Montenegrin Prosecutors Launch Probe Into Irish Investment
By Michael O'Farrell and Miranda Patrucic
Just a few hundred meters from the ancient stone walls of the UNESCO-protected World Heritage site of Kotor on Montenegro’s Adriatic coast, lies the derelict former Hotel Fjord. The hotel was once a crown jewel of the town’s thriving tourism industry that provided good jobs and housed hundreds of tourists that are the life blood of the beautiful town at the foot of Montenegro’s majestic mountains. In 2006, disgraced Irish banker Michael Fingleton bought the hotel for €5.5 million and his firm promised it would be demolished and replaced years ago with what media described as a €70 million 5-star resort.
Instead, it remains vacant and blighted because of disputes and irregularities now the focus of a criminal investigation by the Office of the Supreme State Prosecutor of Montenegro. The investigation was launched after Irish developer Louis Maguire, who choreographed the deal and became a part owner of the hotel, turned whistleblower. He handed his files over to authorities and in a lengthy criminal complaint submitted on April 23, accused Fingleton of money laundering, fraud, abuse of office and faking balance sheets. Kotor Police reviewed the evidence and found sufficient cause to refer the case to prosecutors. Prosecutors must decide if any laws have been broken and whether to file charges against Fingleton.
In a statement to the Irish Mail on Sunday and Organized Crime and Corruption Reporting Project (OCCRP) last week, Fingleton said the criminal allegations against him were "unfounded, without merit and completely false."
"All transactions in relation to this project to date were totally legitimate, fully transparent and fully funded by me from my own personal resources," he said.
He also said he had now repaid debts related to Hotel Fjord and is proceeding with plans to develop the site.
In a separate case last year Montenegrin prosecutors believed they had reasons to investigate when Montenegro's anti-money laundering authority found questionable financial transfers out of Fingleton’s personal and businesses’ accounts. While prosecutors would not comment on the case or its status, Interpol confirmed that Montenegrin officials did request information late last year from their Irish counterparts.
Drawing on original documents and correspondence between the two businessmen, a joint investigation by the Irish Mail and the OCCRP reveals the unconventional business practices Fingleton used to build a Montenegro property enterprise.
Also revealed is how Montenegro's state institutions failed to protect the interests of their people, allowing some of the country's most valuable assets to end up in the hands of a questionable investor who did not deliver on promises to create jobs and to bring millions into the local economy.
A Grand Ambition
Fingleton is the former chief executive of Irish Nationwide Building Society, one of Ireland's oldest financial institutions and biggest lenders. He left under pressure in 2009 after 37 years. He and four other directors would later be sued for mismanagement of high-risk commercial property loans which produced €6 billion in losses. Irish Nationwide was nationalized in 2010 after receiving €5.4 billion in state funds to cover losses. The bank's collapse was a major contributor to the overall financial crisis in Ireland resulting in a bailout by the European Union and International Monetary Fund.
He first travelled to Montenegro in January 2006 where he met with Maguire, an acquaintance from Ireland, to consider potential projects.
At that time the soon-to-be independent country was ripe for investment and state-owned resources were being privatized and sold in a free-for-all controlled by the politically connected.
On May 11 of that year Fingleton signed a €5.5 million contract that gave him control of the Hotel Fjord, Kotor's only large hotel. For bringing the deal to the table Maguire took a 25 percent stake in New Fjord Developments - a local company set up to demolish and rebuild a grand new version of the hotel. Maguire also got the right to share decision-making with Fingleton in the new property. That was the root of their future disputes.
Somewhere on the fringes of the deal was Veselin Vesko Barovic - a close associate of Montenegrin Prime Minister Milo Djukanovic.
Pouty, bearded, and never without a bodyguard, Barovic is wanted by Italian authorities who say he was involved in a cigarette smuggling ring which supplied contraband to the Italian Mafia via speedboats across the Adriatic. Djukanovic was also charged with smuggling in 2008, but Italian authorities dropped the charges in 2009 because of his diplomatic immunity.
