Serbia Declares War On Phone Tycoon

The government's crackdown on Mobtel boss Bogoljub Karic is motivated by politics, not a desire to end corruption, critics say.

By Tanja Matic (BIRN Serbia)

Serbia's government is fending off accusations that it failed to investigate the dealings of tycoon turned politician Bogoljub Karic until he allegedly tried to buy the loyalty of the ruling party's parliamentary deputies, threatening its majority.

Karic himself fled the country in mid-December, but in January he appeared publicly in Kosovo and in Bosnia on the local TV station OBN.

"I am very sorry that [Prime Minister] Vojislav Kostunica and his coalition partners have lost their senses," he announced from exile on the website of his political party, the Power of Serbia Movement, PSS, late in December.

He said the government was driven by "fear of the growing popularity of the PSS and me as its leader," as a result of which they had "organised a political revenge by means of snatching companies".

What Karic was referring to was the government's move to place the huge mobile phone company, Mobtel, under the control of the state-run Post, Telephone & Telegraph, PTT.

PTT has now taken over the management of the company, which was founded jointly by Karic' BK Trade and the PTT in 1994. At the same time, the government has also launched a probe into the ownership structure of BK TV, Karic's national television station.

Although officials say they are merely
investigating economic crimes, most analysts agree that it is impossible to separate the politics from the police work in this declaration of war on Karic.

As the popularity of his Power Of Serbia Movement, PSS, has skyrocketed, it has rattled a government sitting on a wafer-thin majority.
Without contesting the last general election, the PSS has won over several defecting deputies in parliament, and so has formed a new caucus.

Recently the government accused him of trying to poach another four deputies - from the ruling coalition - which would have deprived the government of its majority altogether.

Karic would then have the numbers for a possible alliance with the opposition Radicals and Democrats that could topple the coalition, which consists of the Democratic Party of Serbia, DSS, the Serbian Renewal Movement, SPO, and G17 Plus.

A Tycoon From Kosovo

Karic's rise over the past decade has been little short of meteoric. Born in Kosovo, he amassed serious wealth in the Nineties under the regime of Slobodan Milosevic.

In 1990 he founded Astra Bank, for which the National Bank of Serbia, NBS, has issued nine liquidation orders since the fall of Milosevic.
Serbia's Supreme Court has overruled these orders on eight occasions, but a ninth liquidation request was filed in December.

Karic's business masterstroke came in 1994, when he rode the mobile phone craze by founding Mobtel, which came into existence with Milosevic's blessing after the signing of a contract between the state-run PTT and Karic's company, BK Trade. In the same year Karic expanded his media portfolio by founding BK Television, which - again with official blessing
- was granted broadcast rights for the whole of Serbia and Kosovo.

BK TV has been a success and ranks third in Serbia, behind the national television network, RTS, and another highly successful commercial operation with ties to the Milosevic regime, TV Pink.

Karic repaid the government's patronage by supporting the regime. But from 1997, as the pillars of Milosevic's system crumbled, Karic distanced himself from his old benefactor. After the regime collapsed in October 2000, the new democratic government headed by Zoran Djindjic pledged to crack down on the Milosevic-era tycoons and their "illegal fortunes", and Karic's name was often mentioned in this context.

However, nothing happened. Every probe into Mobtel ended the same way - ruffling a few feathers before dying away.

After Vojislav Kostunica took over the government in 2003, Karic appeared to support Kostunica, but as the tycoon's own political aspirations have grown, so has tension with Kostunica's government.

A major development was Karic's decision to found his own party in May 2004 and to stand in that year's presidential campaign, in which he finished third.

Karic used the campaign to barnstorm the country, touring the length and breadth of Serbia, visiting the beleaguered Serbs of Kosovo and promising support for farmers and the poor in general. These tours were given large amounts of coverage on BK TV.

Since then Karic's party has consolidated its hold. Surveys last year put it in third place, close behind the Serbian Radical Party, SRS, and the Democratic Party, DS, of President Boris Tadic. Significantly, the PSS has overtaken Kostunica's DSS in several polls.

Milan Nikolic, director of the Belgrade-based Centre for Studying Alternatives, says Karic based his popularity on a kind of populism that tends to flourish in countries like Serbia, which are undergoing traumatic economic transition.

"On the back of a rather populist and demagogic political platform, Karic has attracted about 13 per cent of the electorate," Nikolic said. "He even surpassed the DSS, which is the main pillar of the ruling coalition."

Nikolic said the PSS has no distinctive political platform, experts or influential people but operated simply as a front for its leader. "The question is whether this political structure will hold together if Karic's business empire collapses," he added.

Moving In On Parliament

Karic's relations with a now wary government deteriorated sharply last May, when he embarked on a campaign to recruit sitting parliamentary deputies to the PSS.

The breakthrough came that month when a lone defector from the Radicals crossed over. This was entirely legal as, under Serbian electoral law, the deputies themselves "own" the seats they represent- not their parties.

Another milestone followed on December 22, when the PSS formed a coalition with the previously pro-government Social Democrat Party, SDP, headed by Nebojsa Covic. It led to the formation of a parliamentary caucus, "For European Serbia," numbering five deputies.

This seriously undermined the wafer-thin majority of the DSS-dominated government.

Of the 250 seats, the DSS, SPO, and G17 Plus together hold 129, thanks to the support of Milosevic's Socialist Party of Serbia, SPS, which is not a member of the coalition.

