A specialized office targets organized crime
By Saša Manojlovic and Marta Šamota Galjer
Corruption and organized crime emerged as serious problems in the Republic of Croatia and other Balkan states as they worked to transition from the communist system of the former Yugoslavia to independent, market-based democracies. In response, Croatia founded the Office for the Suppression of Corruption and Organized Crime (USKOK) in December 2001 in accordance with the Act on USKOK, which was adopted earlier that year. USKOK is a specialized office within the Croatian state attorney’s organization. Its authority extends throughout the country and covers suppression of corruption and organized crime.
The head of USKOK is appointed by the attorney general to a four-year term and is supported by 33 deputies and various other employees. USKOK, as a special state attorney’s office, differs in organization from other such offices in that each department deals with a specialty. The departments include research and documentation, anti-corruption and public relations, international cooperation and joint investigations, and the secretariat and supporting services. The fight against corruption is carried out mainly by the prosecutor’s and financial investigations departments.
The prosecutor’s department is a collegium of deputies who are assigned individual cases and can conduct inquiries and criminal investigations, bring indictments and represent the prosecution at trial. Depending on the complexity of each case, prosecutors work individually or in teams.
The financial investigations department was set up within USKOK in 2014 to focus on collecting data and evidence to locate and seize the proceeds of crime. This department’s employees are well-versed in conducting financial inquiries. These can entail the gathering and analyzing of large amounts of financial data, including the banking and financial information of suspects and those connected with them (family members, in-laws, related legal entities, etc.). Assets such as real estate, vehicles, stocks and luxury commodities are traced to the sources and compared to the legal income of the suspects. The department also assists in obtaining court orders to freeze the assets of the accused or connected third parties.
Since its founding, the office has developed and strengthened its capacities to adapt to evolving challenges in line with legislative and institutional changes in Croatia, resulting in ever better results. USKOK has investigated and prosecuted corruption at all levels, from street-level petty corruption, to midlevel corruption among university professors, judges, court experts and medical doctors, to corruption at the highest levels, including government ministers, ambassadors, high-ranking officers of the Croatian Army and a former prime minister.
The prosecution of high-level corruption has played a significant role in strengthening the rule of law in Croatia by sending a clear message that there are no “untouchables” — that in Croatia, no person is exempt from the law. However, fighting local government corruption is also a USKOK priority, and it has resulted in the prosecution of numerous municipality heads, mayors, county prefects and others.
In addition to classic organized crime cases involving drugs and people smuggling, USKOK also prosecutes complex organized economic crimes, particularly tax evasion, and has achieved an extremely high 93 percent conviction rate. Due to these results, USKOK has become a model for fighting corruption effectively, especially for neighboring countries with similar legal systems facing similar problems.
Cooperation with other state authorities, primarily those responsible for detecting criminal offenses, is key to USKOK’s efficient work. The Act on USKOK prescribes that all state authorities — within the scope of their activities — that discover a possible criminal offense falling under USKOK’s jurisdiction are obliged to inform USKOK. As a primary authority in criminal prosecution, USKOK has several memoranda of understanding with other state authorities, such as the Tax Administration and the General Police Directorate, which precisely designate the scope of cooperation and the contacts who can rapidly receive all necessary information.
Furthermore, modern forms of crime increasingly have an international dimension, which is an additional challenge for all law enforcement authorities. As more cases within USKOK’s jurisdiction have international character, developing international cooperation is increasingly important in efficiently prosecuting crime. The state attorney’s office concluded a series of agreements with state attorney’s offices of other countries allowing for the direct exchange of information in the pretrial phase and, if needed, through regular mutual legal assistance.
USKOK’s relationship with Eurojust has proven to be an important example of international cooperation. It began in 2009 when Croatia sent a deputy state attorney general to Eurojust as a liaison prosecutor. When Croatia became a full member of the European Union on July 1, 2013, the liaison prosecutor became Croatia’s national member representative. Eurojust provides significant support by coordinating meetings to exchange data from parallel investigations being conducted in Croatia and other states; by harmonizing further actions and agreeing on requirements for sending formal mutual legal assistance requests (letters rogatory); and by expediting fulfilment of such requests.
