Thursday, 14 May 2009 10:00
Macedonia bet on casinos 18-years ago as a way to help its ailing economy. Taking advantage of its prime location, it’s luring tourists from neighboring countries and thriving as a destination in spite of some early scandal.
Newly independent and strapped for cash, Macedonia sought help from a Swedish man with deep pockets and an urge to gamble.
Lars Kling plunked down $7 million in 1991 to build a casino in a fledgling country with no proven economy. Prime Minister Nikola Klusev welcomed him as the country’s first large investor, declaring that gambling would propel Macedonia’s economic engine.
Eighteen years later, casinos have indeed brought jobs and money – but also a riveting and still-unfolding financial scandal. Kling is gone, chased out of Macedonia under the cloud of having cheated the government out of €13 million in taxes. Companies controlled by his family still operate the Apolonija casino he founded.
Kling, however, was only the first in a series of investors. Now, international companies such as Sheraton, California Resorts and the Princess chain of Turkish magnate Sudi Ozkan are also investing and planning new construction around Macedonia.
While casinos are no longer the country’s only economic engine, or even its largest, the gambling industry is an important part of Macedonia’s growth and seems likely to remain prominent, according to industry analysts and government leaders.
An investigation by reporters with the Organized Crime and Corruption Reporting Project (OCCRP) found that Macedonia has avoided much of the violence, money laundering and blatant corruption that have come with gambling in other southeast European countries. The number of new ventures in Macedonia signals that investors view its market as stable and safe.
Six casinos that employ 1,600 workers are licensed, according to the ministry of finance, which estimates that they generate tax revenue of nearly $2 million. The figure is expected to grow as play increases, and at least three more projects are planned.
Salaries of casino workers average $650 per month, far higher than the nationwide average of $307, according to government figures. And the unemployment rate in regions with casinos stands at about 10 percent, a huge improvement over the country’s 35 percent unemployment rate.
To fuel the play, Macedonia is successfully luring tourists from Greece and from Turkey, which outlawed casinos in 1997.
In fact, only foreigners and locals who obtain special club passes are allowed to enter the casinos, and identification is checked at the door. Management has sole discretion over who becomes a club member, further ensuring an affluent clientele.
The border town Gevgelija, 3 km from the Bogorodica border crossing into Greece, is known as the Macedonian Las Vegas. The Flamingo and the Apolonija alone have invested €60 million, and casinos there make up the greatest partnership of internal and foreign investments in the country, the finance ministry said in an interview.
Ozkan operates a casino in Gevgelija and his Macedonian subsidiary Princess Group, is partnering with Sheraton to build a 200-room hotel, resort and casino that they say will employ about 1,000.
Almost 90 percent of guests in Gevgelija are from Greece. Relations between the countries grew tense last year when Greece vetoed Macedonia's bid to enter NATO, but those feelings aren't visible here.
Casinos in Gevgelija greet visitors with the Greek “Kalimera”, or welcome. They also advertise in upscale parts of Greece, including Thessalonika, Voden, Lerin and other towns.
Today, nearly two decades after Kling made his first investment, casinos are an accepted part of the country's economy. But the journey hasn't been easy.
In 2003, Kling and the finance director of his casinos, Serbian Dragan Stošić were stopped at the Bogorodica checkpoint. Police found €188,000 stuffed in luggage in the trunk of their car. The money had never been reported.
A search warrant for the men's homes turned up financial records for Apolonija, a casino in Kling's hotel Jugosven. Investigators said they found evidence that the casino and its operators had been keeping a double set of books – one with the real figures, the other doctored to avoid paying taxes.
An investigative judge ruled that the casino had been operating that way since it opened in 1996 and had never paid taxes. Kling and Stošić were arrested.
The OCCRP has obtained documents that were being kept by the former vice president of the Macedonian Tax Revenue Office that show the double accounting.
The documents that Apolonija submitted to the state revenue commission show small daily losses or gains on each of the company's slot machines. But the records that the Apolonija allegedly kept secret showed actual transactions reflecting huge gains. For example, on June 4, 1996 – soon after the casino opened – Apolonija claimed three customers combined to win USD 475,000, resulting in a loss for the casino. In truth, the only big winners were two people who got USD 14,400, the documents show. With that claim, the Apolonija could escape taxes on hundreds of thousands of dollars it made.
The idea that the country's largest casino operator could avoid paying taxes still resonates. The scandal particularly caught the attention of Mihajlo Manevski, then a member of the Macedonian anti-corruption commission.
Manevski became president of the commission in 2004 and since 2006 has been the minister of justice. He wrote about the case in his 2005 book, “Corruption in Macedonia."
“It’s unbelievable how authorities couldn't recognize such a big case of tax evasion,” said Manevski.
The arrest marked the start of a strange turn of events.
First, the investigative judge set Kling free without explanation before the investigation was complete. He let the case against Stošić proceed but the finance director was also set free after a trial in the city of Veles. A district court judge ruled that police did not provide enough evidence against him.
Kling and Stošić left the country in 2004 and have not returned.
But the judge did rule that Jugosven Hotel and casino Apolonija were guilty of evading taxes of $13 million. So there was a crime, just no criminals.
The government then began trying to collect its money and sell the hotel at auction.
Six years later, it's still trying.
Every time the property has been set for sale, outside companies have intervened, claiming they are primary creditors and are owed money by Kling.
First came Corona International from the Marshall Islands. The company said it was owed €1 million for “consulting services.'' The Public Revenue Office of Macedonia postponed the auction and tried to sort out the issue.
But Corona International and at least one other company claiming a right to the property are actually controlled by the Kling family, according to records OCCRP obtained. The records include public company filings and documents the Kling companies filed with the Macedonian Revenue Office.
And in 2007 Corona was awarded the Jugosven casino license.
Government officials have said they are frustrated that the Kling family is keeping them
from recouping the €13 million that it obtained illegally in the first place.
Publicly, they aren't saying much.
Vane Cvetanov, chief of the anti-corruption commission on money laundering and the financing of terrorism, said he is familiar with this case but would not comment.
A statement from the office of the minister of the interior was brief. “We did our job. The court makes verdicts. I can't comment“, said Ivo Kotevski, a interior ministry spokesperson.
Of Little Concern
While the Jugosven/Apolonija saga has certainly been followed keenly, business owners near the casino say they aren't concerned. They are making a living from casino visitors.
Gjoko Jankovski, 52, owns the restaurant "Javor Gjoko" in Mrzenci, near Gevgelija.
“Do I have problems because of the casino? I would have, if they were closed. I opened my restaurant in 1992, when the casinos opened, and it's been great. Over 90 percent of the casino guests are mine as well.''
Outside his white stone restaurant are parked Mercedes, BMW and other luxury cars, with plates that show they are mostly from Greece.
“Winners came to celebrate; losers to get some heavy drink. There are lots of girls around, from Macedonia, Serbia, Bulgaria - you know what I mean?'' he asks.
The scandal, as he sees it, is a matter of “someone didn't pay what he should have paid... you know, this gambling thing cannot work without getting authorities involved. Everywhere is like that.''
-- Xhelal Neziri and Aleksandar Božinovski