone in the criminal gangs."

The Dutch minister for Europe, Frans Timmermans, argues: "What we need to see is real people put before real judges, convicted and put in jail."

Meglena Pluchieva, Bulgaria's newly appointed deputy prime minister for oversight of European government funding, said she believes the nation is making headway similar to other new members that joined in 2004. The difference was that then there was enthusiasm for EU expansion, but today "the situation is entirely different," she said.

She also accused wealthier nations of double standards, citing a scandal over rotten meat in Germany last year. "There are plenty of examples of corruption," Pluchieva said.

Mihail Mihov, interior minister since Petkov was forced out, has sought to carry out what he calls "purification."

But European fraud investigators complain that details of their inquiries still leak to the very people they want to question and Mihov admitted that it remains a serious problem. He blames the difficult legacy of Communism. "For many years the system was being demolished," Mihov said. "There was a vacuum and criminal organizations entered into this system."

Borisov, the Sofia mayor, is more cynical. Formidable, with a booming voice, trademark cigar and eight bodyguards, he said European pressure has had some effect. "Now the government is saying, 'We stopped stealing from the European Union.' It is true, but now they are stealing our money," he said.

Some European nations simply have given up on Bulgarian justice. Germany complained of little local help in its effort to prosecute Konstantin (the Kitty) Hadjivanov, a wealthy businessman active in Petrich on the Greek border, and accused of cigarette smuggling throughout Europe.

So the Germans waited until Hadjivanov stepped into Greece to serve their warrant. Now he sits in a jail cell on the Germans' charges of cigarette smuggling, while facing a separate EU probe of murky deals to tap European funding for his sawmill company.

It is only a matter of time before he returns home to lead the campaign of the coalition "For Our Petrich," say his supporters and third wife, Radostina.

City elections were canceled and rescheduled for last weekend because of irregularities including vote-buying. On Monday, a municipal counselor in Petrich was beaten by thugs who he said tried to force him to sign a resignation.

While appearing in court, Hadjivanov plotted his political future, signing nomination papers for the local council. But even he could not pull off an electoral triumph from his jail cell; he finished at the bottom with less than one percent of Petrich's votes.

Doreen Carvajal and Stephen Castle reported from Sofia, Paris and Brussels.

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