USKOK takes a proactive, collaborative and multidisciplinary approach to investigations. Multidisciplinary teams consist of several prosecutors and include representatives of other authorities — the police and agencies of the Ministry of Finance, such as the Tax Administration’s Independent Financial Investigation Sector, the Anti-Money Laundering Office and the Customs Administration.
On the most complex cases, the Independent Financial Investigation Sector contributes significantly. Established in 2015, the expert knowledge and analyses of this unit are indispensable in prosecuting multimillion euro financial crimes related to defrauding the state budget.
It is a fundamental legal principle — and a principle of USKOK’s mission — that no one shall retain the proceeds of an unlawful act. Pecuniary gain is the primary motivation in most corruption cases, which criminal groups then often invest in real estate or business activities to “wash” the “dirty” money and earn even more. Therefore, the goal of criminal prosecution is not only to impose sanctions, but also to seize the illegally acquired proceeds, which serves as both a tool of restoration and a preventive measure.
The Croatian Criminal Code prescribes that “pecuniary advantage obtained by a criminal offense” means direct gains and gains in the value — or preventing a decrease in value — of property as a result of a crime. But it also means any gains in the value of property obtained through the proceeds of a crime, as well as any other advantage gained or property obtained, irrespective of whether the property is located in Croatia. Furthermore, an “asset” is considered an asset of any kind, irrespective of whether it is material or immaterial, movable or immobile. The definitions of “pecuniary gain” and “asset” have changed in Croatian legislation throughout the years, following the adoption of conventions that focus on fighting corruption and organized crime (the United Nations Convention against Corruption and the U.N. Convention against Transnational Organized Crime) and EU directives (most recently, Directive 2014/42/EU from April 2014), and by adapting to monetary innovations (bitcoin and other cryptocurrencies) to assure that all forms of pecuniary gain are included.
The Croatian Criminal Code also distinguishes between “regular” and extended asset seizure. The first prescribes that pecuniary gain will be seized through a court ruling, when it has been determined that an unlawful act was committed. Assets may also be seized from a person to whom it was transferred. Extended asset seizure is prescribed if the proceeds are from a crime falling under the authority of USKOK, or from crimes of sexual abuse and sexual exploitation of children, or against computer systems, programs and data. The main condition for applying this law is establishing that the perpetrator owns or has owned property incommensurate with his/her legitimate income unless he/she can demonstrate that the property was obtained from legitimate resources.
In addition to determining the facts of a crime and the scope of the pecuniary gain, a USKOK financial investigation also seeks to establish the origin and legality of all assets owned by the accused. The Criminal Code allows for the seizure of assets from family members — or from any other person associated with the accused — irrespective of whether the asset is legally owned and regardless of whether the family member shares a household with the perpetrator, if the asset was likely acquired with the proceeds of criminal activity or through corruption.
The policy of extended confiscation has raised questions, and not only in Croatia, about compatibility with presumption of innocence, as guaranteed by Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms and by the Croatian Constitution and Criminal Code. The European Court for Human Rights (ECHR) has dealt with this matter in a number of cases, but Phillips v. the United Kingdom may be pivotal regarding the court’s view on the legality of extended confiscation and its compliance with the rights of the accused.