Barovic was a shareholder in First Bank, the controversial bank Djukanovic’s family owns. Internal documents obtained by OCCRP from Montenegro’s Central Bank, the country’s chief banking regulator, showed that First Bank gave sweetheart loans to friends and business partners of the first family often in gross violation of banking rules. Many of these transactions were related to coastal real estate deals and many failed leaving Montenegrin taxpayers responsible for the losses when the President’s government bailed out his own bank. (See OCCRP’s First Family First Bank series). Some of those getting great deals included Montenegro’s biggest organized crime figures.
Barovic originally privatized the then successful Fjord Hotel and other lucrative assets once owned by the state. But soon after things went bad. Employee strikes, mismanagement and other problems led to the hotel’s failure. The holding company ended up owing debtors €2.3 million. But, according to a report by the civil society organization MANS, much of that debt was to Barovic himself -- who ironically liquidated his own business forcing the sale to Fingleton. Former employees who talked to OCCRP said the hotel may have been purposefully bankrupted, as has been the case with many state companies that were looted. The Irish Mail and OCCRP obtained information showing that Fingleton made a €500,000 payment separate from the purchase price of the hotel that allegedly went to Barovic.
There is no logic for this payment and no explanation has ever been provided.
Once he had the property secured, Fingleton approached chains including Hilton, commissioned architects and flew by helicopter in and out of the country as he considered further deals with Barovic. Sometimes he flew by private jet accompanied by other Irish developers he introduced to the region’s potential riches. Maguire also had grand visions of a gaudy castle so Disney-like that licenses for the project were delayed by officials who worried about losing their World Heritage designation.
His optimism may have been fueled by the fact that after years of lobbying he had finally achieved a long-time goal in June 2006, legislation in Ireland allowing him to take Irish Nationwide public. At the time, with profits still rising, this company was worth €1.5 billion and some estimated that sale of his shares would yield as much as €50 million for him as chief executive.
Confident of incoming money, in February 2007 Fingleton met with Djukanovic promising a multi-million Euro investment in Hotel Fjord. Though Djukanovic was not the prime minister at the time, he was running the ruling party.
What Fingleton did not know was that time was running out, and that a global economic collapse would destroy hundreds of banks and countless property deals overnight.
With those changes, plans for Hotel Fjord disintegrated.
Business Partnership Goes Sour
Maguire and Fingleton originally agreed that Fingleton would finance their joint enterprise. However, increasingly irate correspondence between the two reveals that Fingleton went years without paying creditors, allegedly misled Maguire, and made Maguire worry that he was being cut out of the project. "Yet again the Government has frozen the bank account due to solicitation by third parties of unpaid invoices," Maguire informed his partner on June 5, 2008. "You have lied to me on at least 10 occasions in the last number of months that the payments were made but they never were. ... A representative from the municipality has put us on notice that they intend to take legal actions ... for non-payment of taxes. ... To quote a senior representative from the municipality ‘the company seems like a joke," he wrote.
Fingleton did not comment on specific allegations.
An e-mail from June 17, 2008, reveals the role of Fingleton's son, Michael Fingleton Jr. "All requests for funds are to be in writing and provided in the first instance to me, Michael Fingleton Jr," reads an email he wrote to Maguire in which he describes himself as his "father’s agent."
By Oct. 1 the emails were more heated.
"Louis can you please explain why the electricity and land tax remains unpaid despite two payments to recover same?" Fingleton Jr. asked. "You have no authority to employ or contract anyone without EXPRESS WRITTEN AGREEMENT from either me or my father," he continued.
By the end of the month Maguire was stating that their Montenegrin company was insolvent and trading illegally. "The company has entered in the status of bankruptcy, tax frauds and criminal responsibilities, based on our information," Maguire wrote.
By mid-December Maguire was threatening to go to the police, and before the end of the year he initiated two commercial court cases against Fingleton.
Fingleton dismissed Maguire.
“Mr Maguire for his own reasons has persistently and repeatedly tried to damage and devalue this project despite having a 25 percent shareholding. He has to date contributed exactly €Nil to the project. It is to say the least irrational and bizarre,” Fingleton said in an email.
In the end, an unpaid creditor - Boris Miljanic – threw further light on Fingleton’s unconventional business affairs in the Balkans.
