A Republika Srpska (RS) loan program designed to grow the economy and put people to work has given millions of KM to foreign-backed companies with offshore bank accounts and assets that exist only on paper.
A review of dozens of the 2,140 loans that the RS Investment Development Bank has issued shows many of the largest, up to 5 million KM, went to politically connected companies, sometimes within days of their applying.
While the nature of the loans is diverse, and the true owners of the companies not disclosed, the deals have one common thread: Milorad Dodik, as prime minister, controls the board that approves all of the largest disbursements.
The prime minister signed off on a 3 million KM loan for his son, Igor’s business, and a 5 million KM loan for a Banja Luka newspaper that has supported him during an ongoing state police probe into allegations he rigged bids on140 million KM worth of construction projects.
The list of recipients is broad: 3 million KM to a dairy farm owned by a firm with bank accounts in Belize and shell companies throughout the US; 5 million KM to a company owned by a Lithuanian once accused of fraud who has addresses in Caribbean money laundering centers; and 3 million to a restaurant owned by the family of a close friend of Dodik’s whose bank accounts have been frozen by the Office of High Representative since 2003.
Records examined by the Center for Investigative Reporting in Sarajevo (CIN) also show discrepancies between what companies promised when asking for cash and what they have delivered.
For example, an Israeli-owned rubber company received loans totaling 3.3 million KM, saying it had bought part of a Zvornik rubber plant, Fagum, in a joint venture, and wanted to upgrade the facilities. Ein Shemer Rubber issued a press release promising to hire 100 new workers by April 2008, including employees from Fagum’s main plant.
So far 16 people, none from Fagum, have been hired. A director of the company in BiH, Vesna Janković, said Ein Shemer found the Fagum workers were not up to standards and couldn’t be retained. She also said they have started test production and are running at 20 percent capacity.
And while Ein Shemer said it bought part of Fagum, court records indicate it is just renting a piece of the factory and machinery for 4,000 KM per month. There are no records of any sale registered in Bijeljina court.
The Development Bank, founded in 2006, in part with 667 million KM from the sale of RS Telecom, was designed to put money into the hands of citizens to buy homes, businesses looking to expand and entrepreneurs starting new companies.
Commercial banks must give initial approval, and then all requests above 50,000 KM are forwarded to a five-member bank board. Those above 500,000 KM then are passed on to a second five-member board for approval. Dodik is the chairman of this highest-ranking board, which ultimately decides whether the biggest loans are issued.
The prime minister personally signs the agreement for each, or if he is not present, the finance minister he has appointed signs in his name.
A bank spokesman said that despite problems with some loans, the bank overall has been a success, a boon to many who take advantage of loans with interest rates averaging 5.5 percent.
The money pipeline
Companies controlled by Vladimir Romanov, a Russian-Lithuanian businessman who owns a Scottish football team and companies around the globe, have benefited. Taxpayers have received little in return for the investment.
Romanov owns the Balkan Investment Bank, one of 12 RS financial institutions that distribute the loans. In May, Romanov got a government-backed 5 million KM loan, receiving the check from his own bank.
That was for Energolinija, a company part of a network he and his son Roman control, with shell holdings and offshore bank accounts in the Seychelles Islands, Virgin Islands and Panama, company records and court documents show.
In 2001, Romanov bought Birač, a group of factories in Zvornik for 10 million KM. Prominent before the war, the plants have the capacity to produce 600,000 metric tons of raw materials for aluminum manufacturing. Almost immediately, Romanov began creating shell companies that sent money to banks in the British Virgin Islands, according to corporate documents, court records and testimony in a US federal court lawsuit.
At time of the purchase, Birač had fallen into disrepair, despite direct access to the railway and mines.
Conditions haven’t dramatically improved, even though Dodik’s RS government in 2006 and 2008 directed more than 4 million KM in special subsidies to the company. That was in addition to the Development Bank loan in May.
The number of Birač employees has remained mostly unchanged under Romanov, according to the former president of the company’s union, Predrag Tomić.
A study by the Vienna Institute for International Economic Studies pegged the value of Birač on Jan. 1, 2006, at 575 million KM. The study noted that Birač reported losing millions of KM annually, in part because a separate company, Balkal, had been set up to sell and export the goods. In the RS some foreign companies do not pay taxes on exports.
Romanov structured his enterprise so that Balkal made nearly all of the profits, according to Balkal’s former director, Ratko Marčeta and company reports.
Because Balkal ownership is based in Tortuga, in the British Virgin Islands, its tax liability in the RS is unclear. But Romanov and Birač paid just 32,562 KM in taxes over the past five years, according to records published on the Banja Luka stock exchange.
That’s less than half what the wealthy businessman gave his dance partner after winning a Lithuanian talent contest in 2007. British newspapers estimate Romanov’s wealth as 800 million KM.
