05BUCHAREST1313 / 2005-06-06 10:15:00
Embassy Bucharest
                C O N F I D E N T I A L SECTION 01 OF 03 BUCHAREST 001313 
 
SIPDIS 
 
DEPT FOR EUR/NCE - WSILKWORTH AND JMESSENGER, EB/IFD 
TREASURY FOR STUART 
JUSTICE FOR OIA, AFMLS, NDDS 
 
E.O. 12958: DECL: 06/06/2015 
TAGS: ECON, ENRG, EPET, ETRD, SENV, SOCI, KCRM, KFRD, PGOV, PHUM, CASC, RO, biographic information, corruption 
SUBJECT: CHAIRMAN OF ROMPETROL OFFICIALLY INDICTED; 
BUSINESS SECTOR SHAKEN 
 
REF: 04 BUCHAREST 9613 
 
1. (U)  SUMMARY:  One of Romania's most important companies, 
Rompetrol, was shaken by the recent arrest and temporary 
detention of its high-profile CEO on a variety of economic 
charges.  The case has important ramifications for rule of 
law and the investigation of corruption here.  The organized 
business community, U.S. Embassy, and European Commission 
Delegation warned of serious consequences unless justice is 
delivered expeditiously, transparently and in full accordance 
with the law.  Rompetrol is 20% owned by an American Citizen 
who is also under investigation.  END SUMMARY. 
 
Chairman of Rompetrol Arrested, Detained 
---------------------------------------- 
2.  (U) During the evening of Thursday, May 27, Dinu 
Patriciu, Chairman and main shareholder of the Rompetrol 
Group, was taken into custody by the Romanian General 
Prosecutor's Office and detained during a marathon "hearing" 
which lasted approximately 32 hours.  Patriciu, a National 
Liberal Party (PNL) member with close ties to Prime Minister 
Tariceanu, is 80% owner of Rompetrol Group.  The remaining 
20% is owned by an American citizen, Phil Stephenson, the 
company's Deputy CEO.  The General Prosecutor's Office is 
investigating Rompetrol and members of its management group 
for alleged tax violations and improper behavior related to 
the privatization of the refinery SC Rompetrol Rafinare SA 
(Petromedia) by the Rompetrol Group in 2001. 
 
3.  (U) Prosecutors allege that the Rompetrol Group committed 
economic crimes by failing to fulfill its contract obligation 
to make a USDOL 15 million investment in Petromedia as 
required by the privatization contact.  They further charge 
that as a result of an audit control made in 2003 by the 
Constanta office of the Financial Guard, they found financial 
transactions not registered in Petromedia's books.  These 
transactions reportedly resulted in a decrease in taxes and 
fees payable to the state of an estimated USDOL 10 million. 
The Prosecutor's Office is also investigating the way in 
which monetary transfers occurred among the several companies 
which are members of Rompetrol Group, alleging fiscal fraud 
and money laundering. 
 
Prosecutors' Conduct Raises Human Rights Concerns 
--------------------------------------------- ---- 
4. (U) At the end of the hearing at approximately 4:00 A.M. 
on Saturday, May 28, Patriciu's attorney claimed prosecutors 
had "trashed" his client's defense rights and that his arrest 
and detention were an abuse by the General Prosecutor's 
Office.  Breaches of the European Convention for the 
Protection of Human Rights and Fundamental Freedom were 
alleged.  This includes the principle that detention of 
persons should only occur as an exception, not as a rule, and 
that a defendant's right to be immediately informed of 
charges and presumption of innocence were denied.  The 
American Chamber of Commerce in Romania issued a press 
release noting continuing judicial reform in Romania must 
assure the objective and impartial treatment of foreign and 
local investors.  (NOTE:  AmCit and Deputy CEO of Rompetrol 
Philip Stephenson is a member of the Board of Directors of 
the AmCham. END NOTE.)  The Human Rights Association - 
Helsinki Committee (APADOR-CH) was more adamant, demanding 
the immediate resignation of Romanian General Prosecutor Ilie 
Botos and of investigators involved in the detention of 
Patriciu and other known high profile suspects under 
investigation for their "lack of professionalism."  The NGO 
characterized the detention of Patriciu for over 24 hours as 
a significant deprivation of liberty.  The Association of 
Romanian Magistrates (AMR) requested the Supreme Council of 
Magistrates (CSM) to review whether prosecutors observed 
relevant criminal procedures or not. 
 
Economic Impact 
--------------- 
5. (C) For the company this case is a damaging exercise. 
Share values fell by about 40 percent, even though they have 
bumped up somewhat from that low point.  However, management 
rightly fears that continued prosecution (or conviction, of 
course) could cause the collapse of the company.  It has 
current plans to expand operations to Kazakhstan and Russia 
as it shores up firm sources of crude for its refinery. 
Lending necessary for that expansion is, naturally, now in 
jeopardy.  More essential to survival though are the 
short-term credits used by the company to finance crude 
purchases for its refining operations.  The credit agreements 
are apparently renewable unless there is a "material change 
in the company's circumstances."  According to the American 
Deputy CEO, the arrest of management board members would 
probably be regarded as such "material change" which could 
then cause business operations to grind to a halt. 
Importantly, this crisis for Rompetrol could have a broader 
political and economic impact.  The company contributes about 
7% of total revenues collected by the state budget, while 
also representing about 2 1/2% of total GDP. 
 
