by Liz MacKean and Meirion Jones
BBC Newsnight (29 May at 22:30 BST on BBC Two)
An investigation by the BBC and the Organised Crime and Corruption Reporting
Project (OCCRP) has uncovered documents which cast serious doubt on plans for
the tiny Balkan nation of Montenegro to join the European Union.
Montenegro is an official candidate to join the EU and accession talks begin
next month. This is despite concerns about allegations of political and
financial corruption, which have led to the country being described as a "mafia
state" - a claim which is forcibly rejected by the Montenegrin government.
The country has no currency of its own and has already unilaterally adopted the
euro, despite concerns from Brussels. It is expected to be in the next batch of
nations to join the EU after neighbouring Croatia becomes a member next year.
Montenegro's former Prime Minister, Milo Djukanovic, who is still president of
the country's ruling party, was investigated by the Italian anti-mafia unit and
faced charges over a billion-dollar cigarette smuggling operation based in
Montenegro. Those charges were eventually dropped in 2009. As head of state, Mr
Djukanovic had diplomatic immunity.
Now documents seen by the BBC raise further concerns about the man described as
the "father of the Montenegrin nation".
Corruption is still an issue of serious concern”
An audit by accountants Price Waterhouse, carried out in 2010, raised questions
about the running of the country's Prva Banka, or "First Bank", which is
controlled by the Djukanovic family. The audit suggests that most of the money
deposited at the bank came from public funds, while two thirds of the loans it
made went to the Djukanovics and their close associates.
Miranda Patrucic, a Sarajevo-based investigator for the OCCRP, told the BBC that
the Djukanovics and their associates "treated the bank like an ATM machine. A
wonderful source of cash."
The handling of key privatisations, as the former Yugoslav country emerged from
decades of communism, has caused widespread anger as Montenegrins have seen
bills for services like electricity soar.
Thousands have taken to the streets, marching under yellow banners, accusing
their political leaders of looting the country. They are demanding that Mr
Djukanovic is put on trial.
Vanya Calovic, leader of an anti-corruption opposition movement, told the BBC:
"Everyone is closing their eyes on the fact the country, government, executive,
all parts of the power are linked to organised crime."
Protesters are demanding that Montenegro's former Prime Minister Milo Djukanovic
be put on trial
Milo Djukanovic, as Montenegrin prime minister during the Balkan wars, ordered
the shelling of the ancient city of Dubrovnik in Croatia. Montenegro, which has
a population of just 670,000, was an ally of the Serbs under Slobodan Milosovic.
It faced UN sanctions and turned to large scale smuggling of American cigarettes
into Europe. They were distributed by Italian mafia, which is why the Italians
launched their investigation. It found that Montenegro earned hundreds of
millions of dollars a year from the trade.
After the break-up of Yugoslavia, Prime Minister Djukanovic became an ally of
the West. In 2006, the United Nations recognised Montenegro as an independent
state and the prime minister embarked on a series of privatisations. One of
these was the sale of a small state-owned bank in which the Djukanovic family
bought a controlling stake.
In 2009, Price Waterhouse Coopers were contracted to audit Prva Bank. The draft
report was never published but the BBC has seen the document. It looked at the
biggest loans and found that most were made to groups linked to the Djukanovics,
and people linked to them.
Research by OCCRP has shown that they included companies connected with Stanko
Subotic, who was also indicted by the Italian anti-mafia unit, and Darko Saric,
who is a convicted drug smuggler, now on the run.
Montenegro's dramatic coastline and walled cities have made it a magnet for
foreign visitors. In 2008, the tourist board was involved in an invitation to
Madonna to stage a concert in the coastal resort of Budva. The BBC has seen
paperwork which shows that the Djukanovic-controlled bank paid the fee, $7.5m
(£5m), even though it was unable to pay its own depositors on time because of a
shortage of funds.
The BBC approached Mr Djukanovic and Prva Bank to respond to the allegations
against them, but neither has replied.
After the crisis in Greece there will be concerns about any lack of transparency
in Montenegrin finances. The influential American publication, Foreign Affairs,
described Montenegro as a "mafia state" earlier this year.
It is a charge echoed by Milka Tadic, the publisher of the independent local
"If you have a former prime minister accused of smuggling, best friends with the
mafia, how can you say we are not a mafia state?" she said.
In 2010, Mr Djukanovic stood down and was replaced by Igor Luksic, a 35-year-old
English-speaking economist with an honest reputation. His appointment was
initially welcomed by the opposition, but now they accuse him of failing to
tackle the corruption of the Djukanovic era.
Mr Luksic told the BBC that claims his country is a mafia state are
He said: "Montenegro belongs to a rare number of countries that have managed to
make progress on every internationally recognisable indicator."
He accepts that his predecessor, Milo Djukanovic, is controversial.
"How could you not be after 20 years in Balkan politics?" he asks.
He argues that Mr Djukanovic is a friend to the West, and has steered Montenegro
towards EU and Nato membership.
Last week the European Commission gave the go-ahead for accession talks to
proceed next month. But it warned: "Corruption is still an issue of serious
It said it would continue to monitor the country's progress as it approached
The accession of the Balkan countries remains a key priority for those in charge
of European expansion, and Prime Minister Luksic is hoping the talks will allow
him to show the country is changing for the better. But for the government's
critics, there first needs to be accountability for the alleged crimes and
misdemeanours of Mr Djukanovic's two decades in power.
Watch Meirion Jones and Liz MacKean's full report on Tuesday 29 May at 22:30 BST
on BBC Two, then afterwards on the BBC iPlayer and Newsnight website.