‘He is not here to pay taxes’ said Marčeta who left the company three years ago and still defends his former boss. ‘He is not even a citizen of this country. He couldn’t care less for this country. He cares about how much profit he will extract and re-route to other deals. That’s his priority; that’s how his power is growing.’
Energolinija’s roots begin with Cascado AG in Panama, a country US and European Union officials have labeled a money-laundering haven. That became Team Front in the Seychelles Islands, an African offshore banking center.
Last year Romanov moved the island companies to Sarajevo and in February made another slight name change, to Energolinija. Just three months later, it got the loan.
Government records show that Energolinija and its sister companies are owned by another Romanov entity, Industrial Adria.
Court documents, lawsuits and investment records in four countries reveal that Romanov had been accused in a 2003 US federal civil lawsuit of using offshore banks and phony companies to profit.
In 2003, Vladimir and Roman Romanov created another Birač-related company called Viva Trade, according to records filed in the lawsuit. They listed Viva Trade’s headquarters in the US state of Wisconsin but with an address in the state of Delaware, known for its loose regulations of companies and officers.
Romanov contracted to supply aluminum oxide from Birač to Rual Trade, a company controlled by Russian billionaire Oleg Deripaska. Romanov received $7 million from Rual, including millions to upgrade the Birač facilities. But he never delivered any product or improved the facilities, and refused to return the money, according to documents filed in the lawsuit.
Two men hired to set up the company in the US testified it never had assets or employees, and in open court a judge raised concerns that Viva was a shell company.
After that all became public, the Romanovs settled the case in 2007, court records show.
Its legal history – and the fact that Romanov seemed to structure the companies to dodge RS profit taxes – apparently was no deterrent when Energolinija went to the Development Bank in May.
In the loan application, the company said it would spend the money on electricity and steam production.
However — Energolinija is not licensed to produce electricity, according to the website listing of the RS energy regulatory agency.
Directly beside a Dodik family estate in Gradiska sits Farmaland, a dairy farm with a big reach. Farmaland is home to members of Elite Security, a group of former RS military and police officers with close ties to Dodik, according to records of international and local investigators.
Farmaland Director Hrvoje Capar told CIN that the guards were there ‘to protect the farm.’ The dairy has 2,700 cows.
He strongly denied that the security firm is there to protect Dodik, calling the suggestion ‘unfounded.’
Farmaland received 3 million KM from the Development Bank in January to buy cattle and improve the property, according to application summaries the bank provided.
The bank refused to give the actual applications to CIN, saying they included protected information.
Farmaland is owned by a US company, Farmland LLC, which operates out of addresses in the US states of Wyoming, Delaware and Florida, records show. In fact Farmland LLC lists an address in Wyoming that belongs to a law office, records show. Its sole director is a British investment group, Tylney Directors LTD, according to records filed with the Wyoming Secretary of State.
Tylney Directors has corporate office in Belize and the Channel Islands, according to records at the Florida Secretary of State’s office. It lists its headquarters in London, but the company has no telephone number listed and no website.
In Florida, Tylney manages 10 companies – including a yacht sales office and an olive oil enterprise — out of the back of a tiny United Parcels Service (UPS) storefront in remote Orange City. In total, 27 companies, all with links to Croatia, list that same Orange City address as headquarters, Florida records show.
Dharmesh Amin, a store worker, said the address is simply a mailbox, and not home to any company other than UPS. The local tax assessor said none of the companies ever was granted operating permits, meaning they were never legal entities.
Tylney’s sole public board member is Sandro Stipančić of Croatia, and CIN was unable to contact him.
Capar said Farmaland was purchased by its US parent several years ago for 10,000 KM, plus outstanding debt that he said reached 10 million KM. He said the government isn’t doing enough to support farmers.
‘The problem is that the government is doing enough to support agriculture. And without support, it has nothing’ Capar said.
A friendly arrangement
Nezavisne Novine, a Banja Luka daily newspaper, last year received 5 million KM from the Development Bank to finish ongoing construction and to buy materials, according to a summary of its loan application.
Publisher Željko Kopanja declined to discuss this story because he was away on a holiday.
In all, records from the Development Bank show a tangle of companies received money, although the benefits to RS taxpayers were not always clear.
Fruit Ecco, which Dodik’s son Igor co-owns, received 3 million KM and said in its loan application that it would hire three workers and plant 169,000 apple trees and 9,400 pear trees.
Sinicoop, a lakeside restaurant complex got a 3 million KM loan to upgrade and add a fruit tree operation. The complex is owned by the family of Slavko Roguljić, a Dodik friend who, according to media reports, lets the prime minister vacation at his Montenegro villa. High Representative Paddy Ashdown froze Roguljić’s bank accounts on grounds he was helping an accused war criminal.