Investigative storiesCross-border crime

In Serbia there are 334 companies from the EU black list of countries

11 May 2016
Illustration: Đorđe Matić
The European Union is introducing the register of final beneficiaries of companies, to prevent tax evasion and money laundering through off-shore zones. In the future, all this will have consequences for Serbia, in which there are currently operating more than 1,100 companies whose ownership is hidden in one of the tax havens around the world

In the course of 2007, Nikola Đivanović purchased the oldest Serbian film production, distribution, and screening company Beograd film, including some of the best-known Belgrade cinemas: Kozara, Jadran, Zvezda, etc. The price was somewhat more than the then amount of € 9 million. At that time, media presented him as a successful British businessman of Serb origin, owner of a real estate company in London, and former advisor to the National Bank of Serbia’s Governor Mlađan Dinkić.

Several years later, it turned out that the cinemas were transferred to a network of off-shore companies – behind which was Đivanović’s company from the Bahamas and a group of former managers of Beograd film. This is why the Prosecutor’s office for organized crime indicted them with money laundering, tax evasion, and abuse of office, by which they incurred damage to the company, state, and shareholders, in the attempt to obtain profit of at least € 1.6 million.

Among others, the indictment accused them of having used seven cinema buildings to establish separate companies and sell them to Cypriot companies controlled by Đivanović between 2007 and 2011. In 2008, they paid only 10% of the price to Beograd film; according to statements of the prosecution, to maintain the illusion that the rest of the amount was paid, Đivanović opened an account in Switzerland in 2010 and produced fraudulent payment certificates. The cinemas were later resold, but none of them has been in operation for years.

 

Countries from the EU black list

The numbers in the brackets denote the number of companies from each country operating in Serbia: ENG


Europe: Lichtenstein (33), Andorra (4), Monaco (4), Guernsey (3). Africa: Seychelles (19), Liberia (6), Mauritius (2). Asia: Hong Kong (15), Brunei (3), Maldives. Oceania: Marshall Islands (9), Niue (1), Cook’s Islands, Republic of Nauru, Republic of Vanuatu. Americas: British Virgin Islands (147), Panama (35), Belize (22), Bahamas (12), St. Vincent and the Grenadines (9), St. Christopher and Nevis (5), Cayman Islands (4), Anguilla (1), Antigua and Barbuda, Barbados, Bermuda, Grenada, Montserrat, Turks and Caicos, and US Virgin Islands.

In 2012 Đivanović concluded an agreement with the prosecution, after which he was sentenced for abuse of office, while the indictment for money laundering was rejected. According to the verdict, he was sentenced to three years of imprisonment, with the obligation to repay the then amount of about € 3.1 million to the budget and shareholders. He was released on probation in 2014, after his sentence was reduced by one year.

The purchase of Beograd film is just one example of abuse of so-called off-shore zones for criminal activities. Operations of companies registered in them are not illegal, but they are frequently used for asset concealment, tax evasion, and money laundering.

This is why the European Union (EU) composed a black list of off-shore countries, based on information supplied from member-states.

The EU list, published in the middle of the previous year, comprises 30 states denoted as “non-cooperative zones”. Ownership of 334 companies from off-shore destinations operating is Serbia is currently hidden in some of them.* According to the data of the Agency for business registers, most off-shore owners of Serb companies are registered at British Virgin Islands – 147, followed by Panama with 35, and Lichtenstein with 33.

The EU also passed a directive according to which all its members will have to establish registers of final beneficiaries – real company owners by June 2017. In future, this will have impact on Serbia, if it successfully completes its EU accession process.
Carl Dolan, Director of Transparency International office in Brussels, says that due to greater control, citizens of Serbia will now find it much more difficult to conceal ownership, real estate, and money in banks on EU territories.

According to the data published by international organization Global Financial Integrity in December 2015, more than 40 billion USD was carried away from Serbia through illegal flows of money and capital. Among other reasons, illegal money transfers take place due to existence of tax havens, anonymous funds and companies, but corruption as well.

