Montenegro: Another Russian 'Friend' Readies For NATO, But Corporate Scandals May Prove Costly

Are these the guys the North Atlantic Treaty Organization really wants on their side of the law?

Montenegro is inching towards European integration. Joining NATO is seen as another piece to becoming a full fledged member of the European Union. Yet, bashing Russian business at a time when hating Vladimir Putin is fashionable may be a smokescreen for Milo Dukanovic. The Montenegrin Prime Minister has a laundry list of bad business and corruption tied to his name that might make NATO membership difficult, if not downright embarrassing for the organization. This isn’t the first time NATO has met with unsavory member states in the former Yugoslavia.

The biggest and most recent case business battle involves FORBES billionaire Oleg Deripaska. He’s the majority shareholder behind the Cyprus-based Central European Aluminum Company (CEAC), which in 2005 took over Montenegro’s outdated aluminum producer Kombinat Aluminijuma Podgorica, better known as KAP It’s been bad blood all around. The company was expropriated in 2013. Its former CFO, Dmitry Potrubach, was paraded around in hand cuffs like an animal act on national television, accused of stealing electric power.  CEAC managed KAP, but was in an equal partnership with the government. It’s a long, complicated story. All of the Russians involved have been run out of town. But CEAC is the headliner that makes it harder for Montenegro to go West.

“Is Montenegro ready for the big time?” Dmitry Potrubach repeats my question out loud while driving through Serbia. “No, it is not. You can be accused that you stole the sun and they can see the sun in the sky and then they’ll tell you they have to double check. There is no normal way there. It’s unbelievable. I cannot describe it. I guess it’s like the Middle Ages.”

Requests for comment by the Montenegrin Embassy in Washington were not returned. Here’s what the government  has to defend against in its quest for integration, according to 2015 Project Report released on Nov. 10.

Corruption and the rule of law are the two biggest sticking points,according to the report. In everything else, Montenegro is actually looking “moderately” prepared to be a part of Europe’s expansion team in the Balkans. On corruption, Montenegro’s track record on effective investigation, prosecution and final convictions, in particular regarding high-level corruption, gives the Europeans in charge of this process something to chew on.

In the fight against organized crime, the country has a modicum level of preparation but further efforts are needed to investigate wider criminal networks and counter official money laundering. There is a credibility problem in Montenegro. And, oddly, some international businesses are taking it on the chin. Kicking CEAC out of KAP is a little bit like the government saying, ‘hey, we are going after the bad guys because, well, we are the good guys.’

Russian businesses are not the only ones that have faced mistreatment. A Dutch company locally called Montenegro Specialty Steels N.V. acquired a local metallurgical plant, Zhelezara, in 2008 and in 2011. After investing around 100 million euros in the plants modernization, MNSS was removed from management by the government through an insolvency procedure. The plant was later sold to a Turkish company.

NATO general secretary Jans Soltenber (L) talks during a joint press conference with Montenegrin Prime Minister Milo Djukanovic (R) during their meeting in Podgorica on June 11, 2015. (Photo by Savo Prelevic/AFP/Getty Images)
NATO general secretary Jans Soltenber (L) talks during a joint press conference with Montenegrin Prime Minister Milo Djukanovic (R) during their meeting in Podgorica on June 11, 2015. (Photo by Savo Prelevic/AFP/Getty Images)

In 2012 MNSS filed a claim with the International Center for Settlement of Investment Disputes. No ruling has be made at this time, but one could be made as early as next month. Then there’s the Italians at A2A. Italy’s largest utility player acquired a controlling stake in a local utility for over $500 million in 2009 from the government owned EPCG, only to lose control in three years. That fiasco has since turned the corner and as of Oct. 15, at least, A2A got its management contract extended for another five years.

Simply put, it’s not easy doing business in Montenegro and cronyism, lack of transparency, and corruption are the reasons for it. The former Socialist stronghold has become littered with widespread white collar crime. It is a roadblock to Dukanovic’s hopes of joining NATO and, ultimately, the European Union.

The European Commission says Montenegro is “getting there” on matters of corporate corruption, despite recent expropriations of a Dutch and Russian firm in the country over the last three years. (Photo by Jochen Zick/Getty Images)
The European Commission says Montenegro is “getting there” on matters of corporate corruption, despite recent expropriations of a Dutch and Russian firm in the country over the last three years. (Photo by Jochen Zick/Getty Images)

Stories of funny business are easy to find.