In this case, the court was asked to establish whether the applicant was subject to new charges (regarding assets derived from unproven criminal conduct) and, if not, whether the presumption of innocence produced an effect, notwithstanding the absence of new charges. In his September 2017 article in ERA Forum, Michele Simonato explains: “The main argument leading the court to find Article 6(2) ECHR non-applicable to those facts is that the purpose of the reference to other criminal conduct ‘was not the conviction or acquittal of the applicant for any other drug-related offense’ but ‘to enable the national court to assess the amount at which the confiscation order should properly be fixed.’ In other words, the Court considered the reference to other offenses only as a criterion to determine the extent of the confiscation, operating in the sentencing phase (for the judged offenses) but not representing a new charge for the other non-judged offenses allegedly committed by the convicted person.” This summarizes the main goal of extended confiscation, at least for the Croatian criminal system, and that is restoring the state to what it was prior to the criminal acts, not further punishing the defendant. Regarding the reversed burden of proof, the court held that it did not violate the notion of a fair hearing under Article 6(1) ECHR. Simonato writes, “According to the ECHR, the applicant benefited from adequate safeguards: among them, a public hearing where he could adduce documentary and oral evidence, and the effective possibility to rebut the presumption of the criminal origin of the assets targeted by the extended confiscation.”
It is safe to say that the burden of proof in these matters is not totally shifted onto the defendant under the Croatian criminal code. To prove disproportion, a prosecutor is obliged to collect all data on all the defendant’s earnings (e.g., records of salaries, inheritance, gifts, sales of property or possible lottery wins), as well as the data concerning his expenditure (e.g., utilities, daily expenditures, eventual purchases of real estate, cars and medical bills). In addition, during a financial investigation, data on income and expenditures of the defendant’s family members are collected to properly ascertain the disproportion. An expert witness in finance analyzes the accumulated data to determine whether the defendant and his family could have obtained their assets from their legal incomes.
In financial investigations, regardless of what type of confiscation is applicable, the prosecutor must interrogate everyone who has any knowledge as to how the defendant acquired his property. The Criminal Procedural Act prescribes the procedure for asset recovery while protecting the rights of people to which the proceeds of crime have been transferred. While they must be questioned in the criminal proceeding, they are entitled to be represented by a lawyer, present evidence, question witnesses and the accused, and be present at trial.
The defendant must be prevented from disposing of his assets once he becomes aware of proceedings against him, which is why the Criminal Procedural Act allows freezing assets that have been deemed the proceeds of crime. The current law allows a freezing order to be issued at any time; before, during or after the criminal proceeding. There are seven types of freezing orders, but a prosecutor may propose whatever is necessary to ensure the possibility of asset seizure at the end of the proceeding. Freezing orders may be appealed to the Supreme Court of Croatia. But none of this could be used if financial inquiries do not begin shortly after inquiries into a criminal offense are initiated. Croatian criminal law also allows for non-conviction-based confiscation in cases when the defendant dies before the end of a trial.
Asset seizure cases ‘Croatian Motorways’
In October 2013, USKOK initiated a criminal investigation into bribery and misuse of authority by high-ranking officials in the Croatian Motorways Co. and Croatian Roads Co. (two state-owned companies in charge of building and maintaining roads in Croatia), and by leading people in private construction companies that build motorways and roads.
The investigation revealed a founded suspicion that a former minister of sea, tourism, traffic and development — whose ministry was in charge of building and developing infrastructure, including a network of motorways and roads — organized a criminal group to illegally extract money from the two state-owned companies through individual contractors, i.e., private construction companies. The group consisted of high-ranking officials in his ministry and leaders at the companies.
The former minister apparently ensured that his cronies were appointed to positions of control at the two companies (i.e., as heads of the controlling boards and executive boards of both companies) where, through their official positions and their mutual connections, they could influence the conduct of business.
These private companies were instructed to make payments for fictitious services to subcontracting companies run by members of the group. A group member running these subcontracting companies facilitated the transfer of money to an offshore company in Austria under his control, made cash withdrawals from the accounts of this offshore company, kept a fee for himself, and returned the rest of the money in cash to another group member on the executive board of Croatian Motorways Co. to be distributed among the other group members, including the minister. There were additional acts of misuse of authority and bribery, using the fictitious subcontracting companies to extract money from private companies to pay bribes.
An indictment was brought in June 2015 against the former minister and 11 other members of the criminal association for crimes totaling an estimated 10.5 million euros in financial damage to Croatian Motorways Co. and Croatian Roads Co. The indictment was confirmed for trial in November 2016 by the Council of the County Court in Zagreb.