 

Top 30 off-shore zones, source: EU Commission


EU register of end owners

 

The recently published Panama papers indicate that clandestine ownership of 214,488 legal entities was registered through one company only, Mossack Fonseca. It is such agencies that enable establishment of companies in off-shore zones in the name of lawyers, accountants, notaries, or bankers, behind whom there might be a Russian oligarch, a Saudi sheikh, an American businessman – or a drug trafficker or terrorist.

A number of the 35 companies in Serbia whose ownership currently ends in Panama does not have any employees, and operates with losses. Among others, the owner of Inex-Immoguard Company which provides physical and technical security services is also registered in Panama. Dejan Babić, businessman from Kikinda, who was arrested last year for alleged mismanagement of his two companies, is the co-owner of the company Agragold doo, together with another Panama-based company.

The Panama-based owners of Serb companies also include company Logfor Inc, which ownes four domestic companies. One of them is Atomski zdesna – company which bears the same name as the film by film director Srđan Dragojević which is now in liquidation, and which was also in his indirect ownership.

Panama is not the only country which offers the possibility of low taxes and anonymous ownership. The list also includes European countries of Lichtenstein, Andorra, and Monaco, British overseas territories Cayman Islands and British Virgin Islands, as well as countries of Latin America, Africa, and Asia.

EU Commission Spokesperson, Vanessa Mock, says that after publishing the list EU managed to sign agreements on automatic exchange of financial data with Switzerland, Andorra, and San Marino in 2015, while a similar agreement with Monaco is expected shortly.



“Large companies should not have a place to hide when it comes to tax evasion“, said Mock to journalists of Center for Investigative Journalism of Serbia (CINS).

As the EU is losing billions of euros every year, the Commission is still working on the draft directive against tax evasion, according to which all companies will have to pay taxes at the place where they earn money.

A similar directive aimed at curbing money laundering and terrorism financing is valid from June last year. Member states got a two-year deadline to implement it in their national legislation.

Except for stricter rules for control of suspicious transactions, the most important novelty of the adopted directive is the fact that EU member countries will have to establish registers which will contain not only information about formal company owners, such as agencies or lawyers, but also information on their true owners – natural entities who have either direct or indirect control over the company.

“In numerous cases of corruption, one of the reasons why it was difficult to follow the money was a range of anonymous shell (fictitious) companies, such as trusts or foundations, which were hiding the identity of their real owners”, says Carl Dolan, Director of Transparency International office in Brussels.

Great Britain has already started implementation of this directive. Since January 2016, companies are obliged to keep records on “persons with significant control in the company”, regardless of whether they are formally their owners. Since April, this information is to be submitted to the central register, which will, as announced, become open for public as of June this year. Norway and Holland have passed similar decisions.

Great Britain was faced with the issue of persuading its “overseas territories”, such as the British Virgin Islands, Cayman Islands, and Bermuda to implement this law, as these countries are known as tax havens which based a significant portion of their economies on opening of off-shore companies.

In the beginning of April, British Prime Minister David Cameron said that all “overseas territories”, except for islands Anguilla and Guernsey, accepted to establish central registers of final beneficiaries, but that these will be made available only to investigative bodies, not to the public.

 

“A newly founded legal entity in the process of privatization purchases a business entity. Funds for the purchase are ensured based on the Contract on loan concluded with the legal entity from an off-shore destination. Based on the Contract on loan, the stated funds are shortly repaid to the legal entity from the off-shore destination.”

 

Šarić operated through Delaware
 


Should it become an EU member state, Serbia will also have to implement the new rules, which means that each of the 23,651 companies currently operating in Serbia, with have foreign ownership, including companies in off-shore zones, will eventually have to reveal their true owners.

The annual report of the Administration for the prevention of money laundering for 2015 states that off-shore companies were used for money laundering through privatization, provision of consulting services, or infiltration of money of unfamiliar origin through real estate and consulting.

