The European Public Prosecutor’s Office (EPPO) has launched a probe and proposed pre-trial detention against four suspects in Croatia: former government minister Gabriela Zalac, the director of the SAFU government agency, and two businessmen, on the suspicion that they had embezzled public funds to the tune of €1.8 million.

The EPPO issued a statement on the matter on Thursday without revealing the identity of the four suspects.

The statement reads that the EPPO “has initiated an investigation against four Croatian citizens, as well as two companies, for the criminal offences of trading in influence and the abuse of office and official authority.”

Among the suspects are the former minister of the Ministry of Regional Development and EU Funds (MRRFEU) and the Director of Croatia’s Central Finance and Contracting Agency (SAFU), Tomislav Petric, and the businessmen Marko Jukic and Mladen Simunac. All four suspects were arrested on Wednesday at the request of the EPPO.

Based on the results of the preliminary investigative activities, carried out in cooperation with the European Anti-Fraud Office (OLAF), the Croatian National Police Office for the Suppression of Corruption and Organised Crime and the Independent Financial Investigation Sector of the Tax Administration of the Croatian Ministry of Finance, the EPPO has now officially initiated an investigation.

The Croatian police specify that the former minister is suspected of abuse of office and influence peddling, SAFU director Petric of abuse of office while the businessmen Simunac and Jukic are suspected of having encouraged the office-holders to commit wrongdoings.

EPPO says in its press release that “it is alleged that the first suspect, in her joint capacity as Minister of the MRRFEU and President of the Governing Board of the SAFU, took actions aimed at ensuring a privileged position for the second and the third suspects, as well as the companies linked to them.”

“These activities occurred in 2017 and 2018, in the process of the public procurement of an information system for strategic planning and development management. During this time, the former minister was responsible for both the lawful conduct of public procurement procedures at the MRRFEU, and for proposing the appointment and relieving of duties of the Director of the SAFU. ”

Adjusting ministry’s procurement plan to benefit suspects

“The privileged position of the second and the third suspects was ensured by: adjusting the MRRFEU Procurement Plans for 2017 and 2018 to benefit the second and third suspects and the companies linked to them; inflating the estimated value of the procurement of that information system; changing the type and manner of procurement; and adjusting the technical specifications of the software required for the MRRFEU’s purposes to the software that the suspects and their companies had at their disposal.

The former minister decided that the MRRFEU would make this purchase at a price much higher than the market price for the development of software with such technical specifications and functionalities.

It is alleged that, in order to carry out what was agreed, the former minister first decided, in 2017, to conduct a negotiated procurement procedure without prior publication of a public invitation to tender, with an overestimated procurement value of HRK 9,860,000.00 (EUR +/- 1.31 million); and in that process, the companies linked to the second suspect were invited to submit their bids.

“In order to ensure the continuation of the negotiated procurement procedure without prior publication of a public invitation to tender, and by using her joint authority as Minister of the MRRFEU and President of the Governing Board of the SAFU, the former minister requested that the fourth suspect, the Director of the SAFU (the agency responsible for the ex-ante control of EU-funded MRRFEU public procurement procedures) made sure that the SAFU, in the ex-ante control of the documentation of the procurement of software licences unduly estimated at HRK 9,860,000.00, did not dispute the negotiated procurement procedure.”

As this request came from the President of the SAFU and the minister who was in a position to propose, to the Croatian government, the appointment and relieving of his duties, the director agreed, and instructed the SAFU administrative and professional services to be as lenient as possible in their comments referring to the procurement documentation.

“When, in October 2017, the Croatian State Commission for the Supervision of Public Procurement Procedures annulled the public procurement procedure due to the breach of the law on public procurement, the former minister and the second suspect continued, in 2018, to take action to award the contract to the companies of the second suspect.

“Finally, after having conducted an open public procurement procedure, the MRRFEU concluded a purchase contract for this information system with the companies linked to the third suspect, a business partner of the second suspect, with the price unrealistically set at HRK 12,991,000.00 (EUR 1.73 million) – although the realistic price of that system would have been approximately HRK 2,000,000.00 (EUR 265,000). ”

As much as 85% of the procurement of that software was financed by the EU’s Operational Programme Competitiveness and Cohesion grant.

“The above amount, inclusive of VAT (HRK 16,238,750.00 in total, or EUR 2.16 million), was paid to the account of the company of the third suspect, after which a part of the money was transferred to the accounts of the companies of the second and third suspect, and a part was withdrawn in cash.”

The EPPO concluded that “In the end, the financial interests of the European Union and the Republic of Croatia were damaged by the total amount of EUR 1.8 million.”