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By Adam Tanner
April 19, 2011 10:21 AM EDT
In the central bank governor's wood-paneled office with its beige couch and chairs around a Queen Anne coffee table, the man reached into his briefcase and pulled out an envelope full of cash, offering it expectantly to then-governor Ljubisa Krgovic.
It was 2008, right at the height of Montenegro's property mania, and the visitor, an emissary from a local company, evidently hoped to win special treatment. Such transactions are not unusual in Montenegro, which ranks 69th on lobby group Transparency International's corruption perceptions index. Indeed, bribery has become so normal in Montenegro that it seemed almost impolite for Krgovic to decline the offer. The former bank boss remembers squirming as he refused the money.
"It is very difficult to tell him directly," he recalls. "I said 'Please, with this money, please support something else; we will deal with this professionally.'"
Such restraint was rare during the Wild West real estate boom that swept the tiny state of 670,000 around the time it peacefully broke away from Serbia to become independent in 2006. In many ways, Montenegro's go-go years were a microcosm of the best -- and most especially the worst -- of the property booms and busts of the past decade: cheap money, lax rules and oversight, outrageous price rises followed by calamitous falls.
As the country made the transition from communist rule to raw capitalism, investors, including Russians bearing suitcases of cash, arrived to buy up waterfront properties on the Adriatic.
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Crime helped fuel the boom. According to a 2007 report by the U.S. Bureau of International Narcotics and Law Enforcement Affairs, "illegal proceeds are generated from drug trafficking, official corruption, tax evasion, organized crime and other types of financial crimes... Proceeds from illegal activities are being heavily invested in all forms of real estate."
In diplomatic cables obtained by WikiLeaks and seen by Reuters, then U.S. Ambassador to Montenegro Rod Moore described the country as corrupt right through. "Few countries in Europe have as bad a reputation for fighting corruption as Montenegro," he said in a September 2009 cable. "Egregious weaknesses include extensive cronyism and nepotism, weak controls over conflicts of interest, perceived legal impunity for individuals linked to the ruling parties, and the failure of the judicial system to effectively and consistently punish corrupt officials."
Krgovic's emphasis on professional standards stood out -- and is why, he says, he was dismissed last October. Six months on and angered by what happened to him, he has agreed to speak out.
"We are going backwards at the central bank. We are putting the administration under political control," he said. "If you want to attract foreign investors, you need equal treatment. That was my goal."
The government has not said why it sacked him, though the move came as part of a broad restructuring of the central bank. Last year, Igor Luksic, then the finance minister and now the prime minister, ushered in a new law to govern central banking.
Krgovic says he simply angered key players, in particular those connected with one of the country's biggest banks -- and fears he could still suffer consequences.
"They have many ways to influence if I want to stay in Montenegro and work here," he said. "It will be very difficult."
As the country toils to meet the criteria for European Union membership, Krgovic's case -- he calls it a "public war" -- shows just how hard it is to purge corruption and conflict of interest where it has taken hold. Tiny Montenegro may not matter in the big economic picture, but as a symbol of what ails the Balkans and other parts of eastern Europe, it's hard to beat.
"Corruption benefits a small elite but it poisons the well of democracy, sucks the life out of a society that is trying to build a strong and vibrant country...and ruins its chances of joining the EU any time soon," said one EU diplomat in Brussels.
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