Still, similarly to Britain, establishment of the register and disclosure of real owners will not resolve all issues in Serbia, nor will it make business operations of off-shore companies completely transparent. The black list of the EU does not include, for instance, Cyprus and the US state of Delaware, where founders of numerous companies registered in Serbia may be found.
Cyprus, a country which is still deemed an off-shore zone, was a popular destination in the 1990s when large amounts of money were carried out of Serbia. This Mediterranean island is still the dominant place where ownership of Serbian companies is concealed through legal offices. At the moment, as many as 795 Serbian company owners are registered in Cyprus.

 

Mišković used off-shore companies

Mišković used off-shore companies

In 2011, CINS published an investigation on Miroslav Mišković’s clandestine ownership in Belgrade-based Univerzal banka, which, at that time, was the only among 33 banks in Serbia in which no owner owned more than 4.9% of shares. This unusual structure was a consequence of the Law on banks; according to this Law, for a company to have more than 5% of ownership in a bank, it would have to supply National Bank of Serbia with information as to the identity of the final beneficiary.

In the case of Univerzal banka, companies from Cyprus, British Virgin Islands, and Belize were inter-related and operating with Mišković’s Cyprus-based holding company Hemslade Trade Limited. In the end of 2011, four off-shore companies waived their right to vote in the bank after a bank shareholder, referring to the CINS investigation, complained to the Securities Commission about the inter-related companies which owned the bank.

Finally, in mid-2012, the National Bank of Serbia launched the process of control of operations of Univerzal banka, whose license was withdrawn in 2014; following this, the bank declared bankruptcy.

Photo: www.deltaholding.rs

 

Off-shore companies were also used in some cases of money laundering in Serbia which ended up in court. Data of the Administration for the prevention of money laundering indicates that since 2005, when the criminal offence of money laundering was introduced, final convictions were passed in 15 cases against 19 defendants, while 23 defendants in two cases were convicted based on the guilty plea agreement.

The Prosecutor’s office for organized crime currently prosecutes six cases of money laundering, one of which includes utilization of companies from an off-shore destination for placement of illegal money – the case of the crime group of Darko Šarić.

Šarić’s group managed to launder and infiltrate into legal flows the amount exceeding 20 million USD, earned by sale of cocaine using companies founded in Delaware by the agency Harvard Business Services. The money was invested in purchase of companies in privatization, real estate, and agricultural farms.

Except for the eight companies connected with Šarić and his collaborators, the Harvard Business Services agency, which is located in a prefabricated house, registered almost 150,000 companies on its address since 1981.

In its written reply to CINS, Administration for the prevention of money laundering stated that as long as there is a possibility that real owners are hiding behind off-shore company owners, “this will be one of the most frequent cases of giving ostensible legitimacy to illegally gained money.”

Miroslava Milenović, member of the Anti-corruption Council, says that new EU regulations are significant, as they do not prohibit off-shore companies, but introduce order in this area: “You must publish who the final beneficiary is, and by that the attractiveness of opening off-shore companies will diminish and their importance will decline.”

Milenović adds that companies from off-shore destinations such as the British Virgin Islands, Delaware or Cyprus were frequent investors in Serbia: “We developed the scheme of founding companies and transferring money in the period of war in the 1990s, but it was fully used by the economic elite after 2000.”

Off-shore companies were also used in privatization of several companies from the 24 famous cases of disputable privatizations and company operations. Acquisition of shares in Luka Beograd and C market supermarket chain, as well as selling of shares in Večernje novosti company, was, among other manners, also conducted through several off-shore companies from Lichtenstein and Cyprus. Some of these cases are currently investigated by the Prosecutor’s office for organized crime.

 


*Note: In the original version of the text the sentence read: “Ownership of 334 companies from Serbia is currently hidden in some of them”; for to facilitate understanding, we changed it into: “Ownership of 334 companies from off-shore destinations operating is Serbia is currently hidden in some of them.” 

 


The story has been produced within the institutional support to the coalition prEUgovor by the Embassy of the Kingdom of Norway. The contents of this publication are the sole responsibility of the Center for Investigative Journalism of Serbia and can in no way be taken to reflect the views of the Norwegian Embassy.

          

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