UK: Fraud Office Looks into British Energy Firm's Role in Balkans

A British energy company has been accused of
exploiting poverty-stricken countries in the Balkans and is being
investigated by the Serious Fraud Office for alleged corruption, the
Guardian can disclose.

This is the first significant attempt by the SFO to
enforce the anti-bribery law, introduced three years ago, which has
not yet led to a prosecution. If it brings charges, they could be
tried in either London or Bosnia.

The company denies breaking the law and says it is
the victim of political in-fighting, It says it has suffered
"misstatements, innuendos and false allegations" in a
special auditors' report.

EFT Ltd is an electricity trading enterprise with
its headquarters in Wigmore Street, London. It is alleged to have
gained a stranglehold on power deals and dam-building projects in
Bosnia, Serbia and Montenegro.

The UN's High Representative in Bosnia, Paddy
Ashdown, claims that possible corruption by politicians in the region
may be helping to finance renegade war criminals, and he is determined
to stamp any such corruption out.

He commissioned a series of special audits which
allege that kickbacks may have been solicited by state power company
officials to write advantageous electricity-swap contracts with
private companies.

"The public utilities have been used as cash
cows to line the pockets of politicians and others," Lord Ashdown
told the Guardian. He has dismissed the head of the Republika Srbska
state power company for mismanagement. "I have no doubt that
illegal, corrupt money is used to protect war criminals," he

There are 18 major suspected war criminals at
large, including the Bosnian Serb military chief Ratko Mladic,
indicted for incidents of genocide, including the massacre in 1995 of
8,000 Muslims at Srebenica, and Radovan Karadzic, the one-time Bosnian
Serb president.

EFT is not accused by the auditors of being
involved with war criminals, and it denies paying kickbacks. The
report called for its contractual relationships with the state company
to be investigated.

Large offshore transactions through Jersey in the
Channel Islands linked to the Balkan power companies are being
investigated, according to sources close to the Bosnian prosecutors'
office, which raided premises there earlier this month and is also
looking at the company's tax history. EFT denies making such offshore

EFT has a British director, James Nye. Records show
that it is controlled by a Serb, Vuk Hamovic, and a group of Belgrade
businessmen, including a former state electricity official, through
offshore companies in the Isle of Man and Cyprus. The shareholders
have become paper millionaires in four years.

The corruption accusations have caused friction
between Lord Ashdown's office and trade-conscious UK diplomats backing
EFT as a British company.

EFT says that the then ambassador to Serbia,
Charles Crawford, intervened on its behalf to secure a meeting with
Lord Ashdown, the former Liberal Democrat leader. The British embassy
in Sarajevo denied that Lord Ashdown had been undermined.

"This company felt that they had not been
consulted prior to the publication of the report. They essentially
wanted to have their case heard." a spokesman said. "The
ambassador merely helped them talk to the institution which had
appointed the auditor". EFT was entitled to help - "It is
incorporated in the UK".

One of the most controversial projects of EFT
(Energy Financing Team) is to build a large dam in Serbian Bosnia.

Environmentalists say it would flood a prized
nature reserve, the Tara Canyon, said to be the world's deepest after
the Grand Canyon in the US. EFT would control the electricity
generated and sell it to Italy.

The 2003 report by the US special auditor Dale
Ellen Ralph said, "We question the need for this project",
and recommended that it should be halted, together with a scheme to
drive a hydro-electric tunnel through mountains, costing â'¬400m
in total.

The report called for the Serious Fraud Office to
investigate dealings between the Republika Srbska power company and
EFT. It said: "Controls over energy sales and exchanges are lax
and therefore open to manipulation and kickbacks. Since we do not have
access to the books of EFT, we were not in a position to determine if
these weaknesses were taken advantage of. However, we are at a loss to
explain [the power company's] actions toward EFT and believe further
investigation by the appropriate authorities is warranted."

Subsequently, Bosnian prosecutors approached the
SFO, which has the authority to force British companies and banks to
hand over their books.

EFT's solicitor confirmed that the company's London
office had been raided.

The company has mounted a vigorous defence. It
hired as a consultant President Clinton's former US special envoy to
the region, Robert Gelbard.

The London lawyers Clyde & Co presented Lord
Ashdown with a detailed rebuttal, saying the report was
"defamatory" and "reaches some damning conclusions on
flimsy evidence".

Mr Nye, a former financier with the Wall Street
bank Kidder Peabody, told the Guardian last week that EFT had
"absolutely not" made any payments to local officials or
politicians. "I know the Balkans are full of corruption, but we
made this work by being smart, being clever," he said.

There was prejudice against the Balkans, he added.
"It's a feeling that if they're Serbs, they must be crooks. The
company's grown quickly - one can imagine people saying 'How did they
do that?' But we spotted that this is a completely new
AMP Section Name:Energy
  • 185 Corruption

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