But according to a now outraged DSS, Karic was not satisfied with holding a caucus of five deputies. Early in December, the head of the DSS caucus of deputies, Milos Aligrudic, accused Karic in parliament of trying to "buy" several new deputies from DSS ranks.

Aligrudic claimed that Karic aimed to poach at least four deputies, boosting his caucus to nine, and so depriving the government of its majority.
As well as imperilling the passage of the 2006 budget, it would have made the government's fall in a no-confidence vote a distinct possibility.

When police questioned Aligrudic and another deputy, Mika Vlaovic, who said Karic had targeted him for defection, they repeated the allegation that Karic had offered potential defectors a bribe for "a transfer to his party".

Early in January, the public prosecutor's office launched an investigation into the alleged bribes offered to Vlaovic, which is still under way.
Karic's party has described the allegations as groundless, and insists that they are part of a campaign of political pressure exerted against its leader.

Milan Nikolic believes that Karic remains capable of hurting the government if his party continues to win over rebel deputies.

"If he joined forces with other opposition parties, he could cause the fall of the government," Nikolic told Balkan Insight. "This was what triggered the government's hawkish action."

Circles close to the government say Karic has a number of potential allies in the opposition to flirt with, especially Tadic's Democratic Party. Last November, Finance Minister Mladjan Dinkic expressly accused Tadic of trying to topple the government. Tadic has strongly denied even contemplating an alleged "deal" with Karic.

The Mobtel Dispute

The government's main anti-corruption body, the Council against Corruption, claims that Mobtel was founded on a dubious legal basis. Verica Barac, president of the council, said that under laws in effect at the time, the state ought to have remained the majority owner of the new company.

Two years ago, the PTT took Mobtel to a special arbitrary court in Zurich over the ownership of the mobile phone firm, with both sides claiming they owned 58 per cent of it.

To add to the confusion, in May 2005 Karic sold his holding company, BK Trade, to a group of Austrian businessmen led by Martin Slaf.

But while the court case in Switzerland dragged on, the government moved in on 29 December, suddenly claiming that it had come to light that Karic had signed a contract without the government's knowledge in 2003 with Ekrem Lluka, owner of the Kosovo mobile phone company Mobikos.

The deal gave Mobikos the right to use Mobtel's network in the disputed territory, where the majority Albanian population dislikes using anything Serbian - including phones.

Predrag Bubalo, the Serbian minister for foreign economic relations, claimed that Karic had acted illegally, as the transfer of part of Mobtel's licence to a third party could only take place with the written consent of the government.
Claiming damages to the state, the authorities raised three charges against Karic and put out a "wanted" circular for Patrik Harpur, the then manager of Mobtel who had signed the contract.

Vreme journalist Tamara Skrozza, who first publicised the controversial contract nine months earlier, believes the government's main motive against Karic is political. The existence of the contract was long known to the authorities, she claims.

She dismisses the government's assertion that it only learned of the contract through the media.
"On the contrary, the contract came to Vreme and other media through government agencies," Skrozza told Balkan Insight.

"If they had wanted to do something about that contract they could have done it a long time ago," she added. "But the time obviously wasn't right - Karic wasn't a political threat as he is now."

Verica Barac is also suspicious of the
government's sudden concern for the transparency of Mobtel's dealings, noting that the Council against Corruption presented them with detailed findings on Mobtel's irregularities a year before. "Political interests are at work here," she said.

"We wanted to see the lawfulness and the contractual relationship between PTT and Karic's company established institutionally, but what we see here is action taken irrationally, and from a position of force," she added.

Barac warns that the case against Mobtel is being based on the wrong reasons, opening up the possibility that Karic may even in the future be in a position to seek compensation.

However, some analysts warn that to blame purely political concerns for the sudden move against Karic may be over-simplifying the situation, arguing that the post-Milosevic judicial system would have been incapable of handling such a complex prosecution and that it has taken a long time for the authorities to build a strong case against the tycoon.

In this view, Karic entered politics with the intention of stalling a government crackdown on his business empire and is claiming political persecution and casting himself as a victim now that he is facing a tough prosecution.

The End Of Empire, Or A Warning?

As the two sides continue their war through media announcements, the government is pressing home its advantage.

Early in January, police minister Dragan Jocic said the investigation was "one of the largest police interventions concerning the investigation of potential criminal activity in the economy".

Citizens had the right to know "how and why it happened that Mobtel never paid anything to the state and whether someone had been illegally getting rich in this way", he said.

The minister for capital investments, Velimir Ilic, denied that revoking Mobtel's licence represented "persecution" of the PSS. "The reason for revoking Mobtel's licence was the illegitimate contract and has nothing to do with politics," he said.

While some believe the campaign must end in Karic's downfall, Tamara Skrozza believes the government is only firing warning shots.

"Someone is warning him not to carry on doing what he is doing in parliament," she said, referring to the PSS's recruiting drive.

In the meantime, the government is hurriedly changing the rules to ensure no more defectors cross over into the PSS's arms. Under an amended electoral law, parties will now own the freehold of the seat, not the representatives.

The embattled tycoon remains defiant about his political prospects, however. "As long as I live I will stay in this business," he told Bosnian TV on 12 January, "and so by God so will all the other members of the Karic family. We have no intention of leaving politics."

Karic issued an equally defiant rallying cry to his party's executive board this week: "For the PSS, the elections have started this very day," he said.

The war, it seems, has only just begun.

Tanja Matic is a Project Coordinator for BIRN Serbia.