* Delhaize buying firm linked in 2007 with corruption-cable
* Cable cites evidence of sweetheart deal with customs
* Ambassador recommended Serb owner be denied U.S. entry
By Adam Tanner
BELGRADE, March 21 Belgium's Delhaize (DELB.BR), which this month agreed to buy Serbia's largest retail chain from the most prominent tycoon in the Balkan state, is dealing with a man whose firm was built up through corruption, according to a U.S. embassy cable from 2007.
Tycoon Miroslav Miskovic, the owner of Delta Holding, was worth a billion dollars in 2007 before the world financial crisis, according to Forbes, wealth which at the time placed him among the richest 1,000 people in the world. Earlier this month he agreed to sell his Delta Maxi supermarket chain to Delhaize, a retailer, for 932.5 million euros ($1.3 billion), one of the largest foreign investments ever in the European Union applicant country.
The cable, obtained by WikiLeaks and seen by Reuters, cited evidence the U.S. embassy had obtained that Delta Holding had prospered because of a sweetheart deal with Serbian customs in the 1990s. It also recommended that Miskovic be denied permission to visit the United States, saying his fortune "was made on the backs of the Serbian people as they struggled through crippling sanctions and hyperinflation while he collected on their misery."
Miskovic declined comment on the cable, saying he never gives media interviews, and Jelena Krstovic, head of Delta's corporate communications department, also declined to comment in detail about the allegations, saying only that "Delta Holdings has always worked according to Serbian law."
Delhaize said in a statement to Reuters it had and would continue to act "in full transparency and according to all legal obligations in the process to acquire 100 percent of Delta Maxi Group", adding that the deal clearly has the full support of Serbia's government. Officials at Delhaize declined to respond to questions about whether the Belgian company knew of the allegations when it negotiated to purchase Delta Maxi, or whether the allegations would affect, or had affected, the process of the bid.
Following Yugoslavia's demise in the 1990s, many people with political connections across the Balkans grew rich during the war and chaos left by the former Communist state's collapse. Because Serbia was under international sanctions, there were considerable opportunities for well-connected business owners to enrich themselves. Even today, Serbia ranks 78th in Transparency International's 2010 Corruption Perceptions Index, below countries including Lesotho, Cuba and China.
Such a past can complicate deals for international investors. "Speaking generally, I think the best situation for a buyer is to actually do due diligence and then not have the matter raised, because criminal actions have to be brought by somebody else and in effect it's letting the sleeping dogs sleep," said Ronald Given, managing partner at the law firm Wolf Theiss in Croatia.
Luka Dadic, a corporate lawyer with experience in the Balkans added: "You are generally liable for the past wrongdoings of a company, both in a civil and criminal sense." Yet actions dating back to the 1990s may fall under the statute of limitations to offset such a legal risk, he added.
As a private company, Delta does not detail its finances, but the cable, written by the then U.S. ambassador to Serbia says: "We now have solid (evidence) that Miskovic was the beneficiary of egregious political corruption.
"He dominates banking, insurance, and consumer goods in Serbia after obtaining massive wealth as a beneficiary of official corruption by Slobodan Milosevic in the mid-1990s."
Miskovic spent six months in Milosevic's government in 1990.
According to the cable, Yugoslavia's then director of customs Mihalj Kertes, who was very close to Milosevic, granted special treatment to Delta, including a 45-day grace period to pay customs duties. Other firms had to pay on the spot.
The deal also allowed Delta to unload cargo in Belgrade rather than at the border, and allowed him to keep the goods in storage at customs until he needed them, the cable said.
"This also gave him an unfair advantage, and in addition allowed him to benefit from hyperinflation as goods sold much later on were valued at their invoice amount from the date of entry," the ambassador wrote.
During the 1990s, Serbia experienced one of the greatest periods of hyperinflation in history, even introducing a 500 billion dinar bank note in 1993. At the height of the crisis, prices rose so fast that restaurant diners were asked to pay their bills at the start of a meal rather than at the end.
"Finally, and most damning, Miskovic was allowed to clear goods through customs simply on the 'promise' that the company would pay duties within the allotted 45 days," the cable continued.
"So whatever customs fees paid by Delta were paid after 45 days of hyperinflation had cut into the bill," the document said.
According to one customs official cited in the cable, the firm sometimes paid no duties at all.
The 2007 U.S. cable said the embassy had obtained a copy of a 1996 letter from customs director Kertes allowing Delta special treatment, and the text of the letter was appended to the cable. A second customs official confirmed to the embassy the workings of the arrangement, the cable said. Customs officials contacted by Reuters on Friday did not respond by Monday.
"We think it only fitting that Miskovic, at the very least, be treated similarly by our consular system, so that he does not derive the further benefit of access to the U.S. from his pillaging of Serbia," the ambassador wrote.
Former customs director Kertes was sentenced to jail for embezzlement last December following an earlier conviction for his role in an assassination plot against Milosevic's political rivals.
According to Delta Holding's website, the company had turnover of 2.5 billion euros in 2009 and employs 24,000 people.
(Editing by Simon Robinson and Sara Ledwith)
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