bosnia report
New Series No. 11/12 August - November 1999
 
On corruption in Bosnia-Herzegovina
by David B. Dlouhy

Since the issue of corruption in B-H is of undeniable importance, but has too often been raised in intemperate or unbalanced ways by Western politicians and journalists, it is interesting to read these quite sober and judicious comments by the key US official with local responsibility, David Dlouhy. The main (interlinked) aspects of the problem not tackled here, of course, are the causal role of the order imposed on B-H at Dayton in producing the overall social, political and economic state of the country today, with all its negative features; and, in particular, the all-too-frequently corrupting influence at all levels of the massive foreign presence in post-Dayton Bosnia.

Thank you for the opportunity to speak to you today about corruption in Bosnia. The fight against corruption continues to be one of our highest priorities in the context of Dayton Implementation. Some two years ago, in the Fall of 1997 the Peace Implementation Council (the PIC) formally incorporated fighting corruption as an integral element of the Dayton implementation process.

However, while we discuss this critical issue, it is important to keep in mind that it has not prevented the recent positive developments in Bosnia related to refugee returns. As you are aware, some 2 million Bosnians were displaced by the war. Today, 1.2 million Bosnians remain displaced nearly four years after the war. This includes 836,000 internally displaced and 450,000 outside Bosnia. By way of comparison, on April 20 of this year there were 1.4 million displaced persons in Kosovo. Today we estimate there are about 100,000 refugees outside Kosovo. While the situation in Kosovo has improved in terms of refugee return, this remains the number one problem in Bosnia. Up to now we have seen marginal progress. However, while the war was being fought in Kosovo, something significant seems to have happened in Bosnia. In the first eight months of this year, in fact, SFOR [the international peacekeeping force in Bosnia] announced that minority returns are running 65% higher than last year. The number of minority returns so far this year who have registered with UNHCR [United Nations High Commissioner for Refugees] is 10,000 and when ÌÌÌÌÌÌÌÌÌÌÌÌÔ one adds those who have returned without registration, it is estimated at 40,000. These returns include over 5,000 Serbs who have returned to Drvar in the Federation. If this war was fought by nationalists for a separate homeland for Serbs who opposed Bosnia's independence from Yugoslavia, the action by Serbs in Drvar has shown that home, not a homeland, is what matters most. In the Republika Srpska, Bosniak families are returning to Prijedor in the west and to Gacko and Nevesinje in the east. Just yesterday, 30 Bosniak families, 87 people, returned to Pale. Croats account for 25 percent of all minority returnees and are going back to Central Bosnia. Undeniably, however barriers to minority returns remain and corruption plays a role in that, which is why we have been working for the past two years through the vehicle of the PIC, as well as bilaterally, to address it. The 4,000 pages of documentation on corruption in the Tuzla canton produced by local Bosnian authorities and referred to in the August 17, 1999, New York Times article, is an encouraging result of our efforts over the past two years to push the Bosnians themselves to develop the political will to fight this issue and to help them to develop the institutional capability to do so.

Corruption is undeniably a fact in Bosnia, a country ravaged by war during which corruption flourished, and burdened with well entrenched vestiges of a communist economic system and mind-set. Not surprisingly, democratic concepts of accountability to the public and transparency are not yet second nature to most Bosnians.

Moreover, during the war, the nationalist warring parties took advantage of the breakdown in governmental structures to gain control of large parts of the Bosnian economy. This economic power enabled, and continues to enable, the large mono-ethnic parties to sustain their party apparatus and exert their influence at all levels in society.

This situation was summarized in a Transparency International Report in March 1998, which read: `As the most casual observer would know, the country of Bosnia and Herzegovina faces problems that should intimidate even the most resolute. It has not only just emerged from a bloody conflict with its physical infrastructure quite literally shattered and with the legacy of bitterness and distrust which the inter-communal violence has spawned, but also with a peace process that is not yet assured. Further compounding this was the rampant corruption and profiteering which had flourished during the war, creating criminal centers of power and influence þ smuggling organisations and links throughout the region that remain intact and busy today. . . These would be difficult enough to cope with. However, Bosnia and Herzegovina has also all the deep-seated problems it inherited from the communist regime and a style of government that was essential[ly] top-down, with "rule of party" rather than "rule of law", and an absence of accountability and transparency let alone a culture of consultation and consensus building.'

Anti-fraud unit

Public recognition of this extensive corruption began during 1997, with a number of reports released by the European Commission's Customs and Fiscal Assistance office (CAFAO). It was concern about corruption and its potential effect on assistance funds, that pushed the PIC in Fall 1997 to highlight the problem of corruption and endorse the establishment of an Anti-Fraud Unit in the Office of the High Representative (OHR).

