Scandal Overseas: Sex, Lies and Cigarette Smuggling

Italian Mafia, Balkan state leader accused of role in billion-dollar operation.

ByABC News
June 5, 2009, 1:41 PM

June 5, 2009— -- Sex, lies, the Italian mafia, millions of packs of Marlboro cigarettes, and billion-dollar profits are all rolled into the plot of one of Europe's largest smuggling operations in recent years, where trials in both Italy and Switzerland are under way.

At the center of it all: the head of state for one of Europe's smallest but most beautiful countries, the coastal nation of Montenegro, the backdrop to the 2006 James Bond film, "Casino Royale."

Based on hundreds of pages of wiretap transcripts, law enforcement reports, and indictments, the scandal sounds like a screenplay. Between 1994 and 2002 tobacco smuggling became a state enterprise of Montenegro, allegedly controlled by Prime Minister Milo Djukanovic and an inner circle of Montenegrin officials, according to newly released Italian court records obtained by the International Consortium of Investigative Journalists (ICIJ), a project of the Center for Public Integrity in Washington, D.C.

Almost every night dozens of pilots steered a fleet of large speedboats crammed with cigarettes- most of them Marlboro and Marlboro Light -across the Adriatic from the Montenegrin port of Bar to the Italian coast. Once in Italy, the untaxed cigarettes were sold by the mafia on the black market, according to Leo Sisti, the author of the ICIJ report.

Two of Italy's mafia syndicates managed distribution of the cigarettes and laundered more than $1 billion in profits in Switzerland, court documents show.

Italian prosecutors have accused Prime Minister Djukanovic of "having promoted, run, set up, and participated in a mafia-type association."

Djukanovic was dropped from the indictment in March of this year thanks to diplomatic immunity. He has denied all of the allegations in Italy.

Nevertheless, his critics say he was directly involved, and his family's vast fortune likely was boosted by the illicit trade.

"He is a criminal, no doubt about it," said Ratko M. Knezevic, a former Montenegro government insider who now lives in London. Knezevic had at one time lobbied Washington on behalf of Djukanovic, but he says he and the Prime Minister had a falling out and no longer communicate.

Knezevic said that about half of the income on the illicit cigarette trade went to the hands of major players in Montenegro, all close associates of Djukanovic. "It is hard to imagine that some of that enormous profit and cash has not finished in his hands or hands of his family, too. Today his family and a few associates control every piece of economic activity in the country," he said.

A court in Bari, Italy, began a preliminary hearing on Wednesday to decide whether the evidence gathered by prosecutors is enough to put 14 people charged in the Montenegro case on trial. The next hearing date has been postponed until November. A second, related trial of nine people has been underway since April in Bellinzona, Switzerland, where a ruling is possible on June 19, according to ICIJ. The case focuses on how Italian mafia gangs laundered money from the Montenegro smuggling through Swiss banks and money brokers.

Included in documents provided by Italy's anti-mafia crime unit, the DIA, are transcripts of Djukanovic's conversation with his lover, Dusanka Pesic Jeknic, former representative of the Montenegrin trade mission in Milan during the years of the alleged trafficking. Jeknic is the beautiful widow of the late foreign minister of Montenegro, according to ICIJ reporter Sisti. She is now under indictment in Italy for her alleged involvement in the smuggling circle. Sisti said the transcripts include multiple discussions about tobacco smuggling, cigarette brokers, and their love.

Djukanovic and Jeknic called each other "little cat" according to the transcripts that Sisti translated. "My little cat … I'm going crazy without you …. You have repeatedly betrayed me, I think …. Little cat, when are you coming? ... I love you, little cat," Jeknic said to Prime Minister Djukanovic in 2001, according to the transcripts. Jeknic could not be reached by ABC News for comment.

The U.S. State Department, meanwhile, has been very supportive of Djukanovic.

"We value our relationship with Montenegro and consider the second newest country in the world a close friend and ally," a state department official told ABC News. "We have excellent relations with the government of Montenegro, including Prime Minister Djukanovic."

Sisti said he thinks the two court cases are sure to interest Brussels officials in charge of European Union enlargement, who are reviewing Montenegro's bid for membership. Djukanovic, who has dominated the political life of Montenegro for the past 18 years and was re-elected in March, is pushing hard for his country's inclusion in the EU.

The State Department official said the U.S. "strongly supports Montenegro's Euro-Atlantic integration aspirations."

Some experts on the region say the tobacco smuggling has to be put in context, given the United Nations sanctions imposed on the Federal Republic of Yugoslavia in the 1990s, which at the time included Serbia and Montenegro.

"Every government in the region, democratic or otherwise, was involved in smuggling," said Janusz Bugajski, an expert of south-eastern Europe at the Washington-based Center for Strategic and International Studies. "Italy is an EU member, yet they cannot control their mafia. Montenegro was in the midst of war yet it's the Montenegrins who bear the brunt," he said.

Knezevic, despite his critique of Djukanovic, agrees that the sanctions were the root of many of Montenegro's current problems: "Montenegro is 'a poster-child' of the criminalizing consequences of UN trade sanctions," he said, which are today marked by corruption and ties to organized crime, and which ultimately inhibit Montenegro and countries like it from attaining stabilization and EU membership.

Djukanovic has told the Italian press that the cigarette smuggling is a thing of the past, done to earn cash during a time of international sanctions against the former Yugoslavia, and that he did not personally profit from the trade.

He released a statement on June 4 on his government's website defending himself and his wealth, at first accusing the ICIJ of being politically motivated and then saying their investigators and reporters are driven by "petty incentives": "They are 'local' and 'regional' 'investigators' who, already at the beginning of the text, mention as their crucial argument statements by members of local NGOs, opposition parties and journalists – a group of untiring, futile hunters on my 'enormous wealth'."

He said in the statement that before late 2006, his only professional activity was related to his role in government, and that he incurred a salary precisely stipulated by law. He said from the end of 2006 until March 2008 (when he took up public office again), he ran successful businesses and paid his taxes to the state.

"I am fully aware that as long as I am successful in politics or in private business for that matter, I will always be a target for those who are not successful. I suggest that they look for reasons of their failure in themselves," he said in the statement.

At the end of the statement he refers to local reporters and citizens who oppose him and question his and his family's wealth as "perfervid malcontents," and says that he sends them this message: "Let them show courage and form a political party and so try to win power in the only democratic fashion available. Hiding behind "investigators", various internet sites, NGO groups, and so forth has not only proven to be futile, but is not in the least chivalrous. And in Montenegro people know well the meaning of this word."

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