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

by  David Leigh and Rob EvanThe Guardian
February 15th, 2005

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 said.

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 payments.

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 ⒬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 field."




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