Specifically, in Bonn, in December 1997, the PIC endorsed the establishment of the Anti-Fraud unit stating that: `The Council is deeply concerned by the potential for corruption and diversion of funds for unauthorised purposes as outlined in the two reports submitted by the European Commission's Customs and Fiscal Assistance Office ... Corrective measures should be taken against corruption. Foreign aid must not be a substitute for diverted state resources. Donors have to protect their assistance funds from possible misuse, as well as froÌÌÌÌÌÌÌÌÌÌÌÌÔ m having to compensate for misappropriation.'

A year later, in December 1998 in Madrid, the PIC spoke out again clearly on this issue stating: `The Council expresses deep concern about continuing corruption and evasion of public funds. It welcomes the High Representative's development of a comprehensive anti-corruption strategy ... The High Representative will take the lead in coordinating International Community efforts aimed at eliminating opportunities for corruption, tax evasion and diversion of public revenue; ensuring transparency in all phases of governmental operations; strengthening the legal system and the judiciary; and implementing control mechanisms with appropriate penalties to ensure compliance ... The Council emphasises again that it will not allow the impact of funds expended by donors to be diminished by corruption and fiscal evasion of domestic revenue.'

To carry out this work, OHR formally established an Anti-Fraud Unit to identify illegal activity and coordinate international technical assistance in December 1997. Following secondment of international personnel and fund raising for the budget, the Unit became fully operational in Fall 1998. The Unit's structure and operations were reviewed by the Ministerial meeting of the PIC meeting in Madrid December 15, 1998. In February 1999, the Unit issued a comprehensive anti-corruption strategy which was approved by the Peace Implementation Council Steering Board as the agreed international community strategy for combating corruption. Working closely with other members of the international community, in particular EC CAFAO, the World Bank, U.S. Treasury and USAID [U.S. Agency for International Development], the Anti-Fraud unit works on a two-track approach. Its first track is to work with the local authorities in the investigation and prosecution of significant fraud and corruption cases.

To complement this case-specific approach, the Anti-Fraud Unit has developed a second track of work involving systemic changes. This second track is described in detail in OHR's `Comprehensive Anti-Corruption Strategy' which was issued last February. In this second track, AFU has identified four strategic pillars to fight corruption. They are: eliminating opportunities; transparency and reporting; control and penalties; and education and public awareness. It was in the context of this fourth pillar, public awareness, that the New York Times was invited to a briefing by the Anti-Fraud Unit at OHR for the purpose of highlighting the Unit's work and the results of the first large-scale public corruption investigation conducted by Bosnian authorities.

Keying off of these strategic pillars, the strategy describes four major sectors in which reform is being taken or is planned. These four sections are: (1) the Public Revenue sector, under which tax simplification, revenue collection reform, establishment of a treasury function, reform of the payment bureaus and review of aid institution are addressed; (2) the Rule of Law sector, under which anti-corruption laws, task forces and training are discussed; (3) the Institutional sector, under which the need for a border service, parliamentary commissions, the creation of a Supreme Audit Institution and Transparency Offices are described as well as reform of the civil service and government regulations; and (4) the Public Awareness sector under which the need to educate society about the costs and effects of corruption and to raise public awareness and intolerance for abuse of public office are set forth. In addition to having been one of the main proponents of the establishment of the Anti-Fraud Unit, the United States conducts programs that contribute to these efforts. The U.S. Treasury, for example, assists in the areas of: budget and taxation reform, banking privatization, and reform of the payments bureau. Additionally, the U.S. Department of Justice's Office of Overseas Prosecutorial Development, Assistance and Training (OPDAT) in cooperation with the American Bar Association's Central and ÌÌÌÌÌÌÌÌÌÌÌÌÔ Eastern European Law Initiative (ABA/CEELI), has been training judges, prosecutors and police in reformed criminal laws recently adopted in the Federation which they helped draft. In fact, OPDAT has just received further SEED [Support for Eastern European Democracy Act] funding to conduct training in fighting organized crime and investigating and prosecuting public corruption. Also, the U.S. Customs service has just received funding to conduct training in money laundering control in Bosnia.

Judicial reform

In addition to these anti-corruption specific activities, the international community has also focussed on the problem of Bosnia's weak and politically influenced judiciary, that is too often incapable or unwilling to try corruption cases. Sadly, but not surprisingly, the judicial sector in Bosnia also suffered tremendously from the war and is saddled by the habits of its communist past. During the war, many qualified legal professionals fled or were killed, leaving many vacancies. These vacancies were often filled by poorly trained judges and prosecutors, many of whom were selected because of their loyalty to the large nationalist parties. Today, the judiciary still suffers from lack of political independence, lack of training and resources, and all too often ethnic bias. As with economic assets, close party control of the budgets of, and appointments to, the judiciary cripple efforts to render justice.