In December, Dukanovic announced that the country would bail out First Bank, one of the country’s largest financial institutions and a major backer in the Montenegrin boom; a boom that was mainly led by Russian investors. First Bank is majority owned by Dukanovic, his two siblings, and a buddy of his. In short, he bailed out himself. Members of local watchdog groups, opposition parties, and journalists say this is just another example of the government’s interests aligning with the financial interests of the first family. They say their small country — fewer than 700,000 people in less space than the state of Connecticut — is a private corporation run by and for the prime minister and his friends.

Recent protests against him have been blamed on the Russians. The argument is the one investors have heard coming from Ukraine: they are stirring up unrest in order to keep it out of NATO. There were protests as recent as Oct. 25 and Nov. 15, with people holding signs reading Milo is a Thief! According to Dukanovic, opposition groups are being supported somehow by the Kremlin. Radio Free Europe, which is funded in part by the U.S. government, agrees.

Dukanovic has enough on his plate as Montenegro moves further along the process of integration. Russian boogey men should be the least of his worries.

In 2011, Dukanovic was part of the well known Magyar Telecom bribery scheme. The U.S. Securities and Exchange Commission charged the largest telecommunications provider in Hungary, Magyar, and three of its former top executives with bribing government and politicians in Montenegro in 2005-2006 to win business and shut out competition in the telecommunications industry. According to the SEC, the Hungarian company paid about $9 million through bogus contracts to bribe “at least two government officials”, as well as his sister, a capital city attorney named Ana Kolarevic.In late 2011 Magyar and Deutsche Telekom agreed to pay $95 million to resolve a U.S. criminal investigation into the charges.Even though the charges were dropped against some executives, Magyar still acknowledged it had paid bribes to Dukanovic’s government.

The Prime Minister was also investigated by the Italian anti-mafia police over allegations that he was involved in a billion-dollar tobacco smuggling ring between 1996 and 2002. Those charges were dropped in 2009 on the grounds of diplomatic immunity. Montenegro’s economy is doing well. But its politics are at the risk of becoming a laughing stock. Total legal claims against it are now in excess of 1 billion euros. That’s nearly 30% of the nation’s GDP.

Unlike any other European country, Dukanovic has run his for the past 25 years. His connections to unsavory business deals could turn him into the latest Ivo Sanader and not the next Lithuania, which become member of the euro family last January and is a very proud member of the NATO family. Sanader’s shoes are not worth filling. He was the Prime Minister of Croatia before it joined NATO in 2009 and the E.U. in 2013 . He was the second former Yugoslavian state to join the club (Slovenia beat him to it), and wound up in a Croatian prison a little over 8 years later in 2014 for rigging privatization bids. Corruption caught up with him. He’s still in jail. He’s trying to get out.

NATO accession negotiations have been underway with Montenegro since 2012, the organization says. Slovenia and Croatia are the only ex-Yugoslavia nations that are now NATO members. Montenegro would be the third. Last month, NATO Secretary General Jens Stoltenberg met with Dukanovic to encourage him to move forward with reforms and tackle the E.U.’s complaints about official corruption.

Stoltenberg said that joining the Euro-Atlantic family “is a win-win” for Montenegro and for NATO, which would have full control of southeastern Europe once membership is sealed. “Countries which joined the Alliance have been able to strengthen their democracy, boost their security and make their citizens safer,” Stoltenberg said. If Sanader is the best rear view in all this, then the shady business deals of Dukanovic will haunt him more than it will hurt Montenegro. Meanwhile, Russian businesses will have to cope with an official anti-Russia sentiment brewing in Dukanovic’s kitchen.

“Russia will have mixed feelings about having another Eastern European state joining NATO,” says Nikolas Gvosdev, a well-known Russian-American international relations scholar from the U.S. Naval War College in Newport, RI. On the one hand, Moscow opposes on principle any further expansion of the alliance. On the other hand, Montenegro in NATO does not pose any threat to Russian interests or businesses, says Gvosdev. Russia accounts for over 30% of Montenegrin foreign direct investment.

“The hope is that concentration on the Balkans will also lessen enthusiasm for NATO expansion further east, especially to encompass Ukraine and Georgia. Russia may also hope to use its relationship with Montenegro to influence NATO, since the alliance continues to work on the basis of consensus. Hungary and Slovakia both show how a country can be part of NATO and still close partners to the Russians in commercial matters and also advocates for Russian interests in European councils.” Both Hungary and Slovakia are also members of the E.U.

Dukanovic may start using anti-Russia sentiment in the west to cast doubts that the recent civil unrest is really about him. Montenegro will integrate with Europe one of these days. It won’t be at the expense of the Russians. But whether Dukanovic witnesses that integration as a free man remains to be seen.


29 November 2015