After the indictment was confirmed, three of the defendants, who pleaded guilty in expectation of more lenient sentences, agreed to confiscation of assets as a means of recovering illegal gains and damage compensation. During the criminal investigation, USKOK obtained freezing orders from the court on the property of the defendants. Parts of this frozen property was confiscated in accordance with the respective plea bargains. In addition, approximately 100,000 euros that were frozen in the bank accounts of one defendant were confiscated and transferred to the state treasury. Civil accords with another defendant — whose frozen assets were inadequate to fully compensate for the damage — and his family members resulted in the transfer of the ownership of several pieces of real estate and a vehicle to the state, with a total value in property and financial assets of approximately 770,000 euros.
The ‘Offside’ Case
This case was one of the more publicized in Croatia since it involved corruption among football players, football coaches and football club officials that resulted in fixing football matches in the Croatian First Football League.
Inquiries were launched after German authorities, while conducting their own criminal inquiries, acquired and shared information suggesting that certain Croatian football matches were fixed. This led to months of special, court-ordered evidence collection through surveillance, telephone interception and other means of remote technical operations, and covertly following and recording people and objects by Croatian authorities.
In June 2010, USKOK initiated a criminal investigation against 20 Croatians and two Slovenians for conspiracy to commit criminal acts, offering and accepting bribes, and fraud. The investigation revealed that three people organized multiple players, coaches and sports directors of clubs in the First Croatian Football League to fix scores in exchange for promises of money. The organizers then bet large sums on games they had fixed, illegally acquiring winnings of at least 5 million Croatian kuna (approximately 675,000 euros). Most of the betting was done over the internet, and large amounts were placed through betting companies registered in East Asia.
The indictment was confirmed for trial in 2011, but before that, six defendants pleaded guilty and concluded accords in expectation of more lenient sentences. The organizers admitted that they illegally acquired at least 5 million kuna. All six defendants admitted that 82,520 euros were paid in bribes, and they were ordered to pay that amount to the state budget. To seize the criminal proceeds, the state reached — even before the plea bargains were in force — out-of-court settlements with three defendants who stipulated the transfer of ownership to the state of two apartments, valued at approximately 518,000 euros.
The remaining 16 defendants were found guilty and, in addition to prison sentences, were ordered to pay back bribes received in the amount of 165,500 euros. This verdict was confirmed by the Croatian Supreme Court in December 2013.
This case not only opened doors for further investigations into match fixing (during inquiries, information and evidence on match fixing in Italy, Hungary and Serbia was gathered, which was forwarded to their authorities, leading to criminal proceedings and convictions in those countries as well), it also showed that efficient criminal proceedings are not possible without confiscation of the proceeds of crime. Leaving the proceeds to the perpetrators would only enable further criminal activities and undermine the entire purpose of criminal proceedings.
The causes of corruption are not always evident. In his article, “Combating Corruption in Transitional Countries,” John Sullivan, executive director of the Center for International Private Enterprise, states: “It is important to recognize that corruption is not just a moral problem: it is an institutional problem, a matter of the underlying incentive structures that determine why things work the way they do. This understanding is key to effecting lasting change. The starting point is to examine and analyze how corruption occurs — what the enabling conditions are that allow a corrupt transaction to occur, whether in procurement, customs, land sales or any other area of the economy.” Along with exposing the culprits and trying them in court, this is one of the key factors in eradicating corruption from young democracies such as Croatia. But the “Croatian Motorways” and “Offside” cases show that taking away the proceeds of crime is essential to the process of change and prevention of corruption at all levels. It is also vital for the economic recovery of the country since most corruption cases directly affect the state budget as well as the standard of living of its citizens, and this cannot be restored thorough classic prison sentences.
Therefore, as USKOK continues to fight corruption in Croatia, the confiscation of illegal gains will remain a very effective tool for the prevention of future criminal acts, and a means of achieving a wider goal of social justice.