Recognizing this, the Peace Implementation Council in 1997, as part of the overall implementation strategy which created the Anti-Fraud Unit, also called on OHR to coordinate international efforts to reform the ished the United Nations' International Police Task Force (IPTF). IPTF has focussed its efforts on restructuring, retraining and democratizing a police force whose pre-Dayton role had been to maintain control on behalf of an authoritarian regime. The police force moreover became ethnically divided during the war and fought on behalf of the warring nationalist parties. Just as with the judiciary, training such police officers to serve on behalf of the people and pursue criminal corruption cases against the political authorities is a difficult task.

To achieve such reforms, IPTF established a successful `certification' process whereby each individual police officer is evaluated against specific criteria. This certification process includes mandatory training and screening by the International Criminal Tribunal for the former Yugoslavia [ICTY]. Officers who fail to meet the test are de-certified and thereby disqualified from being police officers. This de-certification tool has also been used very effectively to get rid of corrupt or obstructionist police officers. Another component of the restructuring has been to obtain the commitment of both the Federation and RS Governments to achieve multi-ethnic police forces to provide a secure environment for all ethnicities throughout Bosnia. Thanks to the efforts of the international community, training for police from both entities is now taking place in newly established police academies in both the Federation and the RS.

The U.S. continues to assist vigorously in all aspects of police reform primarily through the Department of Justice's International Criminal Investigation Training and Assistance Program (ICITAP) which has been involved in training police in both entities since 1996. Amongst other things, ICITAP has a full-time adviser at the Federation Police Academy and is working closely with the cantonal ministries and the RS on the development of standardized policies and procedures manuals that, amongst other things, provide for the establishment of internal affairs units to pursue allegations of police wrongdoing. The U.S. has also provided urgently needed police equipment, much of which was damaged during the war.

All of these efforts, which must be continued, seem to be bearing fruit, though significant challenges still lie ahead. Local police have shown they can successfully investigate high-leveÌÌÌÌÌÌÌÌÌÌÌÌÔ l corruption. As the result of police investigations, indictments for corruption are expected to be handed down very soon for Tuzla Canton Prime Minister Hazim Vikalo. Directly related, Tuzla Minister of Interior Ferid Hodzic has been removed by OHR for attempting to block the investigation, and is expected to be indicted as well. Police in the Federation and RS also have begun cooperating on stolen vehicle investigations, and in dealing with organized crime, such as the joint effort which closed the Otoka Market in Una Sana Canton. Police in Stolac arrested the head of the Renner Market, and investigations are continuing. This is a particularly salient case as the disappearance following release of the principal accused seems to encapsulate the problem confronting Bosnia of links between political officials, mafia members, politically intimated or corrupt judges, insufficient domestic law enforcement capacity and overall lack of political will to address the problem.

Bilateral efforts

Besides working multilaterally through the Office of the High Representative, the United States Embassy in Bosnia has been actively engaged in diplomatic efforts to generate political will to fight corruption. Since August 1998, we have deployed a full-time officer to the Embassy to coordinate with the international community's efforts on corruption, in conjunction with SFOR. On June 2 of this year, the Embassy issued a press statement criticizing President Izetbegovic for downplaying the seriousness of the corruption problem. On June 10 our Ambassador gave a public address entitled `Corruption, Ethics and Civil Society.' In meetings with senior government officials throughout the summer, the Embassy called on them to launch a political initiative against crime and corruption. While they have not responded appropriately, there are courageous officials at levels of government who are appalled by the current situation and who are willing to address it with the support of the international community. That is the message from the Tuzla Canton investigation and from the Sanski Most municipality investigation.

Conclusion

In sum, the problem of corruption is undeniably one of the prime obstacles to achieving the goals set forth at Dayton. That is why we have made fighting corruption a central focus of Dayton implementation and will continue to do so.

However, corruption is a fact in Bosnia today because of a confluence of factors. Some of these include: nationalist party structures that took root during the war, Bosnian mind-sets formed by years of autocratic and communist rule, and lack of adequate laws and judicial institutions to combat corruption. All of these factors must be tackled and will require continued assistance by the international community to do so. As the members of the panel emphasize, U.S. taxpayers funds are well protected. We are aware of and have taken steps to protect ourselves from the system we seek to change.

I thank you for the opportunity to discuss with you the problem of corruption in Bosnia because public recognition and discussion of this problem, both internationally and by the Bosnian people, is one of the most important steps in the battle against corruption. It is this type of discourse, the press coverage and publicity that will flow from this Committee's attention to the problem, that I hope will gradually allow Bosnian society to develop into a true democracy where rule of law and not rule of nationalist party politics reigns. For this to happen, we hope that all officials in Bosnia will see corruption as a major threat to the integrity of the country.

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