Ian Bancroft in Belgrade -

December's arrest of Ivo Sanader, the former prime minister of Croatia, after he fled to Austria has refocused attention on the fight against corruption and organised crime in the Balkans. Though a key condition for future EU membership - one which all countries of the region are, rhetorically at least, committed to fulfilling - the accession process alone won't be sufficient to eradicate this seemingly intractable problem.

Amidst allegations that he received commissions on certain loans granted by Hypo Alpe Adria Bank to state institutions and companies, Sanader is expected to be extradited to Croatia to face charges of "associating to commit a criminal act and abuse of power." The scandal has intensified scrutiny of the now-nationalised Austrian bank's activities elsewhere in the region, including Serbia, Bosnia-Herzegovina and Montenegro, with a parliamentary commission of inquiry from Carinthia in Austria, headed by Rolf Holub, set to expand its investigation.

Bottom of the league

The latest edition of Transparency International's Corruption Perception Index highlights the extent of the problem, with Bosnia-Herzegovina ranked the lowest in 91st place (out of 178 countries), Albania 87th, Serbia in 78th, and Macedonia tied with Croatia in 62nd position. As the recent European Commission progress reports for 2010 also show, corruption and organised crime remain an impediment across the region.

Vladimir Radomirovic, editor-in-chief of the Serbian anti-corruption website Pistaljka (The Whistle), tells bne that efforts by Balkan governments to stamp out corruption have been limited at best. "On assuming power, each government puts anti-corruption efforts at the top of their agenda, but few have produced any results. Serbia has seen the formation of a special Anti-Corruption Agency last year, but the authorities have yet to provide the Agency with an adequate budget."

One source of persistent corruption and conflict of interest is the extensive role that states throughout the region continue to play in the economic domain. As Radomirovic points out, "[political] parties divide state-owned and municipality-owned enterprises among themselves - putting party members as CEOs and members of boards - and then draw profits from them. Some of the money goes into private pockets, some to the parties."

This also has profound ramifications for the freedom of Serbia's press, as "these enterprises also put out huge amounts in advertising campaigns, but the money is directed towards party-affiliated marketing agencies and loyal media," he says.

With countries' privatisation programmes similarly criticized for high levels of political interference and a distinct lack of transparency, it is clear that redefining the state's role in the Balkans' transition economies remains beset by challenges.

The financing of political parties provides another area of vulnerability with profound economic ramifications. As Radomirovic elaborates, "another way parties get financing - the money they receive from the budget is not enough - is through donations from wealthy businesspeople or 'tycoons'. As a return favour, parties then vote for regulation that allows for monopolies that only benefit the tycoons."

At a time of rising prices and with the Serbian dinar having lost almost half its value over the past two years, Serbian consumers are beginning to increasingly question the real sources of high prices, yet feel relatively powerless to enact change.

The fight against corruption and organised crime across the region is further hampered by institutional weaknesses. As Nemanja Nenadic, programme director of Transparency International Serbia, tells bne, "the problem is that there was a chance to do more to suppress corruption in previous years, but we largely missed that chance due to a lack of implementation of adopted laws."

Overcoming such institutional flaws will require a new determination on the part of state authorities and, happily, it is possible to point to some changes that are being made.

Hitting them where it hurts

Serbia, for one, has recently taken the step of seizing assets - such as bank accounts, land, houses, hotels and restaurants - acquired through organised criminal activity; including those of Montenegro-born Darko Saric, who is accused of leading a drug trafficking ring. In addition, Serbia's Anti-Corruption Agency has requested that state institutions investigate the origin of funds used by particular businessmen - such as Milan Beko, one of Serbia's most prominent business figures - to purchase privatised companies, and has vowed to publish documents relating to several controversial deals, including the Port of Belgrade, C Market (a chain of supermarkets), Vecernje Novosti (a national newspaper) and Knjaz Milos (a mineral water manufacturer). Whether sustained investigations will follow, however, remains an open question.

There are also positive signs at the regional level, particularly with respect to co-operation between law enforcement agencies. Serbia and Croatia recently agreed to construct a joint-contact service for their respective border police at the Bajakovo-Batrovci crossing. In addition, a joint police centre for combating organised crime and terrorism is set to be established in Belgrade. The sharing of intelligence, combined with the signing of an extradition agreement between the two, will further dilute the previous barriers provided by national borders.

Time will tell whether these recent moves to tackle corruption and organised crime represent a genuine commitment, or are a move designed to placate an increasingly critical EU. As Nenadic shrewdly notes, the "pressure of the EU could be an effective tool to do this during accession process, but even more effective could be internal pressure coming from citizens and entrepreneurs."

In the absence of such pressure, however, the more pervasive and tacitly-accepted forms of corruption will continue to go unchallenged, leaving both politics and markets irreparably distorted, and potential foreign investors put off.