Botos Publicly and Privately Defends Conduct 
-------------------------------------------- 
6.  (C) In  to  criticism from these and other sectors, 
General Chief Prosecutor Botos publicly voiced his outrage at 
the NGOs' demand that he resign, claiming that the 
prosecutors investigating Rompetrol and its competitor RAFO 
(reftel) worked correctly and observed legal procedures.  He 
alleged that the NGOs requesting his resignation do not 
represent civil society in Romania and that he would continue 
his fight against organized crime and corruption. 
Furthermore, he stated such demands amounted to a gross 
interference with the judiciary and the "politicization" of 
cases such as Rompetrol and RAFO.  He claimed to have 
personally verified the prosecutor's steps and the measures 
they took were correct and according to law. 
 
7.  (C) Post has a fair degree of confidence in Botos.  He 
repeated his contention that he had a real case against 
Rompetrol in a frank discussion with the Embassy's DOJ legal 
advisor several days ago, alleging that he had documentary 
proof to back up a number of fraud charges -- moving the case 
away from the mere misinterpretation of tax liabilities.  We 
also note that the supervisory prosecutor in the case is 
someone whom we have partly trained and slated for an 
International Visitor's Grant next year.  In other words, the 
prosecution team might not be up to U.S. standards, but they 
have been exposed to our methodologies.  In addition, Botos 
claimed that evidence developed against Rompetrol had 
involved work by Financial Investigatory Unit of the National 
Bank, the Financial Guard, and the anti-Money Laundering 
authority, implying that this was no politically motivated 
fishing expedition. 
 
Embassy Demands Fair and Objective Investigation 
--------------------------------------------- --- 
8.  (SBU)  Noting that the investigation of Rompetrol has 
been on going for a considerable period of time, Post issued 
a press release upon being informed of Patriciu's questioning 
that reminded the GOR that the American Government strongly 
believes in the transparency of the judicial process and 
called upon the government to be fair and objective.  The 
Embassy further warned that if the investigation proved to be 
anything other than legitimate, it would severely damage 
Romania's business climate.  Similarly, the European 
Commission Delegation stated in a press release that it 
expects criminal cases to be conducted in compliance with 
rule of law, in compliance with the rights and procedural 
guarantees of persons.  Since the initial Embassy release, 
the same points have been made by Embassy staff to Chief 
Prosecutor Botos, Prime Minister Tariceanu's Economic Advisor 
and President Basescu himself. 
 
Complexities Abound in Petromedia Case 
-------------------------------------- 
9.  (C)  The charges so far made against Rompetrol basically 
can be reduced to three categories: fraud, money laundering 
and tax evasion. A number of them strike us as typical of 
disputes arising out of the privatization confusions of the 
past decade and a half.  A number are quite complex.  For 
example, for the sake of illustration, we note that part of 
the case rests with the recouping of liabilities due to the 
Romanian state after Petromedia's privatization.  In the 
1980s, the GOR concluded an agreement with the Libyan 
National Oil Company for shared exploration and exploitation 
of Libyan oil fields.  In 1992, the GOR, owner of Petromedia 
at the time, sold the rights to a Spanish company for $85 
million, payable in 10 annual installments.  The Spanish 
company had not made any payments on the debt when Petromedia 
was privatized.  Subsequently, Rompetrol was able to collect 
an estimated USDOL 35 million on the debt, which tax 
inspectors claim should have reverted to the state budget. 
The General Prosecutor's Office investigators also maintain 
that the USD 15 million capital increase originating with the 
recouping of the Spanish debt was not paid for out of the 
buyer's own resources, but from state funds. 
 
Latest Events 
------------- 
10.  (C) Dinu Patriciu was questioned again Friday, June 3, 
but permitted to return home.  There had been apprehension in 
the Rompetrol camp that the prosecutors would seek to hold 
him for 30 days so as to prevent him from destroying evidence 
or tampering with witness recollections.  (Comment: Letting 
him go home was probably a smart move on the part of the 
government, as it removes most of the angst about tampering 
with his human rights.  End Comment).  Also noteworthy was 
the fact that the hearing of AmCit Phil Stephenson, scheduled 
for tomorrow, June 7, has been postponed indefinitely. 
 
Comment 
------- 
11.  (C)  We do not want to discourage the GOR from taking 
action against "big fish" -- hence the need to tread 
carefully with this.  Moreover, there may indeed be 
liabilities or unpleasant conclusions under some unturned 
Rompetrol rocks.  Nonetheless, there is no need for this to 
resemble a show trial like that of Yukos in Moscow, a point 
we have made forcefully with the GOR. Where does Basescu 
stand in all this?  He and Patriciu have some antagonism 
between them.  Patriciu flirted with the PSD before the last 
election, making him less of a political stalwart than he 
might be in Basescu's eyes.  Basescu is probably not too 
displeased to see a potential rival humbled -- or to see a 
counterpoise to prosecutions of PSD barons or PSD-linked 
businessmen.  It makes the process look more credible.  That 
point was made by Chief Prosecutor Botos as well.  But what 
will be the cost?  We believe Basescu is smart enough not to 
want to damage the Romanian economy, hinder FDI flows or 
create a roadblock to January 2007 EU accession.  However, at 
the moment, all three are in some jeopardy.  Accordingly, we 
look for him to try to rein in Prosecutor General Botos -- 
dropping the allegedly abusive court treatment, but keeping 
the case alive.  End Comment. 
 
12. (U) Amembassy Bucharest's reporting telegrams are 
available on the Bucharest SIPRNet website: 
www.state.sgov.gov/p/eur/bucharest 
DELARE 

            
CRJI by crji.org is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License if not otherwise stated. Based on a work at crji.org. This web application is Free Software (AGPLv3+), the source code is available on GitHub and waiting for contributions.