The biggest financial scam in Croatia will likely serve as a warning to citizens, who can also learn to be cautious through information from the EU.
By Kruno Kartus for Southeast European Times in Osijek -- 17/03/14
Defendants wait to enter the Forex trial on February 20th. [Jutarnji.hr]
Croatia's response to its largest financial scam shows that the country is able to quickly tackle organised crime and will provide valuable information to citizens on scams in the future, Oleg Valjalo, Croatian representative in the European Parliament, said.
More than 700 Croatian citizens lost a total of 17.5 million euros in the Ponzi scheme, which promised "amazing" profits through purchases of foreign currency on the Forex financial market, according to the indictment filed against nine suspects whose trial began last month.
Croatian authorities apprehended 14 suspects in 2010. One, Goran Pavlovic, killed himself in 2012, and four others admitted to participating in the scam and made a deal with the prosecutors.
On February 21st, the nine defendants pleaded not guilty to charges of fraud and money laundering.
The trial is being held at a student hall cinema centre in Zagreb due to the number of defendants.
"This trial is going to lead to two important things," Valjalo told SETimes. "Firstly, it will show Croatia as an orderly state that is able to combat organised crime in a quick and efficient manner in compliance with all laws. Secondly, it will show that fast earnings are mainly through organised groups that threaten the financial lives of ordinary citizens."
"Our EU membership will be an education about money management and security investments, particularly by informing citizens about similar scams that have taken place within the EU," he added.
The Croatian Bureau for Combating Corruption and Organised Crime said the scam took money from citizens and put it into the perpetrators' private companies for alleged exchange trading on the international financial market.
They were promising the investors up to 100 percent profits. To remove suspicion, the perpetrators returned part of investors' money, saying it was earnings.
The bureau said that from July 2007 to May 2010 the scam netted 17.5 million euros, which was partially laundered through land and property purchases, which were seized during the investigation.
Iztok Likar, the editor of financial portal Hrportofolio.hr, told SETimes that the Forex affair is a classic example of a Ponzi scheme.
"Money does not fall from the sky," Likar said. "One should know that the hightest risk is when there are too-high yields and promises, with no logical explanation. Especially jobs in Forex, which is a very specific way of trading that needs a lot of experience and knowledge."
In 2010, the Croatian National Bank cautioned small investors about the speculative nature of trading on the foreign exchange market and exposure to fraud.
"Croatia National Bank warned the public and small investors of the risk of fraud, or 'pyramid schemes,' whose organisers are not investment companies, but small companies or persons," Dejana Rebernik, public relations official from the bank, told SETimes.
Police warn that the Forex scam is not the only one in the country.
"During 2011 and 2012 the police detected and prosecuted two groups that advertised and mediated Forex transactions, which actions faulted the great number of citizens for more than 33 million euros," the police said in a written response to SETimes.
What steps can Croatia take to educate citizens on financial scams? Share your ideas below.