Fingleton owed more than €70,000 to Miljanic’s firm SAB Security, which secured the hotel. For years Miljanic had sought payment in vain through Maguire and from the Fingletons.
The disagreement culminated when SAB Security started liquidation of the New Fjord Development, Fingleton’s Montenegro company. In this process, assets and property of the company can be sold to enforce payment of a debt.
"I had to protect my own investments and I can say that what was done was the only way to achieve that goal after they attempted to defraud me," he told the Irish Mail and OCCRP.
Money Laundering Authority Reveals Suspicious Transactions
In Montenegro, where organized crime is rife and failed property deals are often linked to dirty money, foreign companies must prove the source of their funding to the Central Bank. Fingleton and Maguire’s company failed to provide adequate documentation of the source of the money which triggered an examination by anti-money laundering authorities.
As soon as they began looking at the firm, inspectors from Montenegro’s Authority for the Prevention of Money Laundering and Terrorist Financing had immediate concerns, according to a Dec. 29, 2011, report obtained by reporters.
Instead of coming from the accounts of New Fjord Developments as it should have by law, the €5.5 million purchase price had been transferred in two installments directly from a Dublin account Irish Nationwide held at Allied Irish Bank. Montenegrin authorities asked Irish authorities to find the source of the funds in AIB.
Furthermore, the purpose of the second installment - totaling €4 million - was found "not to have been clearly indicated."
It was unclear why Irish Nationwide, where Fingleton served as chief executive, was paying rather than his personally owned New Fjord Developments which signed the purchase contract. Fingleton said it was his own funds but would not elaborate.
Other concerns involved Fingleton Sr.’s 2010 transfer of €500,000 - half of his declared cash savings – from an account in Ireland to his account at Atlas Bank in Montenegro’s capital Podgorica.
The transfer took place four days after Ulster Bank, in an unrelated case, secured a €13.6 million judgment against him over a failed land deal. Under the judgment, the bank may have had the right to claim his assets.
The money laundering report shows most of the money was moved on to the London account of his son Michael Fingleton Jr. on Jan. 21, 2011, as was a further €128,498 from the account of New Fjord Developments.
Montenegro money laundering authorities referred the matter to the Office of the Supreme State Prosecutor. An Interpol source, whose name can’t be disclosed because of the confidential information involved, confirmed that late last year Montenegro authorities sent an official request for information about the origin of money Fingleton invested in Montenegro.
Montenegrin prosecutors declined to comment.
Back in Ireland, Fingleton’s lending practices at Irish Nationwide are coming under scrutiny. Earlier this month it was revealed that negligent lending during his tenure could amount to losses as high as €1 billion for the institution. Examples of the negligence include the fact that he frequently signed off on multi-million Euro loans to developers without asking for security or documenting the loan terms. At times money was paid out before loan agreements had even been signed.
People at the Losing End
None of this matters to the people of Kotor who for years have watched the painful decay of the once proud resort. The building is crumbling into the sea, its rancid pool occupied only by pigeons. They want the landmark, their jobs, and the tourism money they once counted on back.
In May Fingleton met with the Kotor Mayor Marija Catovic.
"He showed up maybe two months ago. He asked that I see him - he and his son and their lawyer," she said. The eyesore that is the Hotel Fjord is a sore point with officials.
Fingleton promised that new plans for the hotel would be unveiled in September.
Catovic is dubious. She has heard it before. If anything she - and many in the area - believe Fingleton is anxious to keep the project alive only in order to sell it off.
"I don’t trust anybody until I see something actual happening," she said.
That kind of skepticism from neighbors in Montenegro like the criticism from his old partner seem not to faze Fingleton. “Maguire has made these types of charges a number of times before,” he said. "None of which resulted in any proceedings being brought against me or any members of my family. I am certain that this complaint will be similarly dismissed by the authorities in Montenegro."
Michael O'Farrell is the investigations editor of the Irish Mail on Sunday. Miranda Patrucic is regional coordinator for the Organized Crime and Corruption Reporting Project. OCCRP Fellow Anna Callaghan contributed to this report.
For comments or tips please e-mail at miranda at occrp.org.